Australia: Start your engines: the treatment of fuels under the Clean Energy Scheme

Key Points:

The fuel tax credit rate will reduce, and the exemption from excise or customs duty removed, from 1 July 2012, and more changes are proposed to start 1 July 2013.

Within a day of each other the Government issued a consultation paper broadly outlining its plan for the Opt-in Scheme for liquid fuel use and introduced three new bills into Parliament which alter current expectations as to how a carbon price will be imposed on non-transport use of gaseous fuels under the Clean Energy Scheme: the Clean Energy Legislation Amendment Bill 2012, the Clean Energy (Customs Tariff Amendment) Bill 2012 and the Clean Energy (Excise Tariff Legislation Amendment) Bill 2012 (the Bills).

What will change?

Currently, liquid and off-road transport gaseous fuels (LPG, LNG and CNG) receive fuel tax credits, while non-transport LNG, LPG and CNG is exempted from paying excise duties such that there is no carbon price paid on non-transport use of gaseous fuels.

From 1 July 2012, liquid and gaseous fuels are subject to a reduction in the fuel tax credit rate or the removal of the exemption from excise or customs duty which is equivalent to the cost of imposing an effective carbon price on those fuels.

From 1 July 2013, it is proposed that liquid fuel users can either pay an equivalent carbon price through reductions in the fuel tax credit rate or opt in to the carbon price mechanism and surrender carbon units.

The Bills will apply, from 1 July 2013, a mandatory effective price on carbon for non-transport use of LPG and LNG under the carbon pricing mechanism, rather than by the imposition of an excise or customs duty (equivalent to the carbon charge) for those gases as proposed in the interim.

The Opt-in Scheme, which is scheduled to begin on 1 July 2013, is designed to allow eligible liquid fuel consumers to voluntarily submit themselves to the carbon pricing mechanism under the Clean Energy Act instead of paying the carbon price through the fuel tax system. So, liquid fuel users will have the choice of either paying an equivalent carbon price through reductions in the fuel tax credit rate or opting in to the carbon price mechanism and surrendering carbon units to satisfy their liability for emissions embedded in the liquid fuels they use.

Liquid and gaseous fuels – a quick pit stop!

For those that stand to be affected by the Clean Energy Scheme's treatment of fuels, the following table shows which scheme will apply in each year.

From 1 July 2012 From 1 July 2013 onwards
Non-transport LPG fuel tax scheme carbon price mechanism
Non-transport LNG fuel tax scheme carbon price mechanism
Non-transport CNG carbon price mechanism carbon price mechanism
On-road transport use of LPG, LNG and CNG Road User Charge Road User Charge
Off-road transport use of LPG, LNG and CNG fuel tax scheme fuel tax scheme
Liquid Fuels (petrol, diesel, aviation fuels etc) fuel tax scheme fuel tax scheme / carbon price mechanism (by opt-in)

A carbon price on non-transport gaseous fuels

While off-road transport use of liquid and gaseous fuels will remain under the fuel tax system, the Bills will ensure that a carbon price will be imposed on non-transport use of gaseous fuels through the carbon pricing mechanism and not the fuel tax system as previously expected.

The Government's stated rationale for switching to a mandatory carbon price mechanism for non-transport gaseous fuels is that non-transport LPG and LNG consumers will be able to better manage their carbon pricing obligations under the carbon pricing mechanism rather than under the fuel tax system. Payment under the carbon pricing mechanism will only occur once or twice a year while the fuel tax system will require regular payments, placing greater cash carrying costs on consumers.

Non-transport Compressed Natural Gas (CNG)

From 1 July 2012, CNG will be directly covered under the carbon pricing mechanism. By bringing non-transport CNG under the carbon pricing mechanism, the emissions obligation is shifted from the producer of CNG to the supplier of the natural gas from which CNG is produced.

Non-transport Liquefied Petroleum Gas (LPG) & Liquefied Natural Gas (LNG)

The Bills will also introduce new provisions into the Clean Energy Act to allow LPG and LNG used for non-transport use to be covered by the carbon pricing mechanism, including when and how LPG and LNG will become liable.

These new provisions will come into force on 1 July 2013. Until that time, the current treatment of LPG and LNG, through the imposition of an excise or customs duty equal to the carbon price, will continue, allowing consumers to familiarise themselves with the proposed changes and identify if they will be affected.

Transport use of gaseous fuels?

A carbon price will be exacted on on-road transport use of gaseous fuels through a road user charge while off-road transport use of gaseous fuels will have a carbon price imposed through reductions in the fuel tax credit rate received under the fuel tax scheme.

The Opt-in Scheme: choice at its most liquid

The Opt-in Scheme will only apply to liquid fuels. Non-transport gaseous fuels (such as LNG, LPG and CNG) will not be covered by the Opt-in Scheme and, as outlined above, will receive separate treatment under the Clean Energy Scheme.

Petrol, diesel, aviation kerosene and aviation gasoline will be covered along with those fuels are listed in item 10 of the Schedule to the Excise Tariff Act 1921.

Eligibility for the Scheme: A two-step process

To be eligible for the Opt-in Scheme, an applicant, known under the Opt-in Scheme as the Designated Opt-In Person (DOIP), must satisfy an eligibility test and the user/users of the fuel must satisfy a threshold test.

The Consultation Paper proposes that the Opt-in Scheme will deal with the aggregation of the fuel use for multiple persons by allowing a person to register to be liable for all its fuel use either as an individual or as a member of a GST group or GST joint venture. Similarly, all fuel users for which the registered person is liable will be jointly and severally liable for charges or penalties incurred by the registered person as a result of liability under the Opt-in Scheme.

How long will I be liable for?

The DOIP for a GST group or GST JV will be liable for the entire financial year irrespective of whether members subsequently leave or join. Where the DOIP is liable for the fuel use of a GST JV, it will not retain liability for any fuel use of persons in the GST JV that is not used for the GST JV.

Once registered under the Opt-in Scheme, the carbon pricing mechanism will apply to fuel acquisitions made after 1 July in the first financial year from which the person has opted in and will match the way in which eligibility for fuel tax credits arises under the fuel tax system.

Can I opt in?

If you are a liquid fuel consumer in the aviation, transport or mining (as a large fuel consumer) industries and you satisfy the eligibility and threshold requirements, you will be entitled to opt in.

It is important to note that the Opt-in Scheme will have the same exclusions currently present in the effective carbon price. For example, no liability will arise for fuel used in heavy on-road vehicles until at least 2014. In addition, fuel used in ways that do not incur a carbon price, such as agriculture, forestry or fisheries, will not fall under the Opt-in Scheme.

The Department has called for submissions on the Consultation Paper to be made by 20 July 2012.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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