Counting all the costs: recognising the carbon subsidy to polluting energy

Abstract

Excluding the cost of carbon pollution from decision-making creates market distortions and the undervaluation of emission reduction, argues this report. Overview Australia’s energy sector has a long history of subsidies, ranging from government-built infrastructure to favourable taxation regimes. The most significant current subsidy is the unpriced cost of carbon emissions, measured as the impacts of climate change on economic growth, environmental systems, health, and security. Excluding the cost of carbon pollution from decision-making creates market distortions and the undervaluation of emission reduction. Other countries, including the United States and United Kingdom, and institutions like the International Monetary Fund have begun to address this “carbon subsidy” by incorporating the costs of carbon pollution in public policy-making. Without policies to significantly cut energy emissions, the carbon subsidy to energy will continue to grow. The annual carbon subsidy to non-electricity energy is projected to be about $12-36 billion by 2020 and$16-49 billion by 2030