CLIMATE SPECTATOR: Swan's surplus sorcery?

The Gillard government has promised a tough budget tonight. With the surplus goal in its sights we look at the programs that are prime for cuts and deferrals.

Climate Spectator

The Gillard government has been talking-up how tough tonight’s budget will be, and is desperate to post a surplus for the 2012-13 financial year. While a significant proportion of the funding for emission mitigation programs has been wrapped-up into an agreement with the Greens over the Clean Energy Future package, there is wiggle room available.

Below is a brief run-down of options open to Treasurer Wayne Swan the government to improve the 2012-13 budget bottom-line.

Prime candidates for cuts and deferrals

Dept of Renewables, Energy and Tourism (DRET) – Connecting Renewables to the Grid – $48 million

It is incredibly unlikely this money could be spent on the timeline set, and the government could comfortably defer the entire budget to after 2012-13. Virtually nothing has been done to identify transmission projects suitable for funding and these projects usually involve at least five years of planning before any sod is turned, not to mention you have to also build a power project at the end of the power line.

DRET – Carbon Capture and Storage (CCS) Flagships – $93 million

The government could comfortably push-out the vast majority of this money into subsequent periods. This is because the central component of the CCS project earmarked for funding (Perdaman Fertilisers in Collie, WA) is still mired in a legal battle over coal supply. Once resolved it is still likely to be several further years before the plant is financed and constructed.

DRET – Solar Flagships – $201.2 million

It seems incredibly unlikely that the current timeline for expenditure under this program could be achieved. Neither of the two projects selected for funding have managed to achieve financing deadlines, and the solar photovoltaic project has been re-opened to tender.

The government could comfortably push the vast majority of the funding into subsequent periods, although it must salivate at the prospect of cutting a ribbon on a large field chock full of solar panels before election day. Also, from a technical basis if not a commercial one, construction of a large solar PV project could be achieved within six months.

DRET – Australian Centre for Renewable Energy (ACRE) – $45.5 million

Almost all of the projects earmarked for funding under the assorted programs that fall under ACRE (to be rebadged as the Australian Renewable Energy Agency (ARENA)) have major development and funding hurdles still to overcome. Deferment of a substantial proportion of the funding seems possible without harming progress of projects earmarked for funding.

DRET – Global CCS Institute – $35 million

The Liberals said they’d chop the entire institution and it’s not fondly looked upon by the environment movement. It would be quite easy for the government to push out a significant proportion of this expenditure into subsequent years without major political fallout.

DRET – National CO2 infrastructure plan – $20 million

Projects capable of capturing any CO2 are many years away, so government may feel no pressing urgency to get infrastructure in place to transport it.

Dept Climate Change and Energy Efficiency (DCCEE) – Solar Hot Water Rebates – $24.5 million

Cessation of program has already been announced.

DCCEE – Administration of programs to reduce emissions – $36 million

DCCEE has already announced job cuts, so this is likely to come under the knife. Rebate and grant programs are nowhere near as large as they have been in the past (solar, insulation) and risks are also lower, providing latitude for cuts.

Programs at potential risk, but likely to be safe

DRET – Ethanol production grants – $170.5 million

Hated with a passion by the bureaucracy, and delivers barely any greenhouse benefit. Someone in finance is bound to have had a go at trying to cut the program, but because it is already well established, a cutback in the level of the subsidy would be difficult.

DCCEE – Low carbon communities – $52.3 million

An appalling concept that could be better dealt with through a market-based mechanism to drive energy savings combined with a university-based research program. However, it enables the government to provide hand-outs directly to local councils and community groups, which is great for gaining political mileage.

DCCEE – Administration associated with implementation of Clean Energy Future Package – $57.5 million

Effective implementation and management of the carbon pricing scheme is central to the government’s prospects. There are lots of risks in cutting this expenditure item too hard, but it’s one of the bigger buckets of money available for savings.

DRET – National Low Emission Coal Initiative – $51.9 million

A lot of the funding associated with this program is committed to projects already underway, making it more difficult for government to cut or defer funding. Out of all the expenditure items on CCS, this is one area that could probably spend its money productively and on-time through a range of research and feasibility studies.

DCCEE – Influencing international climate negotiations $16.4 million

It’s high time we asked what we get for all the effort that goes into international negotiations. There is unlikely to be any kind of meaningful successor to the Kyoto Protocol, international linking of carbon trading schemes seems rather premature given the fragile nature of the various schemes, and China and the US will make their own mind up about what to do. It’s probably best for Australia to focus on leading by example rather than jawboning others.

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