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FUEL QUALITY STANDARDS BILL 2000

1998-1999-2000



THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA



HOUSE OF REPRESENTATIVES



FUEL QUALITY STANDARDS BILL 2000



REVISED EXPLANATORY MEMORANDUM

(Circulated by Authority of the Minister for the Environment and Heritage, Senator the Hon Robert Hill)



THIS MEMORANDUM TAKES ACCOUNT OF AMENDMENTS MADE BY THE SENATE TO THE BILL AS INTRODUCED

ISBN: 0642 454620

FUEL QUALITY STANDARDS BILL 2000

OUTLINE

The main objects of this Bill are to regulate the quality of fuel to:

− reduce pollutants and emissions arising from the use of fuel that may cause environmental, greenhouse and health problems;

− facilitate the adoption of better engine and emission control technologies; and

− allow the more effective operation of engines.

The Bill is required to implement national quality standards for fuels. In May 1999, the Federal Government made a number of commitments to improving the quality of petrol and diesel fuels available in Australia, as part of A New Tax System – Measures for a Better Environment. This legislation will allow these commitments to be implemented, and will also provide a framework for the regulation of the quality of other types of fuel in the future.

The Bill has 5 Parts.

Part 1 is a preliminary Part.

Part 2 deals with regulation of fuel and fuel additives. The Bill creates offences relating to:

− the supply of fuel that does not comply with a standard made under the Act;

− alteration of fuel which is the subject of a fuel standard;

− the supply or importation of a fuel additive that is entered in the Register of Prohibited Fuel Additives.

The Minister for the Environment and Heritage may, in writing, determine that specific matters constitute a fuel standard in respect of a specified kind of fuel. In the first instance, the Commonwealth will establish standards prescribing a range of characteristics of petrol and diesel fuels. A number of the standards will be specifically designed to reduce vehicle emissions. Further standards will provide for aspects of fuel quality that affect vehicle operation.

The Bill sets out the process that the Minister must follow when determining standards. The process includes consultation with the Fuel Standards Consultative Committee, which will be established by the Act. (Consultation requirements are, however, waived in relation to the first determinations of standards for petrol and automotive diesel, which have already been the subject of extensive consultation.)

An increasing number of substances are being used as fuel additives, largely without assessment of health and environmental impacts (including the impact on emission control equipment). The Register of Prohibited Fuel Additives is to be kept by the Minister for the Environment and Heritage. The Minister may list an additive following a notification process set out in the Bill. The Minister must also develop and publish guidelines which he or she then must have regard to when deciding to list or delist a fuel additive on the Register. These guidelines, which will be disallowable, will set out the process for assessment of fuel additives.

The Bill permits the Minister to grant an approval to vary a fuel standard in respect of fuel supplied by a person.

Part 3 sets out an enforcement regime for the purpose of monitoring compliance with the Act and prosecuting offences under the Act. The Bill provides for the appointment of inspectors, and sets out the powers and obligations of inspectors when exercising powers under the Act.

Part 3 also provides for injunctions restraining persons from actions that would otherwise be offences under the Act.

Part 4 sets out record keeping and reporting obligations which apply to persons supplying or importing fuels which are the subject of a fuel standard.

Part 5 deals with other matters, including review of decisions under the Act, annual reporting by the Minister and periodic review of the operation of the Act.

FINANCIAL IMPACT STATEMENT

The cost of implementing the legislation will depend on the number of fuels that are regulated. Ongoing funding will be required for a Commonwealth monitoring program. The cost of monitoring is estimated to be in the order of $1 million per year for petrol and diesel, with similar costs likely to arise as other fuels are regulated. The funding requirement is therefore expected to rise as additional types of fuel are covered in the future.

REGULATION IMPACT STATEMENT
1 INTRODUCTION

The transport sector is the single largest contributor to urban ambient air pollution. It is also one of the largest contributors to national greenhouse gas emissions. The nature of the problem is such that an integrated strategy, coordinating action across a number of different areas, is required to address the issue.

The major policy directions for dealing with pollution and greenhouse gas emissions from vehicles are: to reduce their use, to clean up their emissions and to make them more fuel efficient. In Australia, three interrelated strategies are being implemented to "clean up" vehicle emissions. Vehicles are required to meet effective emission standards when they first enter the market, they will be required to continue to meet effective emission standards while they are in use; and they will be provided with the cleanest, economically viable fuels on which to operate.

New vehicle emission standards, harmonising Australian standards with international vehicle emission standards, were gazetted in December 1999. The quality of fuel in Australia has been a key constraint to the introduction of new vehicle emission standards. Emerging vehicle engine and emission control technologies, needed to meet the new standards and help achieve reductions in fuel consumption, are affected by the quality of the fuel used.

The Government has already made a number of policy decisions that have a direct bearing on the future management of fuel quality. The Measures for a Better Environment (MBE) package, announced by the Prime Minister in May 1999, included a commitment to reduce sulfur content levels in diesel fuel, and foreshadowed sulfur content and octane changes to the composition of petrol. The Downstream Petroleum Products Action Agenda, approved by Cabinet and released in November 1999, advised of the Government’s intention to have fuel specifications implemented on a national basis. In December 1999 Cabinet directed the Minister for the Environment and Heritage to develop Commonwealth legislation to implement national fuel standards.

