BAA Offers submission to Federal Government on biodiesel in Australia.
Terry Schultz, Paul Martin and Adrian Lake are about to hit Canberra during the next sitting of the house (26th Feb - 9th March). The reason for the trip is to talk to Senators, Ministers and Members of the Federal Parliament.
Below is our proposed amendments to Federal Legislation, the reasons and benefits to Australia. Once passed, it will pave the way for biodiesel to become a reality.
If you have any contacts in the federal government or you are planning to speak to your local member, pass this on and make sure they are aware of what government needs to do for this industry.
Although
biodiesel is well known, produced, used and specifically legislated for in
Europe and the United States, it remains in the shadows in Australia. This is
surprising, as an alternative fuel to petroleum products, especially as a liquid
fuel, it is one of the best of the alternatives. Why then, hasn’t an industry
blossomed in Australia?
The
answer lies more with legislative inaction, than with the fuel itself. Many
times the Biodiesel Association of Australia has heard of the same concerns from
industry and private persons – “Do
I have to pay excise tax?” “I would go into production tomorrow, if I knew
excise wouldn’t be slapped on it in three years.” “Has anyone clarified
the excise tax position?”
This
submission is to try and clarify the present position and to make
recommendations to make the biodiesel industry a reality in Australia.
The
first issue to be dealt with is excise tax and how to achieve parity with the
fuel ethanol industry. The second issue is the issue of a bounty to encourage
the production of biodiesel, again on parity with the fuel ethanol industry. The
third issue will deal with encouraging consumption through the “Diesel and
Alternative Fuels Grants Scheme”, again seeking the recognition and parity
with the fuel ethanol industry. The fourth issue relates to environmental
concerns by the removal of sulphur content in diesel fuels and the substitution
of biodiesel.
The
Excise Tariff Act 1921 is the controlling document regarding the payment
of excise tax. It is apparent from the document that, unlike ethanol, there is
NO MENTION of biodiesel in the Excise Tariff Act. The Australian Taxation
Office (ATO) has given preliminary advice that biodiesel by itself does not
attract excise tax. That is, if the biodiesel is sold in the neat, or 100% pure
form, then no excise tax is payable. However, the preliminary advice is also
that a biodiesel “blend” attracts duty.
The
omission regarding blending is significant. Overseas, biodiesel is primarily
used in blends. In France it is mandated that all diesel be cut with 5%
biodiesel. In the United States B20, that is diesel with 20% biodiesel, is
recognised as an alternative fuel. As will be explained later, a small amount of
biodiesel can be added to regular diesel to eliminate the sulphur that is
presently used as a lubricant. Because of the limited amounts of biodiesel that
would initially be manufactured in Australia, it is likely that the industry
would start off by blending. Therefore, the issue of blending must be dealt with
in the Excise Tariff Act. It is proposed that biodiesel be given parity
with fuel ethanol in the Excise Tariff Act by way of a simple addition to
Section 6G of the Act.
It
is in Section 6G that the rates regarding “blending” of petroleum product
and other products apply. In Section 6G there are two significant subsections
the first, 6G(1), deals with gasoline and other additives; the second 6G(2)
deals with gasoline and ethanol as a blend. In Section 6G(1) it states:
6G(1)
“Duty
payable under this Act on an excisable blended petroleum product (other than an
excisable blended petroleum product referred to in subsection (2)) is worked out
using the formula:
[Volume X Blending rate]
- Previous paid duties
where:
Volume means the volume of the
excisable blended petroleum product.
Blending rate
means:
(a)
if
goods referred to in subitem 11(H) (other than subparagraph 11(H)(2)(d)
or subitem 11J (other than subparagraph 11(J)(2)(c) of the Schedule are
included in the excisable blended petroleum product – the excise duty tax rate
that applies to goods classified to subparagraph 11(H)(2)(b); or
(b)
if no goods
classified to either of those paragraphs is included in the excisable
blended petroleum product – the excise duty rate that applies to goods
classified to subparagraph 11(C)(2)(a) of the Schedule.
Previously paid
duties means
the sum of excise duties (if any) already paid on products included in the
excisable blended petroleum product under items 2, 11 and 12 of the Schedule
worked out in accordance with subsection (4) “
It
appears that the ATO is relying upon Section 6G(1)(b) as the authority that a
blend of petroleum product with biodiesel should attract duty at the rate of
diesel fuel. That is, if neither of those two previous paragraphs applies, then
the rate defaults to 11(C)(2)(a) which is the diesel rate of $0.38118
per litre.
Although
nothing may turn on it, the drafting of the whole of Section 6G(1) is subject to
adverse comment. First, subsection (b) refers
to “either of those paragraphs” when the previous subsection (a)
referred to subparagraphs (subitems?), further, the two subparagraphs
that (a) has allegedly referred to, 11(H)(2)(d) and 11(J)(2)(c) – are
no longer in the Schedule. Perhaps the next time Section 6G is rewritten the
drafters could do some housekeeping.
