Public debate over climate change, and how we should respond, has reached unprecedented levels in Australia. The energy and transport sectors are responsible for almost 70% of Australia’s greenhouse gas emissions and emissions from these sectors continue to grow rapidly (AGO 2006a). It is in these sectors that responses to climate change are most urgently needed writes Chris Riedy.
Emissions from energy and transport are high because of the use of fossil fuels – coal, oil and natural gas – to provide most of Australia’s energy needs. One obvious response is to shift away from fossil fuels and towards renewable energy sources that do not generate greenhouse gas emissions, such as wind power, bioenergy and solar power. However, at present, the cost of many renewable energy technologies is significantly higher than the cost of energy derived from fossil fuel. The higher cost of renewable energy technologies acts as a major barrier to their widespread introduction in Australia.
At present, governments in Australia provide substantial financial support for the production and use of fossil fuels, through direct payments, favourable tax treatment and other actions. These subsidies keep the cost of fossil fuel energy artificially low and make it harder for renewable energy to compete. They distort energy markets, encourage greater use of fossil fuels, create higher levels of greenhouse gas emissions and improve the profitability of energy companies that produce or use fossil fuels. In an era when climate change response has become urgent, continuing to subsidise fossil fuel production and consumption is unacceptable.
This report provides an estimate of the size of subsidies to fossil fuels and renewable energy in the Australian energy and transport sectors during the 2005-06 financial year. It provides details on specific subsidies and offers recommendations on subsidy removal.