This policy brief presents a number of scenarios to illustrate the impact on the budget from the Emissions Reduction Fund and removing the carbon price.
The Government proposes to remove the current legislated carbon price and replace it with its taxpayer-funded Emissions Reduction Fund (ERF). Over the four years of forward estimates, this is projected to have a negative fiscal impact of over $15 billion. To 2020, the negative impact grows to over $24 billion if ERF expenditure is capped. It reaches over $40 billion if pollution reduction targets are to be reached and if the Government doesn’t amend its position of purchasing only Australian emission reductions for its minimum target commitment.
This multibillion dollar hit on the budget stems from two sources:
- Emissions Reduction Fund: Over the forward estimates, the Government has indicated it would spend $2.55 billion of taxpayer funds to subsidise emission reduction activities. In the past, the Government has indicated that the scheme will be scaled up to an average $1.2 billion a year.
- Loss of carbon pricing revenue: The payment by major polluting companies of next year’s fixed carbon price and their subsequent purchase of carbon pollution permits under the emission trading scheme due to start in 2015 is a significant source of Government revenue. The current carbon laws conservatively raise over $18 billion to 2020. The budgetary impact form the loss of carbon revenue not only threatens funds now supporting clean energy, low emission programs, technology research and development, as well as support for households and business, but also affects broader choices.
The Climate Institute has calculated the net fiscal hit under a number of scenarios, to illustrate the impact on the budget from the ERF and removing the carbon price. Under all budget constrained scenarios, ERF funding is assumed to follow the spending outlined in Coalition policy documents. These scenarios do not address the approximately $24 billion annual subsidy that the International Monetary Fund estimates Australian governments gives the coal, oil and gas industries.