A year after “climate election”, Australian fossil fuel subsidies hit record $57 billion

A new report from The Australia Institute alleges that fossil fuel subsidies have increased to a record-breaking $57.1 billion, up from the $55.3 billion forecast in the 2022 budget.

That means Australia’s Federal Government is spending fourteen times the balance of Australia’s Disaster Ready Fund on subsidising fossil fuel use.

The report says the epic spend is thanks in part to the government’s Fuel Tax Credit scheme, which provides credits to businesses for the tax included in the price of fuel used to power machinery, plants, equipment, heavy vehicles, and the use of off-road vehicles.

According to the report, the scheme is expected to increase 33% in the next three years, and forecast to cost $7.8 billion this year.

Other tax breaks to come under fire include exemptions to the petroleum resource rent tax (PRRT), a tax on profits from petroleum related commodities.

Direct government assistance to the oil and gas industry is found to have increased by $350 million, while assistance to the coal sector is down $270 million.

“A year on from the ‘climate election’ and we have fossil fuel subsidies breaking records in tandem with the rising global temperatures that put our economy at risk,” says Rod Campbell, Research Director at the Australia Institute.

“Australian governments are now planning to spend more on exacerbating climate change through these subsidies than they are on getting ready for climate disasters.

“Some of the most egregious fossil fuel subsidies of the Morrison Government have been stopped, but the Albanese Government has kept key subsidies that are likely to see new fossil fuel projects proceed.”

Examples of the fossil fuel subsidies still embedded within Federal, state and territory budgets include $1.9 billion in Federal money spent on the Middle Arm petrochemical hub in Darwin, $21 million spent by the Queensland State Government on the Meandu Mine, and a $200 million a year spend on mineral and petroleum industries in New South Wales.

Campbell is scathing about the state of oil and gas exploration in Australia.

“Putting billions into petrochemical hubs to assist fracking in the NT, building roads specifically for gas companies, building new gas-fired power stations,” he says. “All these Morrison Government programs are still on the books, are still costing billions and still cooking the climate.

“Exemptions from the Petroleum Resource Rent Tax (PRRT) outlined in the budget benefit oil and gas companies by an estimated $165 million per year, money that could be put to many better uses.

“Major gas projects like Middle Arm Sustainable Development Precinct and Kurri Kurri Power Station are receiving huge handouts from the Commonwealth Government. These subsidies provide a huge opportunity for governments that are looking to cut costs and take climate action.”

This is not the first time the Government’s Fuel Tax Credit scheme has come under fire. In a February report, the Grattan Institute took aim at a scheme it found to have “no good rationale”, arguing it conflicted directly with the twin goals of emissions reductions and economic repair.

The National Farmers Federation (NFF) has previously said that scrapping the scheme would impose a levy on farmers and other agricultural and regional workers who rely on diesel fuel to power vehicles and machinery off-road.

The February Grattan report, though, found that among the five industries that receive almost 90% of the value of credits, more than 60% of businesses and 67% of employees were based in major cities.

“There is no evidence fuel tax credits particularly benefit regional areas, or that they are more effective than other policies in doing so,” the authors of that report said in a piece published in The Conversation.

The NFF, the Minerals Council of Australia, and other organisations affiliated with industries that benefit from the scheme have also repeatedly stated that the scheme is not a subsidy, in the usual sense of the term, because it does not lower the price of fuel paid by users, and does not equate to spending by government in other areas.

That’s technically correct: the money used to credit eligible claimants is not drawn from elsewhere but from the original tax itself.

Nonetheless, the existence of the credit means that the tax is essentially negated. It also reduces the incentive to seek alternative, lower-polluting solutions. In essence, it means beneficiaries are able to purchase discounted fossil fuels (compared with everyone else), and reduces the amount of money ending up in taxpayer coffers.

The TAI report also takes aim at government money provided to carbon capture, utilisation and storage (CCUS) projects. Financial assistance for CCUS technologies include $141.1 million worth of Federal money invested over ten years, as well as $69 million invested by the Victorian State Government in the CarbonNet CCS project.

CCUS technologies are the nexus of a complex battle between the fossil fuel industry, scientists and engineers, and green activists.

Critics say CCUS technologies are currently inefficient, risky, and expensive: the Australia Institute report points out that the CarbonNet CCS project is still not operational twelve years after its establishment.

But CCUS is seen by some as an essential component of a future energy mix, particularly for those hard-to-abate sectors like steel and cement, as well as in the production of so-called ‘blue hydrogen’.

The International Energy Agency, meanwhile, says net-zero is virtually impossible without CCUS.