Australia’s ‘not so green’ Budget

Each year, as the annual budget is passed in the Australian parliament, economists review it and divide sectors of the economy into ‘winners’ and ‘losers.’ One thing that is abundantly clear from this year’s federal budget is that climate action and environmental protection are losers. Undeterred by the worst recession since the Great Depression, countries around the world pledged to use this opportunity for a ‘green recovery.’ This means that when countries started operating on pre-pandemic levels, they would do so in a cleaner way – with greater emphasis on low carbon growth and higher investments for renewable energy and emissions reduction projects. [i]

As the Australian federal budget for 2020-21 was delayed from May to October in wake of the pandemic, many people expected Australia to follow in the footsteps of what other countries planned to do [ii]. But climate action and green recovery are amiss from the annual budget.  

According to a report by Oxford University’s Economic Recovery Project, backed by the UN (United Nations) and IMF (International Monetary Fund), Australia ranks the worst in post- Covid 19 recovery towards cleaner options. As the bubble chart displays, there are only a handful of countries that have spent a higher percentage of their GDP (Gross Domestic Product) towards recovery, but Australia has the smallest share of spending directed towards green recovery [ii].  

When it comes to investing in ‘clean’ energy, the federal budget allocates $A 50 million to carbon capture and storage (CCS) technology and $A 70.4 million toward the development of hydrogen export facilities in the country [iii]. It is important to note that the reliability of CCS technology is difficult to prove [iv]. Research from the Australia Institute shows that in 2017, the Australian Government spent around $A 1.3 billion of taxpayer money on CCS technology but has nothing to prove that it substantially reduced emissions in the country [v]. So, the investment toward CCS technology seems to be rather impractical. On the other hand, renewable energy has been ignored. An investment of $A 1.4 billion into the Australian Renewable Energy Agency (ARENA), over the next 10 years, is mentioned in the budget. However, there is no detailed plan or outline on how this budget is going to be spent. Furthermore, climate experts say that it is too little for a period of 10 years[iv]. Second to energy, transportation is one of the key sources of greenhouse gas emissions. It is also well known that emissions from transportation are the ones that are most easily reducible. To this end, one would expect substantial amounts of investment into electric vehicles (EVs). Yet, surprisingly, there is only $A 5 million allocated towards the manufacturing and development of electric vehicles [iii]. Compared to the investments being made in EVs by other countries, this amount seems inadequate.  

Apart from investment in renewable energy projects and EVs, another tool that the government can use to reduce emissions is change in policy. The most notable policies to reduce carbon emissions are carbon tax, carbon pricing, and carbon/emissions trading. When carbon pricing was implemented by the Gillard Labour minority government in 2012, there was a noticeable dip in emissions, up until the time that it was repealed by the next government, in 2014 [vi]. Estimates say that there was a 7% drop in emissions upon its introduction.   

According to the above graph, it is evident that carbon pricing was successful in substantially reducing emissions. So, it is disappointing that no such policy instruments were planned and accounted for in the budget. What is even more disappointing is the fact that the meagre investments and efforts that the federal budget makes towards a green recovery are dwarfed by investments in gas and coal projects [iii].  

The budget devotes $A 52.9 million to natural gas projects and infrastructure that are proposed to ‘unlock’ Australia’s gas reserves and build supporting infrastructure for the same [iii]. These funds allotted to gas projects are part of a section of the budget titled ‘gas fuelled recovery,’ which aims to revive the economy via boosting investment in gas. Brian O’ Callaghan, the economist leading Oxford University’s Economic Recovery Project says that a recession is a chance to rebuild the economy in a better way, going ahead [vii]. But, with Australia, this seems to be a missed opportunity. He also highlights the difference between rescue and recovery spending. While it may be necessary to ‘rescue’ businesses with quick, short- term spending, a federal budget lays plans for the long- term recovery of the economy. To this effect, Australia is missing the golden opportunity to rethink the structure of its economy [vii]. Further, tax subsidies that should be reserved for clean energy projects are being handed to large mining corporations like Rio Tinto and BHP, which will allow them to pay zero tax on their off- road diesel use [viii]. This only adds to the country’s mounting emission levels. 

It is safe to say that this federal budget brings Australia nowhere closer to meeting its notoriously low Paris Climate Agreement targets. If there is anything that the devastating bushfires of 2020 have taught us, it is that the time for climate action is now. Although it may seem that the window of opportunity has been missed with Australia steadily returning to pre-pandemic levels of economic activity, it is never too late to make climate action a budget ‘winner’ with the next federal budget now only a month away.  

References:  

[i] Theguardian.com 2020. ‘What could a good green recovery plan actually look like? [online]. Available at:  

https://www.theguardian.com/environment/2020/nov/17/what-could-a-good-green-recovery-plan-actually-look-like   > [Accessed 23 March]  

[ii] Climatechangenews.com 2021. Hall of shame: 9 countries missing the chance of a green recovery. [online]. Available at:  

https://www.climatechangenews.com/2021/03/10/hall-shame-9-countries-missing-chance-green-recovery/  > [Accessed 25 March] 

[iii] Australian Budget 2020-21. 2020. Available at:  

https://budget.gov.au/2020-21/content/documents.htm  > [Accessed 15 October] 

[iv] theconversation.com 2020. ‘Backwards’ federal budget: Morrison government never fails to disappoint on climate action. [online]. Available at:  

https://theconversation.com/backwards-federal-budget-morrison-government-never-fails-to-disappoint-on-climate-action-147659 > [Accessed 25 March].  

[v] Australiainstitute.org.au 2017. Money for nothing. [online]. Available at:  

https://australiainstitute.org.au/report/money-for-nothing/ > [Accessed 26 March].  

[vi] theguardian.com 2014. Australia records biggest emissions drop in a decade as carbon tax kicks in. [online]. Available at:  

https://www.theguardian.com/environment/2014/dec/24/australia-records-biggest-emissions-drop-in-a-decade-as-carbon-tax-kicks-in > [Accessed 31 March].  

[vii] theguardian.com 2021. Australia lags far behind other top economies on ‘green recovery’ pandemic spending. [online]. Available at:  

https://www.theguardian.com/australia-news/2021/mar/19/australia-lags-far-behind-other-top-economies-on-green-recovery-pandemic-spending > [Accessed 31 March].  

[viii] acf.org.au 2020. Budget 2020-21: a win for big polluters, a loss for climate action. [online]. Available at:  

https://www.acf.org.au/budget_2020_21_win_for_big_polluters_loss_for_climate_action > [Accessed 26 March].