Thursday, March 10, 2011

Taxing subsidised fossil fuels

John Watson at The Age (with help from the Australian Conservation Foundation) points out the meaninglessness of applying a carbon tax to a commodity produced by a heavily subsidised industry. See the original for the final details.

Twelve billion holes in plan to cut carbon
John Watson, March 10, 2011

[Given the current orthodoxy of fee market everything often espoused by Govt and others], why does Australia's government effectively promote fossil fuel use at a cost of about $12 billion a year?

A carbon price, in effect, would already be operating if only government did not feel the political need to insulate energy and road users from demand-driven prices.

Tax incentives to use fossil fuels are so great that their value exceeds forecast revenue from the Rudd government's rejected emissions scheme for years to come. The Gillard government has yet to finalise its resurrected carbon price, but it is unlikely to outweigh the entrenched carbon bias. The $12.2 billion in fossil fuel incentives dwarfs the $1.1 billion for climate policy in 2010-11, and the gap has grown by $1 billion since 2007-08.

The opposition is making wild claims about future power bills based on carbon price guesstimates of $26 a tonne. If all emissions were priced equally - they won't be - the total cost impact would be about $14 billion a year. That's little more than existing tax incentives for fossil fuel use.

It is not carbon pricing but the strain of soaring demand on ageing power infrastructure that has driven up Victorians' electricity bills by almost 60 per cent in five years, even with government price controls and subsidies.

One of the worst [political fixes ever] was driven by political panic in 2001, when John Howard ended indexation of the petrol excise. The bowser price fell all of 2¢ to 89¢ a litre, but the hit to the budget was enormous. Revenue losses have mounted to at least $3 billion and, by some estimates, as much as $6 billion this financial year. In 2001, the oil price had "soared" to $US29 a barrel. It's now above $US100. The near-doubling in the Australian dollar's value from US50¢ to parity has softened the blow, but finite supplies are driving up prices. No political fix can reverse that.

[Politicians] are suckers for compensatory fixes. The biggest is almost $5 billion a year in fuel tax rebates to producers. Much of this goes to the same miners who resisted a fair return to taxpayers on the soaring value of publicly owned mineral resources. How do they justify keeping fuel rebates as well?

Condensate exemptions will still cost the budget $580 million this year, while $1 billion is lost to aviation fuel excise exemptions. Fringe benefits tax concessions for company cars, which create an incentive to drive more, cost $1.1 billion a year. There's no tax incentive to use efficient, low-emissions public transport.

Where is the outrage at industry protection and price distortion? The principle of consumption taxes is the more you consume, the more you pay. Instead, the heaviest users feel less pressure to develop greater energy efficiency or more sustainable sources. The longer we put off this inevitable adjustment, the harder it becomes.

The Australian Conservation Foundation has a pdf with some figures and an interview with ACF Executive Director Don Henry;

Australia spends $11 billion more encouraging pollution than cleaning it up

New analysis shows the Australian Government spends $11 billion more on subsidies that encourage greenhouse pollution than it does on programs to tackle climate change.

Our analysis shows funding for programs to address climate change has increased by about $500 million since 2007-08, but incentives that encourage pollution have ballooned by more than $1.5 billion.

“There has been a lot of good talk about addressing climate change, but unfortunately the numbers tell a different story,” said ACF Executive Director Don Henry.

“In 2007-08 our government spent $480 million on programs to tackle climate change, but then it spent $10.6 billion on subsidies that promoted fossil fuel use.

“This financial year the spending on climate programs is up to around $1 billion, but the fossil fuel subsidies are up too, to a massive $12 billion, meaning the Australian Government is spending $11 billion more encouraging pollution than on cleaning it up.

“The Fringe Benefits Tax concession for company cars is like a virtual pollution factory, invisibly chugging out just as much greenhouse pollution every year as a medium-sized coal-fired power plant – only the fringe benefits tax break doesn’t produce any energy – it’s just a dead weight on the economy, the Budget and the environment.

“We need to stop putting taxpayers’ money into pollution promotion and start investing in clean energy, like wind and solar,” Mr Henry said.

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