Energy policy of Australia is subject to regulation and fiscal influence of the three levels of Government in Australia, however State and Federal energy policy deals with primary industries, such as coal.
Federal energy policies continue to support the coal mining and natural gas industries through subsidies for fossil fuel use and production as these industries export and significantly contribute to the earnings of foreign exchange and government revenues. Australia is one of the most coal-dependent countries in the world. Coal and natural gas, along with oil based products, are currently the primary sources of Australian energy usage, despite the fact that the coal industry produces approximately 38% of Australia's total greenhouse gas emissions. Federal policy is beginning to change with the publication of the Garnaut report and Carbon Pollution Reduction Scheme White Paper, announcement of an Emissions Trading Scheme to commence in 2010 and announcement of a national mandatory renewable energy target of 20% share of electricity supply in Australia by 2020.
State energy policies such as Mandatory Renewable Energy Targets ensure that renewable energy contributes a greater percentage of the countries energy supply.
Due to Australia's reliance on coal and gas for energy, in 2000 the country was the highest emitter of greenhouse gases per capita in the developed world, irrespective of whether or not emissions from land clearing were included. It is also one of the countries most at risk from climate change according to the Stern report.
Renewable energy commercialisation in Australia is an area of relatively minor activity compared to the fossil fuels industry. Australia's renewable energy industries are diverse, covering numerous energy sources and scales of operation, and currently contribute about 8-10% of Australia's total energy supply. The major area where renewable energy is growing is in electricity generation following the introduction of government Mandatory Renewable Energy Targets.
The main source of Australia's electricity generation is coal. In 2003, coal-fired power plants generated 77.2% of the country’s total electricity production, followed by natural gas (13.8%), hydropower (7.0%), oil (1.0%), biomass (0.6%) and solar and wind combined (0.3%). Coal-fired plants also constitute a majority of generating capacity. The total generating capacity was approximately 44,771 MW in 2002. Depending on the price of coal at the power station, the long run marginal cost of coal based electricity at the power stations in eastern Australia is between 3 and 5 cents per kWhr, which is between $30 and $50 per MWhr. In Victoria brown coal stations produce electricity for less than $30 per MWhr. In 2003, coal fired plants produced 58.4% of the total capacity, followed by hydropower (19.1%, of which 17% is pumped storage), natural gas (13.5%), liquid/gas fossil fuel-switching plants (5.4%), oil products (2.9%), wind power (0.4%), biomass (0.2%) and solar (0.1%).
Hydroelectricity accounts for 6.5-7% of Australian electricity generation. The Snowy Mountains Scheme is a massive water diversion, storage and hydro-electric scheme, which takes water from the eastern slopes of the Australian Alps (part of the Great Dividing Range) in eastern Victoria and southern New South Wales through pipes, tunnels and aqueducts into a series of dams, for use in hydro-electric power generation and irrigation in the Murrumbidgee and Murray valleys. The scheme created two major artificial lakes, Lake Eucumbene and Lake Jindabyne as well as a number of smaller lakes and ponds.
As at June 2009 wind power generation capacity is 1.494 GW  and accounts for about one per cent of national electricity generation, some 9 per cent in South Australia. A Carbon Market Economics report projects over 10 GW of new wind power capacity by 2016 is possible if renewable energy targets are met.
Solar energy is used as a "fuel" for heating water, in addition to its role in producing electricity through photovoltaics.
Less than 1 per cent of Australian electricity currently comes from solar power generation. This is mainly due to the higher cost per kW than other power sources because of the cost of solar panels. Innovative applications of photovoltaic technology being developed in Australia include concentrating systems to focus the solar energy on to a smaller area of higher efficiency cells and the use of building integrated photovoltaics, where the PV cells perform architectural or structural functions as well as power generation, thereby offsetting some of the cost.
A major 154 MW photovoltaic (PV) Solar power station in Victoria is planned, which will be the biggest and most efficient solar photovoltaic power station in the world. The power station will cost $420 million and have the capability to concentrate the sun by 500 times onto the solar cells for ultra high power output. The Victorian power station will generate clean daytime electricity directly from the sun to meet the annual needs of over 45,000 homes with zero greenhouse gas emissions.