2 THE PROBLEM - WORSENING URBAN AIR QUALITY AND INCREASING GREENHOUSE GAS EMISSIONS

Transport is the most significant contributor to ambient air pollution in urban Australia, with vehicles estimated to contribute up to 70% of total urban air pollution (NSW EPA, 1999). Motor vehicle emissions are key sources of lead, carbon monoxide and nitrogen dioxide. They are also the major source of photochemical smog (‘ozone’) precursors. With the exception of particles, petrol passenger vehicles are the major transport source. Heavy diesel vehicles are also a significant source of nitrogen oxides (NOx). The diesel fleet is the major transport source of particles, contributing up to 80% of vehicle produced particles in major cities (NEPC, 1998).

Table 2.1 Contribution (%) of motor vehicles to air emissions in major Australian cities

Source: Coffey Partners, 1996

Recent research (Carnovale et al, 1991; James, 1994; RTA, 1994; Ballantyne, 1995; NSW EPA, 1996c; AATSE, 1997; WA DEP, 1997) indicates that unless further action is taken to improve the management of transport emissions, air quality is likely to decline in the medium to long term. The principal causes will be population growth, urbanisation and increased use of motor vehicles.

High levels of air pollutants have been shown to result in a wide range of adverse health effects including respiratory effects, ranging in severity from coughs, chest congestion, asthma, to chronic illness and possible premature death in susceptible people.

As shown in Table 2.2, the transport sector contributed about 16% of national greenhouse gas emissions in 1998. Transport sector emissions rose by 18% during 1990-98. Road transport is the largest contributor to transport emissions and makes up 14% of total national emissions. The average rate of increase in road transport emissions over the period 1990 to 1998 was about 2% per annum. Passenger cars contributed 9% of national emissions, or 57% of total transport sector emissions in 1998.

Table 2.2 Greenhouse gas emissions from the transport sector in 1998

From NGGI 1998

2.1 URBAN AIR QUALITY

Australia is one of the most highly urbanised countries in the world, and air pollution is a significant issue for the community. Surveys of community attitudes have found that environmental issues are of major concern to the public, with air pollution a key ongoing concern (NRMA, 1996a; NSW EPA, 1994; Clean Air 2000, 1997; ANOP, 1993). While the 1996 Australian State of the Environment Report (SoE, 1996) found that the air quality in the cities and towns of Australia was quite good by international standards, relatively high concentrations of pollutants are experienced in our larger cities (NEPC, 1997).

Australian national ambient air quality standards were established for the six criteria pollutants in 1998 (see Table 2.3 below). Of these, the pollutants of current concern are nitrogen dioxide (NO₂), ozone (O₃), fine particles (PM₁₀) and, to a lesser extent, carbon monoxide (CO).

Table 2.3 National ambient air quality standards

Source: NEPC, 1998

Concern has also recently been expressed in relation to increased ambient concentrations of ‘air toxics’. These are pollutants that occur in relatively small volumes (compared with criteria pollutants) but are considered hazardous to health or the environment. Motor vehicle emissions have been estimated to contribute up to 80% of benzene, 57% of toluene, 76% of butadiene, 64% of formaldehyde, 42% of polyaromatic hydrocarbons and 57% of xylene in urban environments (EPA Victoria, 1999).

2.1.1 Health effects of urban air pollution

Ambient air quality standards are set at levels to protect the more susceptible members of society, and significant breaches of these standards represent undesirable impacts on community health. The most common pollutants discharged to the air are oxides of nitrogen (NO_x), carbon monoxide (CO), hydrocarbons (HC), sulfur dioxide (SO₂), and fine particles (including lead). These pollutants are largely produced by the combustion of fossil fuels. Another significant pollutant in major urban areas is ozone (O₃), a secondary pollutant formed in sunlight by chemical reactions between NO_x and reactive hydrocarbons.

The adverse health effects, and current ambient concentrations/trends of those pollutants with a strong linkage to motor vehicles are briefly discussed below (Grant et al, 1993; Sivak, 1993; NEPC, 1997; NSW EPA, 1996b; Vic EPA, 1994).

Carbon monoxide (CO)

Carbon monoxide is a colourless, odourless and tasteless gas that, in high concentrations, is poisonous to humans. In sufficiently high concentrations and long exposures, CO interferes with the blood’s capacity to carry oxygen. Exposure at lower levels can have adverse effects on individuals with cardiovascular disease.

Exceedences of CO standards still occur in Australia’s larger cities, but the number of events has reduced considerably over the past 10 years. The general consensus is that the current CO levels are not of significant concern and will continue to decrease (SoE, 1996) as tighter vehicle emission standards come into effect.

Nitrogen dioxide (NO₂₎

Nitrogen dioxide is a pungent acid gas. In the atmosphere it may irritate respiratory systems, exacerbate asthma in susceptible individuals, increase susceptibility to cardiovascular disease symptoms and respiratory infections, and reduce lung function. As a precursor to photochemical smog, it also contributes to effects associated with ozone.

The NSW Health Department’s Health and Research Program (HARP) examined the health effects of urban air pollution (Hensley, 1996; Morgan et al, 1998). The HARP study estimated that days of high NO₂ levels were associated with: a 7% increase in hospital admissions for cardiovascular disease; a 5% increase in childhood asthma admissions; a 3% increase in adult asthma admissions and a 5% increase in chronic obstructive pulmonary disease admissions.

While the number of breaches of the current NO₂ standard have been low in recent years, the formation of NO₂ in the atmosphere (from nitric oxide in vehicle exhaust) is strongly affected by seasonal weather conditions. This has lead to a number of reports concluding that there are no clear trends in NO₂ levels (NSW EPA, 1996b, Coffey Partners, 1996). For example, in Melbourne, while the number of exceedences is low, analysis of the peak data at the 98 percentile level (a reliable indicator of trends) concludes that a clear downward trend is not apparent in 1 hour average NO_X or NO₂ data (Coffey Partners, 1996).

