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.
OECD Inventory of Support Measures for Fossil Fuels: Country Notes
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Australia
Energy resources and market structure
Source: IEA (2022), "World energy statistics", IEA World Energy Statistics and Balances (database).
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.
Energy prices and taxes
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.
Figure 2. Total tax rebates and support for fossil fuels in Australia
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Recent developments and trends in support
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 1. Fiscal cost of support measures for fossil fuels (in billions of national currency)
|
|
2017 |
2018 |
2019 |
2020 |
2021 |
2022 |
|---|---|---|---|---|---|---|
|
Tax expenditures |
8.448 |
8.640 |
8.575 |
8.485 |
9.794 |
10.592 |
|
Direct transfers |
1.478 |
1.294 |
1.986 |
2.146 |
1.747 |
1.552 |
|
Total |
9.926 |
9.933 |
10.561 |
10.631 |
11.541 |
12.144 |
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports). Support measures for which such information is not available are excluded from the aggregate amount reported in this table. In addition, support measures in certain countries may not have been exhaustively identified.
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 2 highlights a selection of support measures associated with a large fiscal cost. A description of these measures is provided in Table 3.
Table 2. Selected support measures for fossil fuels with a large fiscal cost (in billions of national currency)
|
Measures associated with large fiscal cost in 2022 |
2022 |
2017 |
Variation since 2017 |
|
|---|---|---|---|---|
|
Tax expenditures |
|
|||
|
Fuel Tax Credits |
4.486 |
4.017 |
0.469 |
|
|
Fuel Tax Credits |
3.235 |
2.896 |
0.339 |
|
|
Reduced Excise Rate on Aviation Fuel |
1.190 |
1.260 |
-0.070 |
|
|
Direct transfers |
||||
|
Uniform Tariff Policy - Community Service Obligation Payments |
0.486 |
0.422 |
0.063 |
|
|
Electricity Rebate |
0.186 |
0.157 |
0.029 |
|
|
Low Income Household Rebate |
0.177 |
0.200 |
-0.022 |
|
1. Fiscal cost of support measures for fossil fuels are based on information reported by countries through official documentation (e.g. budget reports).
2. Tax expenditures are estimates of revenue that is foregone due to a particular feature of the tax system that reduces or postpones tax payments (relative to a jurisdiction’s benchmark tax system) to the benefit of fossil fuels’ producers or users. Hence, (i) tax expenditures estimates can increase either because of greater concessions (relative to the benchmark tax system) or because of an increase in the benchmark itself; (ii) cross-country comparisons of tax expenditures can be misleading due to country-specific benchmark tax systems.
3. Support measures for fossil fuels are included in the Inventory without reference to their economic or environmental effects. No judgment is therefore made as to whether such measures are inefficient or ought to be reformed.
4. Data are expressed in nominal local currency. Data for 2022 are on a preliminary basis.
Source: OECD Inventory of support measures for fossil fuels (2023).
Table 3. Description of selected support measures for fossil fuels
|
Fuel Tax Credits |
This programme dates from 1982 when the Federal Government replaced the old exemption certificate scheme — which was prone to abuse — with a new Diesel Fuel Rebate Scheme. The scheme subsequently went through several changes in terms of coverage and rates, being first renamed the Energy Grants Credit Scheme (EGCS) in 2003, before it was given its current name in July 2006. Payments under Australia’s Fuel Tax Credits correspond to the full amount of excise paid for off-road users while on-road heavy transport only gets a partial rebate, with the shortfall representing a notional road-user charge. Most beneficiaries are businesses using diesel fuel in machinery, equipment, or heavy vehicles (vehicles weighing more than 4.5 tonnes), though certain emergency vehicles and households generating their own electricity are also eligible. The mining sector is a prime beneficiary of the Fuel Tax Credits, accounting for about a third of all transfers in recent years. As such, the measure could arguably be considered producer support since it lowers the cost of inputs used in the coal-mining and hydrocarbon sectors. However, this inventory treats the Fuel Tax Credits as consumer support given the general applicability of the measure’s eligibility criteria. The annual amounts reported under the Fuel Tax Credits also include those reported under the Diesel and Alternative Fuels Grants Scheme starting in 2003, and those reported under the Energy Grants Credits Scheme (on-road) starting in 2006. |
|
Fuel Tax Credits |
This programme dates from 1982 when the Federal Government replaced the old exemption certificate scheme — which was prone to abuse — with a new Diesel Fuel Rebate Scheme. The scheme subsequently went through several changes in terms of coverage and rates, being first renamed the Energy Grants Credit Scheme (EGCS) in 2003, before it was given its current name in July 2006. Payments under Australia’s Fuel Tax Credits correspond to the full amount of excise paid for off-road users while on-road heavy transport only gets a partial rebate, with the shortfall representing a notional road-user charge. Most beneficiaries are businesses using diesel fuel in machinery, equipment, or heavy vehicles (vehicles weighing more than 4.5 tonnes), though certain emergency vehicles and households generating their own electricity are also eligible. The mining sector is a prime beneficiary of the Fuel Tax Credits, accounting for about a third of all transfers in recent years. As such, the measure could arguably be considered producer support since it lowers the cost of inputs used in the coal-mining and hydrocarbon sectors. However, this inventory treats the Fuel Tax Credits as consumer support given the general applicability of the measure’s eligibility criteria. The annual amounts reported under the Fuel Tax Credits also include those reported under the Diesel and Alternative Fuels Grants Scheme starting in 2003, and those reported under the Energy Grants Credits Scheme (on-road) starting in 2006. |
|
Reduced Excise Rate on Aviation Fuel |
Under this concession, users of aviation gasoline and aviation turbine fuel have benefitted from a reduced rate of excise tax since March 1956. The Australian Treasury includes this measure in its annual Tax Expenditures Statement and only reports the part that relates to domestic flights. From 1 July 2012 to 30 June 2014, the estimated revenue foregone due to this concession was lower than usual since the rate of excise tax included a “carbon component,” which was determined by the emission factor of each fuel and a price for carbon. This component was then removed when Australia’s carbon tax was repealed in July 2014. This inventory allocates annual estimates from the Australian Treasury to aviation gasoline and kerosene-type jet fuel on the basis of the IEA’s Energy Balances for Australia’s domestic air-transport sector. |
|
Uniform Tariff Policy - Community Service Obligation Payments |
The Uniform Tariff Policy ensures that residential and small business customers in regional areas of Queensland pay no more for their electricity than those in urban areas. Queensland also allows some large-use customers (consuming over 4 GWh per annum) to access regulated prices under a UTP arrangement. In practice, this means that 34% of customers across 97% of the geographic area of the state pay less for electricity than it costs to supply. The Queensland Government provides the government-owned regional electricity retailer with a Community Service Obligation (CSO) payment to offset these costs. |
|
Electricity Rebate |
This programme provides the elderly in need with annual rebates on their residential electricity bills worth about AUD 340.85 per year as of the FY 2018-2019. The rebate is paid by automatic deduction from the cost of the customer’s bill. Eligible applicants include, but are not limited to, pensioners, veterans, and seniors who hold government-issued cards designated for the scheme. |
|
Low Income Household Rebate |
New South Wales’ (NSW) Low Income Household Rebate provides eligible state residents with payments to help them pay their electricity bills. A per annum support of AUD up to AUD 285 per year. |
Data sources
Note on the Methodology
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.