Like many countries, Australia is highly vulnerable to the impacts of climate change and has many years of experience with the environmental, human, and economic consequences of these impacts. Despite this, Australia was ranked as the third largest fossil fuel exporter in 2019. Its fossil fuel exports in that year were nearly three-quarters the size of all exports from EU countries combined, surpassing those of Iraq, Qatar, and Canada. These exports have historically delivered substantial economic benefits, underpinning Australia’s domestic economy and funding essential services and infrastructure. This economic reliance generates a significant conflict between Australia’s climate mitigation efforts, which aim to reduce greenhouse gas emissions by 50% by 2030 and achieve net zero by 2050, and its development programs.
The conflict is most visible when considering the economic benefits conferred to the country from its fossil fuel exports, which constitute around a quarter of Australia’s total exports. There is a perception that fossil fuel exports and royalties generate significant income for governments nationwide. In some cases, this is correct. For example, the Queensland government received coal royalties of around AU $3.5 billion in 2019-2020 (11.7% of total non-grant revenue). In contrast, zero-carbon energy production and exports would not deliver royalties to the State. Given this perception, some governments argue that fossil fuel export and royalty income are crucial for funding healthcare, defense, infrastructure, education, disaster response, and remediation. For example, the leader of the Conservation Nationals Party stated in 2021 that ‘fossil fuels are our nation’s largest export. If you take away our nation’s largest export … you must accept the lower standard of living.’ Other politicians have expressed concern that Australia’s commitment to emissions targets would negatively impact the resources and agricultural sectors.
This perceived dependency on fossil fuel export income and domestic royalties for ensuring the well-being of Australia’s citizens is in direct conflict with policies seeking to reduce greenhouse gas emissions. The Australian government recognizes this, with the threat of climate change producing natural disasters and placing a ‘significant strain on social, economic and national security issues which negatively impacts democracies in our region.’ Yet, the country continues to approve new fossil fuel mines, including gas hubs that will pump out many times Australia’s domestic emissions for decades.
Figure: Projected lifetime emissions from fossil fuel projects currently under consideration by the Australian government. Source: Greenpeace Australia Pacific, emissions data sourced from Sunrise, Climate Analytics, and Greenpeace.
The perception that Australia is economically dependent on fossil fuel-related income directly affects the implementation of climate mitigation and development policies and programs in Australia and the wider Pacific region. For example, transport decarbonization is a critical climate mitigation policy that would generate significant health benefits through reducing air pollution. Yet the absence of fuel efficiency standards and few incentives for electric vehicle production have made Australia a dumping ground for dirty vehicles. Development objectives are still being met with fossil fuel-intensive transport, such as trucks and diesel freight, at the cost of climate emissions and human health.
Another example of how Australia’s fossil fuel income directly impacts Australia’s climate mitigation and adaptation policies can be seen in the Pacific arena. As a key player in the region, Australia provides aid to Pacific neighbors facing an existential threat from climate change. The progression of these impacts could cause significant challenges to Australia, which may necessitate increased financial support, migration pathways, and cultural protection programs. However, resource constraints, lack of land availability, anti-migration attitudes, and inadequate legal protections for climate refugees pose significant challenges. Forced migration can lead to economic, social, cultural, and psychological costs, including the potential loss of tradition, livelihoods, language, and identity.
This tension could be resolved through a number of mechanisms. First, Australia’s dependence on fossil fuels may be overestimated. Fossil fuels contribute much less to the government than other large fossil fuel exporting nations such as Qatar and Saudi Arabia, where coal and gas extraction comprise the majority of government revenues. Furthermore, China, Japan, and South Korea account for around two-thirds of Australia’s fossil fuel exports. All three countries have set targets to achieve net zero by around mid-century. Some calculations suggest that a transition by Australia away from fossil fuel exports may have a limited overall effect on Australian GDP, while coal exports, in particular, are already projected to fall by about 80% by 2050 due to these countries’ net-zero targets.
Australia’s continued dependency on fossil fuel exports to fund mitigation and adaptation programs also belies hidden costs. For example, in the 2020-2021 budget year, subsidies supporting the fossil fuel sector amounted to $10.3 billion. Reports suggest that fossil fuel companies in Australia receive more subsidies than they contribute to governments. For example, Michael West Media reported, ‘In 2019-20, the fossil fuel industry earned $115 billion from selling Australia’s petroleum and coal resources and paid state and federal governments an estimated $7.3 billion in royalties.’
Figure: TO Taxation statistics 2017–18, Table 5: GST and other taxes – Petroleum resource rent tax, Resources and Energy Quarterly Historical Data. Sourced from Michael West Media, ‘Fossil Fuel Fiesta’, May 26, 2021
Finally, equitable income options for a zero-carbon export and royalty regime have been calculated, showing potential policy mechanisms for maintaining government revenues. Introducing an equitable multinational corporate taxation and progressive royalty regime could have boosted government income by $55 billion in 2022/23: 54 times the annual Federal spending on environmental protection.
While Australia remains a major global carbon supplier, the conflict between achieving net zero emissions and supporting domestic climate mitigation and development needs is stark. This high dependency on fossil fuel export income means Australia ‘bears the moral responsibility for placing fossil fuels on the international market.’ However, as growing research indicates, Australia can choose a different path. Eliminating fossil fuel subsidies, substantially boosting support for zero-emissions export avenues, and urgently legislating domestic carbon adaptation and mitigation policies, such as stringent fuel emission standards, could maintain Australia’s export income while aiding the global decarbonization effort.
This Post was submitted by Climate Scorecard Australia Country Manager Dr Robyn Gulliver.