Fuel tax rebates exceed cost of transition to renewables

More than $57b in fuel tax rebates have been banked by Australia’s mining companies since FY07 and according to a new analysis, this will exceed $84b by 2030.

According to the Climate Energy Finance (CEF) analysis, the Fuel Tax Credit (FTC) has cost taxpayers $122.7b in total, and its primary beneficiaries include mining, agriculture and transport, with mining receiving nearly half of the total sum.

BHP (ASX: BHP) was FY24’s largest FTC beneficiary, garnering a $627m rebate. Rio Tinto (ASX: RIO) received $416m, and Glencore received $364m.

CEF recommends a substantial reform of the existing scheme, capping Australia’s FTC at $50mpa per company with credits exceeding the cap retained only if reinvested into phasing out diesel.

An analysis by Fortescue (ASX: FMG) showed that the FTC disincentivises electrification and decarbonisation in mining, halving the returns after tax and extending the payback periods for cleantech investments.

CEF recommends establishing a fund to support the transition to renewables for smaller-scale miners who do not meet the annual cap.

The proposal to introduce the ‘cap-and-reinvest’ model would only apply to the mining sector, ensuring no small–medium enterprise, sole trader or family business in the agriculture, forestry, fishing, road transport, freight or manufacturing sectors would be affected.

A revised scheme would aim to permanently build a global competitive advantage of both zero emissions and low-cost energy.

If the FTC is not reformed, CEF estimates the Federal Government will provide $184b in credits from FY07 to FY30.

CEF compares this cost to the cost of transitioning Australia to a decarbonised, renewables-based electricity system by 2050 based on the Australian Energy Market Operator’s (AEMO) models.

The annualised capital cost of all utility-scale generation, storage, firming and transmission infrastructure in the AEMO 2024 Integrated Systems Plan (ISP) – optimal development pathway (ODP) has a present value of $122b to 2050. The equivalent upfront capital cost has a present value of $142b (as some technical life remains after 2050 for the long-lived assets).

“Put simply, Australia will expend 50% more on this fossil fuel subsidy in the 23 years to 2030 than on transitioning our energy system to renewables by 2050,” CEF said in its analysis.

Fuel tax is relatively low in Australia at 51.6 cents per litre, especially when compared to countries like the UK, France and Germany where the tax component makes up more than half the total cost paid at the pump.

Though fuel tax is collected by the Federal Government as a general revenue-raising tax, it hasn’t been formally linked to road funding since 1992.

CEF’s analysis was released alongside this week’s Economic Reform Roundtable in Canberra, where it may well become a source of discussion.