Australian Petroleum and Coal Resources: Taxation, Emissions and Energy Justice

Abstract

Two forms of energy justice provide insight on Australia’s petroleum and coal problematic policy issues. First, distributive justice is used to cover the implications of low revenues from critical energy minerals; and fair allocations of resource income. Unfortunately, calls for true reform by the Australian community has resulted in a weak response from government. Second, cosmopolitan justice is used to consider the global effects of Australia’s fossil fuel extraction and use. Petroleum and coal exports result in GHG being emitted beyond the borders of the source country. However, there is now pressure in Australia to limit the opening of coal mines that supply the export market, but no such limit is applied to gas exports.

1 Introduction

Australia’s export volumes of liquified natural gas (LNG) are the largest globally. The coastal waters off Western Australia are the main source of gas resources, a petroleum commodity. Coal is Australia’s largest energy resource, with the states of Queensland and New South Wales (NSW) as the primary sites for metallurgical, black coal. Australia’s export volumes of metallurgical coal are the largest globally.¹ Both gas and coal have policy issues that energy justice could address which this chapter details below.

2 Background

2.1 Petroleum

A key policy problem with Australia’s petroleum resources (which are community owned) is the low federal tax revenues from its petroleum resource rent tax (PRRT), and the proposed 2023 Federal Budget changes to the PRRT will generate only modest additional revenue.² This issue is followed closely by policy concerns over the sector’s large greenhouse gas (GHG) emissions.

Australia’s current LNG production capacity is 88 million tonnes per annum (MTPA). The latest statistics show that 82 mtpa were exported in 2022 with record industry revenues of AU$91 billion.³ The federal government’s PRRT collection in 2021–2022, however, was only AU$1.6 billion.⁴ A negative aspect of high production volumes is the annual, national proportion of GHG emissions from Australian fossil fuels—mainly from LNG production—of 9.8%, or 47.9 mt CO₂-e.⁵

2.2 Coal

The key policy problem from Australia’s coal resources concerns its GHG emissions, arising from its being the main energy source for domestic electricity generation. There are also emissions from coal exported outside of Australia. Taxation is often used to change behaviour⁶; for instance, to increase prices to make a commodity less desirable. Coal, however, is not taxed centrally by the federal government, rather the states of Australia have their own policies and systems of royalties levied on coal.

Australia’s metallurgical coal production in 2021–2022 was 174 mt. Thermal coal production in 2021–2022 was 237 mt⁷; and primarily used for electricity generation in the states of NSW, Victoria and Queensland. In 2020, NSW coal royalty collections were AU$1.6 billion, while for Queensland it was AU$4.5 billion.⁸ The annual, national proportion of GHG emissions from the Australian coal-fired electricity sector was an alarming 32%, or 157 mt CO_2-e.⁹

3 The Power of Energy Justice to Transform These Policy Issues

Energy justice can facilitate discussions about energy sector GHG emissions, as well as effective taxation of energy resources. Energy justice is a normative theory that sets out sustainable pathways for the energy sector.¹⁰ The theory can be seen as five forms of justice: procedural justice, recognition justice, cosmopolitan justice, restorative justice and distributive justice.¹¹

This chapter selects two forms of energy justice to address the petroleum and coal issues at hand. First, distributive justice concerns the revenues from the critical energy minerals and how they are allocated. Taxation is a tool to elicit a return from the exploitation of resources for public goods, and how tax revenues are shared is a vital question. For example, Australia’s Treasurer, Jim Chalmers, lost the chance to substantially increase PRRT revenues from petroleum profits contained in the recent 2023 Federal Budget.¹² Unfortunately, calls for true reform by the community has resulted in a weak response from government.¹³ The states’ collections from coal royalties are also the subject of robust debate. For instance, a recent report notes ‘a 7-year coal royalty deferral arrangement between a company and the Queensland government’.¹⁴

Second, cosmopolitan justice stems from the belief that we are all citizens of the world and must consider the global effects of our actions. Typically, a source country exports fossil fuels that results in the importing country burning those resources for energy. The negative result is GHG being emitted beyond the borders of the source country.

An example of the cosmopolitan justice “beyond borders” concern was seen in a court decision on the Rocky Hill coal mine in 2019 in Australia, where it was held, in part, that the coal mine would be denied permission to open.¹⁵ The court decision addressed the effects of the carbon dioxide that would be produced in other places in the world once that coal was transported and burnt outside of Australia. Thus, there is now pressure in Australia to limit the opening of coal mines that supply the export market.

Further, in April 2023 a commercial decision took effect to close the 50-year-old Liddell coal-fired power station in the state of NSW. It was based on the age, inefficiency and unreliability of the plant.¹⁶ Given Liddell has contributed to 32% of national emissions from electricity generation—surely the other reason for the plant’s closure had to be: excessive emissions of GHG. This is a case where cosmopolitan justice could be applied.

The implementation of energy justice can be furthered by thinking about the need for a new social contract between the energy sector and society in Australia. A civil society requires that all members respect the rights of others even if it means reducing individual expectations.

4 Conclusion—Achieving Energy Justice in Australian Tax Policy

The record AU$91 billion in revenues in 2021–2022 from Australian LNG exports, and associated infrastructure spending make short-term energy transformation difficult.¹⁷ This is why climate change forums, such as the United Nations COPs,¹⁸ are so important as there needs to be global efforts to shift away from fossil fuels. The federal government could apply PRRT collections from petroleum to fund transition strategies. The tax take, however, must be adequate in the first instance. As for coal in Australia, there are still political divisions on the continued use of coal as a source of energy. Coal industry lobbying strength and jobs in the industry are unfortunately fragmenting state governments’ policy decisions to reduce reliance on coal.

Government policy is a key element to progress a shift away from fossil fuel energy, whether coal or gas, to renewable energy. Self-regulation of emissions by industry has not worked. One recent federal policy development in 2023 is the Safeguard Mechanism,¹⁹ that requires Australia’s largest GHG emitters to keep their net emissions below certain limits.

This chapter has considered petroleum and coal policy issues around taxation take and GHG emissions, both in Australia and beyond its borders. The energy justice lens of distribution justice, and cosmopolitan justice, have facilitated a clearer picture of the policy path forward.

There needs to be a fairer tax system to equitably share the benefits of energy minerals extraction, with the government share best distributed to address the negatives of GHG emissions. Bearing in mind the cosmopolitanism of our existence, taxes from developed countries should fund loss and damage from climate change borne by developing countries. Ultimately, there needs to be a just transition to a low-carbon economy.