Do Hockey's clean energy cuts add-up?

Yesterday we reported that the Coalition had released a series of budget cost savings which included $1.5 billion attributed to, "other measures linked to the carbon tax that are wasteful or will no longer be required". It was subsequently confirmed that this $1.5 billion will be made from abolition of the Clean Energy Finance Corporation and changes to the budget of the Australian Renewable Energy Agency. However, the Coalition has declined to provide a breakdown on where and when these cuts are coming from, instead stating further detail will come next week. The Coalition has also stated very clearly that ARENA will continue even though its budget will be reduced, or maybe just deferred.

Yet looking at the numbers the Coalition is claiming, one is left wondering how it will come up with this $1.5 billion figure.

Back in the 2011-12 Mid-Year Economic and Fiscal Outlook (MYEFO) the government originally projected that the CEFC would impose a cost on the budget of precisely $1.5 billion. This was because in the early planning stages of the formation of the CEFC, government officials made an assumption that the Corporation would “grant” or “lose” 7 per cent of the investment portfolio each year.

However, the board that was subsequently appointed to the CEFC rejected this as an inappropriate operating model for a financial body that had the aim of being self-sustaining, as outlined in this factsheet.

Instead, the CEFC Board determined that:

– it would operate commercially;

– its investments would not be made by way of grants;

– nor would CEFC investments be the type that would become immediately impaired.

Now the CEFC does intend to lend money at concessional rates below that likely to be offered from private sector financiers to some projects. However, according to the CEFC these concessional loans are expected to have an interest rate above the government’s cost of funds, and therefore generate a positive return to the CEFC.

As a result the $1.5 billion cost to the budget in the 2011-12 MYEFO has been revised dramatically downwards in the latest budget estimates. 

According to a statement, the Labor Party says that only $300 million could be claimed as savings from abolishing the CEFC as this is portion of costs that actually hits the budget bottom line over the forward estimates.

In terms of ARENA, in the May budget its total entire funding between 2013-14 to 2016-17 was $1.28 billion. If you were to completely gut ARENA’s funding then these savings in combination with $300 million from abolishing the CEFC would provide $1.5 billion in savings. But you then have to ask what’s the point of ARENA continuing to operate? This doesn’t seem logical, so it’s probably more likely that the Coalition has a different view about the likely budgetary impact of the CEFC.

Hopefully the Coalition will reveal next week exactly what it plans on doing.