Fossil fuel lobbyists are exploiting farmers in claims they need the diesel rebate, an $11 billion+ subsidy, to survive. Matt Pollard and Annemarie Jonson of CEF explain.
This month, an alliance led by peak fossil fuel lobbyists, the Minerals Council of Australia (MCA) and Energy Producers Australia – formerly known as the Australian Petroleum Production and Exploration Association, chief mouthpiece of the methane gas cartel, released a report advocating for the retention of massive public subsidies for imported diesel, a high-emissions fossil fuel.
The report warns that reforms to reduce the current diesel subsidy, formally the Fuel Tax Credit (FTC) Scheme, would inflict severe damage on the economy, drive up grocery prices, and result in job losses across the country. Call it a shot across the bows to signal to the Federal government, ahead of MYEFO, a likely early Federal Budget and a looming election, that any attempt to touch this unconscionable handout will be met with hellfire and fury. We have seen this movie many times before.
First, it is important to note who is behind this special pleading. The MCA represents ~125 resources and fossil fuel firms, including the largest beneficiaries of fuel tax credits: BHP, Rio Tinto, and coal miners Glencore, Fortescue, Roy Hill, Yancoal Australia, Whitehaven Coal, Peabody Energy, and Anglo American. The coalition the MCA has cobbled together and called the Fuel Tax Credit Alliance also includes groups from the agriculture sector, such as farmers, handy human shields as it promulgates its disinformation campaign.
Largest fossil fuel subsidy
There is a lot at stake. Climate Energy Finance (CEF) found in our September 2023 FTC report that the Scheme is by far Australia’s largest fossil fuel subsidy, accounting for 88% of the $12.4bn of Federal budgetary assistance to the fossil fuel industry in 2021 and making Australia one of the G20’s largest providers of subsidies for fossil fuels.
The principal argument of the MCA Alliance’s report is that the fuel excise, a sales tax levied by the Federal Government on petrol and diesel at the pump, is designed to finance road maintenance and expenditure in Australia, and thus, consumers of fossil fuels for use ‘off-road’ use – i.e. resources companies and farmers running diesel based machinery and vehicles – should be exempt from paying a tax designed to upkeep roads. Accordingly, they argue, they should remain eligible for exemption under the FTC Scheme, receiving a credit from the government for the fuel tax paid to run their off-road vehicles.
We debunked this nonsense logic in our report.
Since 1992, the fuel excise has been a general revenue-raising tax mechanism, contributing to the broader federal budget. The Australian Government’s capital allocation to road infrastructure has been set independently of fuel excise revenue and expenditure on roads and has not followed movements in fuel taxation since the introduction of the Fuel Tax Act 2006, the current legislation under which the FTC Scheme operates.
The diesel tax is, in other words, wholly decoupled from road maintenance and is about contributing to public revenues across the board – something which the fossil fuel sector is notoriously reluctant to do. This is evidenced by their egregious record of tax dodging and borne out yet again by this latest threat that the industry should continue to enjoy government largesse unavailable to most of us – or else.
The Dirty Budget: fossil fuel subsidies up 31%. What’s the scam?
Secondly, the mining lobbyist report misleads when it puts the absurd argument that the FTC Scheme is not a fossil fuel subsidy. As CEF and the Australia Institute have noted, the World Trade Organisation, of which Australia is a member, determines that a subsidy exists when government revenue that is otherwise due is foregone or not collected via, for example, fiscal incentives such as tax credits. The OECD, International Energy Agency and other bodies all deem Australia’s FTC Scheme a fossil fuel subsidy.
Mining the primary beneficiary
Further, the FTC Scheme disproportionately benefits Australia’s largest mining companies, including coal majors. Australia’s mining industry accounted for 47% of all claims paid under the FTC Scheme in FY23 and is by far the biggest beneficiary.
Australia’s coal miners, specifically, receive more tax credits than the nation’s entire agriculture, forestry and fishing industries put together. Metal ore mining, predominantly iron ore, receives more tax concessions than the entire road transport, postage and warehousing industries combined.
Since FY07, the Federal Government has provided $103B in fuel tax concessions, of which, $45B has gone to Australia’s miners, primarily to coal and iron ore conglomerates. This undermines the Alliance’s arguments that reforms to the FTC Scheme will wreak havoc on Australia’s agriculture, tourism and transport industries.
