Australia to eliminate ethanol subsidy

Written by Claudio Muñoz on

May 30, 2014

The government of Australia has announced plans to eliminate its ethanol production subsidy. The Biofuels Association of Australia called the decision deeply disappointing and stressed the move will negatively impact future biofuel investments in the country.

The government’s decision to scrap the ethanol subsidy was made in its 2015-15 budget announcement. According to documentation released by the Australian government, it will cease the Ethanol Production Grants Program on June 30, 2015. According to information contained in the budget documents, the fuel excise on domestically produced ethanol will be reduced to zero starting on July 1, 2015, and increased by 2.5 cents per liter each year for the following five years until it reaches 12.5 cents per liter. The excise equivalent customs duty for ethanol will be retained at 38.143 cents per liter. Information published as part of the 2014-15 budget indicates the cessation of the Ethanol Production Grants Program will save the government an estimated $120 million over the next six years. http://www.budget.gov.au/2014-15/content/bp2/html/bp2_expense-17.htm

According to information published by the Australian Department of Industry, the Ethanol Production Grants Program aimed to support the production and deployment of ethanol. The program provides full excise reimbursement to ethanol producers at a rate of 38.143 cents per liter for ethanol produced and supplied for transport use in Australia. The fuel must be produced with locally derived feedstocks. The budget announcement also targets biodiesel. The government said it would achieve a net savings of $156 million over the next four years by reducing rants made under the Cleaner Fuels Grant Scheme to zero and reducing the excise of biodiesel to zero starting on July 1, 2015. Beginning on July 1, 2016, the excise rate for biodiesel will be increased annually for five years until it reaches 50 percent of the energy content equivalent tax rate.

According to government documentation, the excise equivalent customs duty for imported biodiesel will continue to be taxed at the full energy content equivalent tax rate. In a statement responding to the government announcement, the BAA said it is most concerned how a complete U-turn on biofuels policy will be interpreted by investors. “In 2011, the labour government proposed an amendment to the Alternative Fuels Act that enshrined biofuels with effective excise free status until 2021,” said the organization in a statement. “This bill was passed with bipartisan support with one of the stated aims to provide the industry with certainty. Obviously, our industry members are very disappointed at the decision, given that since 2011 over $100 [million] has been invested into the industry based on the policies in place. We feel strongly for investors in the renewables sector as Australia has always been seen in the past, as a country of low sovereign risk, this thinking obviously will now change.”

The statement goes on to say that the BAA still believes biofuel represent a genuine opportunity for Australia to diversify its liquid fuel supply. “The BAA recently commissioned a report from Deloitte Access Economics which found that the industry net of subsidies generates over $466 [million] dollars to the economy and leverages over 3,300 jobs. Although the industry is still small, it has strong foundations with our current biofuel players focused on adding value to waste streams and non- staple food crops. From this base we have the ability to continue to add value to our agricultural resources and grow new high value regional jobs in an emerging bio-economy,” said the BAA. Recent BAA data indicates Australia is currently home to three ethanol plants with a combined 440 million liters of capacity. Feedstocks employed at the facilities include red sorghum, waste starch and molasses.