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Subsidies to the Use of Natural Resources

Environmental Economics Research Paper No.2
This report was prepared by a consultant,
the National Institute of Economic an Industry Research (NIEIR),
for the Department of the Environment, Sport and Territories.
Commonwealth of Australia, 1996
ISBN 0 642 24864 8

2.2.2 Natural gas

Natural gas is produced for domestic and export markets from both offshore and onshore fields by a number of private companies. As a community owned resource it is subject to secondary taxation (royalties, etc.) which are collected from the private production companies. As indicated above secondary taxes imposed vary by jurisdiction (Federal and State).

Transport is by pipelines (mainly privately and utility owned) to domestic markets or by privately owned LNG tankers to overseas markets.

Natural gas is mainly used as a heating fuel in the residential, commercial and industrial sectors; it also accounts for about 8 per cent of Australian electricity production.

Financial subsidies

There are no direct subsidies to natural gas production in Australia. However, basic geological information (AGSO and State agencies) and R&D support is provided to the gas industry, and in this study these forms of assistance are treated as a subsidy (see Table 8).

Data on gas R&D support by governments is aggregated with that for oil. The ASTEC report referred to above indicates that oil and gas R&D support by governments amount to about $30 million a year of which about half might be allocated to gas R&D. Gas production and distribution utilities undertake R&D and contribute to R&D in government and university research facilities. In 1993 the Australian Petroleum Cooperative Research Centre (APCRC) was established to plan, coordinate and fund R&D in the oil and gas sector (see box on CRCs).

Extraction charges (royalties, resource rent taxes) vary by jurisdiction. With the sale of the Moomba–Sydney pipeline, previously owned by the federal Pipeline Authority, federal payments to the pipeline authority ceased in 1994.

Any subsidies to natural gas may have positive and negative aspects. For example, support for gas R&D may enhance its competitive position versus that of coal which, overall, has greater environmental impacts than gas, and of renewables which, overall,have fewer environmental impacts than gas. Reforms to the gas industry proposed by the IC, the Hilmer report and Greenhouse 21C, are aimed at ultimately reducing the price of gas and thus its competitiveness.

Environmental subsidies

Exploring for and producing natural gas has a number of environmental impacts. Access to drill sites and the drill sites themselves disrupt the local environments which, in Australia, are often in fragile ecological zones. Similarly, pipeline construction and maintenance may cause significant environmental disruption depending on the route selected. As gas usage increases and new fields and grids are developed this may become a significant issue.

Natural gas is virtually pure methane, a potent greenhouse gas. Methane leakage from production facilities, pipelines and at user sites thus contributes to the enhanced greenhouse effect. Combustion of natural gas also produces CO2 and NOx emissions which contribute to the greenhouse effect.

Cooperative Research Centres (CRCs)


The CRC program, which began in 1991–92, is a Commonwealth initiative designed to enhance the benefits from publicly funded research and development. Groups are brought together from different public and private organisations with outstanding proven or potential research and research training capabilities. This enables strong links to be built to the users of research in industry and other sectors of the economy and also provides a training ground for Australia’s future researchers.

Three selection rounds of CRCs have been completed with 51 centres established and another 10 announced in December 1994 from the fourth round.

In 1994–95 the federal budget allocated $112.7 million to the CRC program, $141.9 million in 1995–96 with forward estimates reaching $145.2 million in 1998–99. (see Note below)

In the energy area the Australian Petroleum CRC conducts research programs to investigate a number of technical issues including the development of technology for the extraction of methane from coal seams. The CRC has Federal funding of $2.7 million per year. Also in the energy area a CRC for New Technologies for Power Generation from Low Rank Coal is developing the science and engineering to support the development of new power generation technologies. Federal funding of $2 million a year is provided to this CRC.

As part of Greenhouse 21 C measures announced in April 1995, a Renewable Energy CRC is also to be established at a cost of $1.6 million over three years beginning in 1996–97.

Note: Information from Budget Statements, 1995–96, Budget Paper No. 1, p.3.55,and Technology Directory., Scitech Publications,1994.

