This year’s federal budgetThe budget is characterized by an avalanche, or a flood of cash-for-cash, to meet cost-of-living pressures. Some sound initiatives are also taken. However, more fundamental decisions are deferred. This is evident in how the budget deals with energy and climate change.
The A$1 billion to expand Australia’s low emission technology capabilities, such as green hydrogen, is welcome. Cuts to fuel excise are poor policy both on fiscal and environmental grounds.
From the devastating bushfires of 2019-2020 to this year’s shocking floods, unprecedented climate-related disasters have wrought havoc across Australia.
It is deeply regrettable, however, that the budget estimates and forward estimates fail to specifically recognize the ongoing, and escalating, magnitude and fiscal impact of these catastrophes.
Fuel excise is a poor policy
To offset rising petrol prices, the government will reduce fuel excise by half for six months. Anyone driving a petrol or diesel car will be happy with this short-term reduction. It may also provide the political boost that the government seeks before the election.
It is poor fiscal policy. First, the outlook for global crude oil prices is as uncertain as the outcome in Ukraine. The cut in fuel excise is likely to be either too strong or insufficient.
Second, it will be difficult politically to restore the level. The measure is not targeted as a relief measure for households in financial stress.
It is also a stark example of how motorists today could be financially more successful if Treasurer Josh Frydenberg were able to implement his proposed fuel efficiency standard 2017He was the minister of energy and the environment in the year 2000.
At that time, the benefit to motorists was calculated to be more than $500 per year by 2025 – and that was based on prices below $1.50 per litre, well short of current levels above $2. We would have made tangible progress in reducing the emissions from the transport sector.
Low-emission technologies funded
Development and deployment of low-emission technologies – such as clean hydrogen, green steel and carbon capture and storage – will be critical to meeting Australia’s commitment to net-zero carbon emissions by 2050.
The government’s commitment of more than $1 billion to projects to support these technologies is welcome, as is the allocation of $84 million to support the development of Microgrids.
These investments are generally aligned with the government’s Technology investment roadmap2020. It would be preferable for these projects to go through an independent agency that follows the criteria established by the government.
The government emphasises a “technology, not taxes” approach to bringing Australia’s emissions to net zero. However, funding the net zero transition with government funds is not sustainable.
We need policies like a price on carbon to encourage the market and scale up these technologies. The recent historyThis is because of the Australian policies. It will be a challenge for anyone who is elected to be energy minister in the wake of the federal election.
Australia’s extensive renewable energy and critical minerals resources mean we could be a global leader in manufacturing, for instance, downstream processing or iron ore, copper, lithium and similar metals critical in a low emissions world.
The budget of $1 billion is to boost our economy. Manufacturing capabilityAnother step in the right direction is
Good governance should also include a clear framework to determine which projects are selected. This process should be based primarily on Australia’s potential competitive advantage.
This advantage is primarily due to our renewable energy and mineral resources. However, certain regions may have advantages based upon existing infrastructure like ports and skilled workforces.
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Investments in low-emission technologies and manufacturing is closely aligned with this budget’s focus on Australia’s regions.
Regions will welcome investment in new opportunities. It should be accompanied with a strong commitment to work with regional communities that might suffer job loss and other economic harms during the transition away fossil fuel industries.
Thinking about the short-term climate
Frydenberg’s budget acknowledged the devastation wrought in Australia by floods, drought and bushfires. However, it did not include the future costs of such disasters in the budget for climate change.
The budget includes measures to make Australia more resilient and to reduce the impact from these disasters. It also supports insurance coverage. These are short-term commitments.
These disasters will only have greater economic and fiscal consequences. A changing climate will also increase the risks of rising health expenditures and lower government revenues from key exports like liquefied natural gases.
What can the government do differently?
The federal government should, at minimum, try to understand and quantify the data. Climate change and its fiscal consequences.
First, it should include some of the immediate risks of climate change in the budget’s “Statement of Risks”, which outlines the general fiscal risksThis could impact the budget.
It should also adjust medium-term projection models to account for declining revenue from fossilfuels, higher interest rates, and higher expenditure on natural disaster support and health.
Third, it is necessary to model the longer-term effects of climate change on the budget. This information should inform the next Intergenerational ReportThe economic outlook for Australia in the coming decades is 2025
Governments must reevaluate their fiscal strategy in light of climate change. There are many climate-related uncertainties that make it important to preserve fiscal flexibility and firepower to mitigate the direct effects of climate change.