Up to $39bn a year – the cost of unpriced energy pollution in Australia

The now unpriced carbon pollution produced by Australia’s energy sector is costing the nation billions of dollars a year, new analysis has found – a “social cost” that will balloon in the near future without targeted climate and renewable energy policies like the RET.

A report, released on Tuesday by the Climate Institute, has found that Australia’s polluting energy sector benefits from an annual subsidy of $14-39 billion from the unpriced cost of climate damages on economic growth, environmental systems, health, and security.

“The carbon pollution of Australian energy imposes a public cost of many billions of dollars every year,” said Erwin Jackson, Deputy CEO of The Climate Institute. “It’s by far the biggest subsidy in the energy sector.”

“Without the Renewable Energy Target, a policy to close ageing, high-polluting coal plant and, or, an explicit price on carbon, this carbon subsidy will continue to grow,” Jackson said.

According to the report, Counting All The Costs: Recognising the carbon subsidy to polluting energy, this annual “carbon subsidy” is provided to emitters across electricity, transport, direct combustion and fugitive emissions. The electricity sector alone receives a carbon subsidy of about $7-20 billion a year.

The total carbon subsidy to electricity between now and 2030 would reach $165-500 billion, even if the current RET stays in place. If the RET is curbed, the subsidy would increase by about $0.7-2 billion annually. If the RET were abolished altogether (and current arrangements grandfathered), the carbon subsidy would increase by about $0.8-2.5 billion annually.

“Australia is looking backwards, while our major trading partners are moving forward,” said Jackson. “Rather than working out how best to decarbonise our power sector, which is required if Australia is to play a fair part in meeting the global goal of avoiding 2°C warming, we are entrenching market distorting subsidies to polluting industries.

“We should looking much further ahead in the future of electricity, out to 2030, 2040 and beyond—and that means, in the absence of an explicit carbon price, a longer, stronger Renewable Energy Target and measures to close ageing, high-polluting coal plant.”

These estimates are based on the United States government’s calculations of the social cost of carbon pollution. The US has valued these costs at A$12-103 per tonne, with a central estimate of A$37. The IMF also recently calculated the real costs of fossil fuels for over 150 countries including Australia, using a carbon cost of US$35 per tonne.

“Other countries like the United States, Canada and the United Kingdom recognise the economic costs of carbon pollution, and the IMF is calling on all countries to end this subsidy to fossil fuels,” said Jackson.

In the US, the Obama administration uses $37 as its estimate of how much a tonne of carbon dioxide emitted into the atmosphere costs, including decreased agricultural productivity, damage from rising sea levels and harm to human health related to climate change.

But this has been criticised by US environmental groups as far too low, and for failing to factor in costs of other climate impacts, like increased respiratory illness from higher pollen or ozone, the spread of insect-borne diseases, or the toll that ocean acidification will take on fisheries.

As TCI’s report notes, the US carbon values apply only to CO2 emissions, and not other greenhouse gases, which results in a “significant underestimation” of the costs of fugitive emissions from gases methane, a more potent but shorter-lived greenhouse gas than carbon dioxide.

“If Australia fails to internalise these costs in energy prices, the carbon subsidy to energy will continue to increase, due both to growth in energy-related emissions and the higher social cost of emissions as time passes,” says the report.

“We should looking much further ahead in the future of electricity, out to 2030, 2040 and beyond—and that means, in the absence of an explicit carbon price, a longer, stronger Renewable Energy Target and measures to close ageing, high-polluting coal plant,” Jackson said.

“For all the talk of subsidies to mining or to renewables, the carbon subsidy to energy is the biggest hand-out of them all.”