Electricity production from natural gas produces about 45 per cent less CO2 per unit of fuel combusted than black coal, and accounts for only about 2 per cent of total Australian non-Montreal Protocol emissions. In their work on electricity supply externalities in Western Australia, Stocker, et. al., estimated that by using natural gas rather than black coal, CO2 emissions would be reduced by 50 per cent, the NOx/SO2 component would be reduced by at least 50 per cent, and the mining component would also be reduced significantly. Stocker, et. al., estimated that including a resource depletion surcharge and taking the lower limits of the estimates, it appears that the external costs for gas used in electricity production could be around 1.9/kWh compared to coal at around 3.8/kWh.

Using the conservative approach adopted in the coal section, where the total cost of a 2/kWh for externalities was applied, a 1/kWh externality cost for natural gas used for electricity would have amounted to about $109 million in 1994.

Our review did not reveal any additional data on environmental subsidies associated with the Australian gas industry.

2.2.3 Oil

Australia is about 70 per cent self-sufficient in oil. Oil is a community owned resource which is produced in Australia for domestic and export markets. It is produced mainly from off-shore fields and subject to secondary taxation (see Section 3.1) from State (onshore and off-shore) and the Federal (offshore) governments (offshore royalties are shared by the two levels of government). Like coal and natural gas its production is also subject to corporate taxation. Oil transport is by ship, pipeline and truck (products); petroleum products are mainly used in the transport sector.

Financial subsidies

There are no direct subsidies to oil production and transportation but public agencies provide basic geological information to exploration companies at nominal costs. This represents a subsidy to the coal, oil and gas industries in Australia and most other countries. About 50 per cent of the AGSO budget is allocated for petroleum projects (mainly offshore). A 1993 review of the AGSO(see Note 1 below) argued the AGSO’s work was primarily of a “public good” (benefits widely distributed) nature, and as such the AGSO should not be subjected to higher revenue and cost recovery targets. Cost recovery revenue was about $1 million in 1992–93, or about 2 per cent of the AGSO recurrent expenditure. As the primary beneficiaries of AGSO are the extractive industries (petroleum and other minerals) it seems that more revenue could be raised from these industries by the AGSO. In 1994, however, the Federal Government failed to get Senate approval for a plan to recover half of the AGSO’s $20 million Continental Margins Program from the petroleum industry; this case illustrates the political difficulties of removing financial subsidies.

Excises imposed on aviation fuels are appropriated to the Civil Aviation Authority for the recovery of government provided aviation services where no direct user charges apply. Aviation fuel excises vary by fuel type, being substantially higher (by about 23/litre) for aviation gasoline than for aviation turbine (AVTUR) fuel. The rationale for this disparity is that AVTUR users (mainly airlines) pay, in general, much higher direct user (airports, traffic control) charges. All aviation charges are currently under review.

Financial subsidies to road transport use of petroleum products are analysed separately in Section 2.6, Roads.

Environmental subsidies

Production of crude oil can cause environmental damage mainly in the exploration, production and transport stages. There is serious potential for damage to marine environments from oil spills and damage to marine and land environments during exploration.

Australia, unlike some other countries (e.g. United States, United Kingdom), has to date had relatively minor oil spills, though such spills that have taken place have adversely affected local flora and fauna. The threat of oil spills is of particular concern in highly sensitive marine environments such as the Great Barrier Reef , where passage of ships must be accompanied by a pilot. Improved tanker design (e.g. double hulls) and shipping practices (e.g. alternative routes) are reducing the probability of oil spills, but the possibility remains. Double hull requirements for oil tankers are being phased in worldwide over the 1993–2000 period. (see Note 2 below)

In the event of an oil spill, governments would probably be expected to contribute to cleanup operations. In the absence of legislation to pass on the costs of these operations to the oil and tanker companies involved, the probabilistic level of these costs would constitute an environmental subsidy. Estimates of these probabilities are contentious.(see Note 3 below)

The Australian Maritime Safety Authority (AMSA) has developed a national plan to combat pollution of the sea by oil and under the Protection of the Sea (Civil Liability) Act, AMSA is empowered to recover loss, damage and cleanup expenses from individuals and/or entities causing the damage. Most States have similar legislation. (see Note 4 below)

Atmospheric emissions from oil refining (extraction of market products from crude oil) contribute to the greenhouse effect, urban smog and acid rain. Tightening regulations are forcing internalisation of these externalities but some remain. A problem is that each State is responsible for stationary (non-transport) emission sources; harmonisation and updating of these regulations to international levels is a matter that could be taken up by the Australia and New Zealand Environment and Conservation Council (ANZECC).

