Financial subsidies to the Australian fossil fuel industry

A common claim during international greenhouse gas reduction negotiations has been that domestic emissions cuts will harm national economies. This argument fails to consider the distorting effect of existing financial subsidies and associated incentives to fossil fuel production and consumption provided by governments in most developed countries. These subsidies support a fossil fuel energy sector that is the major contributor to global greenhouse gas emissions and conflict with attempts to expand the role of sustainable energy technologies. Reform of these types of subsidies has the potential to provide substantial gains in economic efficiency as well as reductions in carbon dioxide emissions—a ‘no regrets’ outcome for the economy and the environment. This paper examines financial subsidies to fossil fuel production and consumption in Australia and estimates the magnitude of the subsidies. Subsidies and associated incentives to fossil fuel production and consumption in Australia are similar to those in the United States and the other countries that have pushed for increased ‘flexibility’ during international negotiations.