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I. Background

The Australia federal government levies ‘excise’ (tax) on certain goods including, fuel products;[1] many of these products were also entitled to tax credits and capitals grants that effectively neutralized the effect of the excise.[2]

Significant amendments to the excise and subsidy program have occurred since 2002.  Most recently, in 2006, the Australian government amended the excise and subsidies system specifically to rationalize and simplify the system.[3]  It is intended that fuel tax will only be paid for fuels used in “private vehicles and for certain other private purposes” and “light vehicles for business purposes.”[4]

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II. Current System

Under the current regime, biodiesel, compressed natural gas (CNG), dimethyl ether, ethanol, liquefied natural gas (LNG), liquefied petroleum gas (LPG), and methanol (called ‘alternative fuels’) receive some form of production or consumption assistance from the Australian federal government.[5]

This assistance includes: exemptions from or discounts regarding the amount of excise imposed; production subsidies; and capital grants to assist biofuel producers, encourage petrol stations to sell fuel ethanol, and assist and encourage drivers to convert vehicles to alternative fuels.[6]

Currently LPG, LNG and CNG are exempt from excise; from July 2011-2015, however, excise will be imposed and will be gradually increased to a final rate of 12.5 cents per liter for LPG and nineteen cents per cubic meter for CNG.[7]

Excise on the ethanol in fuel and biodiesel[8] is imposed at the rate of 38.143 cents per liter (same as petrol); since 2002, however, this excise has been neutralized by a production grant (subsidy).  It is proposed to remove some of this assistance by gradually increasing the excise imposed on ethanol from 2.5 cents per liter in 2011 to 12.5 cents per liter in 2015 and by increasing the excise imposed on biodiesel from 3.8 cents per liter in 2011 to 19.1 cents per liter in 2015.[9]

Current capital grants programs include: the Ethanol Distribution Program that assists in converting retail petrol stations to provide petrol with 10% ethanol;[10] the Alternative Fuels Conversion Programme that provides grants to assists in the cost of converting heavy commercial vehicles and buses to using LPG or natural gas (instead of diesel);[11] and the LPG vehicle scheme that provides grants of $1000 AUD (approx. 878.40 USD)[12] for the purchase of new factory-fitted LPG vehicles and $2000 AUD (approx. 1,757.96 USD)[13] grants for the conversion of private vehicles to LPG.[14]

Businesses that use fuel to carry on their business[15] and households that use fuel to generate electricity may claim tax credits for any fuel tax (excise) included in the price of fuel.[16]

Registered businesses using alternative fuels within specified size vehicles[17] are eligible to claim a fuel grant under the Energy Grants Credit Scheme.[18]  From July 1, 2006 to June 30, 2010 the amount of the grant will be gradually reduced to zero and from July 1, 2011 (implementation of excise on alternative fuels) it will be possible for business’s to claim fuel tax credits for alternative fuels.[19]

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III. Sustainability of Alternative Fuels

There is no legislative requirement that alternative fuels preferenced via any of the above schemes meet ‘environmentally sustainable’ criteria.  The stated aim of the Australian Government's alternative fuels program (including the Alternative Fuels Conversion Programme and Energy Grants Credits Scheme), however, is the “reduction of greenhouse gas and other vehicular emissions from the transport sector, especially in the medium to heavy commercial vehicle and bus categories.”  To this end the Australian government has commissioned a report on different fuels’ greenhouse gas emissions (including upstream and tailpipe emissions).[20]

Further, any Australian business seeking to claim more than $3 million AUD (approx. 2.64 million USD)[21] in fuel tax credits in any financial year must be a member of the Greenhouse Challenge Plus program.  The Greenhouse Challenge Plus Program requires business to enter into an agreement with the Australian government to manage and reduce the business’ greenhouse gas emissions via emissions inventory reporting and the development and implementation of abatement plans.[22]

Finally, fuel tax credits will only be granted to operators of vehicles using diesel fuel where the vehicle complies with emissions performance criteria.[23]  Tax credits are not granted for any use that contravenes specified environmental legislation.[24]

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Prepared by Lisa White
Foreign Law Specialist
January 2008


[1]  In accordance with the Australian Constitution the Commonwealth has the exclusive power to levy excise.

[2]  Richard Webb, Research Brief no.15 2005–06: Excise taxation: developments since the mid-1990s, Australian Parliamentary Library, Economics, Commerce and Industrial Relations Section, April 13 2006. Available at: http://www.aph.gov.au/library/pubs/rb/2005-06/06rb15.htm#two (last visited January 24, 2008).

