Australian taxpayers could save $7.8bn a year if diesel fuel rebates scheme was wound back

Energy experts believe weaning fossil-fuel industries off the rebate would push heavy industry towards using renewables

Weaning fossil-fuel industries off diesel fuel rebates could save Australian taxpayers $7.8bn a year, a move energy experts say would accelerate heavy industry’s pivot towards using renewables.

Winding back old schemes like the diesel excise rebate was the next best measure should Australia fail to develop a carbon price policy, said Tony Wood, director of the energy and climate change program at the Grattan Institute.

It would also help Australia form a practical, workable strategy for November’s climate change conference in Glasgow.

“You want to assist industry in where it’s heading, not just pay for what they needed in the past,” Wood said.

“In the case of diesel, you’d need clear incentives for heavy industry to move away from using it, and give them fair warning over a number of years that you’re removing the rebate.”

Diesel rebates exist to compensate for industries like mining, agriculture and fisheries that do not use public roads and consume high volumes of diesel in remote locations. The tax rebate is 42.7c a litre and costs the federal government $7.8bn a year.

In a report released this week, the Australia Institute found the fuel tax credit scheme costs more than the army or air force annually and is listed as the 18th largest expense item in the budget.

But while the mining industry has received 43% of the total fuel tax rebate since 2006, the sudden end of the subsidy could be very damaging for smaller users.

“What you don’t want to do is penalise remote communities that are using the rebate and still doing it tough, so you’d need to get the incentives right and be clear you were rolling it back over time,” Wood said.

“But it would help move everyone in the right direction and avoid any perverse incentive to keep using diesel.”

Although government-enacted carbon pricing schemes are widely accepted as the most efficient methods to decarbonise an economy, Australia’s largest resource companies have developed decarbonising targets and adopted hydrogen and battery-powered vehicles.

“Most of these companies have actually made stronger climate change commitments than our government,” Wood said.

Fortescue Metals, an iron ore miner that emits 2m tonnes of carbon a year, recently announced it would be carbon neutral by 2030, and would source its power from hydrogen fuel. Its mining fleet consumes 400m to 500m litres of diesel a year.

BHP Billiton plans to reduce emissions by 30% by 2030, and has a goal of net zero emissions by 2050. Diesel accounted for 40% of its operational emissions in 2020 and it has wavered on adapting the fleet.

“The problem with older disconnected taxes is they just end up in general revenue,” Wood said of the diesel rebate, which began in May 2000.

“But industry is already moving in the renewable direction, so it might be a good time to let them know in the future diesel won’t be included in a rebate and outline some new incentives instead.”

Agriculture, another large user of the diesel rebate, is making efforts to decarbonise operations. The National Farmers’ Federation supports net zero emissions by 2050 but points out thermal heat, such as steam, is not covered by the large-scale renewable energy target.

Another mismatch of incentives is visible in Australia’s fledgling electric vehicles market: Victoria will implement a 2.5c/km tax on electric vehicles from July, and South Australia is also considering a tax.

“If it’s too politically hard to give us an economy-wide carbon price, which most economists say is the most efficient way, then at least create some incentives to move us towards the commitments we’ve already made,” Wood said.

“It’s going to be messy, and removing something like the fuel rebate would take time, but at least it would give us something to show at the Glasgow meeting in November, rather than showing up empty-handed with some talk about a technology roadmap and that we’re doing stuff with hydrogen.

“This is an actual, practical thing we could do.”

Extracted from The Guardian

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