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Wednesday, March 2, 2011

Carbon pollution subsidies outstrip climate change funding

New analysis done by the Australian Conservation Foundation shows that while funding and subsidies for solar power and climate change related programs has increased by $500 million per year, subsidies and concessions for fossil fuel carbon pollution related activies soared by $1.5 billion per year, 3 times as much.

Prime Minister Julia Gillard announced last week an interim set carbon price (carbon tax) to start on July 1st, 2012. The recent reinstating of solar flagship funding is one small positive step, but much more is needed in redirecting subsidies from carbon pollution to climate change solutions.

The Rudd Labor Government was elected to power in November 2007 with a mandate to tackle climate change. One would expect that subsidies and concessions would be slowly directed away from fossil fuels, a major source of carbon pollution, to climate friendly programs. But instead the gap has widened.

During the 2007/2008 financial year $477.9 million was spent on climate related programs, rising to $1,078.8 million in 2010/2011. Over the same period fossil fuel incentives rose from $10,579 million to $12,173 million.

Fossil fuel incentives included for 2010/2011 more than $1 billion on Fringe Benefits Tax for company cars, and nearly $5 billion on fuel tax rebates.

“The notorious Fringe Benefits Tax concession on company car use, which encourages company car drivers to drive their vehicles more, is one of the worst of the fossil fuel subsidies, costing taxpayers more than $1 billion a year." said Don Henry, Australian Conservation Foundation Executive Director.

"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." he said.

The lack of indexation on fuel excise now amounts to a $3 billion per year subsidy for petrol. In 2001, automatic indexing of fuel excise according to CPI was stopped by the Howard Government for populist reasons after the poor result of the Coalition in the Queensland state election. Howard had broadened the tax base with introduction of the regressive GST, and then reduced fuel excise and stopped the CPI indexation of this tax resulting in a growing shortfall in collections by this tax. Howard had introduced this tax as treasurer during the Fraser Government originally in August 1978. Indexation of fuel excise was introduced by Paul Keating in 1983.

It also seems we are subsidising air travel by over $1.1 billion per year in aviation fuel excise concession, zero customs tariffs for aircraft and depreciation concessions on aircraft.

I wonder how much long distance passenger train patronage would increase if subsidies for air travel were curtailed? Or how many interstate and international business meetings would be held by video conferencing? It would also add impetus to build a high speed east coast train link from Brisbane to Melbourne via Sydney and Canberra.

These subsidies promote use of fossil fuels which contribute to carbon dioxide pollution, an environmental cost and the primary ingredient for anthropogenic climate change.

Failure for markets to take into account the carbon pollution environmental cost has been called by Lord Stern in 2007 'the greatest market failure the world has ever seen'.

In the same speech Lord Stern said that rich countries must take the lead in taking action. A stark contrast to the politics of inaction in Copenhagen and Cancun by most of the developed world.

“We need a price on pollution to encourage investment in clean energy production and we need to cut the handouts that encourage industry to pollute for a tax break." said Don Henry. "We need to stop putting taxpayers’ money into pollution promotion and start investing in clean energy, like wind and solar,” he concluded.


* Australian Conservation Foundation media release, March 1, 2011 - Australia spends $11 billion more encouraging pollution than cleaning it up
* Australian Conservation Foundation - Climate expenditure and subsidies analysis

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