Ozone (O₃)

Ozone is a gas with strong oxidising properties. Health effects attributed to ozone include irritation of eyes and airways, exacerbation of asthma symptoms in susceptible people, increased susceptibility to infection, and acute respiratory symptoms such as coughing. Ozone also has adverse effects on vegetation and other materials.

The national 1 hour ozone standard (0.10ppm) is exceeded on an annual basis in Melbourne, Sydney Brisbane and Perth. Adelaide also experiences some exceedences of the standard. By international standards, the maximum 1 hour ozone concentrations recorded in Sydney and Melbourne are comparable with cities such as Toronto, San Diego, Philadelphia and Atlanta, and exceed those in London.

Until recently, breaches of the standard in most Australian cities have declined steadily. However, adoption of the more stringent World Health Organisation 1 hour goal (0.08ppm) would indicate a significantly higher number of recorded exceedences, and a worsening upward trend. For example, in Sydney the number of exceedences in 1994, based on 0.12ppm, 0.10ppm and 0.08ppm goals, were 2, 12 and 25 days respectively (NSW EPA, 1996a). A 1 hour standard of 0.08ppm is the current goal in Western Australia, and has been identified by NSW as a long term objective (NSW EPA, 1996b).

Fine particles (also referred to as particulate matter or PM)

Respirable particles, those with a diameter of less than 10 μm (PM₁₀), are a particular health concern because they are easily inhaled and retained in the lung. Almost all of the particles in diesel exhaust are less than 1 μm in diameter (Concawe, 1998), and diesel particles also adsorb unburnt hydrocarbons and other potentially carcinogenic organic compounds such as polycyclic aromatic hydrocarbons. The International Agency for Research on Cancer has concluded that diesel exhaust is a probable human carcinogen (California Air Resources Board 1994), and the California Air Resources Board has proposed that diesel exhaust be classified as a toxic air contaminant (California Air Resources Board, 1998).

Although the mechanisms are not clear, epidemiological studies in the US and elsewhere consistently show a relationship between particles and a range of respiratory, cardiovascular and cancer related morbidity and mortality (Concawe, 1996; Ballantyne, 1995; NEPC, 1997). The NSW HARP study estimated that
particle pollution contributed to nearly 400 (2%) premature deaths in Sydney each year between 1989 and 1993. The study also estimated that days of high particle concentrations were associated with a 3.5% increase in hospital emissions for cardiovascular disease, a 3% increase in chronic obstructive pulmonary disease hospital admissions, and a 3% increase in heart disease admissions in the elderly.

Measurements of PM₁₀ in urban areas indicate that levels are well below current US EPA standards, but can exceed Californian standards, with annual average levels being around 25 to 40 μg/m³ and peak 24-hour average levels around 90 to 110 μg/m³. Particle concentrations vary with season, higher values occurring in the autumn/winter months. In areas where wood smoke from domestic fires dominates, particle levels higher than 150 μg/m³ (as a 24-hour average) have been recorded on occasion.

2.2 GREENHOUSE GAS EMISSIONS

Scientific evidence points to a discernible human influence on global warming and climate. There has been a 30% increase in the amount of carbon dioxide in the atmosphere since the beginning of the industrial revolution, mostly arising from burning fossil fuels. The earth's temperature has increased during the same period and is now warmer than at any time during the last 420,000 years.

There are also other effects on climate such as decreasing number of days with frost and changes to the frequency and intensity of El Nino episodes. Though the complex interactions with the terrestrial and marine ecosystems are not fully understood, the changing climate is affecting these systems. The long-term impacts of increased levels of greenhouse gas emissions include:

- rising sea levels, causing flooding of low-lying areas, significant impacts on coastal ecosystems and other damage;

- shifting climatic zones (and thus ecosystems and agricultural zones) towards the polar regions;

- new climatic stresses affecting forests, deserts, rangelands and other ecosystems leading to adverse impacts on biodiversity;

- changes in rainfall patterns, with decreases in rainfall expected for many regions of Australia leading to changes in water supply and agricultural productivity; and

- effects on infrastructure and human health with consequential impacts on the insurance and finance industries.

Under the Kyoto Protocol to the United Nations Framework Convention on Climate Change (as agreed in December 1997 and signed by Australia on 29 April 1998), Australia is committed to a target for national greenhouse gas emissions of 8% above 1990 levels by 2008-12. This represents about a 30% reduction against current business as usual projections of greenhouse gas emissions for the period 2008-12.

The 1998 National Greenhouse Gas Inventory indicates that from 1990 to 1998 national transport emissions grew by 18%. In 1998 the transport sector was the third largest contributor to national greenhouse gas emissions, with about 16% (72.6 Mt) of Australia's net emissions. Road transport is the largest contributor to transport emissions (89%) and makes up 14% of total national emissions. Emissions from passenger vehicles predominate, but light commercial vehicles are a fast growing source. Passenger cars contributed 9% of national emissions, or 57% of total transport sector emissions in 1998.The outlook for greenhouse gas emissions from the transport sector continues to be of serious concern. Without reduction measures, emissions from the transport sector are predicted to increase by 38% above 1990 levels by the year 2010.

2.3 GOVERNMENT INTERVENTION

Government intervention is necessary because of the mechanism used to manage tailpipe emissions. Mandatory vehicle emission standards are established as Australian Design Rules (ADRs) under the Motor Vehicle Standards Act 1989.
The gazettal of new, tighter emission standards effectively requires vehicle manufacturers to adopt new vehicle and emission control technologies. Existing Australian fuel quality is a constraint to the effective functioning of many of these new technologies. As ADRs are nationally applicable it is necessary to ensure that fuel of the appropriate quality is available nationally. In order to realise the maximum potential greenhouse benefit from fuel use in vehicles, fuel quality and vehicle technology should complement one another. The key fuel parameters required for the deployment of advanced vehicle technologies are high octane rating and low sulfur content.

