World likely to breach 1.5 degrees by 2027

From The Guardian

The world is almost certain to experience new record temperatures in the next five years, and temperatures are likely to rise by more than 1.5C above pre-industrial levels, scientists have warned.

The breaching of the crucial 1.5C threshold, which scientists have warned could have dire consequences, should be only temporary, according to research from the World Meteorological Organisation (WMO).

However, it would represent a marked acceleration of human impacts on the global climate system, and send the world into “uncharted territory”, the UN agency warned.

Countries have pledged, under the 2015 Paris climate agreement, to try to hold global temperatures to no higher than 1.5C above pre-industrial levels, after scientific advice that heating beyond that level would unleash a cascade of increasingly catastrophic and potentially irreversible impacts.

Prof Petteri Taalas, the secretary general of the WMO, said: “This report does not mean that we will permanently exceed the 1.5C specified in the Paris agreement, which refers to long-term warming over many years. However, WMO is sounding the alarm that we will breach the 1.5C level on a temporary basis with increasing frequency.”

Global average surface temperatures have never before breached the 1.5C threshold. The highest average in previous years was 1.28C above pre-industrial levels.

The report, published on Wednesday, found there was a 66% likelihood of exceeding the 1.5C threshold in at least one year between 2023 and 2027.

New record temperatures have been set in many areas around the world in the heatwaves of the past year, but those highs may only be the beginning, according to the report, as climate breakdown and the impact of a developing El Niño weather system combine to create heatwaves across the globe.

El Niño is part of an oscillating weather system that develops in the Pacific. For the past three years, the world has been in the opposing phase, known as La Niña, which has had a dampening effect on temperature increases around the world.

As La Niña ends and a new El Niño develops, there is a 98% likelihood that at least one of the next five years will be the hottest on record, the scientists found.

Taalas warned of the effects. “A warming El Niño is expected to develop in the coming months and this will combine with human-induced climate change to push global temperatures into uncharted territory. This will have far-reaching repercussions for health, food security, water management and the environment,” he said. “We need to be prepared.”

The Arctic is heating much faster than the rest of the world, and this appears to be having an impact on global weather systems, including the jet stream, which has disrupted weather across the northern hemisphere in recent years.

There is likely to be less rainfall this year in the Amazon, Central America, Australia and Indonesia, the report found. This is particularly bad news for the Amazon, where scientists have grown increasingly concerned that a vicious cycle of heating and deforestation could tip the region from rainforest into savannah-like conditions.

That could have calamitous consequences for the planet, which relies on rainforests as massive carbon sinks.

For each year from 2023 to 2027, the global near-surface temperature is predicted to be between 1.1C and 1.8C above the pre-industrial average, taken from the years 1850 to 1900.

The world has warmed considerably in recent years. In 2015, when the Paris agreement was signed, requiring countries to hold global temperature increases to no more than 2C above pre-industrial levels while “pursuing efforts” to hold them to 1.5C, it was forecast that the chance of temporarily exceeding the 1.5C threshold within the following five years was zero.

This November, governments will meet for the Cop28 UN climate summit, where they will assess progress towards meeting the goals of the Paris agreement. Known as the “global stocktake”, this assessment is likely to show that the world is far off track to reduce greenhouse gas emissions by the 43% this decade that is required to have a good chance of limiting [longer-term] temperature rises to 1.5C.

The November meeting will be just another blah-blah-blah gabfest.  

Too little is being done.  We are heading for climate catastrophe.  We need to cut global emissions by 5% per annum, minimum.  Despite the optimistic signs, emissions are still rising.  Fossil fuel subsidies continue.  And China is still building coal power stations at a hectic pace.

Global fossil fuel subsidies $420 billion

 From The BBC

The burning of fossil fuels is one of the primary causes of global warming.

But despite pledges to phase out support, governments around the world spend more than $420bn (£313bn) each year subsidising the non-renewable energy, according to the UN Development Programme.

How do fossil fuel subsidies work and which countries are spending the most?

Fossil fuel subsidies are measures taken by governments that artificially lower the price of coal, oil, or natural gas.

