Australia's federal Labor government has used its first full-year budget to push new hydrogen (H2) subsidies. But critics have highlighted billions of dollars in existing fossil fuel payments, tax breaks and rebates that remain in force.
Billions of dollars in funding for new energy resources, especially hydrogen, were announced as treasurer Jim Chalmers presented his first full-year budget since the government's election last May. The document sought to balance new expenditure with a desire to bring down Australia's 7pc inflation rate, highlighted by a record 26pc domestic gas price increase in the year to 31 March.
Research body the Australia Institute found the nation's governments contributed A$11.1bn ($7.5bn) in subsidies and tax breaks to fossil fuel industries in 2022-23, while the figure over the current fiscal year and the next three years, known as forward estimates, is A$57.1bn.
The Fuel Tax Credit scheme, designed to offset fuel excise for vehicles and machinery that do not travel on public roads, is the single-largest contributor to subsidies with a budget of A$7.8bn for 2022-23. With Australia's liquid fuel use increasing, governments are expecting a 33pc increase in the cost of the scheme by 2025–26, a factor behind the growth in total budgeted fossil fuel subsidies over the forward estimates, from A$55.3bn in 2021–22 to A$57.1bn in 2022–23.
The list of subsidies, grants and tax concessions includes direct funding for infrastructure such as A$1.9bn for the Middle Arm hub in Darwin that involves potential petrochemical facilities, upgrades to coal railways and land tax breaks. Among state governments, Queensland spent A$448mn and Western Australia (WA) A$320mn on subsidies. Around 80pc of federal fossil fuel subsidies in 2022–23 were dedicated to gas and oil consumers and industry.
The paper found that exempting tax concessions, the A$522mn cost of subsidies in 2022–23 was roughly twice the A$266mn estimated in 2020-21. This reflected that several government petroleum subsidies instituted by the pre-May 2022 Liberal-National government as part of its gas-fired recovery policy remain in force, including money for road construction for gas wells in the Northern Territory, petrochemical infrastructure in Darwin and a A$141mn carbon capture and storage (CCS) research programme. The Australia Institute is a long-time critic of CCS technology but government agency the Climate Change Authority last month recommended investing in improving sequestration knowledge.
Redirection
Redirection of funding for energy subsidies is under way as Australia's government pushes new funding to prevent it falling behind on investment in renewable fuels, despite 40pc of global green H2 projects announced being in Australia.
The budget included A$2bn to subsidise 2-3 flagship H2 projects, while last year the government promised A$20bn for new transmission projects linking renewable energy facilities to the power grid. Queensland will spend $1bn on a new pipeline for supplying water to proposed H2 plants and WA this week promised to invest A$2.3bn for two battery storage projects in the state's southwest totalling 700MW, ahead of its 2023-24 state budget. WA plans to close all its coal-fired power stations by 2030, replaced by a mixture of battery storage and renewable electricity.
