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

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.

Automated summary

Australia is transitioning from fossil fuel to renewable energy sources, such as solar and wind power. This shift may result in a decrease in fossil fuel exports due to the incompatible emission targets of trading partners. The transition highlights the importance of efficient revenue-raising mechanisms for the government, and this paper explores various policy options. These options include reforming corporate income tax, implementing carbon pricing, electronic road user pricing, progressive royalties, industry levies, and government co-investments to generate revenue.