Climate change and energy

Budget Review 2010-11 Index

Budget 2010–11: Climate change, energy and the environment

Climate change and energy

Anita Talberg and Mike Roarty

Climate change

New government spending in relation to climate change focuses on renewable energy and energy efficiency measures. There are no new funds for specific emission reduction policy instruments, or for adaptation. Conservation and environmental groups, while welcoming the energy initiatives, are generally disappointed by this Budget.[1]

Carbon Pollution Reduction Scheme

The Government has announced that it will not put forward legislation for its emissions trading scheme, the Carbon Pollution Reduction Scheme (CPRS), until after the Kyoto Protocol’s first commitment period ends on 31 December 2012.[2] The delay of the CPRS creates a net improvement in the Budget position of $652 million.[3] This has been allocated over four years to a new Renewable Energy Future Fund (REFF).[4]

The REFF will come under the expanded Clean Energy Initiative (CEI), which is administered by the Department of Resources, Energy and Tourism. This will bring the total budget of the CEI to $5.1 billion.

International funding

In associating itself with the Copenhagen Accord in January 2010, the Australian Government agreed to a collective commitment by the developed world to provide developing countries with US$30 billion between 2010 and 2012, increasing to US$100 billion dollars annually by 2020.[5] The Budget includes a total of almost $300 million towards this commitment, shared between the programs listed in Table 1.

Table 1: International climate change funding

Source: Budget measures: budget paper no. 2: 2010–11, pp. 121–2, 199.

The Budget also provides an additional $56 million in 2012 and 2013 towards the existing International Forest Carbon Initiative with Indonesia and Papua New Guinea.[6]

While this contribution seems significant, it must be viewed in the context of Australia’s overall Overseas Development Assistance (ODA) funding. Total Australian ODA has increased by $500 million, or 9 per cent since the 2009-10 Budget. However, $300 million of this increase is destined for the climate change programs listed in Table 1. There has been criticism that the large sum given to climate change in the ODA may mean reductions in real terms for humanitarian aid and other more immediate assistance priorities.[7] This point was also made during international negotiations, when developing countries expressed concern that financial commitments to international climate change action from developed countries might come at the expense of other existing ODA, such as investment in health and education.[8]

For a more detailed review of international development assistance see the relevant section in the Parliamentary Library’s Budget Review 2010–11.

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Energy sources and energy efficiency

One program that was established to complement the axed CPRS will remain. The Australian Carbon Trust Limited (ACT Ltd) was created to encourage involvement in the CPRS and assist in the implementation of energy efficiency measures. The Energy Efficiency Trust was an initiative under the ACT Ltd to support energy efficiency improvements in the private sector. The Government has stated that this arrangement will continue, but funds have ‘not yet been finalised with ACT Ltd and therefore are not included in the Portfolio Budget Statements’.[9]

As outlined above, all other CPRS-allocated funds will now form the new REFF, which sits under the CEI and expands the overall funding of this program to $5.1 billion. The CEI was announced last Budget and includes the Carbon Capture and Storage (CCS) Flagships program, the Solar Flagships program, and Renewables Australia.[10] On Budget day, the Government announced a series of new grants and renewable energy projects under these programs, but it should be noted that these were allocated from existing, not new, funds. Details of these projects can be found here.[11]

The expanded Renewable Energy Target (RET)

Legislation for the expanded RET was passed in August 2009. It amends the existing scheme to target an annual production of 45 000 GWh of electricity from renewable sources.[12] To support this, additional funds of $6 million have been allocated to the Office of the Renewable Energy Regulator under the responsibility of the Department of Climate Change and Energy Efficiency.[13] To continually assess the impact of this new legislation on industry sectors, the Productivity Commission has also been allocated $4 million over four years.[14]

The Energy Efficient Homes Package (EEHP)

The EEHP was initially funded under the $42 billion economic stimulus in February 2009 and included the Home Insulation Program (HIP) and Solar Hot Water Rebate program (SHWRP).[15] Following serious safety concerns, the Government announced on 19 February 2010 that both the HIP and the SHWR would be discontinued and replaced by a new Renewable Energy Bonus Scheme (REBS).[16] The 2010–11 Budget allocates remaining funds from the HIP and SHWR to REBS, which will be used to finance three programs:

