On the way out: Government revenues from fossil fuels in Australia

Abstract

Australia is moving from a fossil fuel-dominated energy mix to one that is increasingly powered by solar and wind. Fossil fuel exports are also likely to decline given their poor compatibility with the net zero emission targets of key trading partners. There is the potential for a variety of new exports of zero carbon energy and products to emerge. This paper reviews implications of the ongoing energy transition for government revenues from fossil fuel extraction and use and discusses policy options in response. It concludes that the transition heightens the need for efficient government revenue-raising mechanisms across the economy. Among the possible reforms, this paper reviews the potential for Australia's corporate income tax to be reoriented towards the taxation of above-normal profits via an allowance for corporate equity approach. Other revenue-raising options that are discussed include carbon pricing, electronic road user pricing, wider use of progressive royalties, the use of industry levies as applied in Australia's agricultural sector, and the generation of revenue from government co-investments.