Paid to pollute
What is a fossil fuel subsidy?
A fossil fuel subsidy is any government action that lowers the cost of fossil fuel energy (coal, petroleum or gas) production or consumption or raises the price received by energy producers.
The government subsidies essentially make fossil fuels cheaper than they would otherwise be, leading to a greater use of fossil fuels than would occur with a level playing field. Fossil fuel subsidies therefore represent a significant barrier to action on climate change. According to Fatih Birol, Chief Economist at the International Energy Agency (IEA), eliminating them would provide half the carbon emissions savings required to stop dangerous levels of climate change beyond 2 degrees.
In its World Energy Outlook 2012, the IEA called for the phase out of fossil fuel subsidies globally concluding that “In 2011, fossil-fuel consumption subsidies worldwide are estimated to have totalled $523 billion, $111 billion higher than in 2010. By comparison, financial support to renewable energy amounted to $88 billion in 2011.”1
With a price on carbon now in place in Australia, the next important step for action on climate change is to stop paying companies to pollute. And right now, the Federal Government has a great opportunity to make this happen.
This briefing highlights four of the largest fossil fuel subsidies that should be targeted for removal in the 2013-14 Federal Budget. Cutting just these Big 4 subsidies would deliver budget savings of almost $9 billion per year, while cutting other smaller federal subsidies could deliver a further $3-4 billion annually2 . Many other fossil fuel subsidies also exist at the state level.
The Big 4: Australia’s most expensive, wasteful and polluting fossil fuel subsidies
1. The Energy Security Fund: Carbon price
compensation payments to our dirtiest power stations
In 2012 Australia introduced a price on carbon. That’s the good news. The carbon price legislation however contained some bitter pills, including $5.5 billion worth of cash and free permits to the dirtiest power stations in the country, softening the impact of the carbon price and keeping these polluting power stations open for longer. Describing an earlier version of the compensation to power generators Professor Garnaut said: “Never in the history of Australian public finance has so much been given without public policy purpose, by so many to so few”3 .
Hazelwood power station - the dirtiest power station in Australia - received $266 million in cash in 2012, Yallourn $257 million and Loy Yang A $240 million.4 As a result of this subsidy to pollute, electricity generators are receiving windfall gains given that forecasts of future carbon prices are lower than when the carbon price package was agreed. Check out our report on how brown coal polluters are receiving windfall profits here >
The next of 4 future payments is scheduled to take place in September 2013. Now is the time to remove these payments to pollute.
Potential saving to the budget bottom line: around $1 billion annually, $4 billion over the next 4 years
2. The Fuel Tax Credits program: Footing the
diesel bill for miners and the transport sector
When Australians fill up their cars at the petrol or diesel pump, they pay 38 cents per litre tax to the Federal Government5 . But that's not the case for many businesses, who receive a tax refund for their fuel bills via a program called the Fuel Tax Credits scheme. By making fuel significantly cheaper, the government is removing any incentive for these businesses to use less fuel, and increasing greenhouse gas emissions. The 2012-13 Federal Budget allocated $5.6 billion expenditure on the Fuel Tax Credits scheme this financial year. It's set to grow to $6.18 billion in 2013-14, $5.88 billion in 2014-15 and $5.92 billion in 2015-16. In fact the Federal Government spends more subsidising the fuel bills of business than it does on government schools or income support for carers1 . The mining sector is the largest recipient by sector, receiving $1.7 billion in 2009-10 7. That’s right, ordinary Australians are paying the diesel bills of some of the world’s most profitable companies - in the middle of a mining boom. The transport, postal and warehousing sector is the second largest recipient. Agriculture, forestry and fishing industries, often cited as the reason the rebate exists, received just $639 million of over $5 billion spent in 2009-10 8. While there may be some justification for retaining the rebate for some off-road use (eg farming), there is little rationale for paying the diesel bill of extremely profitable multinational mining companies like BHP Billiton, Rio Tinto and Xstrata.
Potential saving to the budget bottom line: Around $6 billion annually, $24 billion over the next 4 years
3. Accelerated depreciation for oil, gas
and coal seam gas projects: drill now pay later
The oil and gas sector receives special treatment in its ability to depreciate its assets like drilling rigs and pipelines as it is allowed to depreciate assets over a much shorter time frame than they are actually in use for. In 2011 the Australian Conservation Foundation undertook detailed analysis of how much these little-understood tax laws are costing Australian taxpayers9 . The analysis found that accelerated depreciation from new oil and gas investments is likely to grow from $160 million in 2013-14, to $450 million in 2014-15, to $1.09 billion in 2015-16 to $1.44 billion in 2016-17. The annual subsidy is growing in line with the growth of investment in new oil and gas projects projected in Australia. These numbers are for new projects alone, and do not include ongoing tax breaks for existing oil and gas projects.
Potential saving to the budget bottom line: Up to $1.44 billion annually by 2016-2017, estimated $3.14 billion over next 4 years.
4. Aviation fuel tax concessions: subsidising cheap
(and polluting) air travel
Travelling by plane is much more emissions intensive than catching a bus, train, or even driving a private car. So why are we encouraging travel by air by providing tax breaks for cheap aviation fuel? Treasury estimates that subsidised aviation gasoline and turbine fuel cost Australian taxpayers $1.06 billion in 2011-12, and will cost $920 million in 2012-13, $940 million in 2013-14 and $970 million in 2014-1510 .
Potential saving to the budget bottom line: Up to $970 million annually by 2014-15, $3.8 billion over 4 years.
Total potential savings if the Big 4 fossil fuel subsidies were removed: $35 billion over 4 years (equivalent to $1590 for every Australian).
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MORE RESOURCES
READ OUR PRE-BUDGET BRIEFING PAPER ON FOSSIL FUEL SUBSIDIES >
VIEW THE PRESENTATION FROM THE PAID TO POLLUTE CAMPAIGN LAUNCH HERE >
READ ENVIRONMENT VICTORIA'S 2013/14 FEDERAL BUDGET SUBMISSION HERE >
1. International Energy Agency, World Energy Outlook 2012, p.69
2. Eg see ACF’s summary of other federal subsidies in this briefing: http://www.acfonline.org.au/sites/default/files/resources/G20_fossil_fuel_subsidies_25-6-10.pdf
3. http://www.theage.com.au/national/australia-counts-itself-out-20081219-72ei.html
4. http://www.climatechange.gov.au/en/government/initiatives/energy-security-fund-cash-payments/eligible.aspx
5. http://www.news.com.au/business/federal-budget-revenue-lost-because-of-petrol-tax-freeze-hits-25-billion/story-e6frfm1i-1226522290453
6. http://www.theaustralian.com.au/national-affairs/treasury/growth-makes-spending-cap-hard-to-meet/story-fn8gf1nz-1226052858452
7. ANAO Audit Report No.49 2010-11, Fuel Tax Credits Scheme, p.73
8. ANAO, ibid, p.73
9. ACF, Drill now, Pay Later: The growing cost of tax breaks for the oil and gas industry in Australia, September 2011
10. Commonwealth of Australia, Treasury, Tax Expenditures Statement 2011, January 2012, p.176
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