• The Home Insulation Safety Program, established to perform safety inspections of ‘at least 150,000 homes that had non-foil insulation installed’ under the HIP. [17]
• The Foil Insulation Safety Program, established to ‘inspect approximately 50,000 homes that had foil insulation installed’ under the HIP. [18]
• The Insulation Industry Assistance Package, established to support firms that participated in the HIP to ‘meet the cost of insulation stock-holdings, through the deferral of GST payment obligations and a $15.0 million grants program’[19]

Additionally, the Government announced $41.2 million over two years for the Insulation Workers Adjustment package, including a reallocation of $11.5 million from the Jobs Fund stream to fund an Insulation Workers Adjustment Fund.[20]

Other energy related measures

Green Loans

A total of $102.7 million has been allocated to a ‘redesign’ of the Green Loans program.[21] This program once consisted of three stages: a free home sustainability assessment, a free $50 rewards voucher and then a possible $10 000 loan towards improvements (based on the sustainability assessment report).

The Government has discontinued the rewards voucher and loan components due to ‘low take-up’.[22] Commentary in the media claimed a flood of applications for assessments led to a bottleneck and then an influx of poorly trained assessors. There are claims that people who paid to train as assessors are now without a job, and the administration of the program was widely criticised. [23] The government acknowledged some of the problems in a statement in March, and reviewed the matter.[24]. The loans component and the $50 rewards vouchers have been cancelled, and activity has been capped at 5000 assessors in total, and 15 000 assessment bookings per week. Even though there are no new loans, and the current program consists only of the home sustainability assessments, the program is still officially (albeit inaccurately) called ‘Green Loans’.[25]

Resource exploration refundable tax offset—Geothermal included

As part of its response to Australia’s Future Tax System: Report to the Treasurer, the Government will provide $1.8 billion over four years from 2010–11 for a refundable tax offset at the company rate for expenditure carried out in Australia.[26] The refundable tax offset will be available to all companies (at the company level) for eligible expenditure incurred on or after 1 July 2011, instead of the immediate deductions currently available for such expenditure. As part of this measure, the definition of exploration expenditure will be expanded to include expenditure incurred in exploring for potential geothermal energy.[27]

However, explorers for geothermal energy will not benefit from this measure until they are earning revenue—presumably from power generation. A mineral exploration company that has no income from a mining operation will accrue no benefit. Additionally, well-established geothermal explorers in Australia that have already spent substantial funds on deep-seated geothermal energy evaluation would not be able to claim their expenditure through this measure.[28]

Fuel ethanol tax

From 1 July 2011, ethanol-blended fuels will no longer receive a full production subsidy offset for the fuel excise.[29] In line with a recommendation from Australia’s Future Tax System: Report to the Treasurer, the Government has announced its intention to introduce a content-based fuel excise system, and to include fuel ethanol. [30] This means that fuel ethanol producers will pay excise from July 2011. The Australian biofuel industry is both surprised and concerned about this measure, especially as implementation details have not yet been decided. The industry fears that the excise is likely to restrain its development.[31]

For a more detailed review of the fuel ethanol tax measure see the relevant section under taxation in the Parliamentary Library’s Budget Review 2010–11.

Green Start

First announced on 25 November 2009, the Green Start program is aimed at improving ‘the energy and water efficiency of low-income and disadvantaged Australian households’.[32] The program has been delayed and is now due to start on 1 January 2011. [33] Funding is $130 million over three years redirected from the discontinued Low Emissions Assistance for Renters.[34]

FutureGen

The Government has announced that it ‘will not proceed with FutureGen Alliance membership at this time’.[35] FutureGen was a proposed public-private alliance with the United States to develop a quasi carbon-neutral coal power plant. This will save the Government $15 million and there is no explicit reallocation of these funds towards other climate change related measures.

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Education, research and innovation

Climate change Foundation Campaign

The climate change Foundation Campaign is a national educational initiative to help raise public understanding and knowledge on climate change and the science. The measure has been costed at $30 million over two years, which will come from existing funds.[36]

Green Car Innovation Fund

The Green Car Innovation Fund is targeted at delivering technology for a modern vehicle with higher fuel economy and reduced greenhouse gas emissions. The Government has announced that it will reduce funding to this by $200 million over the three years starting in 2011. [37] This move, together with the new excise on ethanol-blended fuels (which are marginally less carbon intensive) suggests that reducing greenhouse gas emissions from transport is now receiving a lower priority than in the past.[38]

Cairns Institute Tropical Innovation Hub

James Cook University is constructing a $44 million research facility to staff 125 researchers interested in issues of relevance to the Tropics, including climate change science. Towards this, the Government is providing $19.5 million over two years.[39]

Geoscience Australia

This Budget commits an additional $65.3 million of general funding to Geoscience Australia. This financial support is diverted from funding originally allocated to the CCS Flagships Program under the CEI.[40] Although Geoscience Australia’s activities include studies on greenhouse gas storage and other climate change-related issues, this is not its sole focus. The reallocation of funds away from the CCS Flagships program to Geoscience Australia is apparently not balanced by a concomitant increase elsewhere in the climate change budget.

