BILLS DIGEST NO. 109, 2019–20              29 June 2020

Product Stewardship (Oil) Amendment Bill 2020 [and] Excise Tariff Amendment Bill 2020

Sophie Power
Science, Technology, Environment and Resources Section

Date introduced: 14 May 2020

House: House of Representatives

Portfolio: Environment

Commencement: The day after Royal Assent

Links: The links to the Bills, Explanatory Memoranda and second reading speeches can be found on the home pages for the Product Stewardship (Oil) Amendment Bill 2020 and the Excise Tariff Amendment Bill 2020, or through the Australian Parliament website.

When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the Federal Register of Legislation website.

All hyperlinks in this Bills Digest are correct as at June 2020.

Purpose of the Bills

The purpose of the Product Stewardship (Oil) Amendment Bill 2020 (the PSO Bill) is to amend the Product Stewardship (Oil) Act 2000 (the PSO Act) to clarify the definition of oils for the purposes of the Product Stewardship for Oil Scheme following a recent Federal Court decision.[1]

The purpose of the Excise Tariff Amendment Bill 2020 is to amend the Excise Tariff Act 1921 to clarify that diesel, and other goods ordinarily used as fuels, are excluded from the excise tariff item that applies to oils and grease. This is also in response to the recent Federal Court decision.[2]

Background

Product Stewardship for Oil Scheme (PSO)

The Product Stewardship for Oil Scheme (PSO Scheme) was established in 2001 to provide incentives to increase used oil recycling. The scheme aims to ‘encourage the environmentally sustainable management and re-refining of used oil and its re-use’.[3]

The PSO Scheme is a levy-benefit system, where an 8.5 cents per litre levy is collected on the import and manufacture of new oil (and some recycled oils). This levy helps fund benefit payments to used oil recyclers.[4] The benefits paid vary, depending on the extent of processing and the end product—‘the more sophisticated the treatment the higher the benefit rate’.[5] The aim of these arrangements is to provide incentives to increase used oil recycling in the Australian community.[6]

The PSO Act establishes the general framework for the PSO Scheme, and the levy rate is set under the Excise Tariff Act and the Customs Tariff Act 1995.[7] The Department of Agriculture, Water and the Environment (the Department) has policy responsibility for the program, while the Australian Taxation Office is responsible for implementation and administration of the scheme.[8]

The levy rate was last increased in 2014,[9] following the third independent review of the PSO Act, which was completed in 2013.[10] Section 36 of the PSO Act requires an independent review of the operation of the PSO Act every four years. Given the last review was completed in 2013, the fourth review of the PSO Act is therefore now well overdue, although the Department has advised that it will commence in 2020.[11]

Caltex case

In June 2016, Caltex made a claim for PSO benefits of over AU$8 million relating to the recycling of used diesel at Caltex’s oil refineries at Kurnell in New South Wales and Lytton in Queensland.[12] Caltex used the diesel in several processes at its refinery, including as a cleaning solvent and to flush and inspect pipelines at its refineries.[13] The used diesel became contaminated during these processes, but was then processed and refined. Once refined, the diesel complied with the Fuel Standard (Automotive Diesel) Determination 2001[14] and was able to be used or sold as diesel fuel.[15] Caltex’s claim for the PSO benefit was disallowed by the Commissioner of Taxation.[16] Caltex subsequently appealed that decision to the Federal Court.

The Federal Court allowed that appeal. At issue was the definition of ‘oils’ in the PSO Act, and in particular, whether the definition included petroleum based oils (such as recycled diesel) that are used primarily as a fuel, and not just lubricating oils and greases.[17] In short, the Federal Court found that, as a matter of statutory interpretation, diesel is a ‘petroleum based oil’ within the meaning of subsection 6(1) of the PSO Act, and that there was no reason to exclude recycled diesel from the scope of the PSO Act on the basis that its primary purpose was for use as fuel.[18]

The Explanatory Memorandum states the Federal Court’s decision in the Caltex case:

… gave a broad interpretation of the definition of oils in the PSO Act that included diesel. The effect of the decision was to allow benefit payments for the recycling of goods for which excise and excise-equivalent customs duty had not been imposed under the Excise Tariff Act and Customs Tariff Act as an oil. Another potential consequence of the Caltex case is that the duty collected under the Excise Tariff Act to fund the PSO Scheme could apply to diesel.[19]

Committee consideration

Environment and Communications Legislation Committee

The PSO Bill and the Excise Tariff Amendment Bill have been referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 30 July 2020.[20] Details of the inquiry are at the inquiry homepage.

Senate Standing Committee for the Scrutiny of Bills

The Senate Scrutiny of Bills Committee had no comment on the Bills.[21]

Policy position of non-government parties/independents

At the time of writing, non-government parties and independents do not appear to have commented on the Bills. However, Centre Alliance MP Ms Sharkie and Senator Patrick have asked questions about the overdue review of the PSO Act.[22]

Position of major interest groups

At the time of writing, major interest groups do not appear to have commented on the Bills.

