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  • Ease of Doing Business Report 2013: 10 out of 185 (up 1 ranking)
  • Global Competitiveness Index 2013: 20 out of 144 (no change)
  • Index of Economic Freedom 2013: 3 out of 177 (no change)
  • Corruption Perceptions Index 2012: 7 out of 176 (up 1 ranking)
23.0 million High $40,270


Australia was inhabited by Indigenous persons for thousands of years before the British established a colony in New South Wales in 1788. Australia's six states formed a federation in 1901. The governance model was (and remains) largely a fusion of US federalism and a UK system of governance. Since World War Two, Australia has been a staunch ally of the United States but now finds its economic security in Asia. Countries like China, Japan and India have fuelled Australia's resources boom, which saw it largely avoid the global financial crisis. Australia is a multicultural society with one in four of its citizens born overseas. In early 2013, Australia was awarded a non-permanent seat on the UN Security Council for the 2013-14 term.


  • Australia is heavily reliant on fossil fuels for domestic consumption and for export, however the current policy of the Australian Federal Government is to drive a "transformation" to renewable-sourced energy (see below).
  • Australia is currently the world's largest coal exporter and has huge onshore and offshore gas reserves, primarily within the "mining states", Queensland and Western Australia. Energy exports earned the economy approximately A$77 billion (approx. US$73.3 billion) in 2010/11.
  • Currently, there are significant fossil-fuel projects at various stages of development in the Galilee and Bowen Basins in Central Queensland, and in the Pilbara in Western Australia, as well as offshore natural gas off the West Australian coast. However, many of these large projects have faced long delays.


There are three main energy market regulators in Australia:

  • the Australian Energy Market Operator (AEMO), which "operates the energy markets and systems and also delivers planning advice in eastern and southeastern Australia";
  • the Australian Energy Market Commission (AEMC), which describes itself as the "rule maker and developer for Australian energy markets", notably for the National Electricity Market (NEM); and
  • the Australian Energy Regulator (AER), which operates under the Competition and Consumer Act 2010 (Cth). AER's work relates mostly to energy markets in eastern and south eastern Australia on issues like price setting, market monitoring, publishing information on energy markets and assisting the Australian Competition and Consumer Commission with energy-related issues.

Electricity laws

  • The National Electricity and Gas Rules established the NEM, which is managed by the AEMO.
  • Together, the National Electricity Rules and the National Electricity Code govern access to transmission and distribution networks and set out the market rules including market operations, power system security, network connection, access and pricing for services in the NEM.
  • These rules have the force of law and are made under the National Electricity Law.

Generation, distribution and transmission

  • On the east coast of Australia there is retail competition through the NEM. The NEM is connected by six major transmission interconnectors, which link the electricity networks of New South Wales, Queensland, South Australia, Tasmania and Victoria. The network consists of nearly one million kilometres of underground and overhead transmission and distribution lines/cables.
  • Because of their geographical isolation, the Northern Territory and Western Australia have their own electricity markets.
  • There is a mix of state government and private ownership of electricity infrastructure. Privatisation of electricity assets owned by state governments has proven controversial in the past, particularly with unions.

Energy White Paper 2012

  • In October 2012, the long-awaited Energy White Paper was released by the Federal Government. The paper sets out the short and long-term strategic policy framework to address the challenges in Australia's energy sector. The paper stressed that over the next 20 years, Australia's energy future will be characterised by three key issues:
    • energy security/reliability and competitive pricing;
    • expansion of energy exports to Asia and other growth markets; and
    • the drive for increased energy efficiency and reductions in greenhouse gas emissions.
  • The Energy White Paper paints an encouraging picture for the current security of domestic electricity supply and export demand, but it also highlights the need to diversify energy supplies and shift towards clean energy sources.
  • The Energy White Paper predicts that while fossil fuels will continue to dominate generation and consumption patterns, there will be a shift towards renewable energy with estimates that by 2035 around 40% of Australia's energy will be supplied by renewable sources.
  • While the Energy White Paper envisages a "transformation" in Australia's domestic energy supply chains, this is considered to be unlikely to impact on the significant projects for the export of gas and coal to the established Japanese and Korean markets, nor the
  • booming Indian and Chinese markets.