Government intervention will ensure that any fuel standards are applied equally in respect of imports as well as domestically produced petroleum fuels and are compatible with relevant international or internationally accepted standards to ensure that competition and trade are not impeded.

3. OBJECTIVES

3.1 PRIMARY OBJECTIVE

An objective of Government health and environment policy is to reduce the adverse effects of motor vehicle emissions on urban air quality, human health, and enhanced greenhouse effect.

3.2 SECONDARY OBJECTIVES

The Government also has as objectives:
a) the harmonisation of Australian vehicle emission standards with international standards; and
b) the national availability of petrol and diesel of appropriate quality to allow the effective adoption of new vehicle engine and emission control technologies.

These Government objectives are outlined in three policy statements: Safeguarding the Future: Australia’s Response to Climate Change (1997), Measures for a Better Environment (1999); and the Downstream Petroleum Products Action Agenda (1999).

The Prime Minister’s 1997 statement, Safeguarding the Future: Australia’s Response to Climate Change sets out an Environmental Strategy for the Motor Vehicle Industry. The objective of the strategy is threefold - to enhance the environmental performance of the automotive industry; to reduce air pollution and improve the health of our cities; and to reduce greenhouse gas emissions. The adoption of new and emerging vehicle engine and emission control technologies is central to Government objectives with respect to the improved management of both noxious and greenhouse gas emissions.

The Measures for a Better Environment package was announced by the Prime Minister in May 1999 as part of the New Tax System for Australia. It consists of a series of initiatives, many of them directed at the transport sector, to improve the management of noxious (air pollutant) and greenhouse gases. It establishes a timetable for the introduction of internationally harmonised vehicle emission standards and foreshadows changes to the composition of transport fuel. Diesel specifications identified in Measures for a Better Environment include a minimum standard of 500ppm sulfur in road transport fuel from the end of 2002 and the introduction of a “mandatory fuel standard of 50ppm (through a NEPM, equivalent legislative device or by use of the definition in the diesel fuel credit scheme) in 2006”. It also noted the requirement for high octane and low sulfur levels in petrol. High-octane petrol enables higher thermal efficiencies to be achieved, while low sulfur content is essential for the deployment of advanced fuel efficiency technologies, such as direct injection, both of which help achieve reduced fuel consumption.

The Measures for a Better Environment package also introduced the Alternative Fuels Conversion Program designed to facilitate the conversion or purchase of heavier commercial vehicles and buses operating on compressed natural gas (CNG) and liquified petroleum gas (LPG); and the Diesel and Alternative Fuels (Grants) Scheme designed to maintain the relative equivalence of diesel and alternative fuel prices after July 2000. While the alternative fuels program does not relate directly to measures designed to enhance the quality of conventional fuels, they are clearly associated with Option 5 of this statement, which is based on a wider use of alternative fuels.

The Downstream Petroleum Products Action Agenda was released in November 1999. The Agenda identifies the Government’s strong preference for the development of nationally consistent fuel specifications, noting that there are “clear competition benefits from having a nationally consistent approach to fuel standards”. It also advises that the Government will ensure that fuel specifications apply and are enforced equally to imports and domestically produced fuels.

4 ANALYSIS OF OPTIONS

This section outlines the seven potential options for reducing vehicle emissions, and improving the quality of petrol and diesel fuel in Australia;

Option 1 – Business as Usual

Option 2 – Industry Agreements

Option 3 – State Regulation

Option 4 – National Environment Protection Measure

Option 5 – Wider use of Alternative Fuels

Option 6 – Limiting Vehicle Travel

Option 7 – Commonwealth Regulation

Each option has been evaluated using the following criteria:

• provision of a nationally consistent approach to fuel quality standards;

• consistency with preceding Government policy decisions on this matter;

• assurance that appropriate fuel is available in line with the timetable for the implementation of new vehicle emission standards ADRs; and

• no restriction on competition and trade.

4.1 BUSINESS AS USUAL (Option 1)

Fuel quality in Australia is currently largely unregulated. The introduction of unleaded petrol in 1985 (to support the introduction of new emission control technology needed to meet the emission standards specified in ADR 37/00) saw the majority of States and Territories introduce limited regulations addressing petrol composition in terms of lead content.

Fuel standards have, however, been developed for diesel and petrol by Standards Australia. They are AS 3570 – Automotive Diesel, and AS 1876 – Petrol. These ‘standards’ have no legislative basis, but are rather industry guidelines whose main purpose is to specify compositional requirements that are consistent with engine development and reliable vehicle operation. As such, they cannot be considered to address environmental issues (ie the reduction of harmful emissions from the use of the fuel) except indirectly. The Australian Standards address a number of fuel properties not generally considered significant in terms of emissions management, while omitting others known to be significant in this respect. In addition, these standards do not deal adequately with fuel specifications required for the deployment of advanced engine and vehicle technologies that would facilitate the delivery of reduced fuel consumption by vehicles.

4.1.1 Advantages and disadvantages

The current system does not provide for national consistency in terms of fuel composition. The actual properties of petrol and diesel fuel produced by each Australian refinery differ between refineries and, to a variable extent, from the specifications in the Australian Standards (Appendix 1). Little information is available on the quality of imported fuel.