Financial implications

According to the Explanatory Memorandum:

The Bills are estimated to reduce the Commonwealth’s underlying cash balance by $4 million over the forward estimates to 2023–24. This is based on a reduction in payments of benefits resulting in a saving of $21 million and a reduction in excise collections of $25 million.[23]

Statement of Compatibility with Human Rights

As required under Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 (Cth), the Government has assessed the Bills’ compatibility with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of that Act. The Government considers that the Bills are compatible.[24]

Parliamentary Joint Committee on Human Rights

The Parliamentary Joint Committee on Human Rights made no comment on the Bills.[25]

Key issues and provisions

Product Stewardship (Oil) Amendment Bill 2020

Under section 9 of the PSO Act, a person is entitled to a PSO benefit for the sale or consumption of recycled oil that the person has recycled in Australia, or for the consumption in Australia of gazetted oil for a gazetted use.[26] In order to be eligible for a benefit under the PSO Act, the recycled oil must meet the definition of ‘oils’ set out in subsection 6(1) of the PSO Act.

Currently, the Dictionary in subsection 6(1) of the PSO Act sets out the following definition of oils:

(a)              petroleum based oils (including lubricant base oils; prepared lubricant additives containing carrier oils; lubricants for engines, gear sets, pumps and bearings; greases; hydraulic fluids; brake fluids; transmission oils; and transformer and heat transfer oils);

(b)                synthetic equivalents of goods covered by paragraph (a);

(c)                any other goods prescribed for the purposes of this definition.

Item 1 of Schedule 1 of the PSO Bill proposes to repeal this definition and replace it with a new definition of oils. Proposed paragraphs (a) and (b) of the new definition provides that ‘oils’ means petroleum based oils, and synthetic equivalents of petroleum based oils, that are:

•       lubricant base oils

•       prepared lubricant additives containing carrier oils

•       lubricants for engines, gear sets, pumps and bearings

•       greases

•       hydraulic fluids

•       brake fluids

•       transmission oils or

•       transformer and heat transfer oils.

Proposed paragraph (c) of the new definition of oils again provides for Regulations to be made to prescribe ‘any other goods’ in order to enable additional kinds of oils to be covered by the PSO Scheme.

Proposed paragraphs (d) to (f) specifically exclude certain products from the definition of oil:

•       diesel

•       blends of diesel and any other goods and

•       goods ordinarily used as a fuel.

Proposed paragraph (g) enables Regulations to be made to exclude additional goods from the definition of oils.

In short, the proposed amended definition of ‘oils’ means that the PSO Scheme will apply to lubricant oils, fluid oils and other oils and greases manufactured from base oils, but will exclude diesel and other fuels.

The new note inserted by item 1 states that the definition of oils has been substituted in response to the decision of the Federal Court in the Caltex case. The Explanatory Memorandum suggests that this amended definition also reflects ‘the original intention of the PSO Scheme’, which was that diesel ‘was not intended to qualify for a benefit under the PSO Scheme’.[27] The Minister also noted in her second reading speech that ‘this is consistent with how the scheme has been administered since it was established’.[28]

Item 2 of the PSO Bill provides that the amendments to the definition of oil apply to claims made for a PSO Scheme benefit made on or after 14 May 2020 (that is, the date the Bill was introduced into the House of Representatives).[29]

Excise Tariff Amendment Bill

For the purposes of the PSO Scheme, the Excise Tariff Act imposes a duty on certain petroleum based oils, greases, and their synthetic equivalents, that are manufactured or produced in Australia, of $0.085 per litre or $0.085 per kilogram, depending on the product type.[30] As noted in the Background section of this Digest, the levy is designed to offset the benefits paid to oil recyclers using revenue collected through the Excise Tariff Act and the Customs Tariff Act from refineries and oil importers.[31] As the Explanatory Memorandum states:

To achieve this intention, items were added to the Schedules of those Acts to impose duties on the import and manufacture of petroleum-based oils and their synthetic equivalents, intended to be the same types of oils as those covered by the PSO Scheme.[32]

However, the Federal Court’s interpretation of the definition of oils in the PSO Act in the Caltex case effectively allowed benefit payments for the recycling of oils that were not subject to duties for the purposes of the PSO Scheme under the Excise Tariff Act and the Customs Tariff Act.[33] The Explanatory Memorandum states that ‘another potential consequence of the Caltex case is that the duty collected under the Excise Tariff Act to fund the PSO Scheme could apply to diesel’.[34]

The products that are subject to the excise duty for the purposes of the PSO Scheme are listed in item 15 of Schedule 1 of the Excise Tariff Act. Item 15 currently states that ‘goods for use as a fuel’ and ‘exempt oils and hydraulic fluids’ are not subject to the duty in item 15.[35] The Explanatory Memorandum states that item 15 ‘was inserted into the Excise Tariff Act for the purpose of levying oils for the PSO Scheme and did not historically include duties on diesel and other fuels’.[36]

Item 1 of Schedule 1 of the Excise Tariff Amendment Bill repeals and replaces item 15 to clarify that diesel, blends of diesel, other goods for use as a fuel, or that are ordinarily used as a fuel, are not subject to excise duty under item 15.[37] Proposed paragraph (f) of new item 15 also allows other goods to be excluded by regulations.