These take two forms:

• production subsidies - tax breaks or direct payments that reduce the cost of producing fossil fuels
• consumption subsidies - energy price cuts for consumers, such as setting fixed prices at petrol stations

Transparency on fossil fuel funding is generally poor, but about three-quarters of the world's subsidies are estimated to be focused on consumers, and a quarter on producers.

Consumption subsidies are often seen in lower-income countries - largely to help alleviate poverty through measures that can make cooking gas cheaper, or lower the cost of transport.

Iran topped the list for consumption subsidies for 2019 - according to data from the International Energy Agency (IEA) - followed by China and India, all of whom subsidise petrol prices.

A draft agreement published at the COP26 climate summit has called on all countries to accelerate the phasing out of subsidies for fossil fuels - but no firm dates have been set.

All countries in the G7 - representing the world's largest advanced economies - have previously committed to phase out "inefficient" fossil fuel subsidies by 2025.

"If you look globally, you can see there is progress on phasing out subsidies, but it is slow," says Peter Wooders, senior director at the International Institute for Sustainable Development (IISD).

"Within the G7 members there's been some progress on subsidy reform, but it's been quite limited - they really need to do better and it's obviously inconsistent with climate pledges," he adds.

Support for fossil fuels across 81 major economies has been declining in recent years but was still more than $350bn in 2020.

[Meanwhile,] The Energy Policy Tracker has collected data on how major countries have enacted new policies since January 2020 to help fund the energy industry.

It found that since the start of 2020, the world's major economies have spent more funding fossil fuels through new or amended policies than clean energy.

The definition of a subsidy is broader than the IEA and Organisation for Economic Co-operation and Development (OECD) estimates, so the overall figures are higher, but they give us an idea of how countries are funding clean energy compared with fossil fuels.

The US and the UK have invested in clean energy, but they have still spent significantly more funding fossil fuels, according to the data.

US President Joe Biden and UK Prime Minister Boris Johnson have both said tackling fossil fuel subsidies is a top priority.

In January this year, Mr Biden signed an order to stop fossil fuel subsidies - pledging to eliminate government support by 2022.

The Environmental and Energy Study Institute estimates direct subsidies to the fossil fuel industry in the US amount to $20bn per year - 80% of which goes towards oil and gas.

On top of this, the US provides a number of tax breaks to the fossil fuel industry to encourage domestic energy production.

Mr Johnson announced in December 2020 that the UK would stop supporting the fossil fuel industry overseas.

A BBC investigation last year found the UK was spending billions of pounds on fossil fuel projects abroad.

China and India have been increasing investment in renewable energy - but they remain amongst the world's largest public financiers of fossil fuels, spending tens of billions of dollars every year by subsidising both their production and consumption.

Saudi Arabia and Russia have long-standing policies of subsidising fossil fuel consumption through low energy prices, because of vast natural resources of oil and natural gas.

According to the IISD, Saudi Arabia is doing the least of the G20 countries to phase out fossil fuel funding.

It has joined other G20 nations in a pledge to phase out inefficient fossil fuel subsidies, but no target date has been set.

Cost of carbon capture and storage in the US

 Carbon capture and storage is costly.  According to this analysis (below), it will add $50 to $60 to the cost of coal-fired electricity, and $80-$90 to gas-fired.  Lazard's estimate of the cost of new coal is $112/MWh, without subsidy, carbon tax or CCS.  So unless there is a tax credit (= subsidy), forcing coal power stations to introduce CCS will put up the cost of electricity from new coal power stations to ±$170/MWh (1 MWh of coal-fired electricity produces roughly 1 tonnes of carbon).  And the operating cost of existing coal will rise from $41/MWh to $100/MWh.  This compares with the cost of wind + solar + 4 hours of storage of around $40/MWh.   If, instead of a subsidy for CCS, we introduce a carbon tax/price on carbon high enough to make CCS worthwhile, the cost of power from coal will rise anyway.   Either way, coal will just be priced out of the market more quickly.  

