Subsidies mask reality of carbon costs and impacts

(Originally posted Friday 29 April, 2011 – the predictions were not rocket science, but the brick wall happened)

Earlier this week I did an interview with Des Houghton a columnist with Queensland’s Courier Mail. Below is what I told him and some of it was published in his article “Numbers tell the story on carbon” Courier Mail pp 22-23 Wednesday 27 April)

I told Des:

“The Gillard Government is heading headlong toward a brick wall and a voter backlash because of its silver bullet approach to addressing climate change and emissions reductions.

It’s put all its eggs in the carbon tax-ETS basket when a broader mix of measures is required to phase in the transition to a low carbon economy without creating too much shock to the economy and the voter.

Rather than launch a genuinely low carbon transitional strategy for the intermediate and longer term, it is embarking on a ‘crash through or crash’ carbon pricing strategy which says more about the politics of minority government and a three year electoral term that it does of anything to do with climate change.

Even before the carbon tax and the compensation package to emitters is introduced, the Federal Government is spending more than 12 times as much propping up fossil fuel industries as it is on climate change programs.

Advocates for the fossil fuel lobby have waged a relentless campaign against the so-called costs of renewable energies by saying they can only happen with subsidies.

Talk about the pot calling the kettle black!

International Energy Agency reports show that fossil fuels get six times the subsidies given to renewables or more than $312 billion a year for polluting technologies versus just over $57 billion a year for cleaner energy infrastructure.

The negative impacts of fossil fuel subsidies have not just been identified by green groups.

Back in 1997 Reserve Bank board member and leading Australian economist Warwick McKibbin worked out that global carbon emissions could be reduced by about 8% through eliminating price subsidies for coal across the world.

This has been confirmed more recently by the International Energy Agency which said in its annual world energy outlook for 2010 that cutting fossil fuel subsidies could “make a big contribution to meeting energy security and environmental goals, including mitigating carbon dioxide and other emissions”.

Subsidies encourage energy inefficiency and wastefulness in households, offices and large industries.

The IEA has concluded that if fossil fuel subsidies were phased out by 2020 it would result in a reduction in primary energy demand at the global level of 5.8% and a fall in energy-related carbon-dioxide emissions of 6.9%.

This is the low hanging fruit we need to kick start the transition to low carbon living, smarter energy use, and the take up of cleaner alternatives.

The only Australian government that has actually done anything delivering on the 2009 Pittsburgh declaration has been the Bligh Government which at about the same time scrapped Queensland’s half billion dollar fuel pump subsidy in favour of more pressing priorities like health and education.

The Rudd-Gillard Government has fudged on the Pittsburgh commitment to do something serious about eliminating fossil fuel subsidies. It has decided that diesel fuel rebates for miners and FBT rebates encouraging motor vehicle usage don’t actually count as subsidies.

If these are not subsidies intended to assist the resources sector and the local car manufacturing industry then why do we have them in the first place?

Subsidies and taxes on energy create massive economic churn and administrative waste with almost $ 700 billion a year – or roughly 1% of world GDP – being spent subsidising consumption and a further $100 billion more than that being levied in petroleum taxes just in the OECD alone.

No wonder average consumers have no idea just how much the real costs of energy are, the whole pricing and taxation system is designed to shield the market from pricing realities.

How can the Government expect people to support a major economic reform like a carbon tax when existing pricing distortions are ignored and clear figures on the costs and benefits have yet to be presented?

If Australian Governments are ever to achieve genuine reform with carbon, energy and water, the first thing they will all have to do is come clean with the real costs of providing daily basics we have taken for granted for so long and expect to receive for a trifle.

Getting rid of the subsidies that masks the reality would be the most useful first step any government could take’.

Author: Professor John Cole OAM

Professor Emeritus and founder of the Institute for Resilient Regions at the University of Southern Queensland and Honorary Professor, UQ Business School, The University of Queensland.

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