The Australian government says new technology harnessing wave energy could be important for supplying electricity to most of the country's major capital cities. A wave farm near Fremantle in Western Australia operates through a number of submerged buoys, creating energy as they move with passing waves. The Australian government has provided more than $US600,000 in research funding for the technology developed by Carnegie, a Perth company.
Jervis Bay Nuclear Power Plant was a proposed nuclear power reactor in the Jervis Bay Territory on the south coast of New South Wales. It would have been Australia's first nuclear power plant, and was the only proposal to have received serious consideration as of 2005. Some environmental studies and site works were completed, and two rounds of tenders were called and evaluated, but the Australian government decided not to proceed with the project.
Queensland introduced legislation to ban nuclear power development on 20 February 2007. Tasmania has also banned nuclear power development. Both laws were enacted in response to a pro-nuclear position, by John Howard in 2006 , and the release of the Switkowski report into nuclear power.
An independent panel of Australian scientists and nuclear experts have been critical of the findings of the Switkowski nuclear inquiry. They found that the Switkowski report relies on some flawed assumptions which reveal a bias towards nuclear power on economic, technological, health and environmental grounds.
Coal fired power stations produce electricity between 3 and 5 cents per kWhr, which is between $30 and $50 per MWhr. In Victoria brown coal stations produce electricity for less than $30 per MWhr. . Coal subsidies from the government are the second largest associated with fuel subsidies. Due to domestic production, coal fired power stations pay much less for fuel than the international market price. Major Australian power plants such as Macquarie Generation, CS Energy, Stanwell and Delta Electricity pay 1.36 cents/kWh. By comparison, coal-dominated utilities in the United States paid 1.37-2.44 cents/kWh.
The coal power stations receive subsidies which are calculated to be between $450 million and $1.1 billion in 2005-06. Currently, the subsidies received by several electricity generation companies prioritising in coal-fired generation appear to match or exceed the profits made by those companies in 2005-06. In other words, government subsidies appear to be directly creating profits for coal-fired generators.
The impact of removing certain electricity sector subsidies will increase the cost of electricity by about $0.05/kW or 3.9%. This would decrease demand for electricity by 1.4% and also reduce GHG Emission by about 2.7 Mt CO2-e.
The $400 million Greenhouse Gas Abatement Program (GGAP) has already invested in 15 projects totaling $145 million to diminish 27 million tonnes of GHG during 2008-2012.
The major Australian coal-fired power stations (Delta Electricity, CS Energy, Stanwell) have a 0.23 cents per kWh depreciation charge for their plants. On average, the cost of buying a plant is about $220/kW compared to the international market of $1300/kW. As these power plants age over time, their asset values decline and thus form a subsidy of $189/kW. This in turn equates to a power generation subsidy of 0.2 cents/kWh.
From 2005-06, 141TWh of electricity was harvested, with a total of $284 million for concession subsidies. All of these subsidies:
These subsidies that encourage coal firing are distorting the energy market. The removal of this subsidy would cause coal power stations to lose profitability. They would be forced to raise their electricity prices to regain profits in order to compete with other energy methods. 
There are vast deep-seated granite systems, mainly in Central Australia, that have high temperatures at depth and these are being drilled by 19 companies across Australia in 141 areas. They are spending AU$654 million on exploration programmes. South Australia has been described as "Australia's hot rock haven" and this emissions-free and renewable energy form could provide an estimated 6.8% of Australia's base load power needs by 2030. According to an estimate by the Centre for International Economics, Australia has enough geothermal energy to contribute electricity for 450 years.
The 2008 Federal Budget allocated $50m through the Renewable Energy Fund to assist with 'proof-of-concept' projects in known geothermal areas.  .
Biomass power plants use crops and other vegetative byproducts to produce power similar to the way coal-fired power plants work. Another product of Biomass is extracting ethanol from sugarmill byproducts. The GGAP subsidies for Biomass include ethanol extraction with funds of $7.4 million and petrol/ethanol fuel with funds of $8.8 million. The total $16.2 million subsidy is considered as a renewable energy source subsidy.
