Solar power and renewables vs coal: Government subsidisation

With the recent furore over the NSW government’s decision to retroactively reduce the 60c/kWh solar power feed-in tariff, the issue of government subsidisation of energy resources has been brought to the fore. The Liberal government asserts that the Solar Bonus scheme in its current form threatens to cost $1.9B if continued in its current form. This is an estimated $470M over its original budget.

In 2008, Greens MP Lee Rhiannon commissioned an analysis of the amount by which the coal industry was subsidised under the NSW labour government. Previously, no such comprehensive study specifically about the NSW coal industry had been undertaken. The results, for the years 1998-2007 are detailed below (Source: The report concludes that the price of coal is artificially low thanks to heavy subsidisation from the government, the tune of an estimated $1B annually. By contrast, the cost of the Solar Bonus scheme is expected to run over budget over the whole duration of the program (until 2016) by an amount not even half that much.

Subsidy Type Amount
Indirect subsidies to the NSW coal industry via NSW govt funding to coal-fired electricity production, delivery and consumption Indirect $ 9,056,130,000
Subsidies to infrastructure used by the coal industry Direct,Indirect $972,100,000
Projects and Programs funded by the NSW Government Involving the NSW Coal Industry Direct,Indirect $88,160,000
Administration and Information Networks Funded by the NSW Government that Directly Support the Coal Industry Direct $123,360,000
NSW Government Funding to ‘Clean Coal’ Research and Development Direct $62,100,000
Total direct and indirect subsidy $10,377,702,000

Looking at subsidies to coal power

The following definition of ‘subsidy’ is used in the article:

“Government action or inaction that lowers cost of production, raises prices received by producers, lowers prices paid by consumers, or prevents full cost recovery for a service.”

Subsidies, both to coal are divided into two categories in the report (as can be seen in the table above)–direct or indirect.

Examples of direct subsidies as laid out in the report include funding for ‘clean coal’ projects, ‘remedial works to mined areas’, and ‘mine safety programs’. The report takes the view that such government subsidies to aspects of coal mining and coal-fired power generation are unnecessary and unwarranted because they are already well-established and highly profitable industries without government assistance. In essence, it says that the coal industry should be required to pay for these costs from its own wallet.

It is also worthwhile to ask how the qualifier ‘indirect’ is used in the report. The coal-power industry benefits greatly from non-coal specific subsidies to infrastructure and electricity costs, including, according to the report, funding to coal-fired electricity production/delivery and consumption. These include railways, ports (in particular, Newcastle Port), and other major infrastructure projects that in effect do not substantially benefit anyone but the coal companies who utilise them. In rural areas in particular, where mining and coal industry-related businesses dominate the economy, there are few beneficiaries of these projects besides the coal industry. This is the basis on which the Greens have calculated the ‘indirect’ subsidies.

These points highlight the fact that there are there are numerous strong arguments for more subsidisation of renewable energy sources, including solar power, not least of which are to avert or mitigate the effects of climate change, to protect ecosystems which provide life-supporting services, and for energy security. The continuing subsidisation of the coal industry works against these goals, and is not part of the forward-looking energy policy framework that is required to help Australia transition to a clean energy economy.

© 2011 Solar Choice Pty Ltd

Sources and Links:

The details of how the study were implemented can be read on the Greens’ website: The Greens, “Subsidies total a billion dollars annually”
James Martin II