[3]  2004-2005-2006 The Parliament of the Commonwealth of Australia (Senate), Fuel Tax Bill 2006; Fuel Tax (Consequential And Transitional Provisions) Bill 2006; Revised Explanatory Memorandum.

[4]  Fuel Tax Act 2006 (Cth) § 40-5.

[5]  Richard Webb, supra note 2.

[6]  Id.

[7]  Fuel Tax Act 2006 (Cth); Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Cth).

[8]  Energy Grants (Cleaner Fuels) Scheme Act 2003 (Cth); Energy Grants (Cleaner Fuels) Scheme (Consequential Amendments) Act 2003 (Cth).

[9]  Fuel Tax Act 2006 (Cth); Fuel Tax (Consequential and Transitional Provisions) Act 2006 (Cth).

[11]  See Australian Government: Department of Climate Change website, http://www.greenhouse.gov.au/transport/afcp/index.html (last visited Jan. 25, 2008).

[12]  On the presumption of 1 AUD equaling 0.878397 USD.

[13]  On the presumption of 1 AUD equaling 0.878397 USD.

[14]  See AusIndustry website, supra note 10.

[15]  Businesses are eligible if they: use petrol or diesel in vehicles above a specified gross vehicle mass on public roads; use petrol or diesel to generate electricity; use diesel for activities other than road transport including rail or marine transport, primary production such as agriculture or forestry, or mining; use fuels such as diesel, petrol, kerosene, heating oil or toluene for heating, or non-fuel uses (such as solvents or as a manufacturing ingredient); use specified fuels (including kerosene, mineral turpentine and white spirit) sold for non-internal combustion use (in container of twenty liters or less); or use kerosene or heating oil sold for domestic home heating.

[16]  Fuel Tax Act 2006 (Cth) §§ 41-5, 42-5.

[17]  The vehicle must be traveling on public roads and weigh either over twenty tons gross vehicle mass (GVM) (operating in all areas, or between 4.5 and twenty tons GVM (when operating outside of or across defined metropolitan boundaries).

[18]  Energy Grants (Cleaner Fuels) Scheme Act 2004 (Cth); Product Grants and Benefits Administration Act 2000 (Cth); Energy Grants (Credits) Scheme Act 2003 (Cth).

[19]  2004-2005-2006 The Parliament of the Commonwealth of Australia (Senate), Fuel Tax Bill 2006; Fuel Tax (Consequential And Transitional Provisions) Bill 2006; Revised Explanatory Memorandum.

[20]  CSIRO, University of Melbourne, Centre for Design at RMIT, Parsons Australia and the Southern Cross Institute of Health Research,  Comparison of Transport Fuels Final Report (EV45A/2/F3C) to the Australian Greenhouse Office on the Stage 2 study of Life-cycle Emissions Analysis of Alternative Fuels for Heavy Vehicles, 2001; and CSIRO, University of Melbourne, Centre for Design at RMIT, Parsons Australia and the Southern Cross Institute of Health Research Life-Cycle Emissions Analysis Of Fuels For Light Vehicles Report (HA93A-C837/1/F5.2E) 2004, available at http://www.greenhouse.gov.au/transport/comparison/index.html.

[21]  On the presumption of 1 AUD equaling 0.880767 USD.

[22]  See Australian Government, Department of Climate Change, Fuel Tax Credits And Greenhouse Challenge Plus Membership website, http://www.greenhouse.gov.au/challenge/members/fueltaxcredits.html (last visited Jan. 25, 2008).

[23]  Vehicles with a gross vehicle mass of 4.5 tons or more (other than those used in a primary production business on a agricultural property) must be either: manufactured after January 1, 2006; be part of an accredited or government endorsed maintenance program; or meet other specified emissions standards. 2004-2005-2006 The Parliament of the Commonwealth of Australia (Senate), Fuel Tax Bill 2006; Fuel Tax (Consequential And Transitional Provisions) Bill 2006; Revised Explanatory Memorandum ¶¶1.46 -1.50. Fuel Tax Act 2006 (Cth) § 41-25.

[24]  Energy Grants (Credits) Scheme Act 2003 (Cth) §§ 49A, 55A.  The environmental legislation referred to is Division 1 of Part 3 (§§ 12-25F) of the Environment Protection and Biodiversity Conservation Act 1999 (Cth). This division includes requirements for activities concluded in world heritage areas, national heritage areas, wetlands of international importance or activities that impact on threatened or listed migratory species.

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Last Updated: 02/28/2014