A reminder: the EU price on carbon is roughly US$73/tonne.  And the EU  is determined to levy a carbon border tax on imports from countries which don't have a price on carbon, which will drive the global adoption of a carbon tax.  After all, why pay a carbon tax to Europe when you could pay it to yourself?

From The Royal Society

We model the costs of carbon capture and storage (CCS) in subsurface geological formations for emissions from 138 northeastern and midwestern electricity-generating power plants. The analysis suggests coal-sourced CO2 emissions can be stored in this region at a cost of $52–$60 ton−1, whereas the cost to store emission from natural-gas-fired plants ranges from approximately $80 to $90. Storing emissions offshore increases the lowest total costs of CCS to over $60 per ton of CO2 for coal. Because there apparently is sufficient onshore storage in the northeastern and midwestern United States, offshore storage is not necessary or economical unless there are additional costs or suitability issues associated with the onshore reservoirs. For example, if formation pressures are prohibitive in a large-scale deployment of onshore CCS, or if there is opposition to onshore storage, offshore storage space could probably store emissions at an additional cost of less than $10 ton−1. Finally, it is likely that more than 8 Gt of total CO2 emissions from this region can be stored for less $60 ton−1, slightly more than the $50 ton−1 Section 45Q tax credits incentivizing CCS.

The Royal Society. 
Dating from a time when architecture produced beautiful buildings as a matter of course.

Why Australia's coal subsidy was cooked up

 I talk here about the proposed "capacity payment" which is really just a horribly expensive coal subsidy.

The authors of the report I mention also wrote this article, which points out that most coal power stations will be loss-making by 2025.  The response of the government was the new coal subsidy plan.  There is a case for capacity payments, but they should only go to generators that can supply "dispatchable electricity", in other words, electricity supplies which can be rapidly ramped up and down, like gas, hydro and batteries, and unlike coal.

Coal-fired power stations in Australia’s National Electricity Market (NEM) will confront grave financial difficulties within the next 5 years due to extra competition from a large influx of renewable energy supply. 

The analysis detailed in this report suggests that the financial viability of several coal generators in the NEM will become severely compromised by 2025 such that closure becomes an attractive or even unavoidable choice for at least one power plant owner. An additional 28 gigawatts (GW), or 70,000GWh (annualised) of renewables is expected to be installed by 2025, compared to our 2018 baseline year. 

By 2025, it is forecast that the installed renewables capacity will be 8GW of utility scale solar, 12GW of wind, and 22GW of rooftop solar. Renewables is forecast to provide 40-50% of NEM 2025 demand. The additional renewable energy generation coming online from 2018 to 2025 will be enough to supply 99.9% of the Australian Energy Market Operator’s (AEMO) expected demand growth and 98% of the gap expected to be left from the Liddell power station retirement. Even after filling the demand growth and Liddell gap there will be surplus renewable generation of approximately 57,000GWh. 

As a result, coal and gas generators will be displaced in the wholesale market, due to the merit order effect. Renewable generators have extremely low operating costs (economically defined as short run marginal cost or SRMC) largely due to having no fuel costs (as wind and solar resources are free). Renewable generators can therefore bid into the market at prices close to zero, undercutting other generators on price. Increasing amounts of renewable installations therefore reduce the output of other generators with higher operating costs. 

We expect around three-quarters of gas generation and one-quarter of coal-generation to be replaced by renewable energy generation in the seven year period. The incoming renewables will also have a deflationary impact on wholesale electricity prices, further decreasing the profitability of existing plants. Coal plants will see a double hit to their electricity sales: both volume and price is forecast to decrease out to 2025. The considerable reduction in coal generation and wholesale electricity prices is expected to drive reduction in coal plant wholesale spot market earnings (Earnings Before Interest and Taxes or EBIT). 

Coal plants could suffer an estimated EBIT reduction of up to 119% comparing 2018 to 2025. In a scenario where prices in 2025 are the same as NEM-wide 2020 prices (Scenario A in our study), Eraring, Mt Piper and Vales Point B would be expected to be losing money. In a scenario where price reduces down below 2015 prices (Scenario B), Eraring, Mt Piper, Vales Point B, Gladstone and Yallourn W be making a loss. This is based on EBIT estimations in the case that the generators are, theoretically, fully spot market exposed (i.e. does not include contracts) and excludes revenue from other services such as FCAS.

