Chapter 1Introduction
1.1On 11 May 2023, the Senate agreed that the provisions of all time critical bills introduced in the House of Representatives after 11 May 2023 and up to and including 1 June 2023, that contain substantive provisions commencing on or before 1 July 2023, are referred to standing committees for inquiry and report by 13 June 2023.
1.2On 25 May 2023, the Environment and Communications Legislation Committee (committee) determined to undertake an inquiry into the provisions of the Excise Tariff Amendment (Product Stewardship for Oil) Bill 2023 (excise bill) and Customs Tariff Amendment (Product Stewardship for Oil) Bill 2023 (customs bill) and report by 13 June 2023.
Conduct of the inquiry
1.3Details of the inquiry were advertised on the committee's website, including a call for submissions by 1 June 2023. The committee wrote directly to various stakeholders to invite them to make submissions.
1.4The committee received 3 submissions, which are listed at Appendix 1 and are available in full on the committee's website. The committee agreed to conduct the inquiry on the written evidence and did not hold a public hearing.
Acknowledgements
1.5The committee thanks the organisations that made submissions, especially in light of the short timeframe for this inquiry.
Reports of other committees
1.6Due to the bills being referred as time critical bills immediately following the Budget 2023-24, the bills have not been reviewed by the Senate Standing Committee for the Scrutiny of Bills.
1.7Similarly, the Joint Standing Committee on Human Rights has not examined these bills.
Human rights compatibility
1.8The explanatory memoranda note that the bills are compatible with human rights as they do not raise any human rights issues.
Background to the bills
1.9The Product Stewardship for Oil (PSO) scheme was established in 2001. It aims to support and encourage environmentally sustainable management of used oil, by providing financial incentives to oil recyclers to increase the rates of sale or consumption of recycled oil in Australia.
1.10Under the scheme, two levies (excise and customs) are collected on all petroleum-based oil or synthetic equivalents produced in (excise), or imported into (customs), Australia. The two levies are then used to provide financial benefits to recyclers of used oil. Benefit rates for recyclers vary depending on the extent to which the oil is processed or used, and the payment of benefits is managed by the Australian Tax Office.
1.11The PSO scheme is intended to be self-funding, where benefit payments are funded by the levies. However, it has been running at a deficit for more than four years, with benefit payments significantly exceeding the amount of duty collected by an average of $34.5 million per year.
1.12The purpose of the two bills is to increase the excise and customs levies imposed on petroleum-based oil or synthetic equivalents, to return the PSO scheme to fiscal neutrality and achieve the original policy intent for the PSO scheme by ensuring that the cost of managing used oil is paid for by oil users.
Review report
1.13Deloitte Access Economics Australia conducted a review of the PSO scheme and the report of that review, Fourth independent review of the Product Stewardship (Oil) Act 2000 (Deloitte review), was tabled in Parliament on 10 August 2021. TheDeloitte review found that:
the vast majority of waste oil in Australia is being collected and re-refined through the PSO Scheme
a waste oil recycling industry has developed and is supported by the PSO Scheme, and has been economically viable prior to the disruptions caused by COVID-19
producers and consumers of oil are bearing the cost of environmentally sustainable management of its waste products.
1.14The Deloitte review found that the PSO scheme ‘appears to achieve the outcomes of effectiveness, appropriateness and efficiency, and its overall costs are proportional to the benefits and outcomes achieved by the PSO Scheme’ and that it imposed a ‘relatively low administrative and public cost’.
1.15However, the Deloitte review found that a shift in the category of claims has resulted in the PSO scheme running at a deficit since 2014–15, with ‘little prospect of it returning to a breakeven situation’. The review noted this deficit could be addressed either by decreasing benefits paid out, or increasing the levies paid. It further noted that decreasing the benefits was not desirable ‘given the financial challenges that oil recyclers are reporting during COVID-19, rising input costs and commodity price risks’. The review ultimately recommended increasing the levies to return the PSO scheme to fiscal neutrality, noting that an increase of 4.5 percent to an overall 13 percent would ‘result in a very small change to the overall retail price of oil products’.
1.16The Australian Government response, in August 2021, noted the recommendation and committed to ‘examine the appropriateness of the current levy based on the outcomes of analysis and consultation with industry and other stakeholders to determine the appropriate benefits paid under the PSO Scheme.’
Key issues
Outcomes of PSO scheme
1.17As outlined above, the PSO scheme raises funds through levies on oil-based lubricants, which are then paid out as incentives to industry to encourage the management and re-refining of used and recycled oil, to reduce the environmental and human health risks from improperly disposed oil.
1.18The Australian Council of Recycling (ACOR) submitted that it strongly supports the aim of the PSO scheme to ‘both capture the value inherent in end-of-use oil and reduce the harm caused from dumping into the environment’.
1.19The Deloitte review outlined that the PSO scheme has:
Reduced contamination of soil and water associated with dumping or incorrect disposal into landfill.
Reduced production of new oil in Australia and globally.
Reduced greenhouse gas emissions.
1.20Southern Oil Refining Pty Ltd (Southern Oil), Australia’s largest waste lube oil recycler, noted that it also provides domestic lubricant security as Australian oil users rely less on overseas oil manufacturing facilities.
