The FTCS costs the Commonwealth Budget around $10 billion per year and largely benefits iron ore and coal miners. The scheme is controversial because of its large cost and the sensitivity of government and industry to the use of the term ‘subsidy’.

Key findings:

• The FTCS clearly meets the World Trade Organisation’s definition of ‘subsidy’, as the tax refund represents ‘government revenue that is foregone or not collected…such as tax credits’.
• Organisations that explicitly call Australia’s FTCS a subsidy include the Organisation for Economic Cooperation and Development (OECD), the International Energy Agency (IEA), International Institute for Sustainable Development (IISD), Overseas Development International (ODI) and Oil Change International.
• The International Monetary Fund (IMF) does not mention the FTCS specifically, but IMF fossil fuel subsidy estimates include the impact of the FTCS.
• The OECD has called for the elimination of the FTCS.

“The Australia Institute considers the FTCS to be a fossil fuel subsidy, as do most international researchers such as the OECD, IEA and IMF,” said Rod Campbell, Research Director at the Australia Institute.

“The debate over the word ‘subsidy’ is not the real point. The real point is the cost of the FTCS to the public and its role in increasing fossil fuel use and emissions.

“Australia’s diesel and petrol use is forecast to grow, despite the need to reduce fossil fuel consumption. By making these fuels cheaper for major users, the FTCS encourages their use and reduces incentives to implement cleaner technologies.

“The FTCS costs more than Australia spends on our Air Force every year. It costs more than we spend on the army, more than is spent on all foreign aid and vastly more than Australia spends on aid to any Pacific country.

“The FTCS largely subsidises the mining industry. It is worth around $1 billion per year to the coal industry, which uses this fossil fuel subsidy to produce yet more fossil fuels.

“It is well past time for Australia to eliminate all fossil fuel subsidies, particularly the FTCS. This would be not just good environmental policy, but also good economic policy.