With this magnitude of reduction in EBIT, coal generator exits are likely to occur far sooner than AEMO has planned for in its Integrated System Plan (ISP). Once a coal generator exits the market, the dynamics outlined in this study will change: prices are likely to then increase near term and other coal generators that remain online may benefit from increased revenue. Electricity sector investors are recognising that the plunging cost of solar, its rapid speed to deploy, and its vast popularity with investors and Australian householders has led to an irrevocable change in the shape of the electricity supply-demand curve and market that leaves inflexible and high fixed cost baseload coal plants ill-suited to the future grid. 

Unfortunately for investors in coal plants, while there remains plenty of evening demand after the sun sets, the amount of daytime demand is becoming so small that coal plants are left in a battle amongst each other to remain online. This is a serious problem for aging coal plants because once they switch off, it typically takes several hours to start back up again and then several more hours to be capable of reaching full output, and by then the evening peak demand window of opportunity has passed. In addition, such modes of operation place considerable stress on the components of a coal plant, increasing maintenance costs and reducing their life. 

Other dispatchable power plant technologies are much better suited to this new future, dominated by solar and wind, because they can ramp their output up and down more quickly and with less stress on their components. Given this context, the New South Wales Government’s Electricity Infrastructure Roadmap (2020) provides an essential and timely response to ensure coal plant capacity is replaced in advance of their exit. 

Supporting the findings in our report are that several energy market corporations have already substantially written-down the value of their generation assets or cancelled upgrade plans, as announced over February 2021: 

 Origin Energy has downgraded its energy market full year EBITDA by 8.6% (earnings before interest, taxes, depreciation, and amortization), blaming low wholesale prices and the drop in demand due to the pandemic 

 AGL has written down over $2.7 billion of value, due to reduced wholesale power prices, a failure to account for coal closure site rehabilitation and government plans to underwrite plants 

 More than $1 billion has been wiped off the value of Queensland government-owned fossil fuel generators as falling wholesale electricity prices slash generator profits. Profits generated by Queensland government-owned generators, including those controlled by Stanwell Corporation, CS Energy and CleanCo, fell by 88% in the 2019-20 financial year.  

 Delta Electricity, the owner of Vales Point coal plant, dropped its bid for an $8.7m publicly funded upgrade. 

This report has chosen to focus its analysis on coal plant profitability, as exit of coal plants has substantial implications for energy security, price and emissions outcomes but gas power plants will also suffer substantial deterioration in profits (exacerbated by recent dramatic hikes in gas prices). Yet this is partly mitigated by the fact that gas power plants tend to have lower fixed costs and much greater ability to ramp output up and down quickly. Peaking gas will thus play a role into the future, however the high short run marginal cost compared to renewables and batteries is likely to drive significant reduction in gas generation. 

Energy storage technologies such as batteries or pumped hydro have a feature that gas does not possess; they can take advantage of periods of plentiful sun or wind to replenish their storages at very low cost. This is in addition to having significantly faster ramping capabilities than gas plants, let alone coal power plants. Furthermore, for short peaks in demand batteries are already the lowest cost option for providing dispatchable capacity.  

It is expected batteries will play a growing role into the future due to ongoing technology improvements that have been characterised by double-digit percentage annual cost reductions. These physical and economic realities mean that efforts to keep inflexible coal plants afloat, let alone build new plants, are likely to be counter-productive in terms of both energy affordability and reliability as well as being contrary to both Federal and State Government’s commitments to address climate risk. Rather than seeking to delay or even deny the inevitable exit of coal, governments, as well as investors, need to be planning to replace them. 

Australia's new coal subsidy

 From IEEFA

Households may soon face a new charge on their power bills – potentially double that from the carbon price – if Energy Ministers agree to a proposal for a new capacity payment to power companies, according to a new report prepared by the Institute for Energy Economics and Financial Analysis (IEEFA) and Green Energy Markets analysing the cost and reliability aspects of this capacity payment recommendation.

