Industry Policy in Two Countries - Case Study Example

Running Head: INDUSTRY POLICY IN TWO COUNTRIES Industry Policy in Two Countries Name Tutor Date Industry Policy in Two Countries Introduction To get an understanding of the policy concerns that come up in energy pricing, one must have a sense of the institutional settings in which policies are created, discussed, and put into practice. The consumers’ demands for electricity and natural gas do have a lot of impact on the rate at which we make use of exhaustible assets, such as oil, which is used to fuel power plants, and wilderness areas with rivers, that are in the construction of new sources of hydroelectric power (Martin, 2007). They influence our supposed requirements for the use of contentious technologies, such as nuclear producing plants. Energy needs are imperative due to their primary uses: their use for basic heating and cooling influence our health and our comfort everywhere. This includes our place of work, our places of leisure or at work, and their uses in firms do have an influence on the cost and composition of goods and services created in the economy and thus our overall economic welfare. If the public interest is to be served, it is significant that our energy policies be as logical as possible (Stern, 2006). In this paper, I intend to deal with power as the utility. Energy Policies in USA Energy policies in the United States practically work under one of two types of institutional understanding: i.e. a publicly owned project that is controlled by the public or a privately owned company in which the retail rates are controlled by a public utilities commission. However, in whichever case, the public quarter has the major tasks for the setting of utility prices. As a result, there is a justification. The main explanation behind these exclusive institutional arrangements that depict energy provision is that the technical features of the energy distribution system make it a natural monopoly by itself (Willig, 2009). However one may try to argue that there is no need at all to have many suppliers supplying similar commodities to the same place, in case there is merely one private supplier, who is entirely profit driven, to serve consumers in a certain region, with neither a certain parameter, control by the public segment nor competition from other suppliers this without doubt would lead to something dangerous. Either, there would be monopolistic price fixing or service of poor value. One would also not rule out the possibility of insufficient quantity. Just as the water and the local telephone quarters have been historically controlled or run by the public, so is the energy quarter. As a result, there arose a principle regarding price recommendation. The principle reads as; “prices should be based on marginal opportunity costs”. In this case the opportunity cost refers to the cost of the inputs that are used to offer a service in their best substitute purposes. If a price is put the same as the marginal opportunity cost of offering a service, then, in effect, every likely customer is encouraged to reflect on whether the benefits of extra consumption are greater or less than the costs in regard to the foregone benefits from the best optional use. In fact, if all consumers identify this and act in response in a well-informed manner, they will only use an amount for which the benefits outweigh the costs. Consequently, there will be the provision of resources to their most greatly appreciated uses. This allotment is called efficient (Willig, 2009). The question of rate design that is considered is the choice of reliability intensity. Traditionally, the utility reaction to an unpredicted power shortage has been to cut power rather at random. The idea of marginal-cost implies that those customers who even much simpler encourage the use of theoretical ideology than it are to achieve their execution value energy the least at the time ought to be the ones to lose power. If good mechanisms are put in place, then the rates could just be raised, and the customers most prepared to reduce utilization would do so without any problem. But on the other hand, a system like this is only imaginary, and the other better option is allowing the customers make their minds up in advance of the deficiency that is most willing to hold back when it occurs. Such an option entails giving reduced rates to the people willing to have their power cut in case there is an unpredicted deficiency (Steven, 2005). The United States Public Utilities Commission first made clear indication to marginal costs in rate design in 1979. In its verdicts it has pointed out a basis for using marginal costs: "The result of basing rates on marginal costs is that . . . each consumer pays the resource cost . . . Conservation is achieved since consumption is made only when the benefits of consumption are greater than or equal to the cost . . . Efficiency is achieved since the least-cost combination of resources neither overuses the good nor underuse the good... Finally equity is achieved since no customer underpays relative to the resource cost" (Zachary, 2008). Energy Policies in Japan More often than not, the composition of the Japanese energy sector is formed by the aims of the government policy. The energy policy in Japan consists of energy security, environmental protection in addition to economic development. Recently, there has been an emphasized policy target for economic performance within the energy quarter. On the grounds of such energy-related situations, the Basic Act on Energy Policy was propagated by the state on June 2002.  