Capping the Fuel Tax Credit Scheme
The Federal Government forecasts that from FY24 to FY27, over $18B will be paid to mining under the FTC Scheme. Extrapolated out to FY30, this amounts to a cumulative $37B in tax concessions – something the community cannot afford and an opportunity cost Australians should no longer bear.
Near 70 years of this fossil fuel subsidy is long enough. The FTC regime is long overdue for substantial reform.
CEF has repeatedly called for the introduction of a cap so that each consolidated corporate group could claim no more than $50m in tax credits per annum. Under CEF’s model, only 8 firms would have been affected in FY23: large coal miners – Glencore, Peabody Energy, Yancoal and Anglo American – busily externalising the costs of the climate crisis onto ordinary Australians who do pay their share of fuel excise at the petrol pump, as well resources majors BHP, Rio Tinto, Fortescue, and Hancock Prospecting.
Not a single firm or entity operating in Australia’s agricultural sector or road transport/freight would be affected.
This puts paid to the MCA’s claims that reform would wreck our economy and exacerbate our cost-of-living crisis by driving grocery price inflation via skyrocketing transport input costs.
Problem solved. Further, in terms of its fiscal benefits,
the $50m pa cap we propose would result in a massive $14B in Budget savings to 2030.
Currently, the diesel rebate acts as a powerful headwind that disincentivises our economically dominant resources sector from reducing its dependence on diesel. Now, Imagine if the revenue currently foregone could be converted to a tailwind to speed the transition of the sector towards zero-emissions power sources, accelerating sector-wide decarbonisation.
Where’s Wally: find your favourite taxpayer subsidy to the fossil fuel giants
Tax revenue to be reinvested
CEF proposes that 100% of the revenue generated from the tax credit cap be reinvested back into the affected firms so they avoid a profitability hit if they accelerate funding to electrify mining transport and build out renewable energy and storage capacity and electricity infrastructure.
This transformation is urgently needed to enable miners – particularly of iron ore, in which we lead the world as the #1 exporter – to deploy zero-emissions power in their mining and processing.
In fact, this is the critical key that will unlock our potential to export “embodied decarbonisation” and lead the globe in the production of green metals and energy transition minerals, predominantly green iron. It is CEF’s assessment that this is Australia’s preeminent future-facing export opportunity.
Global trade is increasingly impacted by protectionist policies, including massive subsidies to transition domestic electricity markets and industry funding to capture the processing of critical mineral and strategic metals onshore, as well as the growing implementation of carbon pricing and carbon border adjustment mechanisms.
The price for unprocessed iron ore, Australia’s cash cow, is weakening precipitously. Meanwhile, climate change is accelerating. Only this week, iron ore giant BHP reported on its “…advocacy [within industry association memberships] on government climate policy consistent with the temperature goals of the Paris Agreement”. The MCA appears not to have received the memo from its biggest member on the necessity of aligning its lobbying with the global race to cut emissions.
If Australia is to remain competitive, we must pivot, electrify, and decarbonise our industries at speed and at scale. This requires us to decouple our climate and energy policies and funding from the influence of multinational fossil fuel cartels represented by the likes of the MCA, now demanding to retain its privilege and renew its licence to pollute and destroy.
The urgent reforms to the FTC that we propose would be a win-win-win for the environment, for our energy security and terms of trade, and for a future made in Australia.
Fossil fuel exports mean Australia’s carbon footprint is not getting smaller
Matt Pollard is Net Zero Transformation Analyst for think tank Climate Energy Finance, analysing global investment trends in clean energy technology supply chains and identifying Australia's economic pathway to transition from fossil fuel dependency to clean exports superpower, including via fossil fuel tax reform and development of onshore critical minerals and strategic metals mining, refining and manufacturing.
Annemarie Jonson is chief of staff at Climate Energy Finance, where she works with the team on their energy transition and finance analyses. She has a PhD from Sydney University, was head of corporate and comms for multibillion-dollar fund manager and philanthropist Brian Sherman of Equitilink and for business leader Graeme Wood’s NFPs, and GM, chief of staff and comms director for various sustainability NGOs.