1.21The Department of Climate Change, Energy, the Environment and Water reported that since the PSO scheme was introduced in 2001, 320 megalitres of base lubricating oil has been collected and recycled (none was recycled before the scheme commenced). That is equivalent to 160 Olympic sized swimming pools and is more than half the oil sold in Australian each year.
1.22Southern Oil puts the estimate higher, stating that since the start of the PSO scheme, ‘our industry has stopped over 5 billion litres of used oil from entering the environment’. Southern Oil further noted that the oil recycling industry employs over 600 people, with an additional 40 small enterprises engaged in independent collection of used oil employing around another 170 people, often in regional areas.
1.23Southern Oil observed that:
The fact that Australia has high used oil recycling rates despite being such a large country geographically, with a dispersed population, is a remarkable achievement.
Benefit rates
1.24Different levels of benefits are paid to different grades of recycled oil output, to encourage oil recyclers to produce higher quality products. For example, waste oil recycled into high-grade industrial burner oils creates an entitlement to a 5cents per litre benefit, while producing re-refined base oil creates an entitlement to 50 cents per litre. A full description of the benefit rates for differing grades of recycled waste oil products paid by the AustralianTaxationOffice can be found on its website.
1.25As outlined above, the PSO scheme has operated at a deficit over the last four years because oil‑refiners have been producing higher quality oils that attract the greater PSO benefit payments, while the levies that pay for those benefits have remained static.
1.26Southern Oil recommended there be an increase in the benefit rates ‘to reflect the current costs in maintaining and updating infrastructure’ of oil recyclers.
1.27ACOR similarly submitted that the benefit rates should be increased, noting they have ‘remained unchanged for 22 years, at 50 cents per litre, while costs during that time have substantially increased’. ACOR advised a lack of benefit rises to counter these increased costs could result in oil recyclers having to halt the current practice of providing free oil collection, and warned that some waste oil producers may then choose to illegally dump oil rather than pay for its collection.
1.28ACOR recommended the levy be raised to 18–19 cents per litre and the benefit raised to 60–65 cents per litre.
1.29The bills do not propose to increase the benefit rates, however category 8 benefits are tied to the excise rates, so will increase slightly should the excise bill be passed.
Proposed levy rate rise
1.30The purpose of the levy rate rise is to return the PSO scheme to fiscal neutrality. The amendments will not change the types of oils defined in the ProductStewardship for Oil Act 2000 that are charged an excise or customs duty, but will increase the existing rates of levies. For excise levies, these goods are listed in item 15 of the table in the Schedule to the Excise Tariff Act 1921. For customs, the goods are listed in Schedule 3 to the Customs Tariff Act 1995.
1.31The excise bill will increase the excise tariff rates applicable to oils (and synthetic equivalents) covered by the PSO scheme from 8.5 cents per litre to 14.2 cents per litre (or per kilogram for greases).
1.32The customs bill will increase the customs tariff rates applicable to oils (and synthetic equivalents) covered by the PSO scheme from 8.5 cents per litre to 14.2 cents per litre (or per kilogram for greases).
1.33The proposed date of the change, 1 July 2023, will ensure that the relevant taxation rates for all of 2023–24 will be consistent, reducing the administrative burden of the levy rate change and ensuring the PSO scheme returns to fiscal neutrality from 2023–24.
1.34The Department of the Prime Minister and Cabinet have also noted that in addition to the levy raise, there will be additional ‘light touch’ reporting requirements for the waste oil industry to improve the oversight of the departments that manage the PSO scheme.
1.35As noted above, the Deloitte review found that an increase to 13 cents per litre (the rate rise being considered at that time) would result in a very small change to the overall price of oil products. Conversely, Southern Oil recommended the levy be increased to 18-22 cents per litre, to pay for a corresponding increase they recommended be made to the benefit payments for oil recyclers.
Financial impact statement
1.36The bills will have a positive impact on the Australian Government budget. There will be a net $139 million gain to consolidated revenue over the four years from 2023–24 to 2026–27. This includes approximately $161 million in revenue, less $22 million in payments, and is approximately equivalent to the historic average annual shortfall ($34.5 million x 4 = $138 million).
Consultation
1.37The Department of Climate Change, Energy, the Environment and Water noted that the Deloitte review consulted with ‘oil re-refiners, peak bodies for oil vendors and re-refiners, local government associations and state environmental protection agencies’ and that the recommendation to increase the levy was supported by the PSO Reference group in 2021, which is comprised of ‘representatives from peak bodies for oil importers and producers, oil re-refiners and federal government agencies’.
Committee view
1.38The committee agrees with the views expressed by submitters that the ProductStewardship for Oil scheme has been successful in increasing rates of the recycling of oil waste in Australia. The committee notes that the success of the scheme is largely responsible for its current funding deficit, in that Australian oil recyclers have been incentivised to improve their recycling practices over the years, resulting in them being eligible for higher rates of benefits. This achievement should be applauded.
1.39The committee agrees that the levy increases will ensure that this successful program is able to return to fiscal neutrality.
1.40The committee notes that the Deloitte review and the submission from SouthernOil have made additional suggestions that could be made to further improve the Product Stewardship for Oil scheme.
1.41The committee recommends that the Excise Tariff Amendment (Product Stewardship for Oil) Bill 2023 and Customs Tariff Amendment (Product Stewardship for Oil) Bill 2023 be passed.
Senator Karen Grogan
Chair