The Energy Security Board (ESB), with the backing of Australia’s Federal Energy Minister, wants electricity consumers in the national electricity market (the “NEM”) to start paying capacity payments to generators.

Johanna Bowyer, report co-author and IEEFA electricity analyst says under the scheme, electricity consumers would pay power plants not just for the electricity they actually generate, but also for the size of capacity installed in the power plant, irrespective of how often it might be needed.

“The ESB’s new proposal will require electricity consumers to pay primarily conventional generators such as coal and gas plants for what they could produce if the plant was operating at its full level of capacity, regardless of whether or not, or how often, the generator uses all of its capacity to produce electricity,” says Bowyer.

According to the ESB and Federal Energy Minister Angus Taylor, this new payment is necessary because many coal-fired power stations are becoming financially unviable and if they were to exit suddenly, it could lead to blackouts.

“While it is true that several coal power plants are facing financial difficulties, our analysis finds that reliability is not at threat by the level of likely coal power plant exits over the next ten years,” says Bowyer.

“Thanks in part to actions of the Federal Government, there is a flood of dispatchable capacity entering the NEM. This covers a range of controllable sources of power from hydro to batteries, bioenergy, gas and even some small coal power plant upgrades.”

Report co-author, Tristan Edis of Green Energy Markets says the grid is in a very different situation to when Hazelwood was shut down in 2017.

“From 2017 to 2027, almost 6,500 megawatts of dispatchable power project capacity will be added to the grid,” says Edis.

“To put this into perspective, this is almost double the capacity that will be lost from the next three coal power stations due to close after 2027 – Yallourn, Callide B and Vales Point B.

“This means that all states across the NEM have enough power capacity for the next decade to meet the strict reliability standard of satisfying more than 99.998% of demand.

“There are also thousands of megawatts of further battery projects in development which could be committed to construction if required.

“Meanwhile, the extra cost imposed on consumers to keep coal power plants afloat could be very large.”

IEEFA found that based on the range of capacity market prices seen in the Western Australian electricity market, consumers in the NEM would face a cost of between $2.9 billion to $6.9 billion each and every year if the capacity payment goes through.

Bowyer says the cost for households would be substantial.

“We found households in the NEM would see their electricity bills increase anywhere between $182 to $430 a year,” says Bowyer.

“By way of comparison, the cost increase faced by New South Wales, Victorian and Queensland consumers from the carbon price was between $112 to $150.

“Based on the Western Australian capacity payment experience, consumers could be facing a new charge which is potentially more than double that of the carbon price.

Make no mistake―this might be called a "capacity payment" but it is in fact a simple subsidy to coal.  It doesn't apply to wind and solar or batteries.  Now, a capacity payment to gas generators would make sense, because gas can be ramped up rapidly to fill supply gaps.   But coal power stations take many hours to ramp up.  And just how much battery storage could be bought for the lowest estimate of the cost of this boondoggle?  Ten times the amount of the Victorian big battery, which  cost $300 million, and provided 1200 MWh of storage would provide about 30 minutes of storage for the NEM (Oz's east coast grid)  Every year!  4 hours of storage is all that's needed to allow us to get to 90% renewables.  Yet battery storage is excluded from this capacity payment.  

The Right screeched and shouted about the carbon tax when it was introduced.  They won an election based on their hysteria.  They claimed that they were worried about the "Aussie battlers", that higher electricity prices because of the carbon tax would crush Australia (hint: it didn't―almost all the proceeds were handed back in the form of tax cuts).  And yet they are happy to enthusiastically support an impost which could cost twice as much as the carbon tax.  As ever, the well-being of their donors matters more than the public interest.  Shameful.

The Australian is Murdoch's right-wing "quality paper" in Australia

G-20 countries still support fossil fuels

 From BNEF

Bloomberg Philanthropies and BloombergNEF today released a new Climate Policy Factbook outlining the progress that each G-20 member country has made toward moving to a low-carbon economy. The report was released to increase transparency and inform policy priorities ahead of upcoming international climate negotiations, including the G-20 Summit and Ministerial Meetings, the 75th Session of the U.N. General Assembly, and COP26.

