Biodiesel tax move offers hope

IT seemed typical. Backyard operators around Australia had found ways to create their own diesel fuel from renewable sources such as used cooking oil and the Australian Tax Office slapped a tax on it.

Since September 18 biodiesel manufacturers have been subject to the same 38.143 cents a litre excise that normal diesel producers face.

However, while the biodiesel manufacturers have to pay that excise, that money is almost immediately refunded under the Clean Fuels Grants Scheme.

The full excise refunds will last until June 30 2008 and then be progressively reduced until fading out completely in 2012.

Biodiesel is a diesel replacement fuel based on either agricultural oils or animal fats.

Indeed, the first diesel engine, when displayed at the Paris Motor Show in the 1800s was run from peanut oil. Petroleum-based diesel came along because peanut oil became too expensive.

The clean fuel scheme is part of a deal between the Federal Government and the Democrats to pass its GST legislation.

The deal also called for the Government to pass laws requiring diesel producers to start offering lower sulphur fuels.

From 2006 diesel fuel will only be allowed to have 50 parts per million of sulphur, down from the current 500 parts per million.

Both the scheme and the low sulphur diesel are expected to work in the favour of the biodiesel industry.

Sulphur acts as a lubricant in diesel engines and biodiesel, which has no sulphur, can be used as a lubricating additive.

It is understood BP Australia, which is already offering low sulphur diesel, is using biodiesel for this purpose.

Biodiesel Australia managing director Andrew McGuchin said the grants scheme would help the industry get onto its feet.

"Admittedly it’s a slight cashflow problem because you have to pay the excise and then wait for the refund but it’s better than having to just pay the excise," he said.

Mr McGuchin said besides the low sulphur diesel and the grants scheme the Government had also made it easier for biodiesel producers by adopting a recognised standard.

"That means that biodiesel manufacturers do not have to try and argue a standard with car manufacturers for engine warranty purposes," he said.

There are two major biodiesel standards – European and US.

The European standard, with its iodine requirement, is based around using canola oil as a feedstock for the fuel. The US standard is based around soya beans as a feedstock.

The Government has adopted the European standard with one major exception – removal of the iodine requirement – meaning that the oil feedstock is not limited to canola.

Admittedly the biodiesel industry is small.

There is one licensed producer in Australia – the Hunter Valley-based Biodiesel Industries Australia. Another producer is expected to be licensed next month and four or five are waiting in the wings.

Biodiesel Australia, while not a producer itself, is in the process of researching a process to use oil recovered from restaurant grease traps for biodiesel.

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