Except for petroleum products used in road transport, no additional data on environmental subsidies to the extraction, transport and use of petroleum was revealed by our review. Most (about 81 per cent) (see Note 5 below) oil products are used in the road sub-sector of the transport sector; subsidies to this sector are discussed below.

Road transport environmental subsidies

Transport energy use can have significant environmental effects. Combustion of petroleum products dominates transport energy use and produces CO 2 , NOx, VOCs, CO and particulate (diesel) emissions leading to localised (lead, urban smog) and global (greenhouse) effects which are not costed or charged to individual road users. (see Note 6 below) The only caveat to this conclusion is that fuel excises, which are usually interpreted as a quasi user charge for roads,could alternatively be interpreted as an environmental charge. This would reduce estimated environmental subsidies to road use at the expense of increasing the estimate of financial subsidies.

As can be seen from Table 4, atmospheric emissions in Australian urban areas come mainly (except for sulphur dioxide) from motor vehicles. Increasing regulation is reducing localised impacts in the areas of lead and urban smog but significant environmental subsidies remain. In congested (traffic capacity constraint) localities, environmental impacts are magnified.

The average percentages for transport emissions quoted in Table 4 are indicative only and are arithmetic averages of the values for Sydney, Melbourne, Brisbane, Perth and Adelaide. The values in parentheses are the lowest and highest percentage of each emission group from the five cities. The figures in this table relate to 1985, a time prior to the introduction of unleaded petrol and phase out of leaded petrols, and tighter new vehicle emission limits. The introduction of these regulations and technologies has improved some aspects of air quality (e.g. lower carbon monoxide, urban smog and lead levels) but according to the Victorian EPA has not affected the relative contribution of each of the sources. Besides not being recent, the information in Table4 does not include data on particulate and heavy metal (e.g. lead) emissions and noise .

Note 1 Review of the Australian Geological Survey Organisation: composition, structure and administrative arrangements, AGPS, May 1993.
Note 2 Information on Great Barrier Reef shipping and double hull requirements from personal communication (J. Storey), Great Barrier Reef Marine Park Authority, 13 February, 1995 and Our Oceans, Our Future: Summary of findings, State of Marine Environment Report (SOMER), DEST, 1995,pp.47–51.
Note 3 See SOMER, Summary, op.cit., p.50.
Note 4 National Plan 96 Australia’s National Plan to Combat Pollution of the Sea by Oil, Australian Maritime Safety Authority, and Protection of the Sea (Civil Liability) Act, Part IVA, p.13.
Note 5 ABARE Commodity Statistical Bulletin,1994, p.323.
Note 6 Besides the effects from the use of petroleum products road transport infrastructure and vehicles produce negative landscape/aesthetic effects and cause damage to wildlife through habitat disruption and the injury to, or killing of, wildlife on roads.

 

Table 4 Relative contribution to atmospheric pollution in Australian cities by source, 1985 (per cent)


Source Carbon monoxide average (range) Hydrocarbons average (range) Nitrogen oxides average (range) Sulphur dioxide average (range)
Motor vehicles 86 (82–89) 45 (41–50) 67 (54–80) 10 (4–18)
Other mobile 3 (2–3) 2 (2–3) 5 (4–5) 2 (1–5)
Waste combustion 1 (1–2) 1 (1–2) <1 <1 <1 (<1–1)
Fuel combustion 7 (4–12) 10 (6–16) 21 (9–34) 32 (14–76)
Petroleum/solvent <1 (<1) 35 (30–38) 4 (2–5) 37 (12–64)
Miscellaneous 2 (<1–3) 5 (4–8) 4 (1–6) 18 (<1–68)

Note: Discussions with environmental protection agency officials around Australia indicate a more recent assessment of the overall Australian is not available. Source: Australian Environment Council,1988,as presented in Final Report 96 Transport,Ecologically Sustainable Development Project, AGPS, November 1991.

The Inter-State Commission (ISC 1990) estimated that the total cost of atmospheric pollution (excluding GHG emissions) from road transport was in the order of $787 million in 1989–90. These estimates are presented in Table 5.

