Fuel tax legislation

An issue which has not got very much attention so far has been the planned changes to fuel tax. It is a complicated area, but it has significant ramifications for biodiesel, renewable fuels and oil recycling. The Senate Committee examining the legislation is tabling its report today. I understand it will recommend some changes, although how far they will go I am not sure. (UPDATE: Report can be found at this link)

There have been intermittent statements of enthusiasm from various government Senators about boosting ethanol and other renewable fuels and I would be surprised if there wasn’t some more vocal dissent – and probably some changes to the legislation – before the end of next week when it has to be voted on.

I don’t profess to understand all of it, but I believe it will change the tax treatment of biofuels over the next few years in a way which will disadvantage that developing industry.

The shorthand explanation of the legislation on the Committee website states:

The bills provide a single system of fuel tax credits to remove or reduce the incidence of fuel tax levied on taxable fuels and a framework for the taxation of gaseous fuels from 1 July 2011, when fuel tax is levied on liquefied petroleum gas, liquefied natural gas and compressed natural gas for the first time.
The bills will replace the current system of fuel tax concessions with a single fuel tax credit system from 1 July 2006. In the future the fuel tax will only be effectively applied to:
 fuel used in private vehicles and for certain other private purposes; and
 fuel used on-road in light vehicles for business purposes.
All taxable fuel acquired or manufactured in, or imported into, Australia for use in off-road applications for business purposes will become tax-free over time.

One wouldn’t immediately assume that a substantial impact to biofuels would occur as a result of this, but according to the submission from Renewable Fuels Australia:

Under the Fuel Tax Bill 2006, only a 5% biodiesel blend will be deemed to be substantially diesel, and thus meeting the diesel fuel standard and accompanying authorized access to grants under the Road User Charges Scheme set out in the Fuel Tax Bill. This is the preferred position of the major oil companies in Australia. The impact on market competition of this proposed reform could deny biodiesel (and in the future ethanol) access to over 70% of the Australian diesel fuel market and direct, and in some instances force, future biodiesel sales via the major oil companies.

Oil recycling will also be significantly affected. This is an area that doesn’t receive much public attention, but according to the submission from the Australian Oil Recyclers Association, “the Department of the Environment and Heritage annual report 2004-05 states that approximately 193 million litres of recycled product is used as burner fuel in Australia.”

As the Association states,

any oil product that is recycled must have originated with the oil companies and have
been subjected to the excise regime in the first instance. To subject the product to excise for a second time is a form of unfair double taxation.

The Association is concerned about the intention to tax recycled product at the full excise rate (currently 38.143 cents per litre) and allow credits at the user level. The financial burden this will place on recyclers is such that many recyclers will not be able to continue in business.

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  1. Hmmm. Reading the article, one of the measures the Renewable Fuels Association seems to want is concessional excise treatment of domestically produced biofuels compared to imported ones.

    From an environmental perspective, the rationale for concessional treatment of biofuels is that they produce less net greenhouse gas emissions than petroleum based biofuels. This occurs whether the fuel is produced here or overseas.

    Furthermore, if the rationale of using biofuels is to reduce net greenhouse emissions, surely the best way to do that is to make them as economically competitive as possible. If that is so, why exclude them from the market by giving the local product more favourable excise treatment than the imported stuff?

    The other rationales advanced for this differential treatment by the RFA seem to me to be old-style protectionism. You may have more sympathy for old-style protectionism than I do, but why is the biofuels industry so special that it deserves trade barriers that so many other industries have had yanked from them?

  2. Unfortunately production costs for biodiesel with most feedstocks are higher than the cost of mineral diesel, even at today’s high oil prices. Hence in all parts of the world biodiesel requires a tax credit to be econmically competitive. Unfortunately in Australia a large portion of diesel users are effectively paying no excise duty on diesel after July 1st, hence the ability of the Government to encourage biodiesel by offering concessional tax treatment is very limited. Most users are already unhappy enough with high oil prices without paying more for biodiesel.

    Basically any industry that relies on concessional tax treatment for its long term viability is in trouble. The biodiesel industry will ultimately have to utilise lower cost feedstocks that make its product competitive with mineral diesel without the tax concession.

    The other alternative is to lobby the Government to introduce mandatory blending quotas on the oil majors. This will not reduce in lost taxation revenue but will create a “guaranteed” market for producers. This is the approach that Germany, Italy, Austria, UK, and an increasing number of US states are adopting, let alone Thailand and probably Malaysia.

  3. Thank you for raising these issues. It seems that the Government has the ability through positive discrimination to encourage the development of non-fossil fuel producing industries, strike a blow for environmental and greenhouse concerns and assist the development of stronger agricultural industries, soaking up over production in sugarcane and grape industries (for instance). The imposition of a full excise on biofuels and lpg, along with a desire to put it all in the hands of the oil companies sounds like the multi-nationals have more sway over government policy than the needs and aspirations of ordinary citizens. This is the time for some strong initiatives that encourage Australians to get involved in developing and supporting new energy directions based on recycling.

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