  • Australia generated 13.14% of its electricity from renewable energy sources in 2012, which was a new domestic record for annual renewable energy contribution.
  • Australia also amassed A$4.2 billion (approx. US$3.9 billion) in renewable energy investment in 2012.
  • The key Federal Government policy in respect of renewable energy is the Renewable Energy Target (RET), discussed in detail below.
  • A report released by the Australian Bureau of Resource and Energy Economics in August 2012 predicted that solar PV and wind technologies will overtake coal to become the cheapest sources of electricity generation by 2030. The report predicted that without carbon capture and storage, coal will be gradually "priced out" of the market. The report predicts that there will be increasing price competition between more established technologies and newer methods of electricity generation, which in turn will lead to a more competitive generation market. The Energy White Paper (see above), also reached a similar conclusion in regards to the shift in domestic energy sources.


  • Australia's hydropower generation capacity is over 8.5GW (concentrated mostly in New South Wales and Tasmania), which is far higher than any other renewables source in capacity terms.
  • Hydropower production is expected to reach 18TWh by 2019-2020.

Wind energy

  • Wind energy production increased by over 50% from 2011 to 2012. Current generation capacity is over 2.58GW. South Australia accounts for about half of this installed capacity.
  • Land use planning in Australia is generally regulated at a State Government level. The land use planning regime applying to wind energy varies greatly between State Governments. In recent years some State Governments have introduced new planning regulations which restrict where new wind farms may be situated. A range of reasons has been cited for these amendments including concerns in some sectors of the community about the mental and physical effects of low frequency noise produced by wind turbines ('wind turbine syndrome'). For example, planning regulations in the state of Victoria give residents who live within 2km of a proposed wind turbine the power of veto over that project. These regulatory amendments have created an additional barrier to wind farm approvals in many areas.

Solar energy

  • Solar energy production increased by over 76% in the five years to 2009/10. Current generation capacity from solar PV is 2.3GW. Solar thermal generation is just 12.3MW.
  • There is great potential for further increases in electricity production from solar power, as Australia has the highest average solar radiation per square metre of any continent in the world.
  • Over one million households have installed solar PV panels in Australia. Much of this investment was spurred by a range of solar power rebate schemes put in place by a number of state governments. In recent years the majority of these schemes have been scaled back, or in some jurisdictions, cancelled due to concerns relating to cost for governments and market distortions.

Geothermal energy

  • Current geothermal production is very limited. There is only one operational facility in Australia – an 80kW plant in Birdsville, Queensland.
  • Several large projects are currently in various stages of development and approval.

Government bodies and their functions

  • In late March 2013, the Federal Department of Climate Change and Energy Efficiency was abolished and its portfolio responsibilities transferred to the re-named Department of Industry, Innovation, Climate Change, Science, Research and Tertiary Education. The Department of Resources, Energy and Tourism is also a key Federal Government department for renewable energy matters. There are also various government energy and resources departments in Australia's state governments.
  • The Clean Energy Regulator was established as an independent statutory authority under the Clean Energy Regulator Act 2011 (Cth). It has four broad regulatory functions:
    • the carbon farming initiative, a "legislated offsets scheme that allows farmers and land managers to earn carbon credits by storing carbon or reducing greenhouse gas emissions on the land";
    • the carbon pricing mechanism (CPM), discussed in further detail below;
    • the administration of the National Greenhouse and Energy Reporting Act 2007 (Cth), the national framework for the reporting and dissemination of information about greenhouse gas emissions, greenhouse gas projects, and energy use and production of corporations; and
    • the RET scheme, discussed below.


