The Treasurer and the Minister for the Environment and Heritage today announced that the Government will introduce additional measures to encourage the production of clean fuels.
Conventional fuels account for approximately 90 per cent of the existing fuel market. The new measures include incentives to encourage the early production and import of low sulphur premium unleaded petrol and diesel, which will help to ensure that Australia's fuels will be among the cleanest in the world.
These low sulphur fuels will deliver environmental and health gains, through reduced emissions of hydrocarbons and oxides of nitrogen. Low sulphur fuels are also likely to further reduce particulate emissions known to cause respiratory problems and will facilitate the broader adoption of greenhouse friendly engine technologies.
Since January 2002, the Government has been tightening standards to improve the quality of automotive fuels under the national Fuel Quality Standards Act.
From 1 January 2006, the Government will increase excise (and customs) duty on petrol for a period of two years by the amount required to fund grant payments for the production or import of premium unleaded petrol with less than 50 parts per million (ppm) sulphur. Similar arrangements will also be implemented for diesel with less than 10 ppm sulphur, from 1 January 2007.
The new measures deliver on the Government's commitment in the Measures for a Better Environment package to provide encouragement for the conversion to cleaner fuels. The measures will encourage the production of higher quality fuels before they are mandated under the provisions included in the Fuel Quality Standards Act.
The initiative, including the additional excise rates required to fund the proposal, will be reviewed in the period prior to implementation to ensure that it aligns with the timing of new fuel standards and market conditions. The indicative excise (and customs) duty increase would be 0.7 cents per litre on all diesel and 0.06 cents per litre on all petrol, in order to fund subsidies for the increased production costs of 1.0 cents per litre for 10 ppm sulphur diesel and 1.1 cents per litre for 50 ppm sulphur premium unleaded petrol.
The Government previously deferred the implementation of the excise differential designed to encourage diesel with less than 50 ppm sulphur by six months to 1 July 2003. The measure as originally announced on 31 May 1999 in an agreement between the Government and the Australian Democrats, was for an increase in excise of 1 cent per litre on diesel with greater than 50 ppm sulphur (high sulphur diesel) on 1 January 2003, and a further 1 cent per litre increase from 1 January 2004.
The off-road grant rates under the Energy (Grants) Credits Scheme will be increased for the agriculture sector to compensate for the additional excise (and customs) duty levied on high sulphur diesel from 1 July 2003 to 31 December 2005. The additional grant amount will be based on a weighted average of the differences between the excise rates applying to diesel with less than 50 ppm sulphur and high sulphur diesel, calculated based on the market share of each fuel.
These measures will more closely align Australia with international best practice and will help to support industry as it makes the transition to the new fuel standards. The early availability of these fuels will also encourage the uptake of emerging vehicle technologies that are dependent on low sulphur fuels for efficient and effective operation and will lead to additional environmental benefits.
The Government is also introducing measures to promote the use of cleaner alternative or renewable fuels. The Energy (Grants) Credits Scheme will be extended to include liquefied natural gas (LNG) and biodiesel (but not blends of biodiesel and diesel) as alternative fuels eligible for an on-road credit. LNG will be approved under the Energy (Grants) Credits Scheme from 1 July 2003, while biodiesel will be approved once the fuel standard for biodiesel under the Fuel Quality Standards Act has come into effect. The grant rate for LNG will be 8.130 cents per litre and the grant for biodiesel will be 18.510 cents per litre. The Government will also legislate a fuel quality standard for compressed natural gas (CNG).