Karen Andrews (McPherson, Liberal Party, Parliamentary Secretary to the Minister for Industry and Science) Share this | Hansard source

I rise to speak in this debate on legislation that implements the government's 2014-15 budget measures to change the taxation treatment of fuel ethanol and biodiesel: the Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015 and the Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015.

The Australian government transport fuels policy settings are designed to be fuel and technology neutral. That is because the government believes that an open and competitive market is the most effective means to deliver the widest possible range of fuels. The budget measures remove existing grant schemes and in their place provide that the domestic production of biodiesel and fuel ethanol will be subject to a reduced but gradually increasing rate of excise.

The energy white paper released on 8 April 2015 outlines the government's priorities to increase competition and national energy production and secure investment in the energy sector. It reiterates government policy that will ensure a technology-neutral policy and regulatory framework. As part of this, the energy white paper indicates that the government's preference is for the alternative transport fuels sector to be strengthened by being successfully integrated into the broader fuels market on a commercial basis. When I say 'the alternative transport fuels sector', that includes liquid petroleum gas, compressed natural gas and biofuels, including ethanol and biodiesel. Successful commercial integration means that government policy does not preference one fuel or technology over another. This policy brings biofuels into the same excise framework as other alternative fuels and will provide long-term certainty for investors in the industry.

Along with technology neutrality, the government's energy white paper that was released in April this year also advocated the creation of efficient markets. Efficient energy markets give consumers choice in how they source and use their energy and enable suppliers to respond to those choices. The government aims to avoid unnecessary regulatory barriers and subsidies that distort energy markets, shield competition and dilute price signals. This legislation aims to get the right balance in the market to maintain our investment attractiveness and our ability to adopt new technologies.

Australia's biofuel industry is only a small part of the overall fuel industry. It includes ethanol and biodiesel as well as a small experimental advanced biofuel research sector. Biofuels comprise 0.8 per cent of the total Australian transport fuel mix. But the emergent biofuels industry is growing and can also lead to economic opportunities for others in the economy. These opportunities include providing farmers with alternative sources of income through a local market for lower grade products as feedstock for the biofuels industry.

I would now like to speak about a couple of the larger elements in the alternative fuels industry. Australia's three ethanol plants produced approximately 236 million litres of ethanol in 2013-14. One of these plants is in Nowra, on the New South Wales coast. This is Australia's largest ethanol producer, converting wheat flour into protein and carbohydrate, with ethanol produced as a by-product of the carbohydrate production. Australia has two other ethanol plants, both in Queensland—one in Dalby, processing red sorghum, and the other at Sarina, processing molasses produced as a by-product of sugar refining.

Australia has seven biodiesel plants, in Victoria, South Australia, Western Australia and Queensland. They operate on feedstocks that include tallow, recycled cooking oil and other oils. In 2013-14 Australian plants produced 71 million litres of biodiesel. In 2014 the Bureau of Resources and Energy Economics estimated that the Australian ethanol industry created 160 to 200 direct jobs. A report prepared by Deloitte Access Economics for the Biofuels Association of Australia report released in February 2014 found that the biodiesel industry leveraged 438 full-time equivalent jobs.

The government support to the sector has been substantial and has extended for more than a decade. Since 2002 the biofuels industry has received support through programs like the Ethanol Production Grants program, the Energy Grants (Cleaner Fuels) Scheme and the Biofuels Capital Grants Program. The government will continue to provide long-term support to the biofuels industry and provide it with certainty for the future by bringing it into the excise system.

This proposed legislation delivers that certainty by proposing domestically produced ethanol and biodiesel will be brought into the excise system by applying excise on an energy content basis. The proposed changes recognise the fuel diversity and environmental and regional development benefits that the biofuels industry provides, through a 50 per cent discount on the energy based excise for each biofuel category. In doing this, the government will bring the biofuels sector into line with other alternative transport fuels like liquefied petroleum gas, liquefied natural gas and compressed natural gas, which have all transitioned into the excise system.

I would like to take a couple of minutes to look specifically at the detail of the legislation. The Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015 repeals the Energy Grants (Cleaner Fuels) Scheme Act 2004 and makes the appropriate consequential amendments. The cleaner fuels grant scheme used to provide a full rebate for excise paid on biodiesel.

The second piece of legislation is the Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015, which amends the Excise Tariff Act 1921. These amendments will reduce the rates of excise for domestically manufactured fuel, ethanol and biodiesel to nil for a one-year period, commencing on 1 July 2015. The bill then sets out a five-year excise pathway for fuel ethanol, so that it increases each year from 1 July 2016 until 1 July 2020. On 1 July 2020, the excise rate for ethanol will settle at approximately 33 per cent of the excise rate for petrol. This is in line with the alternative fuels excise framework, which applies excise based on the energy content of a particular fuel. This is in line with the alternative fuels excise framework that applies excise based on the energy content of a particular fuel. The bill also sets out a 15-year excise pathway for biodiesel from 1 July 2016 until 1 July 2030. The excise rate for biodiesel will increase at the same rate as ethanol for the first five years, and then it will increase year on year from 2026 to 2030 so that it settles at an excise rate equivalent to 50 per cent of the excise rate for diesel.

We have provided a longer transition period for biodiesel to ensure the industry's viability. The government has listened to the industry's concerns on transitioning into the excise system. The domestic industry has indicated that it needs around 15 years to adjust to the government's alternative fuels excise framework. A shorter transition would most likely lead to long periods of negative cash flow for an otherwise sustainable industry. However, the ethanol industry has indicated it can adjust over a shorter period, so the phasing-in period has been set at five years.

In conclusion, these two bills provide a responsible pathway to a sustainable excise rate for biofuels. They provide certainty for two additional sources of energy in Australia—two fuels that are making valuable contributions to Australia's fuel mix and that are sourced from renewable biomass. It is no longer appropriate that the biofuel sector be seen as a special case, requiring propping up by finite government assistance. However, I want to reiterate that these changes are measured and appropriate and take full account of the relevant issues and of the views and the needs of the relevant industry interests. I commend this bill to the House.

Question agreed to.

Bill read a second time.

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