Saturday, January 29, 2011

$10 billion a year

GetUp is running a campaign to prevent the Federal Government from dropping renewable energy and climate change funding (subsidies) arguing that a more equitable “source” of money would be to redirect some of the estimated $10 billion in subsidies currently received by the fossil fuel sector. From my inbox:

Dear SP,
48 hours ago, the Government announced they want to pay for the climate disasters of today by killing the renewable energy projects of tomorrow. Climate change means more extreme weather events1, so it makes sense to establish a permanent Climate Disaster Fund -- not just to respond to one off events like the recent floods.

There's a simple solution to fund reconstruction after extreme weather events, while also reducing pollution and supporting renewable energy. The Government must establish a permanent Climate Disaster Fund, paid for by ending the billions of dollars they're handing out to subsidise the use of fossil fuels2, most of which ends up in the pockets of Australia's biggest polluters.

Click here to sign the petition

The three Independents in the lower house all support a permanent natural disaster fund. The Government will have to negotiate with them to get its flood levy through, so we have a real chance to preserve the renewable energy programs the Government wants to cut and to set up a permanent disaster recovery fund paid for by ending polluter handouts. To save these renewable energy programs we need an immediate public outcry - please add your voice now.

Around the world, governments are realising the irresponsibility of subsidising polluting energy while their citizens suffer from the impacts of climate change. Three days ago in his State of the Union speech US President Barack Obama announced an end to billions in taxpayer subsidies to oil, gas and other fossil fuel producers. He pledged to use the money to fund clean energy instead.

The Australian Government promised to end our own polluter subsidies at the G20 summit back in 20093, but continues to give these industries around $10 billion a year - that's over $800 from every Australian taxpayer. Given the need to set up a permanent climate disaster fund and respond to the realities of dangerous climate change, it's impossible for them to justify continuing to spend it on tax breaks for coal, oil and gas.

Together, let's end this policy madness.
Thank you for speaking out,
The GetUp Team

PS - Reducing fossil fuel subsidies can do more than help pay for the Queensland flood recovery. We can use the savings to fund an ongoing climate disaster fund to address the damage from future extreme weather events. Other countries have similar schemes, including the United States, New Zealand and Japan. It means future disasters won't require a levy or cuts to essential programs.

1 Hennessy et al., 'Australia and New Zealand' in Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, 507-540, 2007.
2 Institute for Sustainable Futures, 'Energy and Transport Subsidies in Australia', 55-58, 2007.
3 'G20 Leaders' statement: The Pittsburgh Summit', 24-25 September, 2009.


In response to Termoils comment (below).

While I agree that GetUp overstates their propaganda/PR, in part it comes down to definitions.

In January 2003 then PhD candidate C. Riedy published “Subsidies that Encourage Fossil Fuel Use in Australia” as part of his studies, wherein the following definitions are provided:

In this paper I have followed the definition provided by De Moor and Calamai (1997) and restated by De Moor (2001, p.168) as:

Subsidies comprise all measures that keep prices for consumers below market level or keep prices for producers above market level or that reduce costs for consumers and producers by giving direct or indirect support.

This is essentially the same as the definition used by the IEA (UNEP and IEA, 2002). More specifically, energy subsidies are defined by the IEA as:

…any government action that concerns primarily the energy sector that lowers the cost of energy production, raises the price received by energy producers or lowers the price paid by energy consumers (UNEP and IEA, 2002, p.9).

Fossil fuel subsidies can then be defined as any government action, concerning primarily the energy sector, that lowers the cost of fossil fuel production, raises the price received by fossil fuel producers or lowers the price paid by fossil fuel consumers.

The conclusion of this earlier document states:

Total fossil fuel subsidies worth almost $9 billion were identified in this research. Some economists argue that all subsidies should be removed to allow markets to operate efficiently, however most governments continue to use subsidies to achieve environmental and social goals.

Reidy estimates that ~90% of these subsidies increase the GHG levels, but concedes that they may have value (or are at least implemented) for other social outcomes. The later report Energy and Transport Subsidies in Australia, used by GetUp (and also our friends Dodson and  Sipe - see PIA series), appears to build on his PhD studies.

From Energy and Transport Subsidies in Australia, Reidy argues that about half of the subsidy is a result of:

The road user deficit

The largest identified subsidy results from the failure of governments to capture sufficient revenue from the road network to cover the cost of maintaining the network and to achieve an appropriate rate of return. In other words, motorists do not pay as much to access and use the road network as they should. In 2005-06, the cost of providing the road network was $4.7 billion more than the revenue received from road users.