6G(2)
“Duty
payable under this Act on an excisable blended petroleum product comprising a
blend of gasoline classified to subparagraph 11(H)(2)(b) or (c) of the Schedule
and of ethanol classified to sub-item 2(R) of the Schedule, with or without
other substances, is worked out using the formula:
[Volume of gasoline X Gasoline rate] + [Volume of ethanol X ethanol rate]
where:
Volume of
gasoline
means the volume of gasoline in the excisable blended petroleum product.
Gasoline rate
means the excise duty rate applicable to gasoline classified to subparagraph
11(H)(2)(b) or (c) of the Schedule whichever is appropriate.
Ethanol rate
means the excise duty rate applicable to denatured ethanol classified to
sub-item 2(R) of the Schedule.”
Most significantly to the interpretation of Section 6G(2) is the ethanol rate under 2(R) of the Schedule. 2(R) says:
“(R)
Denatured ethanol for use as a fuel in internal combustion engines, as
prescribed by law – Free”
Thus
the present position of ethanol in gasoline is that the ethanol
proportion is free of excise tax. It is submitted, that the biodiesel industry
should have the same advantage in producing alternative fuels. This can be
accomplished by the insertion of a Section 6G(3) in the Excise Tariff Act. The
present Act does not have a 6G(3), apparently having been omitted during a
previous re-drafting of the Act. The new 6G(3) could read:
6G(3)
Duty
payable under this Act on an excisable blended petroleum product comprising a
blend of diesel classified to subparagraph 11(C)(1)(a) or (b) of the
Schedule and of biodiesel classified to item 22 of the Schedule, with or without
other substances, is worked out using the formula:
[Volume of diesel X Diesel rate] + [Volume of biodiesel X biodiesel rate]
where:
Volume of
diesel means
the volume of diesel in the excisable blended petroleum product
Diesel rate
means the excise duty rate applicable to diesel classified to subparagraph
11(C)(1)(a) or (b) of the Schedule, whichever is appropriate.
Volume of
biodiesel
means the volume of biodiesel in the excisable blended petroleum product
Biodiesel rate
means the excise duty rate applicable to biodiesel classified to item 22 of the
Schedule.
Of
course, it will be necessary to have an item inserted into the Schedule
regarding the excise tax on biodiesel. Perhaps at the end of the Schedule there
might be added:
“22.
Biodiesel for use in internal combustion engines and gas turbine engines, as
prescribed by law – free”
The
provision “as prescribed by law” will take in the biodiesel fuel standards
that Environment Australia is developing and that will become compulsory in
2002.
The
structure of the Bounty (Fuel Ethanol) Act 1994 could apply to the
development of the biodiesel fuel market. As stated in the Object of that Act “The object of the Act is to provide for the
payment of bounty on the production in Australia of certain fuel ethanol to
assist the development of a competitive, robust and ecologically sustainable
fuel ethanol industry.”
Conceptually,
there is little difference between developing an ethanol fuel industry or
developing a biodiesel industry, both fuels are derived from biomass. The
biodiesel industry should be given the same incentives as the ethanol industry.
The concept of “parity” would prevent any suggestion of favouritism between
the industries.
In
the Bounty (Fuel Ethanol) Act it provides that when a producer reaches a
minimum production of bountiful fuel, the producer receives a bounty rate of 18
cents per litre. The bounty continues for three years to help subsidise the
development of the producer.
The
principles and structure of the Bounty (Fuel Ethanol) Act could be
incorporated into a new Bounty (Biodiesel) Act 2000.
Although
the “Bounty system” may encourage the production of biodiesel, it is
another issue as to how to encourage the consumer to consume the product.
With each new product introduced in society, there is always a market
resistance. The market resistance can be more easily overcome by a short period
of grants to the consumer. Once the product is accepted, then it can stand on
its own merits. Further, the use of “alternative fuels” should be
encouraged, the receipt of a grant for the use of an alternative fuel will act
as an incentive for such use.
The
Diesel and Alternative Fuels Grants Scheme Act 1999 includes in Section 5
the definitions section of the Act:
“Alternative fuel means:
(a)
compressed
natural gas; or
(b)
liquefied
petroleum gas; or
(c)
recycled
waste oil; or
(d)
ethanol;
or
(e)
canola
oil; or
(f)
such
other fuel as is specified in the regulations.”
While
subsection (e) canola oil, is in the
legislation, it is less than desirable as a fuel or fuel additive (due to the
glycerine within the oil – which has the same long term effect as sugar in the
fuel tank) – unless the engine is specially designed or modified. However,
biodiesel (alkyl esters) can be made from canola, other vegetable oils and
animal fats. This token reference to a vegetable oil in the legislation is of no
assistance to the biodiesel industry. The legislation should be changed so that
(e) refers to biodiesel. In the short term, the regulations could be used to
specify biodiesel as an alternative fuel.
