Can Energy Cost Cuts Boost The Economy?

Cuts to energy costs as a way to boost the economy is a novel strategy being adopted by countries such as Brazil. With many economies worldwide in a downturn, energy price reduction for both residential customers and industry distributors offers nations the opportunity to return to more competitive environments.

The example of Brazil

The innovative cost-cutting strategy has recently been implemented within Brazil’s sagging economy. Brazil President Dilma Rousseff approved dramatic tax cuts for both energy consumers and distributors as a way to revitalize the once-booming economy.

The cuts are the largest rate reductions ever for the country’s electricity trade. Energy rates for residential customers dropped to a maximum 16 percent, while production companies saw decreased prices up to 28 percent.

Business Electricity Prices

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Benefits of energy cost cuts

Energy cost cuts lead to advantageous boosts in the economy of the country in several ways.

Many countries, such as Brazil, currently have high electricity prices. A disadvantage of the high costs is that production stagnates; there are fewer investors and smaller projects as the prices are not affordable. The economy in turn deteriorates.

When energy prices are cut within industries that use an abundance of electricity, companies are now able to lower the sky-high production costs. In Brazil, for example, steel and aluminium are high-energy fields that are seeing reduced pricing.

By lowering production costs in energy-related fields, a country’s economy opens itself up to be more competitive in foreign markets. Lower labour costs that result from the energy cuts encourage investments from other countries who want to get cheaper rates. These countries would likely not have invested in absurdly high prices within a country that has a stagnant economy. The country’s international standing improves accordingly thanks to slashes in electricity prices.

In addition to global interest, countries who cut energy costs also receive an increase in local investments. A boosted economy is a great result of this action. Local investors are likely to buy shares in companies that will benefit from the new lower prices; the businesses want to join the industry producers in their rising financial successes.

A cap on inflation

As well, the cuts boost a country’s economy by slowing inflation. Lower electricity prices contain prices rather than contributing to rising costs. The containment is helpful as the specific economy tries to stabilize itself.

Customers also stand to benefit from the cap on inflation as they shop around for the best deals on electricity in a competitive market. Customers enjoy savings thanks to lower consumption costs. With the extra funds in their pockets, consumers then reinvest money back into the economy. The investment brings a further boost to the economy.

Both industries and customers stand to benefit from energy cost cuts. The lower prices can improve a country’s economy domestically as well as its international standing. If the innovative approach proves successful in Brazil, the case study may encourage other countries to adapt similar economic strategies. The global economy stands to improve from the increases in international investments and purchases that rise ultimately from energy cost cuts.

Business electricity prices from Haven Power

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