In 1998, Environment Australia commissioned Coffey Geosciences Pty Ltd to undertake a Review of Fuel Quality Requirements for Australian Transport to inform the process for developing fuel quality standards. The Review modelled the air quality outcomes (in terms of emissions reductions) from a range of scenarios, including a Business as Usual (BaU) option. It found that there would be substantial improvements in air quality over time from harmonisation with European fuel standards. For some pollutants, reductions of up to 60% in emissions are predicted over the BaU option for the period 2000 to 2020. Modelling results showed clear differences in emissions reductions over time from the vehicle fleet between BaU (Scenario 1) and increasing compliance with Euro fuel quality standards (Scenarios
2-6).

For example, under the BaU scenario, emissions of fine particulate matter are estimated to decrease by 10% as the current ADRs take effect, and then to increase again from 2010 as diesel vehicle use grows. In relation to oxides of nitrogen, the projected improvement in emissions under BaU is estimated as a 17% reduction between 2000 and 2010 as the ADRs take effect, while compliance with Euro standards gives estimated reductions of approximately 34% for the same period.

The investment necessary on the part of the existing Australian refineries to meet tighter fuel specifications varies considerably, but is in all cases significant. The majority of the refineries, whose profit margins are already reduced due to the state of the global market, are unlikely to voluntarily undertake the investment necessary to produce low sulfur fuels within the timeframe set by the new vehicle emission standards ADRs.

The announcement by the Commonwealth Government of the Measures for a Better Environment initiative, which foreshadowed changes to the sulfur content of petrol and diesel, has led to a number of States introducing or proposing to introduce State-specific fuel quality legislation. This has already taken place in Western Australia and Queensland. As noted earlier this appears likely to result in different standards in different jurisdictions. There are associated competition problems with this approach – raising effective barriers for refiners and importers to interstate markets and raising compliance costs.


Summary

A business as usual approach will not provide for a nationally consistent approach to fuel quality standards. The lack of national standards would also result in Government policy decisions set out in the Measures for a Better Environment tax package not being implemented.

Furthermore, the option does not guarantee that the appropriate fuel will be available in line with the timetable for the implementation of new ADRs, and the uptake of State-specific legislation has the potential to restrict competition and trade across jurisdictions.

4.2 INDUSTRY AGREEMENTS (Option 2)

A Memorandum of Understanding (MoU) concerning the vapour pressure of petrol is currently in place between the NSW Government and NSW based refiners and importers. (The vapour pressure of petrol is an important element in controlling photochemical smog or ozone.) This arrangement appears to have operated satisfactorily, and to have been an important component of the local air quality management strategy.

The Measures for a Better Environment initiative included a number of actions to promote the early introduction and use of low sulfur diesel before the introduction of mandatory standards. One of these measures was identified as “negotiation with the oil majors on the early voluntary introduction of diesel at 500 ppm in urban areas in 2000, on a best endeavours basis”.

It was proposed that this measure could be met through the development of a national MoU between the Commonwealth and State and Territory governments and domestic oil refiners and importers. Consultations with all stakeholders were undertaken and a draft MoU was prepared. After seeking legal advice, however, the oil majors advised that they were not able to enter into the proposed MoU due to potential competition problems. As a result a number of States proceeded to develop State-specific legislation.

4.2.1 Advantages and disadvantages

There is evidence that voluntary agreements between government and industry can be used to address specific air quality issues associated with fuel composition. It has, however, not been possible to adopt this approach on a national basis, and to expand it to cover a wide range of different fuel quality parameters, due to concerns on the part of the industry itself.

Such agreements have substantial benefits in that industry effectively self-regulates – thereby reducing administrative and compliance costs. It is not possible, however, for the Commonwealth to guarantee fuel quality under such an arrangement. There are valid concerns on the part of vehicle manufacturers (and consumers) that there is no certainty that they will be able to obtain the quality of fuel required for the efficient operation of new generation vehicles. Emission control technologies can be permanently disabled through the use of fuel that does not meet specific compositional requirements. For example, sulfur content levels in both petrol and diesel are extremely significant in this respect.

There are also potential competition problems. These may arise when producers either decline to be parties to such an agreement, or choose, on occasion, to operate outside the agreement with respect to one or more specific fuel parameters.

The uncertainty inherent in such arrangements has prompted a number of States to consider State-specific legislation. As noted earlier in relation to Option 1 there are competition problems associated with this approach.

Summary

Voluntary agreements will not ensure a nationally consistent approach to fuel quality standards or the availability of appropriate fuel required for compliance with the new ADRs. As for Option 1, there are potential trade and competition problems associated with the approach.

4.3 STATE AND TERRITORY REGULATION (Option 3)

Almost all the States and Territories currently have some form of fuel quality regulatory regime. In the majority of cases this is currently limited to the lead content of petrol. However, the announcement by the Commonwealth of proposed fuel changes under the Measures for a Better Environment initiative has led to a number of States introducing or proposing to introduce State-specific fuel quality legislation.

Queensland and Western Australia have already introduced such legislation, and South Australia has foreshadowed new legislation. Their proposals are outlined below.

4.3.1 Queensland

The Queensland Government gazetted new fuel quality regulations under the Environment Protection Act in July 2000. The regulations require Queensland oil refiners to produce fuel with the following specifications:

• sulfur levels in diesel fuel to 500 ppm by from 15 July 2001 and remove lead from petrol by March 2001;

• from 5 July 2000 maximum levels for MTBE, ETBE and TAME to be 0.5% by volume;

• from 1 July 2000, the six monthly average benzene content of petrol to not exceed 3.5% by volume;

• from 15 November 2000, maximum levels for Reid Vapour Pressure (RVP) (ranging from 78 kPa in 2000 to 69 kPa in 2002) for both fuel producers and wholesale distributors according to climate requirements.