In
the Regulations under the Act, in Section 7 of the Diesel and Alternative
Fuels Grants Scheme Amendment Regulations 2000 (No.1) there are various
rates per litre that relate to the grants available under Section 11 of the Act.
In sub-regulation 7(1) it states: “the amounts per litre that are applicable
to the following types of diesel or alternative fuel are:
(a)
for
diesel fuel – 17.798 cents;
(b)
for
compressed natural gas – 12,132 cents;
(c)
for
liquefied petroleum gas – 11.466 cents;
(d)
for
ethanol – 20.009 cents.”
It
is in the following sub-regulation that the scope of the grant scheme becomes
apparent. In subsection 7(2) it states:
“(2) An amount that is applicable to a fuel
specified in sub-regulation (1) does not apply to a blend of that fuel
and another fuel, whether or not the other fuel is specified in that sub-regulation.”
In
other words, a blend of diesel and ethanol do not qualify for a grant EVEN
THOUGH BOTH ARE SPECIFIED IN THE SUB-REGULATION. You can use one or the other,
but not combined – why? We are either encouraging the use of those fuels or
not.
The
result of the wording of the sub-regulation makes the use of ethanol virtually
impossible. In order to use ethanol, a person would have to recalibrate their
entire fuel metering system on their vehicle, a recalibration that would consume
considerable quantities of ethanol (virtually double the consumption rate) to
obtain the same caloric content of the previous petroleum product. Further,
there are just not that many ethanol pumps available to the public. However, and
significantly, if a person wanted to use 100% biodiesel in their diesel engine
vehicle, they could without any recalibration or modification of their existing
system.
On
the other hand, the conversion to both compressed natural gas and liquefied
petroleum gas requires considerable modifications (metering, tank, refill, and
hoses). Simply put, the use of biodiesel is the least difficult fuel to use of
the alternative fuels – curiously it is not even mentioned.
It
is recommended that blends be acceptable under the grants scheme in order to
promote the use of alternative fuels. Therefore, sub-regulation 7(2) should be
omitted from the regulations.
Further,
in order to achieve parity with ethanol, biodiesel should be listed under sub-regulation
7(1) it should read:
“(e) biodiesel – 20.009 cents.”
All
the above recommendations become superfluous unless certain time constraints are
recognised. The fuel standards for biodiesel from Environment Australia are to
become compulsory in 2002. However, the grants scheme under the Diesel and
Alternative Fuels Grants Scheme Act is to terminate on 1 July 2002 (see
Section 12 of Act).
It
doesn’t take too much imagination to see Australian biodiesel standards
finally being proclaimed on or after the date the grants scheme ends. The better
position would be to immediately proclaim the American standards as the interim
standards until the Australian standards are formalised. To wait until the
formalised Australian standard is accepted, is to effectively prevent grants
being given for biodiesel use. There would have to be a compelling rational
basis for such a position not to be taken, we can’t think of any.
The
Australian government has now passed environmental legislation to follow the
international community in eliminating sulphur emissions from diesel fuel. By
way of background, sulphur is used in diesel fuel to provide lubrication to the
injector system. The use of straight petrol diesel fuel provides no lubrication;
its use results in rapid wear of the system. Over the years this problem was
corrected by the addition of sulphur additives. Those additives are now coming
under scrutiny as a source of pollution.
The
lubricity of biodiesel can more than compensate for the removal of sulphur from
the petrol diesel fuel. It has been proven that as little as 2% addition of
biodiesel will provide sufficient lubrication in both low sulphur and ultra-low sulphur
fuel. The addition of biodiesel provides other benefits as well. Since it is a
fuel, it will burn and contribute to the combustion process, unlike an additive
that simply passes through the system and into the atmosphere. Secondly, even a
small amount of biodiesel, with its oxygenated structure, will reduce the
commonly observed black smoke emitted from the exhaust system.
In France, the low sulphur petrol diesel is cut with 5% biodiesel. This not only cuts down on emission problems, but also provides a boost to the local economy. It is submitted, that Australia could easily follow the French example and mandate that all petrol diesel shall be ultra-low sulphur content with 5% biodiesel. This would not only reduce emissions, but reduce Australia’s dependence on overseas diesel (Australia imports ALL of the stock for petrol diesel from the Persian Gulf), it would also provide stimulus to the local economy.
Before
such a legislative change could be made, there would have to be a local
biodiesel industry capable of providing the necessary biodiesel. Hopefully, the
above legislative suggestions will assist in providing the framework and
incentive for the development of the biodiesel industry in Australia.