Australia’s Obscene Green Subsidy Machine

6th October, 2021

By Alan Moran, Quadrant


When an ALP government introduced a “carbon price” on electricity in 2012 it was sold as a neutral tax. It was, of course, nothing of the sort. The tax was on the carbon content of fossil fuels, but a neutral tax would have had the new tax replace other imposts. In fact, mandatory levels of renewable energy required of every retailer, which were the major Commonwealth subsidies to wind/solar, were left in place, as were other support mechanisms. In addition, there were state schemes, though at the time these were still modest in scope.

At its 2014 rate of $24 per tonne, Labor’s carbon tax, if applied to all fossil fuel inputs into electricity, would have raised $3.7 billion in 2020 (or, if the recommended 4 per cent a year escalator was applied, $5.6 billion).   There were, however, “transitional” arrangements for energy intensive industries that reduced the tax impost by more than a half in its earlier years — concessions that were supposed to phase down. 

Compare the carbon tax impost to the $6.9 billion that is the current actual level of support to renewables through regulatory requirements, grants and soft loans.  Subsidies in the form of grants and soft loans received a major boost when Tony Abbott abolished Labor’s carbon tax.  Present subsidies to renewables and for schemes like carbon-capture-and-storage are as follows:

Australia’s toxic politics has railroaded the nation into renewable energy subsidies that prejudice the natural advantages of a large, sparsely occupied continent and very low cost and low sulphur coal.

The measures taken two decades and more ago set the trend.  These included preventing land clearances, effectively an expropriation of landowners, which enabled Australia to comfortably meet the emission targets it set itself under the 2002 Kyoto Protocol.  At the same time the Coalition  initiated subsidising wind and solar through the Mandatory Renewable Energy Requirement, measures that have been considerably amplified over the years, notwithstanding some pushback by the Abbott government.

Those subsidies have resulted in a massive uptake in wind and solar, in the case of rooftop installations, more than anywhere else in the world.

Share of solar rooftop installations in total dwellings

Without the subsidies, wind and solar installations would have been negligible. 

BUT these are only one part of the crippling cost that government actions on climate change are imposing on the economy.  In support of renewables, governments are massively reinforcing transmission lines and building pumped storage to allow the dispersed and irregular wind and solar to operate.  At least $3 billion a year is being spent on this.  Then there is the private sector money attracted to renewables developments as a result of the subsidies extended to them – that is some $9 billion a year. 

In addition, we now have state governments’ purchasing arrangements for renewables.  Even excluding these, we have an annual $19 billion a year in spending and subsidies which basically undermine the low-cost, reliable energy we had before the descent into madness. And the ramifications of that descent can also be quantified.  One measure of this is the higher prices we are paying for wholesale electricity. In 2020/21 average wholesale electricity prices were around $60 per MWh.  For a coal-oriented system with gas and hydro performing balancing functions, prices would be around $55 per year (On average, prior to 2012, before renewables started cutting into efficiency, prices were under $50 per MWh).  Even at $5 per MWh, the cost to the economy is over $1 billion a year.  Once prices rise to the level that renewables can operate profitably – about $90 per MWh – the annual cost becomes around $10 billion. 

The costs of $19 billion a year we impose upon ourselves for on-power generation, once the higher wholesale costs of the renewables cut in, approach $30 billion a year.  This – equivalent to almost one quarter of private investment – represents a serious drain on the means that enhance national productivity. 

Propelling us to even greater action is Chinese belligerence, presenting Australia with a military threat for the first time in 75 years.  This is pressing us to become closer to the US and seeking independent control of defensive US or UK nuclear powered submarines.  And the Biden Administration’s vociferous support for climate change action – in spite of this having no possible effect in retarding climate damage (even allowing this is taking place)  – is pushing us towards even more damaging measures.

On top if this we have a greener political colouring with the elevation of renewable enthusiast Matt Kean to the key position of NSW Treasurer.  Moreover, in addition to Angus Taylor’s forlorn faith in state-financed new tech to place a lid on emissions, he now has a new deputy, born-again climate worrier Tim Wilson, who says a zero-emissions future is filled with opportunity for rural and regional communities — presumably by being paid not to produce goods wanted in  the commercial market.

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