In the ISC study data from a United States Federal Highway Administration Study undertaken in 1982 was combined with 1990 Australian data on vehicle use patterns (travel distances, etc.) to obtain the estimates presented in Table 5. A recent study of Australian transport externalities(see Note 7 below) reviewed the ISC results and those from recent studies undertaken in other countries. This review revealed that estimates of total costs of air pollution as a proportion of GDP for the United States and a number of countries in Europe were in the 0.16 to 1.04 per cent range and concluded that:“The proportion of these costs attributable to transport is unknown, although some authors have assumed that transport accounts for about one third of the total. If this ratio is accepted, the costs of transport emissions might represent between 0.05 and 0.34 per cent of GDP. Too much should not be made of the fact that the single ‘Australian’ estimate of 0.21 per cent falls in this range.”

The same study also compared, for a range of countries, transport externalities expressed in terms of gross domestic product percentages. Results of this comparison are given in Table 6, data in which indicates that Australian road transport noise and emissions (non-GH) externalities are valued at 0.3 per cent of GDP.

Note 7 Victorian Transport Externalities Study (VTES), Vol. 1, The Costing and Costs of Transport Externalities in Selected Countries. A Review, Victorian Environment Protection Agency, May 1994,p.49.

Table 5 Aggregate costs (a) of vehicle emissions in Australia 1989–90


Area of operation
Vehicle type Rural Urban Total
Automobiles
Unit cost of emissions (cents per km) (b) 0.006 0.677 n.a.
Annual travel (million km) (c) 48 791 99 022 147 813
Annual cost of emissions ($ million) 3.1 670.5 673.6
Heavy duty petrol-engined vehicles
Unit cost of emissions (cents per km) (b) 0.024 2.269 n.a.
Annual travel (million km) (c) 908 1 238 2 146
Annual cost of emissions ($ million) 0.2 28.1 28.3
Heavy duty diesel-engined vehicles
Unit cost of emissions (cents per km) (b) 0.014 1.625 n.a.
Annual travel (million km) (c) 5 371 5 168 10 539
Annual cost of emissions ($ million) 0.7 84.0 84.7
All vehicles
Annual cost of emissions ($ million) 4.0 782.6 786.6
Annual cost as percentage of GDP 0.00 0.21 0.21

Notes:
(a) In 1989–90 prices, do not include greenhouse externalities.
(b) Based on studies by the United States Federal Highway Administration (1982).
(c) Australian estimates based on Survey of Motor Vehicle Use (ABS 1990).
n.a. Not applicable.

Source: Inter-State Commission (1990),as summarised in Victorian Transport Externalities Study, p.48.


Particular attention is drawn to the caveats and notes which accompany the table.

Translated into dollar values, 0.3 per cent of Australia’s GDP would, in 1994, be about $1.320 billion for the environmental (noise and non-GHG emission) externalities. In reviewing these estimates the VTES summary report claimed they are likely to be conservative because since they were estimated in the 1980s environmental problems have increased, societal valuations of environmental externalities have increased and not all transport externalities (e.g. greenhouse effects) were considered.

The VTES report went on to develop estimates for transport externalities in Victoria based on studies for the project conducted over the 1991–1993 period. Noise, ozone, carcinogenic effects, accidents and congestion were covered but not greenhouse effects. For the 1988–1992 period estimates ranged from $6.0 96 6.17 billion, but the values are dominated by estimated accident ($4 billion in 1988 in 1992 dollars) and congestion ($2.031 billion in 1991 in 1992 dollars) costs. These two groups of externalities are not generally regarded as environmental externalities and are not considered here.(see Note 8 below)

Including only the environmental (noise, health) externality estimates from the VTES and adjusting for Victoria’s estimated share of the Australian total (30 per cent), gives a value of $200–$400 million,considerably lower than the amounts estimated via the GDP percentage estimates from the VTES international comparison and the ISC study. None of these studies estimated costs of GHG emissions from the transport sector; in 1990 the transport sector accounted for 12 per cent of Australian greenhouse gas emissions in 1990 (NGGI, 1994). Transport greenhouse externalities are included in the estimates below (Section 2.2.4) of energy related greenhouse emissions.

On the basis of the above discussion, non-greenhouse environmental externalities associated with the use of petroleum products in road transport are estimated to lie in the range $0.200 to $1.320 million in 1994.

Note 8 Congestion costs are estimated in terms of time lost valuations; air pollution effects of congestion are included in atmospheric emissions estimates.