Biodiesel is an alternative to fossil fuel diesels that can be used in cars and other internal combustion engine vehicles. It is produced from vegetable or animal fats and is the only other type of fuel that can run in current unmodified vehicle engines. The advantages of using biodiesels are summarised below:
Subsidies given to Ethanol oils totaled $15 million in 2003-2004, $44 million in 2004-2005, $76 million in 2005-2006 and $99 million in 2006-2007. The costs for establishing these subsidies are $1 million in 2005-2006 and $41 million in 2006-2007.
However, with the introduction of the Fuel Tax Bill, grants and subsidies for using Biodiesel have been cut leaving the public to continue using diesel instead. The grants will be cut by up to 50% by 2010-2014. Previously the grants given to users of ethanol-based biofuels were $0.38 per litre, which will be reduced to $0.19 in 2010-2014. 
In the transport sector, fuel subsidies reduce petrol prices by $0.38/L. This is very significant, given current petrol prices in Australia of around $1.20 per litre. The acceptable petrol prices hence result in Australia's petroleum consumption at 28.9 GL every year. 
Removal of this subsidy will make petrol prices rise to around $1.60/L and thus could make certain alternative fuels competitive with petroleum on cost. The 32% price increase associated with subsidy removal would be expected to correspond to an 18% reduction in petrol demand and a Greenhouse Gases emission reduction of 12.5 Mt CO2-e.
The subsidies for Oil-Diesel fuel rebate program are worth about $2 billion, which are much more than the grants devoted to renewable energy. Whilst renewable energy is out of scope at this stage, an alternative diesel-renewable hybrid system is highly recommended. If the subsidies for diesel were bounded with the renewable subsides, remote communities could adapt hybrid electric generation systems.  Energy Grants Credit Scheme (EGCS) : off-road component is a rebate program for diesel and diesel like fuels.
Companies involved in the extraction of the fossil fuel petroleum are given special deductions as follows:
Australia's natural gas reserves are estimated to be 3,921 billion cubic metre (bcm), of which 20% are considered commercially proven (783 bcm). The gas basins with the largest recoverable reserves are the Carnarvon and Browse basins in WA, the Bonaparte basin in the Northern Territory, the Gippsland and Otway basins in Victoria and the Cooper-Eromanga basin in SA and Queensland. In 2003-2004, Australia produced 33.2 bcm of natural gas, of which 62% was produced in WA. The majority of WA gas is sourced from the North West Shelf. Australia produces also LNG. In 2004, LNG exports were 7.9 Mt (10.7 bcm), which represented 6% of world LNG trade.
GGAP provides $26 million in subsidies for construction of natural gas fired power plants.
In addition, Australia owns a large potential for deposits of coal seam methane (CSM). The majority of these deposits are located in the black coal deposits of Queensland and NSW.
On August 19, 2009, Chinese petroleum company PetroChina signed an AU$50 billion deal with ExxonMobil to purchase liquefied natural gas from the Gorgon field in Western Australia, considered the largest contract ever signed between China and Australia, which ensures China a steady supply of LPG fuel for 20 years, and also forms as China's largest supply of relatively "clean energy". This deal has been formally secured, despite relations between Australia and China being at their lowest point in years, following the Rio Tinto espionage case and the granting of visas to Rebiya Kadeer to visit Australia.
Australia's oil shale resources are estimated to be around 58 billion tonnes or 4,531 million tonnes of shale oil. The deposits are located in the eastern and southern states with the biggest feasibility in the eastern Queensland deposits. Between 1862 and 1952 Australia mined 4 million tonnes of oil shale. The mining stopped when government support for mining ceased. More recently, from the 1970s on, oil companies have been exploring possible reserves. From 2000 to 2004 a demonstration-scale processing plant at the Stuart Deposit near Gladstone, Queensland produced over 1.5 million barrels of oil. The facility is now on care-and-maintenance in an operable condition, and the operator of the plant — Queensland Energy Resources — is conducting research and design studies for the next phase of its oil shale operations. A campaign by environmentalists opposed to the exploitation of oil shale reserves may also have been a factor.
