Verdict
Comparing the industries side-by-side isn’t straightforward, as the contexts and stages of development differ. However, it is safe to say that while the renewable industry does benefit from federal and state mechanisms to build and mature the market, the fossil fuel industry currently receives billions in subsidies.
Analysis
Governments create subsidies for industries for a range of reasons. Subsidies are basically incentives or forms of support designed to help industries in many ways. For example, subsidising the energy industry (both fossil fuels and clean energy) has been a common policy of many governments at the federal and state levels because it can help attract investment, ensure energy reliability, create jobs and provide other economic benefits.
First, what is a subsidy?
The tricky bit of comparing subsidies between renewable and other energy projects is that there is ongoing disagreement about what is considered a “subsidy”. There are two key categories – explicit subsidies, which are direct financial benefits like tax incentives, direct payments and loan guarantees, and implicit subsidies, which are more indirect but still lowers costs like free or cheap access to public resources and unpriced environmental damage or emissions1.
As implicit subsidies are very difficult to measure, comparing government support to any industry is difficult.
There are also debates as to whether a subsidy includes only financial support from government or whether it includes financial support from the private sector or consumers that have been driven by government mechanisms.
To keep it simple, we will look at key government schemes or mechanisms that are designed to incentivise investment in either the large-scale renewable energy industry or traditional energy industries (gas or coal).
Renewable energy subsidies
Multiple federal and state-based schemes are designed to support and incentivise the establishment and maturing of the renewable energy industry in Australia.
Key federal subsidies include:
- The Renewable Energy Target: Operates by requiring electricity retailers to source a specified amount of their energy from renewable sources by creating and trading renewable energy certificates. It does not directly cost the federal government beyond administering the scheme. The costs are primarily borne by electricity retailers, who pass those costs on to consumers through electricity prices. The RET is due to finish in 20302.
- The Capacity Investment Scheme: Designed to accelerate investment in renewable energy generation and storage by underwriting contracts for renewable generation projects through a competitive tender bid process3. Like the RET, this scheme does not directly cost the government beyond administrating and regulating it but provides an indirect incentive.
- Australian Renewable Energy Agency: Offers financial support for renewable energy projects, research and development. As of September 2024, ARENA has committed over $2.61 billion in grants to 735 renewable energy projects since its inception in 20124, 5.
Other schemes include subsidised loan financing or concessional loans by the Clean Energy Finance Corporation. Rewiring the Nation should also be considered as it funds projects designed to modernise and upgrade the grid and invest in new transmission lines to deliver renewable energy across the country6.
While it is difficult to quantify federal government support for renewable energy, one recent estimate was $29 billion from 2014-20237. In the 2024-25 federal budget, the government allocated about $22 billion to support renewable energy initiatives through the ‘Future Made in Australia’ package.8
Several state and territory-based schemes are also designed to attract large-scale renewable energy investment. For example, the NSW government has the long-term energy service agreement scheme, which provides revenue certainty to private investors in renewable generation and storage by providing generators with the option to sell their electricity at an agreed minimum fixed price9. In Victoria, the government holds auctions to help meet the state renewable energy target by providing long-term contracts that create investment certainty to build new energy generation projects10.
Most states also have incentives targeting solar panels on householders and businesses to drive small-scale market demand.
Compare to traditional energy industries
Governments have supported traditional energy industries like coal and gas in multiple ways since the first coal-fired power station opened in Australia in the 1970s. Back then, there was a significantly different political environment, and most power stations were government owned before being sold to private companies in the 1990s. The shift from government owned energy assets to today’s privatised energy industry is another reason why it’s difficult to compare traditional energy industries, which are more mature than the renewable energy sector, which only started emerging in the mid 2000s.
Another key consideration is that many studies suggest implicit subsidies for fossil fuel companies far exceed explicit subsidies. Remember, an implicit subsidy is an indirect financial advantage, such as cheaper access to public resources, waivers, and unpriced environmental damage or emissions. Research from the International Monetary Fund suggests that the omission of implicit subsidies makes the true support for fossil fuels higher than suggested11.
Government subsidies for coal or gas industries tend to be tax credits or breaks, of which the Federal government’s Fuel Tax Credit Scheme is the biggest. In 2023-24, this cost $9.6 billion. Other tax breaks include the Aviation fuel tax break and the Petroleum Resources Rent Tax, which account for a further $1.99 billion12.