  • A Federal Government election is impending. Given current polling, the current Australian Labor Party government is expected to lose this election. The current leader of the opposition has stated that, if elected, his government's priorities will include introducing legislation to repeal the CPM and the Clean Energy Finance Corporation (CEFC) and to 'review' the RET. This uncertain policy environment has caused concern for investors and slowed investment in renewable energy projects.
  • Despite rapid increases in the price of electricity over the last 10 years, data shows that Australia's electricity price remains below the OECD average. In anticipation of electricity price rises, the Federal Government has introduced the Household Assistance Package and instigated tax reform to offset the impact of the CPM, however the price of electricity for households and business remains cause for concern in some sectors.
  • Australia has a complex regulatory regime for renewable energy, with a range of Federal and State Government laws and policy mechanisms that apply.
  • In May 2013, the Federal Government Budget for the 2013/14 financial year was released. The budget delayed funding across a range of renewable energy initiatives and cut A$2.4 billion (approx. US$2.3 billion) in climate change mitigation and adaptation programs. The Federal Government has blamed the reductions in clean energy funding on the volatility of the European carbon market and a drop in the predicted carbon price in 2015 to just A$12.10 (approx. US$11.52), compared with the A$29 (approx. US$27.61) that was modelled by the Australian Treasury.


Renewable Energy (Electricity) Act 2000 (Cth)

  • This Act sets out Australia's target of having 20% renewable-sourced energy by 2020. The scheme established by the Act for achieving this target (the RET) is to stimulate investment in renewables by requiring liable entities (usually electricity retailers) to purchase and surrender a certain number of Renewable Energy Certificates (RECs) each year.
  • Following a review of the RET, in 2011 the scheme was split into two parts – the Large-Scale Renewable Energy Target and the Small-Scale Renewable Energy Scheme. Under the new scheme RECs were replaced by large-scale generation certificates (LGCs) (generated by large-scale renewables projects) and small-scale technology certificates (SREC) (generated by smallscale renewables systems).
  • The market price of LGCs fluctuates based on supply and demand and in the past they have been between A$10 and A$60 (approx. US$9.52 to US$57.13). SRECs are exchanged at the fixed price of A$40 (approx. US$38.09).
  • In its 2012 annual administrative report (as required under the Act), the Clean Energy Regulator estimated investments in large-scale renewable energy power stations to be around A$12 billion (approx. $US11.4 billion) and that the generation capacity of the large-scale system was 16,167GWh, slightly below the 2012 target of 16,736GWh. The 2020 target is to generate 41,850GWh of electricity from renewable energy sources.

Clean Energy Act 2011 (Cth)

  • The Clean Energy Act 2011 (Cth) (Clean Energy Act)is the centrepiece of the Federal Government's clean energy legislative package. The objects of the Clean Energy Act are:
    • to give effect to Australia's obligations under the Climate Change Convention and the Kyoto Protocol;
    • to support an effective global response to climate change;
    • to take action to meet Australia's target of reducing net greenhouse gas emissions to 80% below that of 2000 levels by 2050; and
    • to price greenhouse gas emissions in a way that encourages investment in clean energy.
  • The main tool for achieving these objects is the CPM. Established by the Clean Energy Act, the CPM requires major greenhouse gas emitters to purchase and surrender an amount of 'permits' equivalent to the amount of greenhouse gases that they emit each year. Each permit equates to 1 tonne of CO2-e (carbon dioxide equivalent) emitted.
  • The CPM commenced on 1 July 2012. A fixed price has been set on permits during the first three years of the CPM, which has led to the CPM being described as a 'carbon tax' in the media. The price of permits was set at A$23 (US$21.90) on commencement of the CPM, rising to A$24.15 (approx. US$23) per tonne on 1 July 2013. In the fourth year of the scheme, commencing on 1 July 2015, the CPM will become a full 'cap and trade' scheme with the price of permits fluctuating according to market forces.
  • A number of changes have been announced to the design of the CPM since commencement, including linkages to the EU emissions trading scheme in 2015 and the scrapping of the proposed 'floor' to be set on the price of permits from this time.
  • The introduction of the CPM has been controversial in Australia for a range of reasons. One particular issue has been the comparatively high price set on permits under the Australian scheme based on modelling by the Australian Treasury at the time (prior to the commencement of the CPM), when compared with the rapid and large drop in carbon permit prices that has been experienced in international markets during late 2012 to 2013. As of June 2013, the price of carbon permits in the EU market had dropped markedly to below A$5 (approx. US$4.76), a figure substantially below the A$23 price imposed under the CPM.