The responsible governmental agencies for energy policy are the Council of Australian Governments (COAG), the Ministerial Council on Energy (MCE), the Ministerial Council on Mineral and Petroleum Resources (MCMPR), the Commonwealth Department of Resources; Energy and Tourism (DRET), the Department of Environment and Heritage (DEH), the Australian Greenhouse Office (AGO), the Department of Transport and Regional Services, the Australian Competition and Consumer Commission (ACCC), the Australian Energy Market Commission, the Australian Energy Regulator and the Australian Energy Market Operator.
This Green Paper was released on 16 July 2008 by Senator the Honourable Penny Wong at the National Press Club in Canberra, ACT, Australia.
On 11 December 2003, the Ministerial Council on Energy released a document entitled “Reform of Energy Markets”. The overall purpose of this initiative was the creation of national electricity and natural gas markets rather than state-based provision of both. As a result, two federal level institutions, the Australian Energy Market Commission (AEMC) and the Australian Energy Regulator (AER), were created.
The Australian Government provides financial support for the production and implementation of all forms of energy development. These include direct payment and tax reductions. In 2001, Australia's subsidies for the fossil fuel related market alone exceeded $6.5 billion.  Between 2005 and 2006, Australia's subsidies for the Energy Market ranged from $9.3 to $10.1 billion. The subsidies for fossil fuels account for 96%. 4% of the available funds for renewable and transport technologies.
Subsidies by sector
Total subsidies that support production and consumption of different fuels
Geoscience Australia, the Department of Industry, Tourism and Resources & State Government energy departments are involved in the direct support of mining and fossil fuel exploitation. These agencies only provide subsidies if there is a benefit to a particular group. As forecast, the main groups concerned are from the coal industry. Thus, by providing subsidies to the coal-fired power industry, there will be an increase in fossil fuel production, lower coal costs and inevitably an increase in greenhouse gases (GHG).
Geoscience Australia (GA) provided a AU$107 million subsidy for energy in 2005–06. The 2006–07 budget involved 66 projects of which 11 are allocated to petroleum research and others related to mineral and mining industry. On a much smaller scale, the subsidy allocated to saving climate change was 'storage of GHG' with a subsidy of $0.6 million.
The Department of Industry, Tourism and Resources (DITR), similarly to GA, provided a AU$30 million energy technology fund in 1994–95. This increased to a government-funded $1,314 million subsidy which divides into 52 branches.
95% of Australia's electricity originates from fossil fuels, which make the power industry quite profitable. The DITR supports fossil fuel research with 95% of its total budget, leaving less than 5% for renewable energy technology.
Currently, 82% of all Australians live in towns and cities with a population of 25,000 or more, and by 2011 almost 62% will be living in the 5 major state capitals. According to the 'Peak Oil Phenomenon', when Oil reserves are at less than 50%, refining oil will be harder and cost more money. However, Australia has an alternative - natural gas reserves, which are abundant throughout the states. Due to the current fossil fuel (including oil) subsidies making oil refinement cheaper, natural gas extraction is ignored.
Queensland's energy policy is based on the year 2000 document called Energy Policy: A Cleaner Energy Strategy. The Queensland Government assists energy development through the Queensland Department of Energy and is most noted for its contribution to coal mining in Australia.
The South Australian Government has developed an Energy policy based on sustainability objective as well as on South Australia's Strategic Plan.
A major priority of South Australia’s Strategic Plan is to reduce greenhouse gas emissions in South Australia to achieve the Kyoto target as a first step towards reducing emissions by 60% (to 40% of 1990 levels) by 2050.
Measures announced in South Australia include:
In some remote areas of WA, the use of fossil fuels is expensive thus making renewable energy supplies commercially competitive. WA offers renewable energy subsidies including; solar heaters, Photovoltaic rebate program for installations at households, schools, factories and renewable Remote Power Generation Program of >$500,000 rebates for large off-grid systems. 
