Fossil fuel subsidies: a waste of taxpayer’s money
13 February 2011
Is the Australian Government subsidising the fossil fuel industry?
That’s the question posed in a recent ABC Unleashed article from the Institute of Public Affairs.
At a time when Australians are rightly concerned about rising energy costs as well as the need to shift to an economy powered by clean energy, where our taxes get spent is an important issue. But asking whether the Australian Government is subsidising the fossil fuel industry is the wrong question.
It’s wrong because it leads us down a sidetrack and forces us to quibble around definitions of what constitutes a subsidy, where the real question we should be asking is: What is the energy future we want and how can our tax dollars help deliver it?
In 2007, Greenpeace and the Institute for Sustainable Futures released a report called Energy and Transport Subsidies in Australia. Its definition of a subsidy was based on International Energy Agency and United Nations Environment Programme, which we reckon is pretty sound.
We could argue all day about whether or not to call the findings of the report subsidies or anything else but it doesn’t change the fact that the report identified $10 billion annually of State and Federal Government support to the fossil fuel industry, 28 times the support received by renewable energy and energy efficiency combined.
As that report is a few years old, the programs and amounts of government support will have changed. But the culture of providing subsidies (we’ll keep using the term here because we think its an entirely fair way of describing taxpayer-funded support to private industry) to fossil fuels is alive and well in Australia. Here are a few current examples:
- As part of their contentious electricity privatisation efforts, the New South Wales Government is offering cut-price coal to power generators. The discount amounts to between one and three billion per year in foregoing revenue, effectively meaning that every man, woman and child in New South Wales is providing the power generators their government has just sold a subsidy of up to $400 per year.
- BP, a company famous for their skills in deepwater oil drilling, will be cashing in on a tax concession that was terminated in 2009, so they can go looking for oil in waters up to three times the depth of the Gulf of Mexico disaster. By inflating their costs of exploration by 50%, BP will be able to recoup more from tax write offs so we can all stay addicted to oil.
- $150 million of State and Federal taxpayer money remains tied up in a proposed brown coal power station in Victoria, which would add another 4 million tonnes of greenhouse pollution to the atmosphere each year, despite calling itself clean.
If, in answering the question posed above, we want a future where energy is clean, safe, reliable and affordable, there needs to be a major shift in how our taxpayer dollars are spent. The imperative is economic, as well as environmental.
Here’s where the Institute of Public Affairs also gets muddled on how subsidies should be managed. It criticises Greenpeace for being against subsidies to fossil fuels but not opposing subsidies for clean energy at the same time. It misses the point that Government’s are supposed to intervene on behalf of the public interest! It should be subsidising products and industries that are good for us and need assistance, and taking public funds out of things that do us harm.
In case you haven’t noticed, power prices are going up. A lot. While some (usually the same people who would have you around for dinner to discuss the definition of a subsidy for five hours) prefer to blame this on renewable energy or climate policies that don’t yet exist, most of the price hikes are actually the result of upgrading and maintaining our fossil fuel-based electricity network. Fossil fuels aren’t getting any cheaper and with the imminent arrival of a carbon price, the true environmental cost of fossil fuels will start appearing on our power bills.
The only technologies whose costs are falling are renewable energy. Renewables won’t be subject to a carbon price and with almost no fuel costs, a fully developed renewable energy industry offers limitless, abundant, safe and affordable energy. If we ever want to break the cycle of rising energy prices, the quicker we go renewable, the better.
Of course, the problem will be that every time someone suggests the fossil fuel industry post slight lower profits so we can all benefit from clean, affordable energy much sooner, they go down like an Italian footballer after an innocuous tackle. These are mega-rich companies which have a pretty good record of making the tax system work for them. Be it Mick Davies, head of coal company Xtrata, shifting $1.2 billion off his taxable income to related companies last year; Rio Tinto sending $2.3 billion in dividends to an entity in Jersey; anti Mineral Resources Rent Tax campaigner Andrew Forrest not filing a single income tax cheque for any of the 16 companies he has run or Gina Rinehart, whose company Hancock Prospecting, paid an effective tax rate of 10.6 per cent on its pre-tax profit of $510 million in the five years to 2008, our mining magnates know their way around the tax system.
All this makes $10 billion per year in subsidies to dirty energy seem like child’s play. It is as far as the fossil fuel industry is concerned, but for renewables, it could be the catalyst that sparks a powerful new clean energy industry.
In his recent State of the Union address, president Obama targeted subsidies to big oil, remarking: “I don’t know if you’ve noticed, but they’re doing just fine on their own. So instead of subsidising yesterday’s energy, let’s invest in tomorrow’s”.
And you know what? It might just work…
Julien Vincent is a Climate and Energy Campaigner for Greenpeace Australia Pacific. He has spent the past decade studying the cause and finding the solutions to climate change.