Household Choices in Sustainable Energy Sources

Since the birth of industrial age, the aptitude to harness and use assorted energy has positively charmed the lives of billions of people around the globe, empowering them to enjoy comfort and mobility.

The energy consumption trend has tremendously contributed in the rising level of prosperity and economic opportunities of various countries by being regular, even and growing continuously.

Therefore, we find that energy use is an important factor contributing to economic and social development.

Managing energy resources efficiently with affordable cost is necessary to bring down poverty and improve living standards of people.

Recent surveys have revealed that citizens of developing countries are highly dependent on traditional sources of energy, thus leading humanity facing up a crucial energy challenge.

It is obvious that the current trends of energy use have negative impact on environment. The over-dependence on fossil fuels, more precisely, is a threat to the Earth’s climate which can lead to severe consequences.

This study is more likely to shed light on certain factors affecting households’ choice of energy sources outlining certain government policies which can help promote the use of less carbon intensive energy sources leading to a more efficient use of energy.

A good understanding of household behaviours towards fuel choice will help in the designing of a cut-to-fit program and policy which can help reduce energy use problems and promote environmental friendly sustainable developments.

Australia has been blessed with natural resources, which is a major contributing factor in its economy. Rich in natural resources, Australia’s main export are agricultural products (wheat and wool), minerals (iron ore and gold) and energy in the form of liquified natural gas and coal.

Though natural sources and agriculture represent only 5% and 3% of the GDP respectively, they have a substantial contribution in the export performance. The growth of the mining sector (including petroleum) is one of the most remarkable sectoral trend in the economy during the past decade. The sector realised a GDP of 8% in 2006/2007 compared to 4.5% in 1993/1994. Australia’s economic growth is mostly accredited to areas of the country where resource based industries and mining are mostly located.

Australia is classified as the world’s leasing coal exporter. 487 million tonnes of coal was mined and 261 million tonnes exported in the fiscal year 2008/2009, which means that 225 million tonnes was used domestically. 85% of Australia’s electricity production is sourced from coal. Although Australia exports coal its economy is heavily dependent on the import of petroleum products and crude oil, with an import dependency of 80% (crude oil and petroleum products).

Australia’s electricity production is generated from three main sources, namely, coal, natural gas and renewable sources. Its electricity mix has been shared among the three in a 74%, 15% and 11% ratio respectively. Australia started using hydro power in the 1950’s. Hydro power constitutes the largest source of renewable electricity, constituting up to 60% of all renewable generation and 6% of total electricity. The other 5% constitutes of wind, bio-energy and rooftop solar panels.

Over time, Australia’s electricity production and consumption have experienced changes as the economy, technology and infrastructures have developed. This development will continue as renewable energy technologies become more reliable and affordable. Australian government has been putting emphasis on less carbon intensive energy sources to promote environmental sustainable development. Households use of energy at home significantly plays an important role in determining the total energy use and the level of carbon dioxide emission. Their choice of energy will certainly affect the economy as it will be the determinant factor for energy production(electricity generation).

As defined above the electricity mix constitutes mostly of coal, natural gas, petroleum products and crude oil, which means, if Australian households energy consumption increases, the production will also increase. This increase in production will lead to more use of traditional fuels, leading to more mining of coal and more importing of petroleum products. This increase in import will definitely affect the economy. The use of traditional fossil fuels will not only impact the economy but will also increase carbon dioxide emission during production as well was during consumption giving rise to environmental problems.

On the other hand to support environmental friendly sustainable development, it the Australian economy chooses renewable source of energy, the investment cost will have a heavy impact on the country’s economy. Although the cost will be recovered over years the initial investment will tremendously affect it.

Australian households are open to a wide choice of energy source. They are free to decide what best suits their household needs. But decision-making has not always been an easy task as it is affected by several direct and indirect factors leading the decision-maker towards the most influenced choice. Several factors can affect household’s choices,it can be personal preference, demand, supply, budgetary constraints, the opportunity cost and other indirect factors. The listed factors are best described using the microeconomics consumer’s choice theory, where preferences are related to consumption expenditures to achieve an equilibrium between both factors by making utility as a subject to consumer’s budget constraints.