The Act points out three fundamental policies in regard to events on energy demand and distribution: 1) Getting a stable supply, 2) Suitability or appropriateness to the environment 3) Exploitation of market systems, that ought to be harmonized with the other two essential policies (Veall, 2003). As directed by the Act, in October 2003 the Cabinet approved a National Basic Energy Plan, which outlines the elementary course of mid- and long-term energy supply and demand policies until 2030.  This Act was amended in 2007 as per the provisions of the law which demands that the state shall give an assessment to the plan at least once every 3 years. In August 2005, Energy Supply and Demand Subcommittee of the Advisory Committee for Natural Resources and Energy to the Minister of Economy, Trade and Industry (METI) presented the updated Long-term Energy Supply and Demand Outlook.  This triggered an announcement by Prime Minister Aso setting a new mid-term GHG emission reduction target. This was to trim down the emissions by 15% as at 2005 in the year 2020. It reflects on tangible measures for GHG emissions reduction to realize the state’s objective. Even as it gives three different model cases based on the extent of development and introduction of energy technologies, all of the cases presume that steps will be taken to make sure that nuclear power production keeps on playing an imperative task into the future as a vital power supply (Marsh, 2007). Comparison Energy policies in the United States practically work under one of two types of institutional understanding: i.e. a publicly owned project that is controlled by the public or a privately owned company in which the retail rates are controlled by a public utilities commission. On the other hand, the composition of the Japanese energy sector is formed by the aims of the government policy. The energy policy in Japan consists of energy security, environmental protection in addition to economic development. In one way or the other we can see that there is a similarity in both policies in that they are controlled by their respective states. In the USA the state has the responsibility of ensuring that there is no monopolization of the sector, in Japan, the state ensures that; people get a stable supply, suitability or appropriateness to the environment and exploitation of market systems that ought to be harmonized with the other two essential policies (Tye, 2003). However a difference arises where the controlling of the sector comes into place. In the USA the citizens do take part in running the sector. An example is where if a price is put the same as the marginal opportunity cost of offering a service, then, in effect, every likely customer is encouraged to reflect on whether the benefits of extra consumption are greater or less than the costs in regard to the foregone benefits from the best optional use. In Japan the government is in control of the entire sector as it makes up laws without any involvement of the public (Friedman, 2004). The best utility policy is that of the USA because; each consumer pays the resource cost, conservation is achieved since consumption is made only when the benefits of consumption are greater than or equal to the cost, efficiency is achieved since the least-cost combination of resources neither overuses the good nor underuse the good and finally equity is achieved since no customer underpays relative to the resource cost (Bental, 2002). Conclusion In one way or the other, the public ought to be considered and involved in the law making process in regard to energy. This is because they are the affected party here. For example, in case there is power shortage it is mainly the citizen who will feel the effects. The possibility of the state officials feeling a pinch is very minute. Of equal importance is that environmental conservation should be considered when coming up with policies to govern production or the use of energy (Smith, 2008). References Bental, B., (2002). "A Simple Method for Evaluating the Marginal Cost of Unsupplied Electricity." The Bell Journal of Economics, Vol. 13, No. 1, pp. 249-253. Friedman, Lee (2004). Microeconomic Policy Analysis. New York: McGraw-Hill. Stern, C. (2006). "Blind Spots in Policy Analysis: What Economics Doesn’t Say About Energy Use?" Journal of Policy Analysis and Management, Vol. 5, No. 2, pp. 200-227. Tye, B. (2003). "The Postal Service: Economics Made Simplistic." Journal of Policy Analysis and Management, Vol. 3, No. 1, pp. 62-73. Marsh, D. (2007). Economics of electric utility power generation. Michigan: University of Michigan. Martin, E. (2007). Law of independent power: development, cogeneration, utility regulation, Volume 1. New Jersey: Macmillan. Steven, F. (2005). Law of Independent Power: Development, Cogeneration, Utility Regulation. London: Clark Boardman. Smith, K. (2008). Mathematics: Its Power and Utility. Toronto: Cengage Learning. Veall, M. R. (2003). "Industrial Electricity Demand and the Hopkinson Rate: An Application of the Extreme Value Distribution." The Bell Journal of Economics, Vol. 14, No. 2, pp. 427-440. Willig, B., (2009). "The Economic Gradient Method." The American Economic Review Vol. 69, No. 2, pp. 96-101. Zachary, S. (2008). U.S. News & World Report, Volume 130, Issues 1-12. Virginia: University of Virginia. Read More