See also: Australian reneawable energy
An Expanded Renewable Energy Target was passed by the Australian Parliament on 20 August 2009, to ensure that renewable energy obtains a 20% share of electricity supply in Australia by 2020. To ensure this the Federal Government has committed that the MRET will increase from 9,500 gigawatt-hours to 45,000 gigawatt-hours by 2020.The scheme lasts until 2030.
Coal is the most carbon-intensive energy source releasing the highest levels of carbon dioxide into the atmosphere.
Currently has funded six projects to help reduce GHG emissions, which are summarised below
|Project||Details||Funding [Mio. $]|
|Chevron - CO2 injection program||natural gas extraction, carbon capture and underground storage||60|
|CS Energy - Callide A Oxy-fuel Demonstration Project||black coal power with carbon capture and underground storage||50|
|Fairview Power - Project Zero Carbon from Coal Seams||gas power station with seam injection of CO2||75|
|Solar Systems Australia - Large Scale Solar Concentrator||concentrated sunlight solar power||75|
|International Power -Hazelwood 2030 A Clean Coal Future||drying of brown coal, carbon capture and underground storage||50|
|HRL Limited -Loy Yang IDGCC project||combined drying coal systems||100|
82% of subsidies is concentrated in the Australian Government's 'Clean Coal Technology', with the remaining 18% of funds allocated to the renewable energy 'Project Solar Systems Australia' $75 million. The LETDF is a new subsidy scheme aimed at fossil fuel energy production started in 2007. 
Each state and territory has a different position on feed-in tariffs. In summary, as at 26 May 2008, no state or territory has a general, operating feed-in tariff which creates a positive financial return for investing in roof top solar photo-voltaic power. Such a scheme has resulted in Germany being one of the largest producers of solar photo-voltaic power in the world. South Australia, Queensland and Victoria are expected to have such schemes operating by the end of 2008. The other states and territories have not announced any intention to legislate for an incentive scheme. Under a limited federal Solar Cities program, Alice Springs has such a scheme.
In November 2008 an Australian Senate committee chaired by Labor Senator Anne McEwen recommended further scrutiny of a renewable energy feed-in tariff before it is rolled out nationally. The committee has recommended that such a scheme be put to the Council of Australian Governments. Some states already have a tariff to encourage investment in renewable energy, and the Greens have introduced a bill for a national scheme.
In 2003, Australian total primary energy supply (TPES) was 112.6 million tonnes of oil equivalent (Mtoe) and total final consumption (TFC) of energy was 72.3 Mtoe.
See also: Carbon capture and storage in Australia
Australia is the fourth-largest coal producing country in the world. Newcastle is the largest coal export port in the world. In 2005, Australia mined 301 million tonnes of hard coal and 71 million tonnes of brown coal. Coal is mined in every state of Australia. It provides about 85% of Australia's electricity production and is Australia's largest export commodity. 75% of the coal mined in Australia is exported, mostly to eastern Asia. In 2005, Australia was the largest coal exporter in the world with 231 million tonnes of hard coal. Australian black coal exports are expected by some to increase by 2.6% per year to reach 438 million tonnes by 2029-30, but the possible introduction of emissions trading schemes in customer countries as provided for under the Kyoto protocol may affect these expectations in the medium term.
Coal mining in Australia has become more controversial because of the strong link between the effects of global warming on Australia and burning coal, including exported coal, and climate change, global warming and sea level rise. Coal mining in Australia will as a result have direct impacts on agriculture in Australia, health and natural environment including the Great Barrier Reef.
The IPCC AR4 Working Group III Report "Mitigation of Climate Change" states that under Scenario A (stabilisation at 450ppm) Annex 1 countries (including Australia) will need to reduce greenhouse gas emissions by 25% to 40% by 2020 and 80% to 95% by 2050. Many environmental groups around the world, including those represented in Australia, are taking direct action for the dramatic reduction in the use of coal as carbon capture and storage is not expected to be ready before 2020 if ever commercially viable. 
The Australian results from the 1st Annual World Environment Review, published on June 5, 2007 revealed that: