On the 7 April 2008 Assistant Treasurer and Minister for Competition Policy and Consumer Affairs, Chris Bowen, released exposure draft legislation and commentary for the Carbon Pollution Reduction Scheme (CPRS) Fuel Tax Adjustment Arrangements (the "draft legislation").

The purpose of the draft legislation is to institute a cent-for–cent reduction in the current rate of fuel excise (and customs) duty based on the price effect that Carbon Pollution Reduction Scheme ("CPRS") will have on the price of fuel. If the draft legislation is passed the duty reduction will commence on 1 July 2010.

The broad mechanics of the draft legislation allow for a reduction of the excise duty based on the average Australian emissions unit auction charge ('average unit charge') established in the first half of 2010 through emissions unit auctions. In should be highlighted that the rate reduction is specifically based on the impact that CPRS will have on diesel price. Given diesel emits more carbon than petrol the fuel tax cut will provide more than 'cent-for-cent' assistance for petrol users.

Businesses that use fuels in the certain activities (e.g. marine transport, fishing, rail transport agriculture and mining) are currently shielded from the price impact of excise through the operation of the fuel tax credit ("FTC") regime. Furthermore, partial shielding is provided for other activities such as for road transport (excluding vehicles with a GVM less than 4.5 tonne) As such, while private road users will have the price effect of CPRS on fuel negated via the cent-for-cent reduction of excise most business users will pay the cost of the average unit charge.

The draft legislation provides shielding to certain industry from the price impact of CPRS. It does this by allowing certain industries and end users a special (and transitional) CPRS credit. Essentially this CPRS credit will offset the price increase as a result of CPRS and will be calculated in a similar way to the cent-for-cent reduction in the duty. This shield is limited in its protection as the CPRS credit (at this stage) will only be extended to the following industries / users:

  • Agriculture
  • Fishing
  • Heavy on-road vehicle users; and
  • Users of LPG, LNG and CNG

We also note that the explanatory memorandum to the draft legislation explains that this CPRS credit may only be temporary and will be reviewed after one year in respect of Heavy on-road vehicles, CNG LNG users and after three years in relation to the Agriculture and Fishing industry and LPG users.

The explanatory memorandum does not provide any reason for the decision not to extend the protection afforded to the Agriculture Fishing and Heavy on-road vehicle users to other industries such as Marine transport.

This means other business using fuel in activities that are entitled to the full rate FTC (i.e. 38.143 cents), including those performing transport and logistics services via sea (i.e. the bulk of the shipping industry) will not be able to claim a CPRS credit on fuel. Consequently, the shipping / marine transport industry will be full exposed to the price effect of CPRS.

During the transitional phase businesses operating in the shipping industry will be disadvantaged compared to operators of road freight and transport.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.