In other words, another revenue stream is needed (separate to the fuel tax system) in order to maintain fossil fuel consumption, as road network damage might otherwise act as a disincentive for fuel consumed this way. It’s not a direct subsidy to the producer as Termoil points out, but it is consistent with the not unreasonable definition used by the author. I am sure that service station owners around the country would feel it if less cars pulled in to “fill ‘er up, mate”.

Termoil: Producers get bugger all direct subsidy and nor should they. They are already raking it in. But they are also paying royalties and income tax..


Direct and Indirect Subsidies to Fossil Fuel Consumption excluding the road user deficit (taken from Riedy 2007).

The question is whether the royalties and taxes cover all the costs [ie including externalities] and are equitable.


Ian Longfield said...
This comment has been removed by the author.
Ian Longfield said...

got this myself and dug a little deeper, especially the source that quoted the fossil fuel industry being subsidised.

When you look into it, there is only a small amount of subsidy and that is going to either consumers who may be at a disadvantage, like rural and remote or they are a different tax regime on some fuels over others.

But presenting this the way that GetUp! has implies that the government is giving $10 billion a year directly to the producers and this is a complete distortion.

Producers get bugger all direct subsidy and nor should they. They are already raking it in. But they are also paying royalties and income tax which heavily favours the government coffers, even after you deduct an cash or non-cash benefits that governments might provide.

I'm not saying that they can't or shouldn't be made to pay more, but to suggest they are getting a $10 billion gift is just wrong.

What needs to be reformed is the FBT, excise on aviation fuel and other off road fuel, scrap the discounted excise on bio-fuels, get rid of the LPG conversion subsidy (oh they did that).

The misleading line that every Australian is saying an $800 subsidy to polluters is really $800 of tax that those same Australians haven't had to pay when buying fossil fuels. Reforming any of that won't hurt the polluters one bit. They don't care.

But it will only take a half diligent journalist, 5 minutes to see that this $10 billion subsidy is a complete furphy and makes GetUp! look foolish.

January 30, 2011 12:26 AM

Ian Longfield said...

Thanks for the additional info and analysis SP.

The problem is that very few will read the paper and understand the nuances in the definition. They just hear "subsidy" and jump to the conclusion that it is the greedy oil, coal, gas companies that are being paid wads of taxpayers cash and that it is only corrupt politicians that are preventing that money being diverted to other uses.

It can also be argued that the road user subsidy is a huge benefit to lots of other industries and that they should be paying for that road use through other taxes anyway. It would be inefficent to clculate these social benefits, in the same way that we don't try to hit everyone with an education benefit levy and the health sector is not fully coverd by Medicare contributions by individuals. We also don't all recieve a separate bill for defence services even though we all benefit.

It then comes down to a question of resource allocation within the economy and how benefits and the costs are shared around. There are plenty of economic benefits to non-road users (Woolworths and Coles for example) who should be paying for the benefit through other taxes.

As always, its complicated.

SP said...

Hi Termoil, I was thinking while I finished it off last night that yes, you could think of it as a subsidy to all kinds of industries... the car industry for one... but where to draw the line? I also posted that section (after a quick speed read) becuase while it was the largest there was also that "vagueness". But vague really only in the sense of the view you would get solely from GetUps letter. In the sense used by Dr. Riedy, and his point about subsidies having other functions there can be no real misunderstanding.

In any case one thing is clear, the car lobby can not claim that the fuel excise is being used for other purposes if it does not recover the cost of construction and maintenance (if that is true).

I'm sure some people will read it and that's whats important.

Thankyou for forcing me to think a bit more about it.

Ian Longfield said...

Some of the commentary coming out on the Eqyptian protests are saying that changes to fuel and food subsidies are a contributing factor (as TOD readers will be well aware of).

Subsidies are like a drug and should be treated very, very carefully.In small doses they can do wonders but their should always be a medical reaosn for their application, not a lifestyle choice.Coming off them can be hard. Just ask the Egyptians.

That's the problem with getUp! They don't want to end the addiction. They just want a different kind of buzz.

SP said...

I think food price has been a factor in all of these protests (Tunisia,Egypt etc).
It would not surprise me if there wasn't some sporadic violence in Indonesia. The Govt is removing fuel subsidies and food price is escalating rapidly at the same time. Floods and droughts around the world.
And SBY is really on the nose since the election.