George Christensen (Dawson, National Party) Share this | Link to this | Hansard source

I rise to speak on the Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015 and the Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015. The first of these bills will reduce the rates of excise for domestically manufactured biodiesel and ethanol to zero for a single year, and that starts next month. Excise rates on these fuels will then rise each year incrementally up until 1 July 2020. At that point the excise rate for ethanol will be about 33 per cent, or one-third, of the rate for petrol. Similarly, at that point the rate for biodiesel will be about half the rate for normal diesel.

At the same time these bills remove grants for biodiesel and renewable fuels such as ethanol. Firstly, I want to make an important point about ethanol as a fuel and how the government treats it. There are people who believe that rebates are some form of welfare. Well I do not. I do not believe an ethanol rebate is giving away free money. A rebate is about treating ethanol as a different type of fuel and taxing it differently. When the ethanol rebate was first introduced it was not to come up for review until 2021, because the government recognised that it would take the industry that length of time to become established. We have gone and had a look at it. While the changes we have made get rid of the rebate I believe they also provide a level of certainty for the industry. They provide a clear excise regime extending into the future.

It was always envisaged, even when the Howard government brought in the rebate model, that 12½c a litre would be the excise rate that would eventually apply to ethanol. We have got that pathway to the 12½c a litre excise rate. I know from discussions I have had with people in the biofuels sector, particularly the Biofuels Association of Australia and other players, such as Dick Honan with Manildra, that they are very comfortable with this path forward because it does provide certainty and surety and their product is taxed at a lower rate than petrol.

It is true to say that there is only a small ethanol industry at the moment. With the industry as it is right now we are not seeing the benefits flow through to farmers, particularly cane farmers when the ethanol is produced from sugar cane. We could see that happen as a result of the framework in this legislation setting out a long-term sustainable plan for the industry but it would have to be accompanied by measures that the state governments pick up and run with.

The Nationals, the party which I am a member of in this parliament, have called for a 10 per cent mandate to be rolled out nationally this year, 2015, with the rollout of E20 fuels for consideration by 2020. They are ambitious targets. We are in the middle of 2015 and we do not have a nationwide mandate. That would have to be picked up by state governments. Slowly that is happening. New South Wales and Queensland are talking about it. We need to show leadership on this issue.

I question the wisdom and the values of some who were against ethanol and put forward the idea of immediately substantially raising the taxation levels on this Australian industry and increasing the cost of living by pushing up the price of the cheapest fuel alternative currently on offer at thousands of service stations. This bill does not do that, but there were pundits saying we should get rid of the subsidies and tax it at the same price as other fuel.

As the minister pointed out in his second reading speech, these changes were very much needed to get the budget back into surplus. We have to acknowledge that Labor and the Greens left the budget in a parlous state and that action is necessary in reducing government expenditure. I feel for the Greens and their current dilemma on this issue—

Graham Perrett (Moreton, Australian Labor Party) Share this | Link to this | Hansard source

I'm going to use those words against you.

George Christensen (Dawson, National Party) Share this | Link to this | Hansard source

That is probably the first and only time that I will use those words, member for Moreton. This is a clean fuel. I feel for them with the dilemma they have imposed on this. As willing partners in the waste of the Rudd-Gillard-Rudd years I suppose they are partly responsible for this change. The change is not bad but it would have been better to actually see the zero excise regime rolled out until 2021.

I am very happy to talk about the ethanol industry, because I represent the largest sugar-growing electorate in the country—it includes the Mackay region, Proserpine and the Burdekin region—and I have long supported an ethanol mandate in this country. In particular, I think that it should be compulsory for North Queensland servos to have this product at the bowsers. There is no point in beating around the bush on this issue, because a half-hearted approach is not going to achieve anything. A proper ethanol mandate in Queensland would ensure the viability of, say, Sarina's ethanol plant, in the area that the member for Capricornia so ably represents, and it also may pave the way for future investment in ethanol production by groups like Mackay Sugar, which the member for Capricornia, by virtue of the Electoral Commission, represents as well.

