Bills Digest No. 33 2003-04
Energy Grants (Cleaner Fuels) Scheme Bill 2003
WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced
and does not canvass subsequent amendments. This Digest does not have
any official legal status. Other sources should be consulted to determine
the subsequent official status of the Bill.
CONTENTS
Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Energy
Grants (Cleaner Fuels) Scheme Bill 2003
Date Introduced:
11 September 2003
House:
House of Representatives
Portfolio:
Treasury
Commencement:
On 18 September 2003.(1)
To establish the cleaner fuels grants scheme which provides
for grants to importers and manufacturers of cleaner fuels.
Background
From 18 September
2003 biodiesel(2) is due to become subject to excise
and customs duty.(3) However, under the Energy Grants (Cleaner
Fuels) Scheme Bill 2003 (the Bill), a grant equivalent to the amount of
duty will be available to importers and manufacturers, giving an effective
zero excise / customs rate. The Bill and the Energy Grants (Cleaner Fuels)
Scheme (Consequential Amendments) Bill 2003 set up the machinery for the
grants scheme.
The origin of the Bill can be traced back to Government’s
Measures for a Better Environment statement in May 1999. In this
statement, the Government undertook to introduce an energy credit scheme
that would provide price incentives and funding for conversion from the
dirtiest to the most appropriate and cleanest fuels. The scheme's objectives
were later refined, as set out in subsection 4(2) of the Diesel and
Alternative Fuels Grants Scheme Act 1999:(4)
The purpose of the Energy Grants (Credits) Scheme will
be to provide active encouragement for the move to the use of cleaner
fuels by measures additional to those under this Act, while at the same
time maintaining entitlements that are equivalent to those under this
Act and the Diesel Fuel Rebate Scheme, including for the use of alternative
fuels.
In March 2001, the Prime Minister announced that the
Government was establishing an inquiry into the total structure of fuel
taxation in Australia.(5) The Inquiry handed down its recommendations
in March 2002. It recommended, among other things, that excise and customs
duty should apply to all liquid fuels, irrespective of their derivation.(6)
Whilst the Government initially rejected this recommendation, at least
partly on the basis of it being ‘contrary to the Government's election
commitment to maintain excise exemptions for fuel ethanol and biodiesel’,(7)
it subsequently reversed this position in the 2003-04 budget. However
this reversal was accompanied by decisions regarding offsetting grant
programs. In relation to biodiesel, which is the initial focus of the
Bill, the Government said:
From 18 September
2003, the Government will apply excise duty to biodiesel
at the current rate of the excise duty on diesel fuel - 38.143 cents
per litre. Grants will then be provided for production or importation
of biodiesel, such that the current effective excise rate of zero for
pure biodiesel is continued, with this being extended to the biodiesel
component of blends, until 30 June 2008. These grants will be reduced
in five even annual instalments from 1 July 2008 to 1 July 2012.(8)
Note that as of the date of this Digest (15 September),
neither an Excise Tariff or Customs Tariff proposal had yet been released
by the Treasurer. These proposals are necessary in order for the duty
foreshadowed by the Government to be collected. Presumably they will tabled
in Parliament before 18 September.
As mentioned, grants in relation to biodiesel apply from
18 September 2003. According to the
Explanatory Memorandum, grants will also become available under
the cleaner fuels grants scheme for ethanol manufacture and importation
once existing ethanol subsidy arrangements expire in 2008.(9)
Grants will also be available in relation to the manufacture and importation
of low sulphur fuels from 2006 and low sulphur diesel from 2007.(10)
The Explanatory Memorandum
states that the estimated cost of the biodiesel grants will $15 million
in 2003-2004, $44 million in 2004-2005, $76 million in 2005-2006 and $99
million in 2006-2007. The costs involved in providing the grant in respect
of the low sulphur fuels is $1 million in 2005-2006 and $41 million in
2006-2007.(11) These figures do not take into account the revenue
to be raised by the imposition of excise and customs duty.
New section 3 provides that the Commissioner of
Taxation has general administration of the Act.
New section 4 contains definitions for key terms.
Biodiesel is a fuel used in an internal combustion
engine that is manufactured by chemically altering vegetable oils or animal
fats to form mono-alkyl esters. Biodiesel can be derived from recycled
oils, as long as these oils are sourced from vegetable oils or animal
fats. Biodiesel must also comply with the relevant fuel standard made
under the Fuel Quality Standards Act 2000.
Cleaner fuel means (i) biodiesel or (ii) a fuel
or fuel blend prescribed by regulations that also complies with the relevant
fuel standard.
