Fracking does not present a strong case for government spending: The Australia Institute

by | Aug 9, 2020 | Opinion | 0 comments


All industries receive subsidies and the Territory’s gas industry is no different.  

Former Federal Resource Minister Matt Canavan has noted that “a leg-up from taxpayers helped get all new mining regions off the ground.” The International Monetary Fund estimates subsidies to fossil fuels in Australia at $40 billion per year.  

The OECD uses different criteria to estimate fossil fuel subsidies at $10 billion, while the Productivity Commission uses narrower criteria still to estimate government assistance to Australia’s mining sector was $335 million in 2018-19. 

So The Australia Institute’s report showing that onshore gas in the NT has received nearly $100 million in subsidies over a decade should not be controversial.  

Advocates for onshore gas in the Territory, including NT Independent’s publisher Owen Pikeobject more to the word ‘subsidy’ than they do to the notion that governments assist fracking companies. Indeed, Owen highlights that the Territory Government has put millions into exploration programs, infrastructure and promotion of the gas industry. 

Owen is wrong to suggest that our report takes subsidies to “the entire gas industry [and] unreliably and unethically associates all costs back to onshore gas.”  

He uses the example of the government-funded Creating Opportunities for Resource Exploration program which subsidises the whole resource sector. This program specified that of its specified that of its wider budget, $2 million per year was for shale gas and only this portion was included in our report, as explained page 13. 

Other subsidies included in our report are more difficult to allocate accurately to onshore gas based on the NT Government Budget Papers and other public documents. But this is arguing over small change compared to the $5.7 billion Territory taxpayers have committed to gas projects like the offshore Blacktip field, and the Northern Gas Pipeline from Tennant Creek to Mount Isa, about which Owen, the gas industry and the NT government are silent. 

A potentially really big ticket fracking subsidy item is greenhouse gas offsets. The NT Government’s Fracking Inquiry recommended (see page 239), and the NT Government accepted, that all fracking emissions need to be offset. A The Australia Institute discussion paper from October 2018 found this could cost $4.3 billion in 2030 alone and $146 billion between 2030 and 2040. 

Whether you want to call government assistance to the gas industry a subsidy, a ‘leg-up’, ‘support’ or something else, there is no debate that onshore gas has to date cost Territorians millions and delivered little in return. 

The question is not whether governments assist industries, it is what industries should governments assist to bring the most economic, social and environmental benefit to the Territory. It is on this point that onshore gas does not present a strong case.  

First, even if an onshore gas industry went ahead, it would not employ many people. Gas is a capital-intensive industry. It uses a lot of machines and pipelines, but very few workers. Per $1 million, the oil and gas sector employs less than one person, while construction, manufacturing, education and health all have around ten jobs per million a paper by The Australia Institute on the economic impacts of fracking in Western Australia found (see page 14).

Second, the onshore gas industry isn’t expected to go well. The Fracking Inquiry found that the industry has not been covering the costs of administering it for years (see pages 380-381). Worse, the Inquiry’s economic assessment found with “very high probability” that the industry would “fail to commercialise” (see page IX). Even if it proceeds, royalty payments are unlikely to cover costs to government for decades. With this advice, pursuing an onshore gas industry is throwing good money after bad. 

Last, and perhaps most importantly, onshore gas is divisive. It is splitting communities between those desperate for even the hope of a handful of jobs the industry could provide and those who worry about the long term impacts of the industry on water resources and the fish, animals and people that depend on that water. 

In the current crisis, the Territory needs to focus on industries that create the most employment, are viable in the long term, and bring Territorians together in a constructive way. 

Subsidising the onshore gas industry achieves none of these goals. 

 Rod Campbell is the research director at independent think tank The Australia Institute. 

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