In the Burdekin, in my electorate, Austcane Pty Ltd has been working on something for a long time. It has a substantial amount of work done on the establishment of a mill that would only produce ethanol. That would provide jobs, needless to say, but it would also give cane farmers in that area a supply option other than the existing mill monopoly that is controlled by Singaporean milling company Wilmar. I would like to see the state government bring in a phased-in mandate where the government would require fuel retailers to have a certain percentage of ethanol in their overall fuel mix and have that percentage ramping up over time. We do not want to see them rush to 10 per cent straightaway, because if they just went from zero to 10 then all it would result in is imported ethanol and no domestic production occurring, because the time frame to get some of these production lines started up is simply too long. If the plan the state government currently have is simply to require service stations to have a single bowser selling E10 as an option, it is going to be a missed opportunity. That sort of approach would see those E10 bowsers tucked down the back as an afterthought, because the reality, as we all know, is that the oil companies make less money out of an E10 blend.

A proper mandate for ethanol in Queensland would be advantageous for a number of reasons. Ethanol is a renewable resource and it is proven to have a lower particulate matter output, which is why groups like the Asthma and Allergy Foundation of America support the use of ethanol fuels. Secondly, for motorists feeling the pinch of high fuel prices, an ethanol blend is actually a cheaper fuel by virtue of this excise regime. Thirdly, we have a problem in this country with fuel security, and the more we look at domestic production of fuel sources the better off we are.

This issue was highlighted recently when terrorist group al-Qaeda urged followers to attack or sabotage the companies that supplied oil to countries like Australia. The terrorists targeted what they thought were choke points, and one of those was the Malacca Straits, through which half of Australia's oil imports are transported. In response, we saw some debate at the time about fuel security in this country. The former Deputy Chief of Air Force Air Vice Marshal John Blackburn warned in an ABC interview at the end of last year:

If there's an interruption to the fuel supply chain coming in from overseas, after about a week we're going to run into serious problems. Without fuel can't go to work, can't get to school, you can't get food.

He went on to say:

Sydney, for example, in one week alone there's about 45,000 truck trips just distributing food. You'd start to see the food run short in the shops probably in three to four days. You start to see the chemist run out of supplies after about three or four days and our services we take for granted; electricity supply, water supply, none of this can happen without fuel for the supporting elements for those functions. So you'd start to see society collapse.

I do not want to paint too bleak a picture of the potential risk here, because there are some safeguards in place. For instance, Australia sources its fuel from many different countries and it is transported through many different shipping routes. But we should be building more domestic self-reliance into the system. We should be embracing biofuels like ethanol for the many advantages they bring, instead of being like the people that are out there looking for ways to tear the industry down or, worse, manufacture reasons to attack the industry.

Unfortunately, some of these people are within the bureaucracy of this government. I single out the Bureau of Resources and Energy Economics, because they have been known for their anti-ethanol stance. They came out with a report saying that the so-called subsidies to the ethanol industry should be completely scrapped and we should ramp it up to the fuel excise. I was at the time, and I still remain, fiercely opposed to the recommendations that came out in that report. The report was wrong. It understated the employment that had been generated by the ethanol industry, and it was talking about how ethanol excise was being forgone to the tune of 38c a litre, forgetting the fact that both sides of the political spectrum had only ever said, once this whole idea of ethanol rebates was begun, that ethanol would be, at the very most, taxed at 12½ cents a litre. If those Canberra bureaucrats had had their way, Austcane's proposed ethanol mill in the Burdekin would probably never see the light of day and I would have had very grave fears for the future viability of the Sarina ethanol distillery. Just to highlight the tenuous nature of the industry, the Sarina distillery was affected by weather one year and could not make its supply contract, and customers pulled the pin on ethanol as a result.

We have to consider that Australia does not operate in a vacuum, and it is interesting to consider how our market also fits into the global ethanol industry. Brazil leads the world in development of ethanol. From 1975 to 2000, sugar cane yield per hectare in Brazil increased 33 per cent, cane sugar content rose eight per cent, ethanol yield from sugar rose 14 per cent, and fermentation yields rose 150 per cent. The US now leads the world in ethanol production and, combined with its advances in gas, it is becoming increasingly self-sufficient in fuel. Australian sugar cane produces a higher sugar yield than Brazil, and sugar produces a far greater ethanol yield than corn, which is what is used in the US for the production of ethanol. Why are we not taking better advantage of these factors?