4.3.2 Western Australia

Fuel quality specifications have been regulated in Western Australia from December 1999, under the Environmental Protection (Diesel and Petrol) Regulations 1999, as part of Western Australia’s Environment Protection Act 1986. The regulation specifies a 500ppm limit on the sulfur content of diesel from 1 January 2000. The following specifications (as maximum concentrations) have been set for petrol:

Specifications for supplies in 2000 (maximum levels)

Hydrocarbons:
Aromatics 48.0% v/v
Benzene 2.0% v/v
Oxygenates:
Methyl tertiary-butyl ether (MTBE) 0.10% v/v
Lead: 13mg/L

Specifications for supplies in 2002 (maximum levels)

Hydrocarbons:
Aromatics 42.0% v/v
Benzene 1.0% v/v
Olefins 18.0% v/v
Oxygenates:
Methyl tertiary-butyl ether (MTBE) 0.10% v/v
Lead : 5mg/L
Sulfur: 150 mg/kg.

4.3.3 South Australia

South Australia is currently developing State-specific legislation based on the US Predictive Model. The South Australian EPA advises that the proposed legislation will be based on a combination of the US EPA Predictive Model and California EPA cancer potency factors. They note that this approach enables a comparison of fuels based on air toxics performance. South Australia is using an outcomes based approach which involves generating the exhaust emissions (and some evaporative emissions, e.g. during refuelling) of certain toxic compounds and then calculating an ‘Air Toxics Index’ using potency factors from the California Air Resources Board for each of the compounds.

While the South Australian Air Toxics Index is based on the Californian model it has been modified using the Port Stanvac refinery petrol as the base fuel for modelling. Some members of the refining industry have stated that the configuration of the Port Stanvac refinery is such that an Air Toxics Index based on its fuel could be very difficult for another refiner to meet.

South Australia suggests that the predictive model is more effective in addressing South Australia’s airshed issues. South Australia argues that the implementation of their standards via the predictive model is necessary to ensure that South Australian air quality is maintained. The South Australian model allows for adjustments, which they believe makes compliance easier.

The proposed legislation is scheduled to come into effect in the second half of 2000.

4.3.4 Advantages and disadvantages

State-specific legislation has the potential to result in different standards for each jurisdiction. This may give rise to competition issues, by creating barriers for refiners and importers to interstate markets and raising compliance costs.

There are clear competition benefits from having a nationally consistent approach to fuel standards. If a State’s specifications are unique and align with the production capability of local refiners, such local refiner(s) will obtain a degree of protection, as any trans-shipped cargoes from other States, or imported cargoes, will need to be produced specially for the unique State-specifications, and this is likely to be expensive.

Furthermore, not all States may regulate fuel quality, which would have implications for vehicle technology for cross-border traffic. Fuel of an appropriate quality needs to be available in all States and Territories to ensure adequate supply of the low sulphur and high octane fuels required for advanced emissions control technology.

There is also a requirement to ensure equal protection for all Australians from toxic emission from the transport sector. If one State does not implement fuel quality standards, it could become a dumping ground for lower quality fuel and experience considerable increases in emissions and air pollution.

Summary

The use of State regulations will not provide for a nationally consistent approach to fuel quality standards. The outcome of such an approach would also result in Government policy decisions set out in the Measures for a Better Environment tax package not being implemented.

The use of State-specific regulations will not ensure the nationwide availability of fuel quality required to enable the introduction of new ADRs, and State-specific regulations will also potentially restrict competition and trade.

4.4 NATIONAL ENVIRONMENT PROTECTION MEASURE (Option 4)

The National Environment Protection Council (NEPC) is empowered, on the basis of a two thirds majority vote by its members, to make national environment protection measures (NEPMs) that automatically become law within each State and Territory in accordance with the legal framework of each jurisdiction. The objectives of the National Environment Protection Council Act 1994 are to provide equivalent environmental protection to all Australians wherever they live and to ensure that markets are not distorted by environmental decisions.

The efficiency of the current NEPM development and implementation processes are being reviewed and a major review of the NEPC Act, which is scheduled to commence in late 2000, will consider the effectiveness of NEPMs as a national approach to achieving environmental objectives.

It is important to note that NEPMs are a costly and time consuming process. A NEPM may take approximately 2 years to develop and a further 2-3 years to implement, and the development process is likely to cost in total, including jurisdictional costs, in the order of $1 million or more. The resources required to develop and implement NEPMs has been a particular issue of concern for States and Territories and presents a possible barrier for their participation in the development process and particularly the implementation of NEPMs, especially for the smaller jurisdictions like Tasmania and the Northern Territory.

The Council can develop and make a NEPM but implementation is outside the Council’s jurisdiction under the Act and is achieved through State and Territory legislation. It is apparent from those NEPMs that have already been developed that States can seek and achieve exemptions based on regional environmental differences. A good example of this is the exemption in the Queensland legislation of Mt Isa from the Ambient Air Quality NEPM. There also tends to be a “lowest common denominator approach” to the development of NEPMs and resulting “national” standards, in an attempt to try and gain consensus from all jurisdictions.

4.4.1 Advantages and Disadvantages

While NEPMs have been effective in implementing other policies, a NEPM for national fuel quality standards is not a viable option for several reasons.

In terms of NEPM development, a State or Territory may achieve exemptions based on regional environmental differences, and may also cease to be a participating member of the Council at any stage. Such actions would limit the ability to implement nationally consistent standards, particularly as each jurisdiction not only varies considerably in its capacity to meet tighter standards, but also in the levels of investment required by industry to upgrade plants in order to produce cleaner fuels.

