Australia Needs to Drop Fuel Subsidies

February 11, 2011 Taxation in Australia

Coal power plant. Helsinki, 2003Australia needs to stop subsidizing fuel production, and implement effective policies which encourage positive change in greenhouse gas emissions levels.

On February 9th the Australia Institute released a report examining the effect of economic and tax policies on the environmental impact of greenhouse gas emissions in Australia.

According to the report, in the current fiscal year the government will provide AUD 9 billion in subsidies and tax concessions to the mining, gas and petroleum industries, a move that directly counteracts continued nationwide efforts to reduce greenhouse gas emissions levels. The report stated that the subsidy policy is contradictory to the government’s repeated intentions of implementing a tax system on carbon dioxide emissions. Explaining further, the report said, “…proposing to introduce a carbon price while retaining existing fossil fuel subsidies is analogous to driving a car with the accelerator and the brake both pressed to the floor.”

The report recommended that the Australian government instate a coherent policy framework which outlines a pathway to gradually reduce the use of tax subsidies which artificially lower the price of fossil fuels in Australia. Data within the report indicates that over the next four years such subsidies will cost Australian tax payers AUD 39 billion.

By the time that the framework is effectively in place, the government should finalize planning and begin implementing a carbon price system. According to the report, a tax on carbon emissions, or any similar program, should raise “tens of billions of dollars in new revenue”.

The spending cuts and raised revenues could then be used to fund complementary environmental policies, designed to influence the behavior of Australians in favor of more eco-friendly actions. As examples, the report referred to several potential projects including subsides for home-insulation renovations and at-home solar power panels, a government funded car trade in scheme which would reduce passenger car emission levels, or extra funding to environmental research and development initiatives.

Photo by melancholic optimist