  • RECs, as discussed above, are the main Federal Government incentive for renewable energy investment in Australia. In addition, the clean energy legislative package also establishes the Australian Renewable Energy Agency (ARENA) and the CEFC. ARENA is an independent authority that aims to improve the competitiveness of renewable energy technologies and increase the supply of renewable energy in Australia. The CEFC administers a A$10 billion (approx. US$9.52 billion) fund dedicated to investing in clean energy.
  • ARENA has been tasked with reviving the Government's ailing Solar Flagships Program, which is designed to support the construction of large-scale, grid-connected solar power stations. Following Round One of funding offers, the 150MW Moree Solar Farm and 250MW Solar Dawn Project were selected. Both projects were unable to meet financial close. The Solar Dawn Project subsequently faced a withdrawal of funding from a newly-elected conservative Queensland Government and was also rejected for funding by ARENA, effectively ending the project.
  • In 2011, the Australian Capital Territory Government introduced a feed-in tariff scheme for up to 40MW of large-scale solar generation capacity. In September 2012, Spanish group Fotowatio Renewable Ventures was awarded the first 20MW contract which, if completed, will become the largest solar facility in Australia.


  • Hydro Tasmania is regarded as the largest renewable energy generator in Australia. The company has proposed to build a 200MW wind farm on King Island (located between Tasmania and the Australian mainland), which could provide up to 25% of the installed generation capacity intended to be achieved by the RET. Hydro Tasmania has committed to putting the A$2 billion (approx. US$1.9 billion) project to a vote of the island's residents, expected in mid-2013.
  • OneWind Australia (a joint consortium of Denham Capital, Enersis Australia, National Power and Kato Capital), have recently amassed a 1GW portfolio of wind farm projects, including Glen Innes (100MW), Lincoln Gap (250MW) and Cattle Hill (240MW). The three projects have an estimated cost of A$800 million (approx. US$762 million) with financial close anticipated for 2013 or 2014.
  • Some other notable established wind projects in Australia include Crookwell 2 in New South Wales (92MW) and the Waterloo Wind Farm in South Australia (111MW).
  • The Snowy Mountain Hydropower Scheme, which was completed in 1974, is the largest engineering project ever undertaken in Australia. It provides up to 10% of all electricity in New South Wales. The scheme consists of 16 major dams, seven power stations, a pumping station and 225km of tunnels, pipelines and aqueducts.
  • Infigen Energy has decided to put on hold a A$180 million (approx. US$171 million) expansion of its Capital wind farm near Canberra and also not to pursue a A$150 million (approx. US$143 million) joint venture solar plant with US-based Suntech Power until the outcome of the federal election.
  • Verve Energy opened Australia's first large-scale solar PV project in October 2012. The Greenough River solar farm near Geraldton, Western Australia has a 10MW capacity.


  • Foreign direct investment in Australia amounted to A$507 billion (approx. US$482 billion) in 2011.
  • The Federal Government reviews foreign investment proposals against the national interest case-by-case through the Foreign Investment Review Board.
  • The Foreign Acquisitions and Takeovers Act 1975 (Cth) provides the legislative framework for the screening regime.
  • All foreign governments and their related entities should notify the Australian Government and obtain prior approval before making a direct investment in Australia, regardless of the value of the investment.
  • Foreign persons should notify the Australian Government before acquiring an interest of 15% or more in an Australian business or corporation that is valued above A$244million (approx. US$232 million). It is also necessary for persons to notify the Government if they wish to acquire an interest in an offshore company whose Australian subsidiaries or gross assets are valued above A$244 million.


  • Australia ratified the Kyoto Protocol in late 2007. Under the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol, Australia had one of the more modest emissions reduction targets at 108% of 1990 levels by 2008. Thistarget controversially included the "Australia clause", which set baseline land use, land use change and forestry emissions at 1990 levels. In 1990, Australia's emissions increased by roughly 30% due to land clearing. As a result, subsequent reduced land clearing ensured Australia complied with its emissions targets despite fossil-fuel energy consumption increasing significantly.
  • If there is a change in government at the September 2013 Federal Government elections, Australia may adopt a different negotiating stance at the next UNFCCC Conference of the Parties (COP 19) in Warsaw in November 2013, by focusing on Australia's small (in absolute terms) contribution to global greenhouse gas emissions.

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