How does the White Paper affect the transport sector?

By Peter Briggs and Claire Smith.

Key Points:
The transport sector needs to factor carbon costs into long-term decisions.

As in the Green Paper, the White Paper outlines that transport emissions will be covered from the commencement of the CPRS. Obligations will be applied to upstream suppliers of transport fuels.

Transitional assistance to the transport sector will be provided in the form of a cent-for-cent reduction in the fuel excise. The fuel tax cut will apply from 1 July 2010 to all liquid fuels currently subject to the general 38.143 cents/litre excise. The tax cut will be based on the expected rise in fuel prices flowing from the CPRS. As different fuels emit different amounts of carbon when they burn, their prices will increase according to the volume of their emissions. The tax cut will be based on the effect of pricing diesel emissions.

The Government will legislate to automatically reduce fuel tax on a six-monthly basis if the average carbon pollution permit price in the six-month period exceeds the previous reduction, including the initial one, in the period to 30 June 2013.

The Government will also provide transitional assistance to agriculture, fishing and heavy on-road transport industries. Agriculture and fishing businesses pay no effective fuel tax, and so will not benefit from fuel tax cuts. Instead, they will receive a new "CPRS fuel credit" equal to the amount of the fuel tax cut. The Government will also legislate to implement a new CPRS fuel credit scheme for one year for businesses in heavy on-road transport.

Liquefied petroleum gas (LPG), liquefied natural gas (LNG) and compressed natural gas (CNG) will also receive assistance. LPG, LNG and CNG are not currently subject to fuel tax, so their users will not benefit from fuel tax cuts. Instead, a CPRS fuel credit will be available in each case to an appropriate entity in the supply chain. The credit for LNG and CNG will be in place for one year. The credit for LPG will be in place for three years.

The Government has also agreed to implement measures to ensure that rail freight operators (covered by the CPRS) are not disadvantaged from a costs perspective when compared to international ships (carrying domestic cargo) who are able to purchase fuel for lower prices in other jurisdictions where a CPRS is not in place.

Implications

Initially, with the fuel tax cut and the fuel credits, the transport sector will enjoy respite from the full effects of the CPRS. However, the inclusion of transport fuels in the CPRS is a strong signal that the transport sector needs to factor carbon costs into long-term decisions. The White Paper already sets a time limit on assistance to LPG, LNG and CNG users. Although it is unclear whether will be a price ceiling or time expiry on the Government's cent-for-cent fuel tax reduction, the transport sector needs to prepare itself for the possibility of both of these limits.

For further information, please contact Claire Smith.