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Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011



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ISSN 1328-8091

Parliament of Australia Departmentof Parliamentary Services

Contents

Purpose .................................................................................................................................................... 2

Background .............................................................................................................................................. 3

Basis of policy commitment et cetera ................................................................................................ 3

Committee consideration ................................................................................................................... 3

Key provisions .......................................................................................................................................... 4

Schedule 1—Amendments ................................................................................................................. 4

Concluding comments ............................................................................................................................. 5

BILLS DIGEST NO. 133, 2010-11 20 June 2011

Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011

Richard Webb Economics Section

2 Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011

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Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011

Date introduced: 12 May 2011

House: House of Representatives

Portfolio: Treasury

Commencement: Clauses 1 to 3—and anything else in the Bill not covered by the table in clause 2—commence on Royal Assent. Schedule 1 commences on 30 June 2011 but will not commence if three items do not commence on or before 30 June 2011. These items are:

• section 1 of the Excise Tariff Amendment (Taxation of Alternative Fuels) Act 2011

• section 1 of the Customs Tariff Amendment (Taxation of Alternative Fuels) Act 2011, and

• section 1 of the Taxation of Alternative Fuels Legislation Amendment Act 2011.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The main purpose of the Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011 (the Bill) is to extend the period under which grants are paid under the Energy Grants (Cleaner Fuels) Scheme Act 2004 (the Act) for so-called cleaner renewable fuels, notably biodiesel and renewable diesel.

The Bill is one of four related Bills whose combined purpose is to impose excise on certain petroleum-based fuels which are currently excise-free, and to extend the subsidisation of the use of renewable fuels. The other three Bills are the Taxation of Alternative Fuels Legislation Amendment Bill 2011, the Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011, and the Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011. The Bills Digest for the Bill should therefore be read in conjunction with the Bills Digests for the other three Bills.1 The Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011 provides background and identifies issues arising from the Government’s proposals with respect to the imposition of excise on certain fuels and the subsidisation of renewable fuels.

1. Bills Digests can be accessed via each Bill’s homepage. For the Taxation of Alternative Fuels Legislation Amendment Bill 2011 see: http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4554% 22 ; for the Excise Tariff Amendment (Taxation of Alternative Fuels) Bill 2011 see: http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4556% 22 ; for the Customs Tariff Amendment (Taxation of Alternative Fuels) Bill 2011 see:

Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011 3

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Background

The cleaner fuels grants scheme is intended to encourage the use of fuels that reduce adverse effects on the environment. To be eligible for a grant, fuels must meet the relevant standards under the Fuel Quality Standards Act 2000. Eligible fuels include renewable fuels such as biodiesel and renewable diesel. The grant rate payable under the Act for both biodiesel and renewable diesel is 38.143 cents per litre (cpl). Grants for biodiesel began on 18 September 2003 and for renewable diesel on 1 July 2006. The grants for both are due to expire on 30 June 2011.

Under the Act, ethanol used as a fuel is eligible to receive grants. Ethanol blended with petrol for use as a fuel became subject to excise on 18 September 2002. A production subsidy of 38.143 cpl— which is the same as the excise rate on ethanol—is available to domestic producers of fuel ethanol (the latter is a blend of ethanol with another fuel usually petrol). The ethanol production subsidy is also due to expire on 30 June 2011. The Department of Resources, Energy and Tourism administers the ethanol production subsidy. The subsidy is appropriated, as an administered expense, under annual appropriation Acts for ordinary annual services.

The Howard Government proposed that the grants for biodiesel and renewable diesel and the ethanol production subsidy be progressively phased out from 1 July 2011 to 30 June 2015. The Howard Government also proposed that from 1 July 2011, compressed natural gas (CNG), liquefied petroleum gas (LPG), liquefied natural gas (LNG), ethanol, and methanol would be eligible for a cleaner fuels grant.

