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ENERGY GRANTS (CLEANER FUELS) SCHEME AMENDMENT REGULATIONS 2007 (NO. 1) (SLI NO 358 OF 2007)
authority of the Minister for Revenue
and Assistant Treasurer
Energy Grants (Cleaner Fuels) Scheme Act 2004
The Energy Grants (Cleaner Fuels) Scheme Act 2004 (the Act) establishes a scheme for the provision of cleaner fuel grants in relation to the manufacture or importation of certain fuels. In broad terms, the grants are intended to:
· fully (or partially in future) offset the excise duty or customs duty payable in relation to the manufacture or importation of biodiesel and certain other fuels; and
· encourage the manufacture and importation of low sulphur fuels.
Section 9 of the Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.
On 31 March 2006, the Prime Minister announced that ‘the Government will amend the relevant legislation so that biodiesel made from tallow using new technology, that does not form esters, receives the same favourable tax treatment as biodiesel made by existing esterification processes.’ The new technology produces a diesel fuel by chemically altering the tallow (and other vegetable oils or animal fats) through a process of hydrogenation. Amendments to the Act were made as part of a major excise legislative reform package which commenced on 1 July 2006. The Act defines the fuel that is made using the new technology as ‘renewable diesel’.
Subsection 4A(2) of the Act provides that, among other things, the amount of a quantity of liquid fuel, referred to as ‘final fuel’, worked out in accordance with the regulations is taken to be renewable diesel for the purposes of the Act.
Subsection 8(1) of the Act provides that, among other things, the amount of a cleaner fuel grant that parties that are entitled to claim for renewable diesel is worked out in accordance with the regulations.
The purpose of the amending Regulations was to prescribe the method of calculating the amount of final fuel that is taken to be renewable diesel and the amount of the cleaner fuel grant entitlement for renewable diesel in the Energy Grants (Cleaner Fuels) Regulations 2004.
By providing the method for working out the amount of final fuel that is renewable diesel and the amount of the cleaner fuel grant available for renewable diesel, the amending Regulations allow the entitlement to a cleaner fuel grant to be claimed on renewable diesel, which is defined in subsection 4A(2) of the Act.
To ensure the integrity of the yield formula contained in the amending Regulations, it is intended that the formula will be reviewed within 15 months of its first use by claimants of cleaner fuels grants on renewable diesel.
Details of the amending Regulations are set out in the Attachment.
The amending Regulations commenced on the day after registration on the Federal Register of Legislative Instruments.
The amending Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The amending Regulations implemented previously announced Government policy and were minor or machinery in nature. Consultation was undertaken with the party intending to manufacture renewable diesel.
Regulation 1 — Name of Regulations
Regulation 1 provides that the Regulations are the Energy Grants (Cleaner Fuels) Scheme Amendment Regulations 2007 (No. 1).
Regulation 2 — Commencement
Regulation 2 provides that the Regulations commence on the day after they are registered.
Regulation 3 provides that Schedule 1 amends the Energy Grants (Cleaner Fuels) Scheme Regulations 2004 (the Principal Regulations).
Schedule 1 — Amendments
Item 1 inserted a new regulation 5A into the Principal Regulations.
Subsection 4A(2) of the Energy Grants (Cleaner Fuels) Scheme Act 2004 (the Act) provides that, among other things, the amount of a quantity of liquid fuel, referred to as ‘final fuel’, worked out in accordance with the regulations is taken to be ‘renewable diesel’ for the purposes of the Act.
Subregulation 5A(1) prescribes the method by which claimants of the cleaner fuel grant for final fuel, which meets the requirements of subsection 4A(2) of the Act, must work out the amount of that fuel that is taken to be renewable diesel. This method is by applying a formula which multiplies the volume, in litres, of tallow being chemically altered through a process of hydrogenation by the figure 0.924. This figure represents the yield of renewable diesel made by chemically altering tallow through a process of hydrogenation.
Subregulation 5A(2) requires that the tallow referred to in subregulation 5A(1) must not contain more than 0.5 per cent by mass in total of water and/or solids or other impurities. This subregulation ensures the calculated yield under subregulation 5A(1) is closer to the actual yield by requiring the level of impurities in the tallow subject to the process of hydrogenation be kept to a minimum.
The formula contained in subregulation 5A(1) and the characteristics of tallow used to manufacture fuel taken to be renewable diesel prescribed by subregulation 5A(2) were developed through a process of independent scientific assessement. The formula is such that, on a balance of probabilities, the amount of final fuel that is taken to be renewable diesel is a conservative estimate, that is, the calculated yield is at the lower end of the range of the likely true yield. This approach provides certainty to producers of renewable diesel as to their grant entitlements and, to ensure the integrity of the formula used in the amending Regulations, the Government will review it within 15 months of the first claim.
Subregulation 5A(3) provides that the amount of fuel that is taken to be renewable diesel by applying subregulation 5A(1), as a proportion of the total volume of final fuel, must not exceed any limitation on the proportion of biodiesel in a blend of biodiesel and diesel that complies with the determination for automotive diesel. The determination for automotive diesel is made under section 21 of the Fuel Quality Standards Act 2000.
Subregulation 5A(3) ensures that renewable diesel and biodiesel will be treated consistently, in accordance with the Prime Minister’s announcement of 31 March 2006, and reflects the potential for future developments in the area of fuel quality standards as they relate to biodiesel. On 22 September 2005, the Prime Minister released the report of the Biofuels Taskforce and announced that the Government would work with Australian fuels and transport industries to establish standard forms of biodiesel to provide certainty to the market. The Department of the Environment and Water Resources began the process to develop standards to manage blends of biodiesel and diesel fuel in November 2006.
At the time that the regulations were made, it was not known what final approach would be adopted to manage blends of biodiesel and diesel fuel. It is possible that any limitation on the proportion of biodiesel in a blend of biodiesel and diesel could be achieved by amending either the determination for automotive diesel or another determination. Subregulation 5A(3) covers both of these possibilities.
Item 2 inserted a new regulation 7C into the Principal Regulations.
Regulation 7C sets out a formula for working out the amount of grant to which a claimant is entitled in relation to a quantity of renewable diesel.
Under subsection 8(1) of the Act, the offset rate for renewable diesel until 1 July 2011 is 100 per cent of biodiesel’s excise duty rate. Biodiesel’s excise duty rate is currently 38.143 cents per litre. Note 2 to regulation 7C points to subsection 8(1) as providing the meaning of offset rate.
In applying the formula set out in regulation 7C, claimants are required to multiply their renewable diesel amount worked out in accordance with subregulation 5A(1) by the offset rate for renewable diesel, and then subtract the ‘previous grant’.
Note 1 to regulation 7C indicates that a quantity of final fuel might contain some components of renewable diesel for which provisional entitlement arose before the qualifying time under section 5 of the Act. Accordingly, ‘previous grant’ is defined as the total amount of cleaner fuel grant worked out in relation to any of the final fuel for which provisional entitlements arose before the qualifying time under section 5A of the Act. The requirement to subtract the total of previous provisional entitlements for renewable diesel ensures that multiple cleaner fuel grants are not available on the one quantity of renewable diesel.