Remove price on carbon. Check. Avoid international climate talks. Check. Deny fossil fuel subsidies. Check! This is your captain Tony Abbott speaking, and Australia is cleared for take-off, destination: last century.

Yesterday brought another sensible report from the annoying Nicholas Stern spelling out the economic benefits (not to mention every other benefit) of acting on climate change before it’s too late. But the Abbott government still doesn’t seem convinced — and repeated denials that we are subsidising the fossil fuel industry are killing Australia’s credibility.

Stern’s 2006 report made front-page news around the world as the first attempt to weigh up the costs of action versus the costs of inaction on the climate. The conclusion reached was the obvious one — that acting early is cheaper than acting later — but critics complained that depended heavily on the discount rate used. That is, the rate of return used to calculate long-term costs.

Yesterday’s report by the Global Commission on the Economy and Climate — of which Stern is co-chair — tries to put that argument to bed by reining in the time horizon, pointing out the economic benefits of action are apparent over the short term too and we can have both economic growth and climate risk mitigation together, right now.

Just as nothing will persuade the Michael Smiths of the world that Julia Gillard is innocent, we are well past the point where more evidence will persuade climate sceptics or those vested interests opposing climate action to change their tune.

Particularly in Australia. Abbott just doesn’t want to talk about climate change at all. He wants climate off the G20 agenda. He won’t be going to the climate talks starting in New York next Tuesday, which will be attended by over 100 heads of state, including US President Barack Obama and Indonesian President Susilo Bambang Yudhoyono, as momentum builds for agreement on a new post-Kyoto climate deal in Paris next year. Australia will be represented by Foreign Minister Julie Bishop — at least that’s one better than last year’s Warsaw talks, when Environment Minister Greg Hunt stayed home.

High on the action agenda — for the rest of the world, at least — is abolishing fossil fuel subsidies. Yesterday’s report cites estimates that fossil fuel subsidies are running at US$600 billion a year, far outweighing clean energy subsidies of US$100 billion a year.

The most hardened sceptics must concede there is no reason on earth why the taxpayers of the world should subsidise production of coal, oil and gas to make global warming worse.

Everybody wants fossil fuel subsidies abolished, including the G20, International Monetary Fund, World Bank, Organisation for Economic Co-operation and Development and International Energy Agency.

Australia’s tack has been to simply deny we have fossil fuel subsidies at all, as we told the G20 in 2010.

The Australia Institute executive director Richard Denniss, who has just returned from a trip to Europe, where he gave a paper on fossil fuel subsidies, says our denialist position has definitely raised eyebrows. “Senior European officials are deeply sceptical of those claims, and they don’t strengthen Australia’s credibility in international forums,” he said.

The problem is that while fossil fuel subsidies are easy to rail against, they are much harder to identify. Big numbers get thrown around, but there is no international standard to define what a fossil fuel subsidy is.

Denniss agrees: “There is no methodology. It’s done on trust, and we’re burning our trust by maintain the farce that we have no fossil fuel subsidies.”

The issue has a fraught history in Australia. Academic Chris Reidy, then at the Institute for Sustainable Futures at the University of Technology Sydney, estimated in 2007 that Australia has fossil fuel subsidies of roughly $9 billion to $10 billion a year, of which the majority was the diesel fuel rebate to miners and others, of some $5 billion a year. The mining industry denies it is a subsidy at all, arguing they were exempted from the diesel fuel excise because the revenue was hypothecated to highway funding and they didn’t use highways. That’s where the debate is stuck.

The debate flared again this week with the release by the Minerals Council of a report attacking a June report by the Australia Institute, which estimated Australia’s state governments spent $17 billion over six years on assistance to the minerals and fossil fuels sector.

To illustrate the difficulty: over half of that estimate or almost $8 billion was made up of the costs of transporting coal — particularly, providing publicly owned, dedicated rail and port infrastructure. The Minerals Council’s consultant made the fair point that this investment is recouped through user charges paid by miners through the “take or pay” contracts that are weighing on industry profitability right now. The consultants estimated dividends and taxes paid back to state governments by publicly owned infrastructure providers are $35 billion. Denniss replies that many of these user charges are not publicly available and the institute did seek input from the mining industry, without success. The point of the report was to try to examine both sides of the ledger, he says, and to call for more transparency.

“We hear every day how much the mining industry contributes to the budget. Our report was not an attempt to identify the net effect but to highlight that the money flows both ways.”

It is a difficult question to resolve without case-by-case, asset-by-asset analysis. The Australia Institute and the South Australian Minerals Council are about to sit down to do exactly that. Australia can not avoid such a tally forever.


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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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