An excise in futility?

The federal government last week released its 'Implementation of alternative fuels taxation policy' document, giving the alternative fuels industry (biofuels and gaseous fuels) a week to prepare for the 'consultation and stakeholder engagement' period quickly announced for next week. The difficulty for the alternative fuels industry, of course, is that the only thing open for discussion in those meetings will be the mechanisms of the excise implementation, rather than the policy itself.

From the outside looking in, and certainly from the perspective of the biofuels industry, the policy is fundamentally flawed and needs to be addressed as soon as possible – bearing in mind that the gaseous fuels industry has had 50 years of leg-ups compared to biofuels.

The key objectives of the reform are to introduce greater consistency in the taxation of fuels; ensure competition between the fuels does not harm economic efficiency and create distortions; provide certainty to industry and phase in the new law to reflect potential environmental, fuel security and regional development benefits.

None of these elements are going to be met by this policy. In fact, the opposite will be true.

Transportation around the globe is the third largest emitter of greenhouse gases. We know that in Australia our freight task is predicted to double in the next 10 years alone. Between now and 2030, we also know that many things are going to continue to be dependent on liquid-based fuels. Trucks, railways, shipping, aviation, construction equipment, generators – the list of things that rely on liquid fuel sources is never ending.

There are many reasons for thinking about biofuels. First of all, oil prices are going up and up and Australia's liquid fuel energy security is getting worse. We're already importing about half of our needs and that importation equates to a trade deficit of more than $17 billion. The Bureau of Statistics predicts this will be about $30 billion by 2030.

In Australia, 98 per cent of the energy used in the transport industry still derives from fossil fuels. So there are valid reasons to think of biofuels, even outside of the emissions reductions they will achieve.

The flow-on effects of the policy, as announced, will be the importation of ethanol and biodiesel, which will cost the government more than it would be paying out if it only allowed the domestic product. We might have more alternative fuels, but they're going to fundamentally increase our trade deficit and reduce our fuel security.

Given that half of Australia's fuel needs are met by gasoline and half by diesel, a better policy would be to ensure that the needs of both liquid transport fuels are met by the same policy initiatives.

Any biofuels policy should not be restricted to ethanol and should not discriminate against biodiesel or inhibit the development of both industries together. This is particularly important, given Australia's regional dependence on diesel is growing while our dependence on petrol products is decreasing. The policy, as outlined, fundamentally favours one section of the industry over the other, which will distort investment decisions.

It will also see an extension to 10 years of the phase-in of excise on domestically produced ethanol, while imported product still sees an immediate reduction of excise payable. This means that the federal government will be paying out a rapidly increasing amount of money for imported alternative fuels, rather than supporting the domestic product.

Customs has just released its preliminary findings of damage done to local producers due to the importation of fuel subsidised in its country of origin, while also receiving Australian subsidies. The policy, as outlined by Treasury, will result in the flooding of low cost, low quality ethanol and biodiesel into Australia – the bulk of which the federal government will be paying out under this policy!

Australian concessions and support must be restricted to locally produced biofuels with the deterrence of the importation of subsidised foreign products, which is consistent with the treatment of biofuels around the world.

The current excise concessions through the Cleaner Fuels Grant Scheme were established to encourage the development of the industry. However the commencement of these concessions did not allow time for the design, construction and commissioning of plants and facilities, thus many blending and storage facilities are only just coming on-line now.  
 
When compared to the support given to other industries such as LPG and other gaseous fuels (which are still fossil fuels and only reduce emissions marginally), the timeframe for development of biofuels has not been sufficient. 

The above issues are crucial to the biofuels industry – a burgeoning industry in Australia that is lagging the rest of the world. The government needs to model what will happen to the balance of payments when we are flooded by cheap ethanol and biodiesel from other countries. Because, if it is cheap, the oil majors will be keen to sell it. This means the government is going to be spending substantially more under this policy than if it were restricted to local production.

Heather Brodie is CEO of the Biofuels Association of Australia