For additional background, see the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Basis of policy commitment et cetera

Details of the policy commitment, the positions of non-government parties, independents and major interest groups as well as the financial implications, can be found in the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

Committee consideration

In May 2011, the House of Representatives Standing Committee on Economics issued its report on the four Bills. The Committee’s main recommendation was that the Bills be passed as a matter of urgency because grants are due to expire on 30 June 2011. The report is at: http://aph.gov.au/HOUSE/committee/economics/TaxingFuels/report/fullreport.pdf

http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr4559% 22

4 Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011

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Key provisions

Schedule 1—Amendments

Energy Grants (Cleaner Fuels) Scheme Act 2004

Section 2A of the Act sets outs its object. Subsection 2A(a) relates to grants payable for biodiesel and explains that grants are payable during the period starting on 18 September 2003 until 30 June 2011. Item 1 omits the reference to 30 June 2011. As noted above, the biodiesel grants are due to expire on 30 June 2011. By omitting this date, item 1 clarifies that the repeal of the table in subsection 8(1)—which specifies grant rates and expiry dates for biodiesel—would allow the payment of grants to be open-ended so far as timing is concerned, that is, grants can be paid indefinitely.

Item 2 amends subsection 2A(aa) of the Act which deals with grants for renewable diesel. The effect of item 2 is similar to that of item 1 in that, by omitting 30 June 2011, item 2 allows grants for renewable diesel to be paid indefinitely.

Subsection 2A(b) of the Act incorporates the Howard Government’s policy of subjecting CNG, ethanol, LNG and LPG to effective excise starting on 1 July 2011 and phasing in increases in effective excise rates ending on 30 June 2015.2 Item 3 repeals subsection 2A(b). There are two reasons for repealing subsection 2A(b). First, the Government proposes to subject CNG, LNG and LPG to excise starting on 1 December 2011 and not 1 July 2011. Second, whereas the Howard Government would have imposed excise on these three fuels and partially offset that by grants, the Government proposes to dispense with the offsets and legislate effective excise rates directly.

Item 4 deletes from the definition of cleaner fuel in section 4(1) CNG, ethanol, LNG, LPG and methanol. The effect is to restrict the definition of cleaner fuels eligible for grants to biodiesel, renewable diesel or a fuel (including a fuel blend) that is prescribed by regulation and meets the relevant fuel standard. Deleting ethanol also ensures that ethanol is not potentially subsidised twice: once under the ethanol production subsidy scheme through annual Appropriation Acts for ordinary services and again under the cleaner fuels scheme.

Items 5, 7, 8, 9 and 10 delete respectively the definitions in section 4 of CNG, ethanol, LNG, LPG and methanol, which are unnecessary as a consequence of item 4.

Item 6 repeals the definition of end day. End day refers to the last day (30 June 2015) on which CNG, ethanol, LNG, LPG and methanol would have been eligible to receive grants.

Item 11 repeals the definition of offset rate in subsection 4(1). As noted above, offsets will no longer be required.

2. An effective excise rate is the legislated rate less any grant/credit that has the effect of reducing that rate.

Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011 5

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Item 12 repeals paragraph 4(1)(aa) which defines the start day. The start day is the day when the fuels listed in that paragraph would have been subject to excise and an offset.

Subsection 8(1) of the Act contains a table which sets out the grant amounts and their expiry dates for various fuels. Item 14 repeals the subsection and substitutes new words. The effect is to eliminate this table. Instead, grant amounts are to be calculated in accordance with the regulations with reference to biodiesel’s excise duty rate. In other words, the amount of the grant at any one time equals the excise rate on biodiesel and renewable diesel (38.143 cpl) less the amount of excise that claimants actually have to pay.

Concluding comments

The Bill provides for the indefinite payment of grants for biodiesel and renewable diesel. The Bill also simplifies administration by having claimants pay the effective rate of excise directly instead of having claimants first pay the full amount of excise (38.143 cpl) and then having to claim a partially offsetting grant.

For other comments, see the Bills Digest for the Taxation of Alternative Fuels Legislation Amendment Bill 2011.

6 Energy Grants (Cleaner Fuels) Scheme Amendment Bill 2011

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© Commonwealth of Australia 2011

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