The global sugar market is volatile at the best of times. We are talking very soon in this country about developing the North. There is going to be a white paper announced, sugar cane being one of the easiest products to grow in that neck of the woods. We need to grow better markets that are stable. A 10 per cent ethanol mandate in the state of Queensland would provide that stability. If a 10 per cent mandate were implemented, not just in that state but right across this nation, it would take more than half our current sugar cane crop to produce. Traditionally, farmers are only paid for the sugar produced from their cane. Proprietary mills mostly do not pay for the by-products of the sugar-making process like bagasse, molasses and ethanol. But dedicated ethanol mills such as the one proposed by Austcane convert directly to ethanol. More options would give cane farmers some bargaining power when it comes to selling their product.

At the moment, there is really only one option, so cane farmers are price takers, not price makers. I would love to see a situation where a mill producing only ethanol rolled out so that our farmers could get a better and more secure and stable form of income in that neck of the woods. It is a little disappointing there is not greater national interest in the use of ethanol as a fuel, especially given the climate scare that we are constantly hearing about and that is perpetuated by the green movement. Ethanol as a fuel is greenhouse neutral, because carbon dioxide produced when the fuel is burnt is reabsorbed as the crop grows. Ethanol plants can be powered by the crop itself, using co-generation, which is already being used by a mill in Mackay. Burning ethanol instead of fossil fuels reduces emissions of carbon monoxide, hydrocarbons, 1,3-butadiene, benzene, toluene, and xylenes. Reducing these emissions would see a reduction in chronic diseases like asthma, bronchitis and uvulitis. We need to expand this industry. (Time expired)

Karen Andrews (McPherson, Liberal Party, Parliamentary Secretary to the Minister for Industry and Science) Share this | Link to this | Hansard source

I rise to speak in this debate on legislation that implements the government's 2014-15 budget measures to change the taxation treatment of fuel ethanol and biodiesel: the Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015 and the Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015.

The Australian government transport fuels policy settings are designed to be fuel and technology neutral. That is because the government believes that an open and competitive market is the most effective means to deliver the widest possible range of fuels. The budget measures remove existing grant schemes and in their place provide that the domestic production of biodiesel and fuel ethanol will be subject to a reduced but gradually increasing rate of excise.

The energy white paper released on 8 April 2015 outlines the government's priorities to increase competition and national energy production and secure investment in the energy sector. It reiterates government policy that will ensure a technology-neutral policy and regulatory framework. As part of this, the energy white paper indicates that the government's preference is for the alternative transport fuels sector to be strengthened by being successfully integrated into the broader fuels market on a commercial basis. When I say 'the alternative transport fuels sector', that includes liquid petroleum gas, compressed natural gas and biofuels, including ethanol and biodiesel. Successful commercial integration means that government policy does not preference one fuel or technology over another. This policy brings biofuels into the same excise framework as other alternative fuels and will provide long-term certainty for investors in the industry.

Along with technology neutrality, the government's energy white paper that was released in April this year also advocated the creation of efficient markets. Efficient energy markets give consumers choice in how they source and use their energy and enable suppliers to respond to those choices. The government aims to avoid unnecessary regulatory barriers and subsidies that distort energy markets, shield competition and dilute price signals. This legislation aims to get the right balance in the market to maintain our investment attractiveness and our ability to adopt new technologies.

Australia's biofuel industry is only a small part of the overall fuel industry. It includes ethanol and biodiesel as well as a small experimental advanced biofuel research sector. Biofuels comprise 0.8 per cent of the total Australian transport fuel mix. But the emergent biofuels industry is growing and can also lead to economic opportunities for others in the economy. These opportunities include providing farmers with alternative sources of income through a local market for lower grade products as feedstock for the biofuels industry.