Everyday households pay for a number of energy sources depending on their energy consumption. The percentage of expense on energy is limited by their income and the price which they pay for it. Many variables affect the amount of money spend on energy sources. One of the variables is the law of demand. The law states that when there is an increase in price the demand will decrease, when nothing else changes. This statement is true for a number of reasons. One reason is limited income. If household’s income does not change when the price of energy source rises, it means that there will be nor enough money to maintain the same level of consumption. This will bring along with it an increase in opportunity cost to consume that energy. To maintain the original level of consumption the household has to give up some consumption of another one. The law clearly defines that there is an inverse or negative effect between price and the demand of the good, if everything remains the same.

Changes in price will eventually affect the consumer’s choice decision. The price effect is determined by adding the substitution effect and the income effect. The substitution effect will occur when the price of the energy source will change the slope of the household’s budget constraint line leaving the consumption after change on the same indifference curve. In other words, it illustrates that the household’s new energy source price is compensated allowing it to be as happy as it was before the change. This effect makes it compulsory for the household to substitute towards a comparatively less expensive energy source where income effect reinforces the substitution effect through a rise in the purchasing power from a fall in the price.

Another factor falling under the same heading is opportunity cost and elasticity of the energy. As defined by microeconomics, opportunity cost represents what the consumer must forego in order to achieve something else. It can also be termed as the trade-off value. Price changes in energy will obviously influence the opportunity cost to households. The change brought about in the quantity of energy consumption due to the price change is called the elasticity of the energy. The demand can be stretched like and elastic band or it can contract reflecting its in-elasticity.

Preference is another factor affecting consumer’s choice. Basically, preference is defined as the desire for the consumption of one particular good. In this case, if a household prefers to use one source of energy at the detriment of another, the latter’s choice will be determined depending on its personal preference. In reality, people do not rank their preference in a homogeneous way. Their choice will depend on their preference so that its use will bring a certain level of satisfaction. Normally, households are forced to choose as they are exposed to two or more sources of energy, which means that one source will be more preferred than the other. Therefore, to maximise the level of satisfaction indifference curves are graphed to determine combinations of two sources which will bring the same level of utility leaving the consumer indifferent. Thus, is crucial to understand how consumer behaviour differs depending on what the consumer’s tastes are before understanding how the various tastes can be graphed.

Budgetary constraint is another main factor affect consumer choice. It en-globes the spending patterns of rich consumers, for whom, price changes may not be as important as they are for average or low income earners. An average income household is susceptible to spend more money on an energy because of a quality preference over price. The income of the household will reflect what it can afford.

The are other external factors that can affect consumer choice. First are the elements of the marketing mix. Second are psychological factors, which are internal influences to the consumer, such as motive, attitudes, perception, and learning. Third, social factors, such as family, reference groups and culture also influence decision process. Fourth, there are situational factors that affect decision process.

Conclusion

Improved access to modern energy can contribute to poverty reduction and development targets of a developing country raising its productivity. Energy choice use different approaches (qualitative, descriptive and econometric) and reach different conclusions regarding to factors that affect households choice of energy.

Australia can be powered by in many ways now and in the future, on the other hand when looking closely at these alternatives it is clear that no one perfect solution can be derived.

The country is already using a diverse mix of fossil fuels to produce its energy and the trend will continue in the future also. All the sources chosen or which are considered are accompanied with its advantages or disadvantages.

Before considering any energy source there are certain main issues which are taken into consideration, viz, whether it is affordable, reliable or its carbon intensity matches the requirements or community concerns and last but not the least, whether it meets the everyday demands. Different individual will value each of these factors differently, its nearly impossible decide on one single energy mix which will satisfy everyone. Technology evolution also affects the pros and cons of each energy source. Therefore, when deciding for future, finding the ideal energy mix will definitely require some trade-offs.

Australia’s future is more likely to depend on global trends, climate change, population growth, technological advancement and higher standards of living of Australians, which will eventually alter the ways energy is sourced and used.