House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 1 - Emulsified diesel / water fuel blends

Outline of chapter

1.1 This chapter explains amendments to the Excise Tariff Act 1921 that will allow the water component of emulsified diesel/water fuel blends produced by licensed Excise manufacturers to be free of excise duty.

1.2 Items 1 to 3 of Schedule 1 alter the Excise Tariff Act 1921 by adding a new provision to duty provisions for excisable blended petroleum products, section 6G, and making minor consequential amendments to the existing provisions. [Schedule 1, items 1 to 3]

Context of amendments

1.3 Around the world, new fuels and technologies are being developed, trialled and commercialised in response to environmental concerns. There is evidence to suggest that one such fuel, a blend of automotive diesel fuel and water, emulsified using a small percentage of proprietary additives, offers a cost effective way to reduce harmful emissions from heavy-duty engines without expensive modification to vehicles.

1.4 Several companies are seeking to promote these technologies in Australia. The difficulty these companies face is that, under existing legislative provisions that took effect in 1994, excise duty applies to the totality of the blended fuel, including the water component.

1.5 The Government considered that this clean fuel technology should be encouraged. Alterations to the Excise Tariff Act 1921 will give effect to this decision.

Summary of new law

1.6 Section 6G of the Excise Tariff Act 1921 will be amended to include a provision for emulsified blends of diesel fuel and water that allows for the water component to be free of excise duty. [Schedule 1, item 3]

Detailed explanation of new law

1.7 Section 6G of the Excise Tariff Act 1921 , which specifies how duty is determined for excisable blended petroleum products, will be amended to include a new provision (subsection 6G(3)) with a specific formula for emulsified blends of diesel fuel and water that allows for the water component to be free of excise duty. [Schedule 1, item 3]

1.8 The provision spells out that the blends are emulsified diesel/water blends and the water component is added water to ensure that diesel blends in general, which commonly contain a small amount of naturally occurring water, will not be captured by the new provision.

1.9 As normal automotive diesel fuel contains additives and detergents that are included in the volume of product on which excise is payable, the emulsifier/additives component of the emulsified blends is to be dutiable (as with the diesel, at the diesel rate).

1.10 As the components of the blend are to be sourced only from locally produced (i.e. not imported) product on which duty has not been paid, subsection 6G(1) will be amended to exclude emulsified diesel/water blends from the application of the general section 6G provisions. [Schedule 1, item 1]

1.11 A consequential amendment will also be made to subsection 6G(1A) to ensure that the duty rate applicable to the diesel/water blends mirrors the maximum diesel rate set out in the existing provisions. [Schedule 1, item 2]

Application and transitional provisions

1.12 The amendments are taken to have effect on and from 25 October 2001.