The federal and state/territory governments also support coal and gas projects by investing in new supporting infrastructure. For example:
- The Middle Arm Precinct in the Northern Territory is funded by the federal and Northern Territory governments. It will fund infrastructure such as new roads, power and water, a shipping channel and new wharf. While these are technically ‘common use’ they will be primarily used by the gas processing facility13.
- The NSW’s Coal Innovation Fund which is aimed at research and development to reduce emissions associated with the mining and use of coal14.
- The QLD frontier gas exploration grants program designed to fast-track the development of future gas supply for Queensland.
Generally, federal and state governments subsidise fossil fuel and gas industries through incentives for exploration and development, infrastructure and regulatory support to ensure a reliable energy system.
In 2023-24, subsidies for coal and gas industries from all Australian federal and state/territory governments was estimated to be $14.5 billion which was an increase of 30% from the previous year15, 16.
Conclusion
Navigating the landscape of government subsidies for energy industries reveals a complex and often murky picture. While the renewable sector benefits from various federal and state mechanisms aimed at fostering growth and market maturity, the fossil fuel industry continues to receive significant, often hidden, subsidies that prop up its operations.
These subsidies, both explicit and implicit, are critical in sustaining fossil fuel industries despite growing pressures for decarbonisation.
Again, comparing the two industries side-by-side isn’t straightforward, as the contexts and stages of development differ. However, what’s clear is that both sectors enjoy substantial government backing, with renewable energy still playing catch-up in terms of long-term, sustained support relative to the mature fossil fuel industry.
References
1 – International Monetary Fund (n.d.) Energy subsidies. Available at: https://www.imf.org/en/Topics/climate-change/energy-subsidies
2 – Clean Energy Regulator (n.d.) Large-scale Renewable Energy Target. Available at: https://cer.gov.au/schemes/large-scale-renewable-energy-target
3 – Department of Climate Change, Energy, the Environment and Water (n.d.) Capacity Investment Scheme. Available at: https://www.dcceew.gov.au/energy/renewable/capacity-investment-scheme
4 – Australian Renewable Energy Agency (n.d.) Funding and Investment Plan. Available at: https://arena.gov.au/about/publications/funding-investment-plan/
5 – Energy Magazine (2023) Record ARENA funding approved in 2022–23. Available at: https://www.energymagazine.com.au/record-arena-funding-approved-in-2022-23
6 – Department of Climate Change, Energy, the Environment and Water (n.d.) Rewiring the Nation. Available at: https://www.dcceew.gov.au/energy/renewable/rewiring-the-nation#toc_1
7 – Centre for Independent Studies (2023) Counting the cost: Subsidies for renewable energy. Available at: https://www.cis.org.au/publication/counting-the-cost-subsidies-for-renewable-energy/
8 – Baker McKenzie (2024) Australia Federal Budget 2024–25: Key takeaways for the energy transition. Available at: https://insightplus.bakermckenzie.com/bm/energy-mining-infrastructure_1/australia-federal-budget-2024-25-key-takeaways-for-the-energy-transition
9 – EnergyCo NSW (n.d.) Long-Term Energy Service Agreements. Available at: https://www.energyco.nsw.gov.au/industry/long-term-energy-service-agreements
10 – Department of Energy and Resources Victoria (n.d.) Victorian Renewable Energy and Storage Targets. Available at: https://www.energy.vic.gov.au/renewable-energy/victorian-renewable-energy-and-storage-targets
11 – International Monetary Fund (n.d.) Energy subsidies. Available at: https://www.imf.org/en/Topics/climate-change/energy-subsidies
12 – The Australia Institute (2024) Fossil fuel subsidies 2024. Available at: https://australiainstitute.org.au/wp-content/uploads/2024/05/P1543-Fossil-fuel-subsidies-2024-FINAL-WEB.pdf
13 – Northern Territory Government (n.d.) About the Middle Arm Sustainable Development Precinct. Available at: https://middlearmprecinct.nt.gov.au/about-the-precinct
14 – NSW Government – Resources (n.d.) Coal Innovation NSW. Available at: https://www.resources.nsw.gov.au/invest-nsw/coal-innovation-nsw
15 – The Australia Institute (2024) Fossil fuel subsidies in Australia 2024. Available at: https://australiainstitute.org.au/report/fossil-fuel-subsidies-in-australia-2024/
16 – The Conversation (2024) For decades governments have subsidised fossil fuels – but why? Available at: https://theconversation.com/for-decades-governments-have-subsidised-fossil-fuels-but-why-213467
