Lyn Allison (Victoria, Australian Democrats) Share this | Hansard source

Senator Boswell joins the debate now. I would have expected the National Party to have asked these questions, to represent the users amongst their own constituents, but apparently not. The Biodiesel Association of Australia questioned Treasury about the impact. They said:

The exact words that came from one of the parties I spoke to in Treasury were: ‘Our concerns are not the externalities of the fuels, only the simple costs of what comes in and out, and it is your responsibility—

referring to the Biodiesel Association of Australia—

to make sure that the politicians tell us to change it.’ It was that blunt.

I wonder whether that was what the cabinet and the party room were told, too, about this bill.

When the committee asked about the level of awareness and understanding in the industry about the impact of these changes, it was told that it was only a week ago that the complex system of grants and credit schemes was able to be explained to producers and other industry people, in part because the tax office had only just corrected the script on their telephone line that had been giving people the wrong information. The Biodiesel Association of Australia said:

Even the tax office has had trouble trying to understand this, and that meant that, when the bill was put forward a considerable time ago, people could not understand the calculation of what grant went where or how it was all applied. They are still trying to work it out themselves.

I will go through the main features of this bill in a moment, but it is worth pointing out, first of all, that Australia’s fuel taxes are amongst the lowest in the world. That is without this further cut to diesel excise. Australia is one of the few countries to have reduced excise on fossil transport fuels. As part of the A New Tax System proposed in 1998, the government wanted to reduced excise by $2 billion a year—a cut that was more than halved through negotiations with the Democrats. In March 2001 biannual indexation of excise on transport fuels was frozen at around 38c per litre. Access Economics estimated that revenue forgone from this freeze will be $1.85 billion in 2005-06.

The fuel taxation inquiry recommended that we reintroduce indexation, but that was rejected by this government. This fuel tax bill proposes reducing fuel taxes on diesel by a further $1.5 billion. On 1 July, all existing rebates and subsidies are to be replaced with a single system of fuel tax credits and reduced excise on diesel. Products such as solvents will for the first time be required to pay excise. Offset credit is claimable via the business activity statement. Excise foreshadowed in the 2003 budget will be imposed on alternative fuels from 1 July 2011 at a rate that is approximately half the equivalent rate of excise on petrofuels but is offset by tax credits that will be progressively phased out by 1 July 2015.

Commercial vehicles over 4.5 tonnes in metro areas will be entitled to credits for diesel, and around 20c of the 38.143c a litre in diesel excise will be declared a road user charge. Businesses claiming more than $3 million a year in fuel tax credits will be required to be members of the Greenhouse Challenge Plus program. This obliges them to measure their greenhouse gas emissions but not to act on those measurements. There is no actual abatement being mandated. Credits for vehicles of more than 4.5 tonnes will also depend on vehicles being no more than 10 years old. The Fuel Sales Grants Scheme, a 1c per litre grant provided to fuel retailers in non-metro areas and worth about $200 million a year, is to be phased out. From 1 July 2012, all off-road business users of certain fuels will be effectively excise free; likewise, all diesel used in electricity generation and burner fuels.

The Democrats strongly oppose this legislation because it is a clear backflip on the negotiated agreement under the ANTS package in 1999 and it reintroduces many of the problems that were overcome by that agreement. We negotiated major changes to that package—informed by an extensive inquiry by a references committee, I might point out. That inquiry was told that the $2 billion in cuts in petrodiesel would wipe out cleaner but still fledgling alternative and renewable fuel industries, compressed natural gas, liquefied natural gas, LPG and biofuels.

We supported the government’s objective of reducing transport costs in rural areas and for agriculture at a time when there was a serious decline in rural economies, but we negotiated to put in place a suite of measures to more than halve those cuts and to address the very significant problems drawn to our attention during that inquiry. The inquiry was also informed that the industry collected many millions of litres of used oil from mining companies, service stations and industry right around the country, including farmers—oil that would otherwise be dumped in landfill or worse—and that the industry removes contaminants for reuse or, better still, re-refines it to produce pure lubricating oil product, but that all of that would cease to be viable.

The Democrats put in place the Product Stewardship (Oil) Program, negotiated for recycling waste lubricating oils. That has been an enormously successful program that now collects 200 million litres of used waste oil a year. We negotiated to remove altogether the excise from rail, in recognition of the competitive advantage given to long-haul road transport in the diesel excise cuts and the fact that rail use charges were significantly higher than road use charges. We negotiated national standards for fuels that, for instance, progressively and massively reduced the sulfur content of diesel from around 1,500 parts per million to less than 50. We negotiated standards for vehicles emissions, bringing Australia into line with European standards over time and massively improving air quality.

The excise removal on diesel for remote power generation was reversed, and excise that was previously refunded to state governments was redirected to the very successful program to bring renewable energy to remote communities, including many Indigenous communities, often in combination with diesel. It appears that in this bill, although this did not receive much attention, that incentive will be removed as well. Through the Diesel Fuel Rebate Scheme off-road and the Diesel and Alternative Fuels Grants Scheme on-road, the Democrats negotiated limits on the diesel excise cuts to heavy interstate freight transport. In all of this the price relativity of alternative fuels was secured and grants were made for vehicle conversions.