A licensed person is a person who is licensed
under the Excise Act 1901 as a manufacturer or the holder of a
storage licence in respect of goods of a kind including the fuel, or an
person specified in a permission given under the Excise Act 1901 or
Customs Act 1901 for goods of a kind including the fuel.
New sections 5-8 set out the circumstances in
which someone is entitled to a cleaner fuel grant.
The main conditions that must satisfied for a ‘provisional
entitlement’ to a grant are set out in new section 5 and are relatively
complex. However, to paraphrase the Explanatory Memorandum(12)
these conditions essentially mean grant claimants must be either an importer,
manufacturer or a licensed person in respect of the fuel. A provisional
entitlement to a grant will generally arise only in respect of a cleaner
fuel when it is sold into the market in its final form. Provisional entitlement
to a grant will therefore arise when fuel is sold by an importer, manufacturer
or licensed person to an end user outside the excise system.
New section 6 provides
that claimants for grants must be registered under section 9 of the Product
Grants and Benefits Administration Act 2000 for the purposes of entitlement
to a cleaner fuel grant. Section 9 of that Act is itself amended by item
3 in Schedule 1 of the Energy Grants (Cleaner Fuels) Scheme (Consequential
Amendments) Bill 2003.
New section 7 sets out the circumstances in which
a person meeting the various conditions under new section 6 may
be disqualified from having provisional entitlement. These circumstances
include selling the fuel to a licensed person(13) or including
the fuel in a fuel blend, or where the Tax Commissioner makes a determination
under subsection 34(1) of the Product Grants and Benefits Administration
Act 2000 that a person has taken a course of action ‘for the sole
or dominant purpose of enabling a particular act or transaction to be
taken into account in determining a grant or benefit’.(14)
Regulations may also prescribe further disqualifying circumstances.
The actual amount that a claimant is entitled to is to
be worked out in accordance with the regulations: new subsection 8(1).
The Explanatory Memorandum comments:
Claimants will be required to self-assess(15)
their entitlements to a cleaner fuel grant. The regulations will prescribe
different amounts of grant for different cleaner fuels and blends of
fuels, including that the amount of grant may be nil. The regulations
will also prescribe a basic rule for working out the amount of the grant
payable and how the grant will be calculated if the regulations set
out different amounts in respect of blends. (16)
The amount the grant may be reduced if any ‘drawback,
refund, rebate or remission’ of customs or excise duty applies to the
fuel. The Explanatory Memorandum implies that the benefit from
the drawback etc would go to the claimant in which case there would be
no net effect for the claimant. No details are provided how this would
work in practice.
New section 9 contains a standard regulation-making
power.
Whilst this legislation was flagged under 2003-04 budget
measures, it is notable it has been introduced only three sitting days
before the relevant grant scheme is due to come into effect. The Bill
is to have retrospective effect if it is not passed by 18
September 2003.
-
The Bill will have retrospective operation if passed after 18 September.
-
Biodiesel is manufactured from vegetable oils and animal fats.
-
However, as noted later in this Digest, as of 15 September neither
an Excise Tariff or Custom Tariff proposal had yet been released by
the Treasurer. Thus the imposition of duty from 18 September is still
only policy, not a legal fact.
-
Note that the Diesel and Alternative Fuels Grants Scheme and the
Diesel Fuel Rebate Scheme have been replaced with the Energy Grants
(Credits) Scheme. The Energy Grants (Credits) Scheme Bill 2003 was
introduced in February 2003 and passed the Senate in late June. It
commenced on 1 July 2003.
-
See http://fueltaxinquiry.treasury.gov.au/content/welcome.asp
-
Fuel Taxation Overview Report, Summary of Recommendations, p. 29.
See http://fueltaxinquiry.treasury.gov.au/content/report/downloads/Overview.pdf
-
Hon. Peter Costello, Treasurer,
'Report of the Fuel taxation Inquiry', Press Release No. 27, 14 May 2002. See http://www.treasurer.gov.au/tsr/content/pressreleases/2002/027.
-
Hon. Peter Costello, Treasurer,
'Fuel Tax Reform for the Future', Press Release No. 31, 13 May 2003. See http://www.treasurer.gov.au/tsr/content/pressreleases/2003/031.asp
-
P. 3.
-
Ibid
-
P. 5.
-
P. 8.
-
The buyer must be a licensed person for the type of fuel being sold.
-
The occurrence of fraud or failure to keep proper records may also
lead to disqualification.
-
Self-assessment of grant or other entitlements is standard for the
various schemes administered under the Product Grants and Benefits
Administration Act 2000.
-
P. 10.
Angus Martyn
15 September 2003
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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