The Climate Policy Factbook highlights three concrete areas in which immediate government action is needed to limit global warming to 1.5 degrees Celsius: 1) phasing out support for fossil fuels, 2) putting a price on emissions, and 3) encouraging climate risk disclosure. In each of these areas, the report found that the policies of many G-20 countries were significantly off course.

“Winning the fight against climate change requires urgent and bold action across every industry, and we need governments to lead the way,” said Michael R. Bloomberg, founder of Bloomberg LP and Bloomberg Philanthropies and the UN Secretary-General’s Special Envoy on Climate Ambition and Solutions. “Our hope is that G-20 members take this report to heart, use its recommendations to hit their Paris Agreement targets, and show the world the health and economic benefits of building a resilient, sustainable global economy.”

Global groups have been leading the call for robust and credible climate action, especially in these three specific areas ahead of critical climate events this fall. The Net Zero Assets Owners Alliance, which comprises international institutional investors committed to transitioning investment portfolios to net-zero greenhouse gas emissions by 2050, recently came out in support of the adoption of carbon pricing mechanisms to regulate emissions globally. The Alliance has repeatedly called on governments to implement the robust and credible climate policies needed to ensure the objectives of the Paris Agreement are met, as well as manage the costs of climate change and safeguard the stability of the global financial system.

Dr Günther Thallinger, Member of the Board of Management of Allianz SE and Chair of the UN-convened Net-Zero Asset Owner Alliance said: “As of today, policy frameworks across most G-20 countries are not sufficient to drive real economy to net-zero transition to achieve 1.5C with reasonable likelihood. The new NDCs and 2050 net-zero targets from some G-20 countries are warmly welcome, however pledges and targets alone will not be sufficient to change course. The development and publication of credible 2030 emission reduction plans, which create a rising price on carbon and have clear regulatory standards, including on climate-related financial disclosures are urgently needed.”

Phasing out support for fossil fuels, particularly coal, and shifting funding to renewables is core to the COP26 goals and a crucial step to accelerating the clean energy transition. However, the report finds that governments of all 19 individual country members of the G-20 continue to provide substantial financial support for fossil-fuel production and consumption. Although G-20 governments have announced ambitious climate commitments to reach the goals of the Paris Agreement, those same countries have continued providing support for coal, oil, gas, and fossil-fuel power, including $3.3 trillion between 2015 and 2019. At today’s prices, that sum could fund 4,232GW in new solar power plants – over 3.5 times the size of the current U.S. electricity grid.

G-20 nations collectively cut fossil fuel funding by 10% from 2015 to 2019, with eight member nations making notable progress in reducing their fossil fuel subsidies by 10% or more (Argentina, Germany, Italy, Saudi Arabia, South Africa, South Korea, Turkey, and the U.K.). However, to remain in line with the Paris Agreement goals in the lead-up to COP26, the G-20 cannot rely on the actions of a few nations. Every G-20 country must take immediate action to end support of fossil fuel projects and accelerate their coal phaseouts. During the same timeframe (2015-19), eight members increased their support – notably Australia, Canada, and the U.S. – encouraging the use and production of fossil fuels, distorting prices, and risking carbon ‘lock-in’ – where assets funded today continue to emit high levels of emissions for decades ahead.

To effectively lead the phaseout of coal and other fossil fuels ahead of COP26, G-20 countries must also implement emission pricing mechanisms to hold polluters accountable for the true social cost of their actions. To date, 12 G-20 countries have established nationwide prices on greenhouse gas emissions either by a carbon tax or market-based mechanisms, with France and Germany making the most progress in terms of share of emissions covered by a carbon tax or market. This is partially due to their participation in the E.U. Emissions Trading System (ETS), and their own national policies that increased the share of emissions covered by an emission price.