In terms of timeframes, the time line specified by Measures for a Better Environment would not be achieved in light of the time required for the NEPM development process. The development of a NEPM is considered a lengthy process and State processes for obtaining whole-of-government positions and approvals have the potential to delay the process further.

With respect to the actual standards set, if States and Territories have divergent views then it would be difficult to form a consensus on national standards under a NEPM as only a two-thirds majority vote is required to pass the Measure.

Summary

A NEPM for national fuel quality standards is not considered a viable option to ensure that nationally consistent standards are in place in the required timeline for the introduction of the new Australian Design Rules (ADRs) for motor vehicle emissions.
Following the NEPM path would significantly delay the process and provide no real assurance that States would not provide exemptions in their legislation based on regional environmental differences. This approach may produce an outcome which is inconsistent with preceding Government policy decisions, and competition and trade will be restricted if variation in standards occurs between jurisdictions.

4.5 WIDER USE OF ALTERNATIVE FUELS (Option 5)

Alternative fuels provide an opportunity for reducing emissions of greenhouse gases and air pollutants by altering the mix of exhaust gases. The promotion of alternative fuels may have environmental benefits, but a focus on the adoption of such fuel does not address the current and future ADRs, which will remain highly dependent on petrol and diesel fuel.

Furthermore, there is a finite, although increasing, capacity to run more of the fleet which currently use petrol and diesel fuel on alternative fuels. The most significant options are liquefied petroleum gas (LPG) and compressed natural gas (CNG).

LPG is already widely used in urban areas, particularly by high mileage vehicles such as taxis, and its application to date is mainly in vehicle types normally configured for petrol fuels. Recent testing on modern petrol-engined vehicles, and equivalent vehicles running on LPG, concluded that the LPG-fuelled vehicles do not offer significant environmental benefits over the petrol-engined vehicles (FORS, 1997). Recent work in the UK and Europe indicates however, that heavy duty vehicles designed to run on LPG can have a very good emissions performance compared to diesel (Le Cornu and Day, 1998).

Other evidence, such as the Australian Greenhouse Office's (AGO) preliminary alternative fuels life-cycle analysis indicates that LPG performs well in heavier vehicles in respect of a number of greenhouse and other vehicular emissions.

CNG has very limited use at the moment, and its greatest potential would appear to be as a diesel substitute in commercial vehicles operating out of a common refuelling point. The use of CNG is becoming more common in urban bus fleets (in Perth, Adelaide, Sydney and Brisbane for example). As a substitute for diesel fuel, it offers significant benefits in reductions of PM emissions over diesel engines but, according to BTCE, unless engine settings and emissions controls are adequate, NO_x emissions +from CNG fuelled vehicles may be higher (BTCE, 1994). In contrast, the AGO's life-cycle analysis found that CNG delivered a very good performance in respect of NO_x provided vehicles are adequately maintained and their performance monitored. However, the very limited nature of the CNG vehicle refuelling network is a major barrier to wider adoption. The bulkiness of CNG fuel tanks and high capital cost for conversions can also limit its appeal to transport operators. These factors are being addressed through the Commonwealth's alternative fuels program.

4.5.1 Advantages and Disadvantages

The uptake of LPG and CNG is largely limited to urban areas, particular engine types and vehicle fleets. As outlined above, there are a number of major logistical barriers to the wider adoption of alternative fuels, and as such, alternative fuels are not considered a viable options (at this stage) to achieve the objectives in the required timeframe.

The Commonwealth Government currently exempts both LPG and CNG from fuel excise as a means of encouraging their development as alternative fuels. The Government is not able to mandate the use of specific fuels, as it would be contrary to competition principles. As indicated above, the alternative fuels network has a limited capacity to supply the fleet, and thus the use of alternative fuels, in itself, is not sufficient to deliver significant reductions in total emissions from the road vehicle fleet.

Summary

The increased use of alternative fuels has the potential to reduce emission from motor vehicles. The Government has in place a number of policy options to encourage the use of alternative fuels, such as the CNG Infrastructure Program, the Alternative Fuels Conversion Program, the Diesel and the Alternative Fuel Grants Scheme (which maintains the relative price of LPG and CNG compared to diesel), and the favourable excise treatment of LPG and CNG.

However, the current capacity for switching to alternative fuels is limited, and their consideration as an option to achieve a national approach for fuel quality standards is not practicable at this stage. Should a significant transition to alternative fuels be achieved in the future (as the Commonwealth's alternative fuels program seeks to achieve), then alternative fuels use will have a greater impact on improved environmental outcomes.

Alternative fuels will probably have a neutral or positive impact on competition and trade. However, the relatively limited current penetration of alternative fuels in the Australian market means that at present they have limited value in addressing environmental concerns.

While the proposed national fuel quality standards focus on petrol and diesel, it is envisaged that standards for alternative fuels would be considered for inclusion at a future date under the proposed framework legislation.

4.6 LIMITING VEHICLE TRAVEL (Option 6)

In order to address transport sourced urban air pollution and greenhouse emissions, there is ultimately a need to deal with the underlying issue of increasing vehicle travel, particularly as the emission and fuel consumption reductions achievable from technological improvements to vehicles and fuels become progressively smaller. Mechanisms to limit vehicle use include fiscal policies (to reflect true costs of transport), transport planning, traffic management (Auto-Oil, 1995) and travel demand management.

4.6.1 Advantages and Disadvantages

Management mechanisms to limit vehicle travel are more relevant for transport emissions, rather than fuel quality per se. While these mechanisms will have an important place in stabilising and reducing transport air emissions, they are beyond the scope of the objectives specified for this Statement.