[1].    Australian Conservation Foundation (ACF), Budget does not deliver scale of action needed for climate and environment, ACF website, 11 May 2010, viewed 14 May 2010, http://www.acfonline.org.au/articles/news.asp?news_id=2832; WWF-Australia, Budget confirms Government has abandoned climate change action, WWF-Australia website, 12 May 2010, viewed 14 May 2010, http://www.wwf.org.au/news/budget-confirms-government-has-abandoned-climate-change-action/

[2].    Australian Government, Budget measures: budget paper no. 2: 2010–11, Commonwealth of Australia, Canberra, 2010, p. 9, viewed 17 May 2010, http://www.aph.gov.au/budget/2010-11/content/bp2/html/index.htm.

[3].    Department of Climate Change and Energy Efficiency, Fact Sheet: Carbon Pollution Reduction Scheme - deferral, May 2010, viewed 14 May 2010, http://www.climatechange.gov.au/en/media/whats-new/~/media/publications/budget/1011/cprs-deferal-factsheet.ashx

[4].    Budget measures: budget paper no. 2: 2010–11, p. 124.

[5].    Australian submission to UNFCCC, viewed 14 May 2010, http://unfccc.int/files/meetings/application/pdf/australiacphaccord_app1.pdf; United Nations Framework Convention on Climate Change, Report of the Conference of the Parties on its fifteenth session, held in Copenhagen from 7 to 19 December 2009 Part Two: Action taken by the Conference of the Parties at its fifteenth session, FCCC/CP/2009/11/Add.1, 20 March 2010, Decision 2/CP.15, Copenhagen Accord, para. 8, viewed 17 May 2010, http://unfccc.int/files/meetings/cop_15/application/pdf/cop15_cph_auv.pdf.

[6].    Budget measures: budget paper no. 2: 2010–11, p. 121.

[7].    T O’Connor, ‘Clever accounting costs poor dearly’, The Australian, 14 May 2010, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F01PW6%22

[8].    Climate-L.org, Financing for Development Dialogue Discusses Monterrey Consensus and Doha Declaration, Climate-L.org website, 24 March 2010, viewed 14 may 2010, http://climate-l.org/2010/03/26/financing-for-development-dialogue-discusses-monterrey-consensus-and-doha-declaration/

[9].    Australian Government, Portfolio budget statements 2010-11: budget related paper no. 1.4: Climate Change and Energy Efficiency Portfolio, Commonwealth of Australia, Canberra, 2010, p. 3, viewed 17 May 2010, http://climatechange.gov.au/about/budget/pbs1011.aspx.

[10]. Department of Resources, Energy and Tourism, Clean energy initiative, Department of Resources, Energy and Tourism, 2009, viewed 15 May 2009, http://www.ret.gov.au/Department/Documents/CEI%20Fact%20Sheet%20(13%20May%2009).pdf

[11]. M Ferguson (Minister for Resources and Energy), Australia’s biggest ever renewable energy roll-out, media release, 11 May 2010, viewed 14 May 2010, http://minister.ret.gov.au/TheHonMartinFergusonMP/Pages/!budget_renewable.aspx.html

[12]. A Martyn and J Styles, Renewable Energy (Electricity) Amendment Bill 2009, Bills digest, no. 182, 2008–09, Parliamentary Library, Canberra, 2009, viewed 14 May 2010, http://www.aph.gov.au/Library/pubs/bd/2008-09/09bd182.pdf.

[13]. Budget measures: budget paper no. 2: 2010–11, p. 123.

[14]. Budget measures: budget paper no. 2: 2010–11, p. 294.

