If so, we could expect higher and more volatile energy prices during the transition to a more renewables-based energy supply. In this context, it is interesting to compare the investment response in Australia to the current boom in the terms of trade with that of a decade ago (Graph 8).
In the earlier boom, higher commodity prices led to a surge in investment in the resources sector. This substantially added to Australia’s capital stock and thus our ability to supply resources to the market. In contrast, the investment response this time has been negligible and there are few signs that firms are planning to increase supply in response to the higher prices.