The Treasurer apparently is not concerned about externalities, including jobs in regional areas and the economy of our country. He wants what he calls ‘a level playing field’. Well, you cannot have a level playing field when the petro industry has had over 100 years to establish its infrastructure: refining, storage, transport and retail distribution. He continues to resist the adoption of alternative fuels, except perhaps in Queensland, as if there were an endless supply of oil. And this government has let those oil companies get away with it.

In countries like Germany where biofuels have gained significant shares of the fuels market, biofuels have been allowed to develop in an excise-free environment for more than 20 years. Germany’s approach led to small, community based production happily coexisting with the larger producers, with an output now in excess of two billion litres per annum. This makes the Prime Minister’s target of 350 megalitres for biofuels look very paltry indeed. Sweden imposed excise on biodiesel in 1997 which halted development of the industry. Only recently, Sweden’s policy was reversed as part of a policy target of being completely fossil-fuel free by 2015.

The bill was most severely criticised for the effect it would have on biofuels. Producers argued that this bill represents the removal of government support for biofuels and the demise of the sector. While it is difficult to precisely calculate the impact, submitters said the following were some of the likely impacts. From 1 July, 100 per cent biodiesel and 49 per cent blends of biodiesel for both on and off road are likely to be more expensive than petrodiesel—13c a litre and 35c a litre respectively. By July 2010, for heavy on-road users that difference will be as high as 8c a litre. For off-road users—farmers, miners et cetera—100 per cent biodiesel will be 35c a litre more expensive than petrodiesel. Is this really the outcome that this government wants?

The bill effectively returns to the original intention of the government, using a complex interaction of road user charges, designation of five per cent biodiesel blends as the standard for highest credits and the treatment of the current Energy Grants Credits Scheme as an offset excise, and, in so doing, discriminates against rural off-road users of biodiesel in particular and against biofuel production in general.

Biodiesel and biodiesel blends are developing significant markets for their products that are now in jeopardy. Mr Mapstone of Gardner Smith said that the biodiesel industry had grown very quickly and could be producing over 800 million litres of biodiesel a year were it not for the changes proposed to start on 1 July. He said this growth had been possible because biodiesel has not had to rely on marketing the product through the four major oil companies, as is the case for ethanol, and was supported by the bans on blends of more than 10 per cent ethanol in petrol and the ongoing reluctance by government to mandate even that blend. This legislation, by designating five per cent biodiesel and 95 per cent diesel as the biodiesel standard, effectively extends to biodiesel the marketing barrier that existed for ethanol. Mr Mapstone explained:

With ethanol, you must align yourself with a large retail network. With biodiesel, we can make a product that is fit for purpose on spec and we can go direct to end users, whether they be road transport, off-road users, fishing fleets or the like. That is another reason why the industry is growing so quickly. It will stop very quickly as well, if it is not understood where this legislation will put us.

Biodiesel Australia concurred. They said:

The biodiesel industry in Australia has only just started. In the last 12 months, production has gone from virtually zero to 180,000 tonnes. I have a list of the projects which are currently planned. With the incentives offered by the government so far and the current tax position on excise, it will produce well over one billion litres of biodiesel per annum. Apart from the plants which are currently under construction, the proposed changes to the excise rulings and the way in which the rebate and producer grants are going to work will make 99 per cent of the biodiesel market unviable—

I repeat: 99 per cent of the biodiesel market will be unviable. They went on:

The way the biodiesel producer grant is applied will effectively offset the excise paid or payable, or liable, for the production of the fuel—that is how it is treated by the tax office.

…            …            …

... while biodiesel currently has a moderate advantage, as of next month biodiesel will suffer a price disadvantage. Definitely, in the case of on-road applications, there will be a price penalty of anywhere between 2c and 4c. In the case of off-road applications, that price penalty is around 38c, the full excise price.

Witness after witness brought this story forward: if this bill goes ahead, it is the end of the industry. The Democrats have been working very hard on this in the last few days, and I think we have come up with a solution to the problem. I will be putting amendments that will effectively establish that level playing field. The amendments will treat biodiesel in exactly the same way as diesel is being presented. They will maintain that very small price advantage that currently exists. The advantage is so small that it is barely feasible in a lot of markets. However, as I indicated, there are ways in which biodiesel has been able to penetrate the market, and no doubt this is being seen as a threat to the oil industry.

There are a range of complexities in this package. Transfield Holdings described the impact on small users of biodiesel. They say:

Small users typically obtain their fuel from service stations, which are mostly supplied by the major oil companies. They often have concerns about the quality of the fuel and are not normally as knowledgeable or equipped to trial fuels that might be considered ‘experimental’. Hence this group is most likely to be introduced to Biodiesel via a B5 blend—

that is, the blend that benefits the petro companies significantly—

which meets the ‘diesel standard’ and therefore raises no issues with vehicle warranties etc.

The combination of the low blend ratio and the smallness of this market, means that the Australian Biodiesel industry will struggle to achieve critical mass.

That was confirmed by each of the other submitters to our inquiry. It is clear that, under the changes scheduled to take effect from 1 July, the benefit to on-road biodiesel users reduces from the current 7c a litre to a disadvantage of 20c a litre. In the case of off-road biodiesel, the position changes from a 3c advantage to a 38c disadvantage, as I have already indicated. (Time expired)