Table 6 Indicative transport externality costs for selected countries (per cent of gross domestic product)


Externality

Country Noise Emissions2 Accidents3 Congestion Total
France 0.24 0.15 0.8 0.9–3.0 2.1–4.2
Germany 0.2 0.2–0.34 0.8 2.04 3.2–3.3
Netherlands 0.234 0.14–0.23 0.5 2.04 2.9–3.0
United Kingdom 0.5 0.05–0.12 0.5 3.2 4.2–4.3
United States 0.06–0.2 0.1–0.2 0.6–0.7 1.0–1.6 1.8–2.7
Australia 0.1 0.2 0.6 1.15 2.0

Notes:

1. Caution! The externality costs in this table are obtained from studies using varied methodologies for different purposes. Ranges indicate the lowest and highest estimates encountered (the absence of a range indicates that only one estimate was obtained from the literature reviewed). The estimates are not, in any rigorous sense , comparable. They are presented as the only indication available of the scale of the problem and as a very rough indication of the relative magnitudes of these transport externalities.
2. The Australian estimate is for costs due to road transport. Estimates for other countries are based on studies of the costs of air pollution due to emissions from all sources. In a recent study by the OECD, transport was assumed to account for one third of these costs. This approach also has been adopted in producing the results presented in this table.
3. Based on estimates of the full costs attributable to road accidents (over 90 per cent of costs due to accidents on all modes). In a recent study by the OECD, it was assumed that 30 per cent of these costs are external. This approach also has been adopted in producing the results presented in this table.
4. European Economic Community average.
5. Based on twice the estimated congestion costs for Sydney.

Note that due to rounding, the “total”estimates in the final column do not necessarily reflect the sum of the component estimates in columns 2 to 5 of Table 10.

Source:VTES, summary report, p.8.


2.2.4 Greenhouse externalities associated with fossil fuels

In a recent study NIEIR estimated the cost to attain Australia’s interim greenhouse target of stabilising energy related 1988 emissions by 2000. The cost,estimated in terms of discounted (8 per cent real) GDP foregone over the period would be about $3 billion (in 1994 dollars) using a combination of low cost (‘no regrets’) demand measures and supply measures (mainly a switch to gas for electricity generation)(see Note 1 below). Caveats on the use of this approach to greenhouse externality valuation in the energy sector include uncertainty as to costs, the short time available to achieve stabilisation, and the uncertain extent of the effort required given the range of business-as-usual emission forecasts. It should also be noted that other studies on the impact of greenhouse gas abatement on GDP have given different results. The NIEIR results, however, are not too dissimilar to those from other essentially econometric modelling studies.(see Note 2 below) The results of such approaches should be cautiously applied because of assumptions made on economic linkages, for example between consumption and investment patterns, in the economy.

If greenhouse externalities associated with electricity production are valued 1.50/kWh for coal and 0.75/kWh for natural gas generating facilities, that is 75 per cent (see Note 3 below) of the total externalities estimated to be associated with these activities (see Sections 2.2.1 and 2.2.2), the greenhouse externalities associated with non-electricity energy activities would have been about $1.371 billion (3.0 96 2.172 x .75) in 1994.

It should be noted that because of the caveats outlined above and the approach taken, this value should be regarded as a broad order of magnitude estimate only. An extensive Industry Commission greenhouse study, for example, declined to attempt such an estimate.(see Note 4 below)

Note 1 See Measuring the Economic Impact of Reducing Greenhouse Gas Emissions, NIEIR and ESAA,September 1994.
Note 2 See for example, results from an ABARE study reported by Jones, Zhao-Yang, Peng, Naugten, Reducing Australian energy sector greenhouse gas emissions, Energy Policy, April 1994, pp.270–286.
Note 3 75 per cent on the basis of Australian and North American studies discussed in Section 2.2.1.
Note 4 Industry Commission, Costs and Benefits of Reducing Greenhouse Gas Emissions, Report 15, AGPS, Canberra, 1991.

2.3 Renewable energy sources


2.3.1 Introduction

A range of renewable energy forms are used in Australia but currently the main one used is hydro from which up to 10 per cent of Australia ’s electricity is produced each year depending on climatic conditions and the dispatch of hydro-electricity by electrical authorities. Bio-energy from renewable sources (biomass, wastes) is also an important renewable energy form, followed by the use of solar energy for hot water production, mainly in the residential sector.

