We pay billions to subsidise Australia’s fossil fuel industry. This makes absolutely no economic sense

Fossil fuel subsidies from major economies, including Australia, reached close to US$700 billion in 2021, nearly double that of 2020, according to a new report. analysis by the International Energy Agency and the OECD.

These subsidies are expected to continue to rise in 2022 as governments around the world try to use fossil fuel subsidies to shield customers from high energy prices caused by the Russian invasion of Ukraine.

Australia spends billions every year on subsidies to the fossil fuel industry, despite our commitments on climate change. the australian institute estimates that In the 2021-22 budget period, total fossil fuel subsidies from Australia’s federal and state governments cost A$11.6 billion. That’s an increase of $1.3 billion compared to the previous year.

Subsidies play an important role in economies like Australia. By pushing the prices of things below the cost of producing them, subsidies make everything from schools and hospitals to ABCs and childcare much cheaper and more accessible than it would otherwise be. .

But it makes absolutely no economic sense to provide subsidies to things that a government is, or should be, trying to discourage.

Read more: Opening of 10 new oil and gas sites is a win for fossil fuel companies, but a staggering loss for the rest of Australia

Australia is one of the main emitters

In 2009, Australia and the other major economies that make up the G20 pledged taper off “inefficient subsidies to fossil fuels”.

But as the new report makes clear, the political reality in many countries falls short of their ambitious rhetoric of reining in public funding for the main cause of climate change.

Australia is one of the largest emitters of greenhouse gases in the world. Despite our relatively low population, we ranked 15th in total emissions and 8th for emissions per capita. Only major fossil fuel producing nations rank higher, such as Qatar and the United Arab Emirates.

We are even more “successful” exporting fossil fuels than burning them, ranking third in the world behind Saudi Arabia and Russia.

Despite Labor’s enhanced target of cutting 43% of Australia’s emissions by 2030, Australia is still looking to open up huge new coal and gas projects.

Read more: Scarborough-Pluto ultrapollutant gas project could miss Labor’s climate target, and just got the green light

Australia is failing to transition away from fossil fuels. Emissions from burning fossil fuels in transport, electricity and industry are much higher now than they were in 1997, when Australia signed the Kyoto Protocol.

Our fossil fuel exports have also increased considerably since then, with 114 new fossil fuel projects awaiting approval in Australia, many for the export market.

Subsidies play an important role in this

The federal government subsidizes the cost of exploring for coal, oil and gas in Australia, the infrastructure needed to extract and transport those fossil fuels, and then subsidizes their use as well.

Of $11.6 billion Australian governments spent on this in 2021-2022, the federal government alone accounting for $10.5 billion.

With much The longest of the federal subsidy is the $8 billion Fuel Tax Credit Scheme. This reimburses the cost of the excise tax on diesel fuel to selected industries, with about half going to mining industries.

The cost of these diesel excise tax refunds is higher than the annual $7.5 billion budget for the Australian Army.

Subsidies work, but only if we are subsidizing things we want more of. It is important that we subsidize vaccines to help manage the COVID crisis, and that the former and current federal governments subsidize renewable energy.

But subsidizing fossil fuels when you’re trying to quit is like subsidizing cigarettes when you’re trying to encourage people to quit.

So far, the new government has not indicated any plans to stop subsidizing fossil fuels.

Economists call things that governments are apparently trying to discourage subsidies, “perverse”. So why would the Albanian government continue to spend billions on fossil fuel subsidies and delay the coal and gas transition that voters and climate scientists want to see?

The reasoning is numerous and strange.

The arguments for maintaining Australia’s perverse subsidies are as numerous as they are bizarre.

One argument is that the subsidies will help people manage rising energy costs. But direct cash payments to low-income people would be a much cheaper and more equitable solution. Subsidies maintain the status quo, while cash supports help smooth the transition away from climate-destroying industries.

behind in 2011after signing the G20 commitment to phase out fossil fuel subsidies, the Gillard government declared that it had no subsidies to phase out.

But documents released under the freedom of information law showed that the treasury had, in fact, identified 17 fossil fuel subsidies that should have been declared and eliminated.

Minister of Labor Resources Madeleine King.
AAP Image/Mick Tsikas

At the other end of the spectrum, Senator Matt Canavan argued in 2016 that because all previous coal mines in Australia have benefited from subsidies, it would have been unfair not to also subsidize the Adani mine.

from work Resources Minister Madeleine King stated told The Guardian last month: “projects involving these traditional [fossil fuel] energy sources accumulate environmentally, economically and socially, we will support them”.

But if they need expensive subsidies to “stack in”, then they are clearly not economically viable. And if the fossil fuel industry doesn’t need the subsidies, why would a government continue to provide them?

Removing fossil fuel subsidies should be the first step any government that is serious about reducing greenhouse gas emissions takes. What the latest data makes clear is that it is not just Australian governments that have yet to muster the political courage to do something so simple.

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