New tax will send the future of our renewable energy industry up in smoke

AUSTRALIA'S renewable fuels industry will be severely damaged if the planned federal government's excise proposal goes ahead.Under the excise arrangement set to begin on July 1 next year, a Brazilian company selling biofuels into Australia will pay 5 per cent Customs duty as well as an effective 12.5c excise -- after 10 years.

However, if an Australian company were to sell ethanol to Brazil, it would immediately have to pay a 15 per cent federal tax as well as an 18 per cent merchandise circulation tax -- then from the end of next year be slugged a 20 per cent Customs tariff.

This is hardly an even playing field and will undermine the production of ethanol and biodiesel in Australia.

Biofuels represent an environmentally friendly industry that can substantially reduce Australia's carbon emissions from transport -- our third largest emitter -- boost rural and regional development, create employment throughout regional Australia, improve our fuel security and help reduce our $17 billion trade deficit. This is especially true as oil prices continue to rise; Australia already imports about half of its needs.

Ninety-eight per cent of the transport industry's energy comes from fossil fuels. This cannot be sustained. Australia needs to move to renewable and sustainable fuels such as biofuels.

As China increases its food production with the use of the latest farming technologies such as genetically modified crops, it will be able to devote more land to biofuel production. If Australia implements the proposed policy we will end up being importers of biofuels and become the new fuel-poor of Asia.

The US, Canada, Brazil, China and many European countries are already investing in biofuels as a means of securing their future energy needs. Australia has an opportunity to use sugar cane, eucalyptus, algae and trees such as the pongamia as energy sources to achieve the same outcome.

Of the petrol-driven cars produced this year, 99.44 per cent are compatible with E10, the blend of 90 per cent unleaded petrol and 10 per cent ethanol.

However, as a result of this proposed excise and the federal government's document on the implementation of alternative fuels taxation policy, released in October, the Queensland government has had to delay the implementation of its 5 per cent mandate for ethanol (E10), providing further uncertainty for the industry.

This was due to come into force at the end of this month and was a commitment dating back to 2006.

Unfortunately, the absence of a guaranteed demand from a mandate could dissipate the penetration of ethanol in Queensland while NSW's and Victoria's usage will continue to grow.

The NSW government announced on December 2 that it would suspend any increase in its mandate from the present 4 per cent until July 1 next year. As a result of its mandate introduced in 2007, 36 per cent of all petrol sold in NSW is E10 and four billion litres have been used by 1.8 million motorists. This mandate has replaced millions of litres of imported fuel with local biofuel.

The Queensland industry has been working towards a 5 per cent mandate for the past five years and millions of infrastructure dollars have been spent by the producers, retailers and wholesalers in its anticipation. Some service stations have already replaced regular unleaded pumps with E10. Market demand resulting from an ethanol mandate assists existing biofuel producers and encourages investment.

The core problem is the potential adverse effect of the federal government's excise policy on the mandate and the consequential increased importation of subsidised alternative fuels.

The solution lies in sensible outcomes from the review of the implementation of alternative fuels taxation policy document. Unfortunately, the discussion paper relates only to the mechanisms of the excise implementation, rather than the policy itself.

In a powerfully worded submission to the federal review, the Biofuels Association of Australia argues for a policy that is consistent with the treatment of biofuels across the world. The association says: "It appears that Australia continues to take part in very publicly available one-way free trade agreements. Under the guise of WTO [World Trade Organisation] obligations and import duties, Australia permits the importation of products while Australian product cannot be exported to other countries at an economically viable level."

Potential markets for Australia's future exports of biofuels are using Customs tariffs and duties and local taxes on imported ethanol to protect their local industries to the detriment to Australia.

I am a strong supporter of the US-Australia free trade agreement and FTAs generally but the planned federal policy cannot possibly result in a level playing field between imported and locally produced biofuels.

The direction of our economy must continually focus on international competitiveness and trade if we are to maintain our standard of living. We have to support the opening up of new markets and the consolidation of existing markets. We have to be a nation of free traders and innovators. That requires strong leadership in getting our trading partners to drop harsh and uncompetitive excise restrictions.

To publicly support the development of a local biofuels industry is good politics for the federal government. Biofuels are good for the environment and will reduce our reliance on imported fuels, creating a better balance of trade.

Our biofuel policy should stop treating alternative fuels differently, such as the 10-year phase-in for ethanol and only a five-year phase-in for biodiesel and gaseous fuels. Ethanol and biodiesel should be treated the same. The only difference is one is for cars and the other mainly for trucks and heavy equipment.

Oil companies are neither stupid nor running charities: if they can circumvent the 38.143 cent tax for a lower rate on imported biofuel products, such as ethanol and biodiesel, then ships from overseas will be readied to unload these products here next July.

Under Treasury's excise, the grant system will pay more money to overseas companies while local revenues will drop. Lowering the excise for imported ethanol will cost Australia about $500 million in revenue as importers circumvent the government's 38.143 petrol tax with ethanol imports.

Alternative fuels can be a key part of our economic growth and ensure our energy self-sufficiency. With the best algae strains in the world, Australia could export algal oil to refineries in Southeast Asia and put Australia at the forefront of the aviation fuel revolution, where a percentage of algae fuel will be used in airline fleets.

If Australia is to become a competitive exporter of biofuels, the timing of the implementation of an excise tax on biofuels needs to be delayed until 2016.

source: theaustralian