How a great big tax on fossil fuel profits could fix Australia’s energy crisis

A leading environmental and economic think tank is calling for urgent fossil fuel industry tax reforms that could add hundreds of billions of dollars to government coffers, accelerate decarbonisation on a national level, and even help to fix the current energy market crisis.

The report, by Climate Energy Finance, offers a scathing review of how everyday Australians lose out due to the favourable financial treatment of coal and gas companies.

It says that closing Australia’s tax loopholes for multinational corporations, introducing export levies and overhauling longstanding fossil fuel subsidy and rebate schemes could raise $322 billion in tax and royalty income over the coming decade.

Hyper-inflated fossil fuel commodity prices and large profits being reported by the companies that produce them has led to widespread calls in Australia for reforms to force corporations to pay billions of dollars more in annual taxes and forego hefty rebates.

“It beggars belief that companies that say they are the backbone of Australia’s budget revenue cry wolf to secure handouts,” said CEF director and senior market analyst Tim Buckley.

The report points to existing tax structures that have allowed the top 20 fossil fuel multinationals to generate $113 billion in revenue but pay only $1.3 billion in corporate tax last year, labeling them “no longer fit for purpose” and failing to deliver projected government returns.

United Nations Secretary General Antonio Guterres this month urged all government’s to tax the excessive profits of fossil fuel companies owing to the leap in commodities prices, adding such “grotesque greed” was punishing the world’s poorest and most vulnerable people.

“Fossil fuel subsidies are a drain to our economy and must be ceased,” said Buckley. “Even capping fossil fuel subsidies to $50 million per company would create a $4.5 billion per annum lift in receipts, whilst improving Australia’s energy security and incentivising electrification and decarbonisation.”

If the reforms proposed in the report were enacted, Buckley projects they could deliver a $55 billion boost to federal government coffers in 2022/23 — five to 10 times the contribution from fossil fuel companies last year. A figure of $55 billion is 54 times the annual federal government spend on environmental protection.

After 60 years of mining industry subsidies, Australia’s $7-$9 billion diesel fuel rebate should also be phased down in order to add to greater future contributions from the sector, findings from the report show.

Capping the subsidy at $50 million per group annually would immediately raise $4-5 billion in annual revenue, with no impact on any but the top 10 multinational mining firms in Australia, it predicted.

The report also takes aim at the Petroleum Rent Resources Tax (PRRT), which generated a record low $900 million in fiscal 2021 and continues to deliver only a 3-4 percent royalty on offshore oil and gas for Australia — despite $11 billion spent in fossil fuel subsidies.

Despite gas production trebling since 2014, the report says Australians are being “smashed by gas cartel gouging”, and calls for a new “export-only” East Australia gas levy to immediately provide a price signal to prioritise domestic use, while reducing domestic gas and electricity prices by the full extent of the levy.

“The bigger the levy, the bigger the reduction in gas prices on the east coast,” Buckley said.

“That in turn could trigger a halving of the electricity price on the east coast,” he added. “Gas is the marginal pricer of electricity, so if you dramatically reduce the gas price, then you immediately reduce the price of electricity.”

Earlier this year, newly-elected Australian Prime Minister Anthony Albanese’s federal Labor party pledged to provide tax breaks to allow more Australians to buy electric vehicles and help local communities build solar
power and battery facilities.

“If we are going to accelerate the deployment of renewable energy zones across all of Australia, money is going to be a core part of it,” Buckley said. “The recommendations contained in the report aim to ensure that Australians get to share in some of these windfall profits.”