[15]. See  R Webb, S Kompo–Harms and J Styles, Appropriation (Nation Building and Jobs) Bill (No. 1) 2008–09, Bills digest, no. 95, Parliamentary Library, Canberra, 2008–09, viewed 17 May 2009, http://www.aph.gov.au/library/pubs/bd/2008-09/09bd095.pdf

[16]. P Garrett (Minister for Environment, Heritage and the Arts), Significant changes to Commonwealth environmental programs, media release, 19 February 2010, viewed 14 May 2010, http://www.environment.gov.au/minister/garrett/2010/pubs/mr20100219.pdf

[17]. Budget measures: budget paper no. 2: 2010–11, p. 119.

[18]. Budget measures: budget paper no. 2: 2010–11, p. 119.

[19]. Budget measures: budget paper no. 2: 2010–11, p. 120.

[20]. K Rudd (Prime Minister of Australia), Further assistance for insulation workers, media release, 24 February 2010, viewed 14 May 2010, http://www.alp.org.au/news/further-assistance-insulation-workers

[21]. Budget measures: budget paper no. 2: 2010–11, p. 120.

[22]. Budget measures: budget paper no. 2: 2010–11, p. 120.

[23]. R Beeby, ‘Scrutiny on green scheme for homes’, Canberra Times, 10 February 2010, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/download/media/pressclp/3NUV6/upload_binary/3nuv60.pdf; and T Thompson, ‘Green audits prove $70m blunder’, Courier Mail, 30 January 2010, viewed 17 May 2010, http://parlinfo.aph.gov.au/parlInfo/download/media/pressclp/FGRV6/upload_binary/fgrv60.pdf

[24]. P Wong (Minister for Climate Change, Energy Efficiency and Water), Green Loans Program, 10 March 2010, Statement, viewed 14 May 2010, http://www.climatechange.gov.au/~/media/Files/minister/wong/2010/major-speeches/march/sp20100310.ashx

[25]. Budget measures: budget paper no. 2: 2010–11, p. 120.

[26]. Australia’s future tax system: report to the treasurer, Australia's Future Tax System Review website, viewed 17 May 2010, http://www.taxreview.treasury.gov.au/content/Content.aspx?doc=html/pubs_reports.htm

[27]. Budget measures: budget paper no. 2: 2010–11, p. 297.

[28]. This measure is unlike a flow through share scheme of arrangement—as presently operating in Canada—whereby investors in mineral exploration companies can write off losses from mineral exploration activity from other sources of income. Such a properly administered scheme is far more beneficial to mineral exploration activity.

[29]. Budget measures: budget paper no. 2: 2010–11, p. 23.

[30]. K Henry, J Harmer, J Piggott, H Ridout, G Smith, ‘Part one: overview’, Australia’s future tax system: report to the Treasurer, Commonwealth of Australia, Canberra, December 2009, p. 93, viewed 17 May 2010, http://www.taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/Publications/Papers/Final_Report_Part_1/index.htm

[31]. S Burgess, ‘Biofuels excise raises industry fears’, ABC news online, 13 May 2010, viewed 14 May 2010, http://www.abc.net.au/news/stories/2010/05/13/2898115.htm

[32]. P Garrett (Minister for Environment, Heritage and the Arts), ‘A Green Start for vulnerable Australians’, media release, 25 November 2009, viewed 14 May, http://www.environment.gov.au/minister/garrett/2009/pubs/mr20091125.pdf

[33]. P Garrett (Minister for Environment, Heritage and the Arts), Significant changes to Commonwealth environmental programs, media release, 19 February 2010, viewed 14 May 2010, http://www.environment.gov.au/minister/garrett/2010/pubs/mr20100219.pdf

[34]. Portfolio budget statements 2010–11: budget related paper no. 1.4: Climate Change and Energy Efficiency Portfolio, p. 24.

[35]. Budget measures: budget paper no. 2: 2010–11, p. 289.

[36]. Budget measures: budget paper no. 2: 2010–11, p. 119.

[37]. Budget measures: budget paper no. 2: 2010–11, p. 281.

[38]. Department of Climate Change, Tracking to Kyoto and 2020: Australia’s Greenhouse Emissions Trends 1990 to 2008–2012 and 2020, Commonwealth of Australia, Canberra, August 2009, p. 32, viewed 14 May 2010, http://www.climatechange.gov.au/~/media/publications/projections/tracking-to-kyoto-and-2020.ashx

[39]. Budget measures: budget paper no. 2: 2010–11, p. 278.

[40]. Budget measures: budget paper no. 2: 2010–11, p. 290.