Productivity commission recommends termination of biofuels mandates in NSW and Queensland

The Australian Productivity Commission (APC) has released its report detailing the findings of a year-long inquiry into regulation in the Australian agricultural sector.

While many of the findings are irrelevant to the Australian fuel industry, the report contains the following recommendation about the use of biofuels mandates in Australia:

“Arrangements to support the biofuel industry – including excise arrangements and ethanol mandates – deliver negligible environmental benefits and impose unnecessary costs on farmers and the community. The Australian, NSW and Queensland governments should remove these arrangements by the end of 2018.”

The APC is the Government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of people in Australia.

The stated role of the APC is to help governments make better policies in the long-term interests of the Australian community.

The APC’s report follows a claim by ACCC in November last year that the NSW Mandate was costing NSW motorists an estimated $85 million extra per year.

The ACCC claim, based on a report of its own, follows the release of two reports by the NSW Independent Pricing and Regulatory Tribunal (IPART) in 2015. They concluded that the NSW biofuels-mandate target of six per cent was wholly unrealistic and that the sole beneficiary of the state’s biofuels laws was the state’s monopoly biofuels producer – the Manildra Group.

Any reasonable person would conclude that, in the face of such overwhelming evidence from such respected national and state-based government organisations, Australian governments would simply not pursue laws mandating the use of biofuels.

But such an assumption wrongly assumes that governments make decisions based solely on good policy.

In the case of the biofuels mandate laws now operating in NSW and Queensland, the laws appear to have been pursued primarily for political purposes.

In Queensland, the Palaszczuk Labor government pursued the policy solely to shore up its numbers in the Queensland parliament by securing the support of the Katter Party, with the Katter Party making the introduction of the biofuels laws a key requirement.

In NSW, the Baird/Berejiklian coalition government expanded the previous biofuels laws in an apparent attempt to reward the Manildra Group for significant political donations provided before the 2015 state election.

In normal political circumstances, these poor laws would have been opposed by the opposition parties in each state.

In the case of Queensland, however, the Liberal National Party opposition was just as keen to secure the support of the Katter Party – and so they supported the laws.

In NSW, the Manildra Group had also donated significant sums to NSW Labor and so they too chose to support the new laws being advanced by the NSW coalition government in an apparent desire not to get their donor offside.

“The net result of all this is we have biofuels laws in two states that come at a significant cost to motorists, the agricultural sector and the fuels sector – with the sole beneficiaries being the two governments themselves and a very small number of biofuel companies,” ACAPMA CEO Mark McKenzie said.

“But bad policy ultimately catches up with governments and creates unintended political problems – and the early operation of the new laws is a case in point.”

In Queensland, the government was swamped with large numbers of applications for biofuels exemptions during the first part of this year.

In fact, it is understood that the government received exemption applications for eight in every nine service-station sites that were liable under the new laws.

“It certainly appears to have been a learning process for the Queensland government as they struggle to understand the unintended business and market consequences of such an unjustified intrusion into an open and competitive market,” Mr McKenzie said.

Thankfully, the Queensland government has responded to these issues by giving a significant number of ‘interim’ exemptions to fuel retailers for a period of 12 months.

“This action affords both the state government and the industry the time to properly assess the potential adverse business and employment impacts of the new laws on our industry and the wider community,” Mr McKenzie said.

“We are, however, concerned about suggestions by the government that it is reasonable to force fuel sites to drop a petrol grade with demonstrated demand, in favour of E10 with its likely poor demand.

“This particular action – should it eventuate in Queensland – appears to be the one cited by the ACCC as forcing product upsell, resulting in motorists paying unnecessary costs for their fuel as they shun E10 in favour of higher-priced petrol products.”

In NSW, smaller fuel retailers who are being picked up by the expanded biofuels laws for the very first time were exempted for compliance for the March 2017 quarter.

As a result, first-time liable retailers are only now starting to lodge their applications for exemptions, and big issues are starting to emerge with the NSW government’s administration of this process.

Mr McKenzie said ACAPMA is receiving calls from fuel retailers who claim they are receiving conflicting advice from the NSW Department of Fair Trading about both the exemption process and their liabilities under the new laws.

One retailer said they received a visit from Fair Trading Officers who advised that this first-time liable retailer was not compliant with the new laws in that they were not selling biodiesel.

“This advice was wholly incorrect for two reasons,” Mr McKenzie said. “First, the officers did not appear to be aware that first-time retailers were exempted from compliance in the first quarter and, second, they did not seem to know that it is actually not possible to purchase biodiesel in NSW at the moment.”

It also appears that NSW Fair Trading’s biofuels inquiry-line staff have an inadequate understanding of the new biofuels laws and are not giving timely information to NSW fuel retailers.

In an email recently circulated to all NSW fuel retailers, the NSW Fair Trading advised that fuel retailers were required to lodge applications for advance exemptions for Quarter 2 by March 3, 2017 – with this email having been received by fuel retailers well after this date.

“Clearly, there are real issues with the administration of the biofuels mandate in NSW at present, with fuel retailers being given conflicting and incorrect advice by NSW Fair Trading,” Mr McKenzie said.

All of the above, however, points to a much bigger question.

Does a poor policy – one that is implemented solely for short-term political purposes – eventually create long-term political liabilities?

“If the early experience of the new biofuels laws in NSW and Queensland is anything to go by, then the clear answer is ‘yes’ – there is simply no way to redress the problems created by the implementation of poor policies such as these biofuels mandates,” Mr McKenzie said.

ACAPMA is deeply involved in helping NSW and Queensland fuel retailers understand the new laws and the circumstances in which an exemption could be considered.

“We are currently monitoring the Queensland and NSW government administration of the exemption processes with a view to deciding whether there is justification for initiating a public campaign designed to expose the flawed nature of these laws,” Mr McKenzie said.

Fuel retailers who are confused about the new laws, or who are seeking help in understanding their rights, are strongly encouraged to contact Mr McKenzie by calling 0447 444 011 or emailing markm@acapma.com.au.

 

This is an edited version of an article originally circulated by ACAPMA on March 30, 2017

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