Lubricant, fluid and oil products (that are not fuels) and greases continue to be subject to excise duty at a rate of $0.085 cents per litre or $0.085 cents per kilogram for greases.

Note that the Bill does not amend item 10 in Schedule 1 of the Excise Tariff Act, which means diesel and other fuels will continue to be subject to excise duty under the Excise Tariff Act.[38]

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[1].              Caltex Petroleum Pty Ltd v Commissioner of Taxation [2019] FCA 1849 (Caltex case).

[2].              Ibid.; Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.

[3].              Department of Agriculture, Water and the Environment (DAWE), ‘Product Stewardship for Oil Scheme (PSO)’, DAWE website.

[4].              Ibid.

[5].              Australian Taxation Office (ATO), ‘Rates’, ATO website; see also DAWE, ‘Product stewardship benefits’, DAWE website and the Product Stewardship (Oil) Regulations 2000.

[6].              DAWE, ‘Product Stewardship for Oil Scheme (PSO)’, DAWE website.

[7].              The Product Grants and Benefits Administration Act 2000 establishes eligibility criteria and the administrative mechanisms used to pay benefits to those recyclers.

[8].              ATO, ‘Product stewardship for oil program’, ATO website. For statistics on the incentives paid under the scheme, see ATO, ‘Table 5 Excise: product stewardship for Oil program and cleaner fuel grants scheme – benefits paid, 2001–02 to 2017–18 financial years’, Taxation Statistics 2016–17, ATO website.

[9].              As a result of the Customs Tariff Amendment (Product Stewardship for Oil) Act 2014 and the Excise Tariff Amendment (Product Stewardship for Oil) Act 2014.

[10].              Aither, Third independent review of the Product Stewardship (Oil) Act 2000: final report, Aither Consultants/Department of the Environment, Melbourne, September 2013.

[11].              Senate Environment and Communications Legislation Committee, Official committee Hansard, 2 March 2020, p. 116; see also Senate Environment and Communications Legislation Committee, Answers to Questions on Notice, Agriculture, Water and the Environment Portfolio, Additional Budget Estimates, 2019–20, 2 March 2020, Question 118.

[12].              Caltex case, op. cit. at [16].

[13].              Ibid at [17–18].

[14].              This determination is no longer in force as it was repealed by the Legislative Instruments (Fuel Standards Instruments) Sunset-altering Declaration 2016 and replaced by the Fuel Quality Standards (Automotive Diesel) Determination 2019.

[15].              Caltex case, op. cit., at [18].

[16].              Ibid at [16].

[17].              Ibid at [2].

[18].              Ibid.

[19].              Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.

[20].              Senate Standing Committee for the Selection of Bills, Report, 5, The Senate, Canberra, 12 June 2020.

[21].              Senate Standing Committee for the Scrutiny of Bills, Scrutiny digest, 7, 2020, 10 June 2020, p. 34.

[22].              S Ley, ‘Answer to Question in Writing: Environment’, [Questioner: R Sharkie], Question 233, House of Representatives, Debates, 4 February 2020, p. 127; Senate Environment and Communications Legislation Committee, Official committee Hansard, 2 March 2020, p. 116; see also Senate Environment and Communications Legislation Committee, Answers to Questions on Notice, op. cit., Question 118.

[23].              Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.

[24].              The Statements of Compatibility with Human Rights can be found at pages 3–6 of the Explanatory Memorandum to the Bills.

[25].              Parliamentary Joint Committee on Human Rights, Scrutiny report, 6, 2020, 20 May 2020, pp. 21–22.

[26].              Gazetted oils and gazetted uses are set out in the Product Stewardship (Oil) Declaration 2003.

[27].              Ibid., pp. 2 and 8.

[28].              S Ley, ‘Second reading speech: Product Stewardship (Oil) Amendment Bill 2020’, House of Representatives, Debates, 14 May 2020, p. 3440.

[29].              However, the amended definition does not apply to claims determined by the Commissioner of Taxation before item 2 commences.

[30].              Excise-equivalent customs duty similarly applies under the Customs Tariff Act 1995 to the importation of such products: see Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.

[31].              DAWE, ‘Product Stewardship Levy (excise)’, DAWE website; Explanatory Memorandum, Excise Tariff Amendment (Product Stewardship for Waste Oil) Bill 2000, p. 1.

[32].              Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 7.

[33].              Ibid., p. 2.

[34].              Ibid.

[35].              ‘Exempt oils and hydraulic fluids’ are set out in subsection 3(6) of the Excise Tariff Act.

[36].              Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.

[37].              Note that ‘exempt oils and hydraulic fluids’ also remain on the list as not subject to the duty at proposed paragraph (e).

[38].              Explanatory Memorandum, Product Stewardship (Oil) Amendment Bill 2020 and Excise Tariff Amendment Bill 2020, p. 2.