Rewarding Companies to Do Nothing is Undermining Australia’s Climate Cuts

The Australian government’s climate policy is a paradox - pouring billions into fuel tax credits while attempting to reduce emissions through the Safeguard Mechanism. This contradictory approach undermines the country’s efforts to meet its Paris Agreement goals.

Climate Integrity figures show that the top 18 recipients of fuel tax credits collectively received $3.3 billion in rebates for diesel used off-road, while paying just $150 million under the Safeguard Mechanism. The ratio of 22 to one highlights how companies are being rewarded for doing little to reduce their emissions.

Lobby groups and some politicians argue that fuel excise should only apply to public roads, but this justification is weak. Historically, the fuel excise had a connection to road funding, but it has since become a revenue-raising instrument that promotes energy efficiency and electrification. According to ANU Professor Frank Jotzo, its effect is five or six times larger than the Safeguard Mechanism per litre of diesel or tonne of emissions.

The current system creates perverse incentives, where companies have little motivation to transition to cleaner fuels if they’re not paying excise. This is evident in BHP’s decision to shelve plans to cut emissions in Western Australia, as revealed by leaked documents. Companies like BHP are responding logically to the government’s incentives - after all, it’s a business.

However, experts argue that removing fuel credits must come alongside serious reform of the Safeguard Mechanism. The policy covers only 10% of emissions from large polluting facilities, and with ACCUs trading at $38 per tonne of carbon dioxide, the cost of paying to pollute is often cheaper than abatement. ANU Professor Andrew Macintosh notes that this creates a significant disincentive for companies to reduce their emissions.

Climate Change Minister Chris Bowen’s office dismisses concerns about compliance costs, but this misses the point - if companies are not being held accountable for their emissions, then what is the purpose of the Safeguard Mechanism?

Fortescue’s decision to campaign to cap fuel tax credits at $50 billion a year raises questions about the priorities of big business. If even Fortescue recognizes that these two policies cannot both be working in the right direction, why is the government so hesitant to reform them? The Australian government needs to take a hard look at its climate policy and acknowledge that rewarding companies to do nothing is not a viable solution for meeting emissions targets.

By providing perverse incentives and creating contradictions between different policies, we’re setting ourselves up for failure. As the world moves towards net-zero emissions by 2050, Australia must get its act together. It’s time to ditch the fuel tax credits and reform the Safeguard Mechanism to create a more level playing field. Anything less would be a betrayal of our climate commitments and a recipe for continued environmental damage.