In general:
(i) renewable energy forms face more institutional and financial barriers to their use than non-renewable forms; and
(ii) their production and use results in fewer negative externalities.

For these reasons it is often argued that there is a case for assistance to them for “infant industry” and environmental reasons. Others argue that removal of barriers and the inclusion of externalities in the prices of all energy sources would provide a level playing field on which renewable energy forms could compete on their intrinsic merits.

2.3.2 Renewable energy and subsidies

Renewable energy forms vary widely in their environmental impact, for example combustion of biomass produces emissions while solar energy produces no emissions, but may have detrimental effects associated with the manufacture of solar energy components (for example, cadmium based photovoltaics). Generally, however, renewable energy forms (and improvements in the efficiency of energy use) have lower, often significantly lower, environmental disruption impacts associated with their “fuel” cycle (manufacture, installation and use). For this reason financial subsidies to these energy forms and energy efficiency can have positive environmental effects, a situation not found with non-renewable energy forms , indeed with other resources discussed in this report. Development of a competitive neutrality regime in the energy sector, for example the inclusion of externalities in pricing and of directed subsidies through RD&D support and grants, could accelerate the commercialisation of these less environmentally disruptive energy forms. The current Australian situation with respect to financial subsidies to renewables is discussed briefly in the Section 2.3.4.

2.3.3 Renewable energy trends

Indications are that a number of renewable energy technologies have the potential to compete with non-renewable energy forms, particularly if externalities were included in the pricing of all energy forms. Due to higher costs and environmental subsidies renewable energy is not generally competitive, although a 1992 study for the Department of Primary Industries and Energy (DPIE) indicated that electricity generated from wind and biomass sources (landfill gas, bagasse-sugar industry wastes, wood) were close to being competitive without externality inclusion.(see Note 5 below) For water heating, solar and biomass (wood, landfill gas) energy sources are economic in some locations, particularly where gas is not available.

By 2010 the DPIE study showed that technology advances and the inclusion of externalities at around 1–2/kWh would render these and other technologies such as photovoltaics and solar thermal systems competitive with fossil fuel generated electricity. Since 1992 some of the technical advances foreseen show promise of occurring, for example in the photovoltaics field where Professor Martin Green’s research team at the University of New South Wales is developing advanced photovoltaic systems. Technical problems still to be overcome if wind and solar energy systems are to come into much wider usage include lower cost storage systems for evening out the periodic nature of the energy produced by these sources.

2.3.4 Renewable energy forms

2.3.4.1 Bio-mass

Though some bio-energy comes from combustion of non-renewable wastes, it is generally treated as a renewable energy source.

Biomass sources of energy (bio-energy) are numerous , the most important in Australia being wood and wood wastes, agricultural wastes (sugar cane processing residues, bio-gas from animal wastes, etc.) and municipal refuse (methane from landfill). Biomass currently accounts for just under 5 per cent of primary energy consumption in Australia, mainly for heat , electricity and ethanol production. As biomass energy use often involves combustion and hence, combustion emissions, residues, etc. it is generally treated differently from other renewable energy forms in environmental discussions.

Besides direct combustion, biomass may be converted to other forms by processes such as gasification, anaerobic digestion, and fermentation of grains and other crops. Uses of these converted forms include heating (with gaseous forms) and as liquid transport fuels either directly or after being further converted to octane enhancers such as ethyl tertiary butyl ether (ETBE). Considerable RD&D work is under way in Australia and other countries to improve the economic competitiveness of bio-mass fuels, for example the production of ethanol and methanol from lignocellulose. (see Note 6 below)

Financial subsidies

The main financial support for biomass is for RD and D work by public and private agencies. Also ethanol production from biomass (grains,sugar cane, etc.) is supported by a Federal ethanol bounty program. This program, aimed at encouraging non-lead petrol octane enhancement to lower noxious emissions, is allocated $8.1 million in 1994–95 and is included in estimates of financial subsidies to energy production and use. Currently ethanol provides less than 0.1 per cent of transport fuel and the bounty scheme is only scheduled to operate for three years. It is highly unlikely that a viable ethanol industry will develop over the program period (1994–97) given that no major technical break throughs are foreseen in that time frame and to date the program take-up has been low (DPIE, pers. comm.) as at 18 cents/litre the bounty amount is considered by most prospective users to be insufficient for commercial viability (DPIE, pers. comm.).