I would now like to speak about a couple of the larger elements in the alternative fuels industry. Australia's three ethanol plants produced approximately 236 million litres of ethanol in 2013-14. One of these plants is in Nowra, on the New South Wales coast. This is Australia's largest ethanol producer, converting wheat flour into protein and carbohydrate, with ethanol produced as a by-product of the carbohydrate production. Australia has two other ethanol plants, both in Queensland—one in Dalby, processing red sorghum, and the other at Sarina, processing molasses produced as a by-product of sugar refining.

Australia has seven biodiesel plants, in Victoria, South Australia, Western Australia and Queensland. They operate on feedstocks that include tallow, recycled cooking oil and other oils. In 2013-14 Australian plants produced 71 million litres of biodiesel. In 2014 the Bureau of Resources and Energy Economics estimated that the Australian ethanol industry created 160 to 200 direct jobs. A report prepared by Deloitte Access Economics for the Biofuels Association of Australia report released in February 2014 found that the biodiesel industry leveraged 438 full-time equivalent jobs.

The government support to the sector has been substantial and has extended for more than a decade. Since 2002 the biofuels industry has received support through programs like the Ethanol Production Grants program, the Energy Grants (Cleaner Fuels) Scheme and the Biofuels Capital Grants Program. The government will continue to provide long-term support to the biofuels industry and provide it with certainty for the future by bringing it into the excise system.

This proposed legislation delivers that certainty by proposing domestically produced ethanol and biodiesel will be brought into the excise system by applying excise on an energy content basis. The proposed changes recognise the fuel diversity and environmental and regional development benefits that the biofuels industry provides, through a 50 per cent discount on the energy based excise for each biofuel category. In doing this, the government will bring the biofuels sector into line with other alternative transport fuels like liquefied petroleum gas, liquefied natural gas and compressed natural gas, which have all transitioned into the excise system.

I would like to take a couple of minutes to look specifically at the detail of the legislation. The Energy Grants and Other Legislation Amendment (Ethanol and Biodiesel) Bill 2015 repeals the Energy Grants (Cleaner Fuels) Scheme Act 2004 and makes the appropriate consequential amendments. The cleaner fuels grant scheme used to provide a full rebate for excise paid on biodiesel.

The second piece of legislation is the Excise Tariff Amendment (Ethanol and Biodiesel) Bill 2015, which amends the Excise Tariff Act 1921. These amendments will reduce the rates of excise for domestically manufactured fuel, ethanol and biodiesel to nil for a one-year period, commencing on 1 July 2015. The bill then sets out a five-year excise pathway for fuel ethanol, so that it increases each year from 1 July 2016 until 1 July 2020. On 1 July 2020, the excise rate for ethanol will settle at approximately 33 per cent of the excise rate for petrol. This is in line with the alternative fuels excise framework, which applies excise based on the energy content of a particular fuel. This is in line with the alternative fuels excise framework that applies excise based on the energy content of a particular fuel. The bill also sets out a 15-year excise pathway for biodiesel from 1 July 2016 until 1 July 2030. The excise rate for biodiesel will increase at the same rate as ethanol for the first five years, and then it will increase year on year from 2026 to 2030 so that it settles at an excise rate equivalent to 50 per cent of the excise rate for diesel.

We have provided a longer transition period for biodiesel to ensure the industry's viability. The government has listened to the industry's concerns on transitioning into the excise system. The domestic industry has indicated that it needs around 15 years to adjust to the government's alternative fuels excise framework. A shorter transition would most likely lead to long periods of negative cash flow for an otherwise sustainable industry. However, the ethanol industry has indicated it can adjust over a shorter period, so the phasing-in period has been set at five years.

In conclusion, these two bills provide a responsible pathway to a sustainable excise rate for biofuels. They provide certainty for two additional sources of energy in Australia—two fuels that are making valuable contributions to Australia's fuel mix and that are sourced from renewable biomass. It is no longer appropriate that the biofuel sector be seen as a special case, requiring propping up by finite government assistance. However, I want to reiterate that these changes are measured and appropriate and take full account of the relevant issues and of the views and the needs of the relevant industry interests. I commend this bill to the House.

Question agreed to.

Bill read a second time.