Australia
Coal mining dominates Australia’s energy production. Australia is the world’s second largest coal net exporter by volume and exports more than three-quarters of the country’s coal output. Most of the Australian coal production is accounted for by hard coal, while lignite represents less than 15% in volume. Besides coal, Australia also produces and exports large volumes of natural gas, of which the proven reserves have grown significantly in recent years with the commercialisation of large volumes of unconventional gas (i.e. particularly coal-bed methane). Overall, around 80% of the country’s total energy production is exported.
Australia was a pioneer of energy market liberalisation during the 1990s with the aim of creating efficient wholesale and retail markets. Structural and regulatory reforms involved the deregulation of its downstream oil sector and of the coal-mining industry, the lifting of export controls on coal, the introduction of regulated third-party access to natural-gas and electricity networks, and the privatisation of some utilities owned by federal and state governments. This development proved advantageous for the natural-gas sector. Despite rising costs, several major operations exporting liquefied natural gas (LNG) to Asian countries have commenced. In 2018, Australia became the largest LNG exporter in the world, overtaking Qatar. However, gas well development has been slower than expected leading to tight conditions and high prices in the domestic market. The federal government has introduced legislation to allow it to limit LNG exports, if required, from July 2017.
The electricity sector has been unbundled into separate generating, transmission, distribution and retail companies. There exists a mixture of state-owned and private companies across the supply chain. Network charges for most transmission assets in the national electricity market (NEM) are regulated by the Australian Energy Regulator (AER) by setting an overall revenue cap for a regulatory control period to ensure that consumers pay no more than necessary for the safe and reliable delivery of electricity. The regulatory framework allows for some assets to be unregulated and earn market rates.
Most jurisdictions in Australia have retail contestability, with a regulated default price for small customers. However, there are jurisdictions that continue to regulate electricity or gas retail prices, or both. With the introduction of retail contestability, most consumers can choose from a range of contract types or to remain on a standard contract.
From 2012 through 2014, the federal government implemented a carbon pricing scheme. However, the scheme was abolished in 2014. In its stead, the government introduced an Emissions Reduction Fund, a voluntary offset programme, to purchase emissions-reduction credits from eligible businesses on a least-cost basis.
The Australian government levies fuel excise and duties at various rates, based on energy content. Petrol and diesel excise is indexed twice a year in line with the consumer price index. The Australian government announced a temporary 50% cut in fuel excise from 30 March to 28 September 2022 to ease cost of living pressures associated with high international oil prices. The reduced excise rate was AUD 0.221 per litre for diesel and gasoline, and AUD 0.072 cents per litre for automotive LPG, with an estimated reduction in receipts of AUD 2.9 billion, net of payments. On 28 September 2022, the full fuel excise tax was reinstated by the Australian Government. For 2022-2023, fuel excise revenue was predicted to be AUD 13.9 billion1 and businesses claimed AUD 7.7 billion of Fuel Tax Credits (FTC). Fuel Tax Credits provide businesses a rebate of the tax embedded in the price on fuel.
In December 2022, the federal government announced that it would provide up to AUD 1.5 billion to enable energy price caps for the next 12 months. These caps are targeted at households receiving income support, pensioners, and small businesses. Prices are to be capped at AUD 12 per gigajoule on new wholesale gas sales and AUD 125 a tonne for coal used for electricity generation. This funding is contingent on the state and territory governments matching the federal funding, which means that a total of AUD 3 billion is available to maintain the price caps.
The federal government provided AUD 330 million from FY2020-21 to FY 2023-24 for natural gas exploration, production and infrastructure, and liquid fuel storage as part of its COVID-19 stimulus package. Several states have programmes that encourage hydrocarbon exploration. On the consumption side, most Australian states and territories provide rebates to low-income households, particularly on residential electricity usage, with the bulk of the electricity generated in the country of fossil-fuel origin. These were augmented by one-off energy subsidy payments as part of most states and territories’ COVID-19 responses.
The fiscal cost of support measures for fossil fuels in Australia was estimated at AUD 13.89 billion in 2022 (Table 1). Thirty-five per cent (35%) was directed at end user beneficiaries, as opposed to 65% directed to firms. Support was mainly given out in the form of tax expenditures (AUD 12.34 billion) accounting for 89% of the total fiscal cost of support measures. Direct transfers amounted to AUD 1.55 billion.
The fiscal cost of support measures for fossil fuels has increased by 40% since 2017. Since last year, tax expenditures have increased by 19%, from AUD 10.69 billion to AUD 12.34 billion and direct transfers decreased by 9%, from AUD 1.75 billion to AUD 1.55 billion. All growth rate percentages above are expressed in terms of nominal national currency amounts.
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Aggregate numbers from the Inventory represent the fiscal cost of support measures for fossil fuels. They should not be interpreted as a level of support for fossil fuels, nor as an indicator of the extent to which the considered policies are favourable or unfavourable to climate mitigation.
The Inventory reports tax expenditures as estimates of revenue foregone due to measures that reduce or postpone tax payments relative to a jurisdiction’s benchmark tax systems to the benefit of fossil fuels producers or users. Tax expenditure estimates can thus increase over time due to either an increase in the offered concession (relative to benchmark tax systems) or an increase in the benchmark itself. Cross-country comparisons of tax expenditures can also be misleading due to differences in countries’ benchmark tax systems.