Environmental subsidies

Environmental damage from bio-energy includes effects of solid and liquid residues, atmospheric emissions from bio-energy sites (methane, carbon dioxide, NOx and particulates) and some bio-diversity effects (see Forestry, Chapter 6).

An important issue in the environmental impact of bio-energy relates to the net greenhouse impact of producing bio-energy (for example ethanol) from renewable sources such as forests and sugar cane. Growth of the bio-mass absorbs carbon dioxide, so potentially enough biomass could be grown to absorb the CO2 emitted during its processing, transport and combustion. Several studies in North America have, however, failed to reach a consensus on the net greenhouse effect.(see Note 7 below)

2.3.4.2 Non-biomass renewables

Financial subsidies

The so-called newer renewable energy forms (i.e. forms excluding large scale hydro) such as solar, wind and geothermal are generally financed by small companies in the private sector which do not benefit from the financial advantages of large public and private organisations, particularly gas and electrical companies. In general, the economics of these renewable energy forms compare more favourably (but are generally still uncompetitive) with non-renewable energy forms when a financial level playing field and environmental subsidy analysis is performed.

Financial support for these renewables is provided through a federal industry renewables support program ($2.4 million) in 1994–95 including the Solar Energy Card program to promote solar water heating. Renewable R&D support was about $2.5 million from all government and public agency sources in 1994–95. This support is provided mainly because of the lower environmental impact of these energy sources. Increased support will be provided in future years through the Federal Greenhouse 21C package and by other public agencies. For example, Pacific Power, owned by the New South Wales Government , is investing $45 million in solar R&D over the 1995–2000 period ($11 million spent in 1994–95) in a joint R&D venture with the University of New South Wales.(see Note 8 below)

Environmental subsidies

Use of renewable resources other than biomass generates quite different externalities than those associated with fossil fuels. In the case of hydro electricity, for example, the flooding of agricultural and conservation area lands imposes environmental costs and cold water flows from dams affects fish spawning. Compensation is generally negotiated with private land owners, but not usually with public land owners, to compensate for forest, other flora and fauna loss. Hydro-electricity activities also contribute to the greenhouse effect by causing methane emissions from decaying biomass in and around dams and removal of some vegetation greenhouse gas sinks.

Leaching of minerals (e.g. mercury) from the soil underlying the hydro electricity catchment area can negatively impact the food chain, e.g. mercury poisoning in humans eating fish from the catchment.

Solar energy has few apparent environmental externalities. However, some observers have noted the negative aesthetic externalities of solar collectors and the negative externalities of manufacturing processes involved in solar systems. These effects are present, but seldom mentioned, in the case of fossil fuel generating units.

Wind energy externalities include aesthetics, noise and possible effects on birdlife.

Geothermal energy developments may result in some greenhouse gas emissions if drilling to extract geothermal energy releases trapped carbon dioxide and methane.

Financial and environmental subsidies to electricity production from renewable energy sources do not appear to have been evaluated in Australia. A United States study (see Note 9 below) gave a range of 0–1/kWh for negative externalities from renewable electricity compared with a range of 0.5–10/kWh for fossil fuel generated electricity.

No Australian work appears to have been done on quantifying financial and environmental subsidies to renewable energy forms.

Note 5 Stephens, M., Renewable Electricity for Australia, Discussion Paper No. 2, Energy Division, Department of Primary Industries and Energy, 1992,particularly pages 11, 12,13 and 25–27.
Note 6 See Alternate Fuels in Australian Transport, Bureau of Transportation and Communications Economics, Information Paper No. 39, AGPS, 1994,Chapter 5, and Bio-mass in the Energy Cycle, Parts 1 and 2, Energy Research and Development Corporation, Canberra, 1995.
Note 7 See for example, Alternative Fuels in Australian Transport , Bureau of Transportation and Communications Economics, Information Paper No. 39, AGPS, 1994, Chapter 5.
Note 8 Information from federal budget papers , discussions with DPIE and Pacific Power officials, and from the ASTEC energy R&D study, op. cit.
Note 9 Environmental Costs of Electricity, Pace University Centre for Environmental Legal Studies, Oceana Publications, September 1990.


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