Eight of the countries that have adopted emission pricing have produced mixed results due to lax policies, with either the carbon price set too low or the concessions to emitters too generous. For example, in the U.S., state-level programs cover less than one-tenth of national emissions, collectively, and prices are relatively low. Several G-20 countries, such as Saudi Arabia, Russia, and Brazil, have yet to put a price on greenhouse gas emissions.

Enforcing globally accepted climate-risk disclosure frameworks, like that of the Task Force on Climate-related Financial Disclosures (TCFD), is critical to ensuring climate risks and opportunities are assessed accurately, so financial institutions can consider and price the impact of climate externalities into their credit risk and valuation models. While the G-20 has voiced support for voluntary climate-related reporting, few members have legislated it. Central banks also play an important role in climate-related disclosure alongside their respective G-20 governments by integrating climate risks into the ‘stress tests’ they routinely conduct to test financial institutions’ health and assessing their stability under potential climate scenarios.

“Given that the G-20 accounts for nearly three-quarters of global emissions, progress from those governments in these three areas would mark a huge step forward toward tacking climate change. So far, they have yet to step up to the plate,” commented Victoria Cuming, head of global policy at BloombergNEF and lead author of the factbook.

Countries which say they support the goals of the Paris Agreement, but continue to subsidise fossil fuels are faking it.   When the carbon border tax becomes widespread, these subsidies will have to taken into account.

Australia: propping up fossil fuels costs more than the army

 From RenewEconomy

Federal and state governments are spending more than $10 billion a year propping up the fossil fuel industry, through a system of tax breaks and cash handouts that encourage the entrenched use of oil, gas and coal by Australian business, new research by the Australia Institute finds.

The biggest portion of that figure is the whopping $7.84 billion the federal government returns to business through its fuel tax credit scheme. That’s more than the $7.82 billion it put aside for the Army in the 2020-21 budget.

The progressive Canberra-based think tank, which is a vocal campaigner for aggressive climate action, found just over $1.5 billion of that $7.84 billion went on fuel used by the fossil fuel mining industry. In other words, it subsidised the fossil fuels used to help dig up more fossil fuels.

When the states and territories’ spending on fossil fuels is added to the tally, the fossil fuel industry will have received $10.3 billion of government support in the 2020-21 financial year.

While the term “fossil fuel subsidies” may conjure up images of government hand-outs to massive coal or gas companies, the research reveals a reality that is subtler but more entrenched.

The fuel tax credit is a scheme that allows business to claim a tax credit on part or all of the fuel excise they pay on petrol, diesel, or liquefied natural gas – excluding that which is used in cars and other small vehicles that travel on public roads. It applies to small, medium and large businesses alike.

Fuel excise currently stands at 42.7 cents per litre of petrol and diesel, and 29.3 cents per kilogram of liquefied natural gas. The government credits the full amount on fuel that is used for purposes other than road transport, and a partial credit on fuel used in heavy road transport.

Fuel excise is vaguely regarded as a means of taxing road use, so there would appear to be some logic to refunding that tax when the fuel is used for purposes other than public road use.

But The Australia Institute said the link to road use was an illusion. It claimed fuel taxes were “not linked in any way to road funding, as is commonly suggested by recipients of this subsidy; they simply contribute to general revenue, like most other federal taxation”.

It argued this was tax revenue that could be allocated to any purpose – including low-carbon purposes. The decision to give it back to businesses substantially reduces the real cost of fuel, and it must therefore be regarded as a fossil fuel subsidy.

“Coal, oil and gas companies in Australia give the impression that they are major contributors to the Australian economy, but our research shows that they are major recipients of government funds,” said Rod Campbell, research director at The Australia Institute and co-author of the report.

“From a climate perspective this is inexcusable and from an economic perspective it is irresponsible. The major subsidies are Commonwealth tax breaks that mean the largest users of fossil fuels get a refund worth $7.8 billion on a tax that the rest of the community has to pay.”

The Australia Institute defines a “fossil fuel subsidy” as any instance “where governments choose to allocate scarce resources to fossil fuel industries in a way that restricts use of those resources for other government priorities”.