Summary

Mechanisms to limit vehicle travel are not directly related to fuel quality. They do not ensure the fuel quality auto manufacturers require to meet ADRs on emission standards and improve fuel efficiency of vehicles, and are therefore unable to meet the assessment criteria outlined at the beginning of this section.

4.7 COMMONWEALTH REGULATION (Option 7)

Commonwealth legislation will provide the framework for a national fuel standards regime with the levels for each of the parameters in petrol and diesel set in regulations under the Act. It is proposed, subject to any time constraints, that the framework legislation will be in place by the end of 2000.

The primary legislation will also enable standards to be set for other fuels to be specified by regulation in the future (e.g. alternative road transport fuels such as LPG, biodiesel, or marine and aviation fuels), if this becomes a priority for the Government.

The primary legislation will contain the following elements:

a) a regulation making power to permit setting standards for fuels;

b) provisions creating offences relating to the supply of fuel that does not meet standards specified in the regulations;

c) monitoring and enforcement provisions, setting out record keeping and reporting requirements imposed on suppliers and providing authority for the Commonwealth to sample, monitor and enforce the fuel quality requirements; and

d) administrative arrangements for granting of variations to the standards in respect of specified supplies, where this is in the public interest, for example to meet the requirement of different climatic conditions.

The legislation will apply equally to fuel importers and domestic refiners. It will regulate the quality of fuel along the entire chain of supply, so that importers, domestic producers, distributors, wholesalers and retailers will be held accountable for fuel quality under the Act.

The intention of the legislation is not to dictate the composition of fuel, but rather to establish standards for certain fuel parameters. The regulations will specify, for each fuel type, the level at which a particular fuel parameter, for example sulfur content, will be set and the timeframe by which the parameter standard must be met.

The Commonwealth proposal for fuel standards sets out a timeframe including the following key dates:

• for diesel

− harmonisation with Euro 2/3 diesel fuel specifications by 1 January 2002 ; and

− harmonisation with Euro 4 diesel fuel specifications before 1 January 2006.

• for petrol

− harmonisation with Euro 2 petrol specifications (Euro 3 for sulfur content) by 1 January 2002;

− harmonisation with Euro 3 petrol specifications by 1 January 2005 (Euro 4 for sulfur content); and

− harmonisation with Euro 4 petrol specifications by 1 January 2008/2010.

These dates are based on the timeframe for the introduction of new United Nations Economic Commission for Europe ("Euro") vehicle emissions standards as specified in the new ADRs gazetted in 1999. They are intended to ensure that the required fuel is available for the introduction of the ADRs and that sufficient lead-time is available to refiners to make the necessary investment to produce the fuels.

Summary

The introduction of Commonwealth legislation would provide the national consistency necessary for the introduction of fuel quality standards to avoid competition problems and ensure that fuel of the appropriate quality is widely available in Australia in line with the timetable for the introduction of the new emissions control technology. The introduction of the legislation is also in line with preceding Government policy decisions on fuel quality.

4.8 COMPARATIVE ASSESSMENT

Commonwealth legislation is the only option which satisfies all of the specified assessment criteria, that is, it

1. provides a nationally consistent approach to fuel quality standards;

2. is consistent with preceding Government policy ;

3. can ensure that appropriate fuel is available in line with the timetable for the implementation of new ADRs; and

4. does not restrict competition and trade.

Appendix 2 summarises the effectiveness of each option against the selection criteria. Options 6 and 7 on wider use of alternative fuels and limiting vehicle travel have not been included as they are not considered viable options at this stage to achieve the objectives in the required timeframe.

5. IMPACT (COSTS AND BENEFITS) OF PREFERRED OPTION

This assessment of the costs and benefits of the preferred option addresses the impact of the framework legislation proposed for regulating national fuel quality standards. Regulations specifying the actual standards for various fuel parameters will be developed under the framework legislation later in 2000. A separate Regulation Impact Statement will address the regulations.

A Commonwealth proposal for the fuel parameter standards was outlined in three discussion papers released in May 2000 for a two-month public comment period. In the absence of a final recommendation for fuel quality standards, this proposal is used as the basis for estimating the costs and benefits of the preferred option.

This section briefly recounts the preferred option, summarises and outlines the costs and benefits of the option and addresses the impacts on affected parties.

5.1 OUTLINE OF THE PREFERRED OPTION

The preferred option is to set national fuel quality standards by means of Commonwealth regulation. The legislation will provide the framework for a national standards regime with the levels for each of the parameters in petrol and diesel specified in regulations under the Act.

As described in section 4.7, national fuel quality standards will:

- apply equally to importers and domestic refiners;

- introduce from 2002 the fuel quality standards required by vehicles complying with the new ADRs (see timetable under section 5.5.2);

- be monitored and enforced along the fuel chain of supply;

- be consistent across the nation, allowing exceptions in specified circumstances, for example to meet varying climatic conditions.

5.2 SUMMARY OF ASSESSMENT

In summary, the analysis of costs and benefits found that there would be considerable health and environmental benefits from moving to cleaner fuel standards, with an overall net benefit to Australia. The analysis estimated the net health benefits from the introduction of high fuel standards to be between $1577M and $2180M. This assessment is not altered by the potential macroeconomic impact of higher fuel prices, which would only be transitory before market forces re-balance the impacts.

The analysis is outlined in the Table 5.1 below. Option D corresponds to the fuel standards and timetable proposed for discussion by the Commonwealth.

Table 5.1: Net Benefits of adopting higher fuel standards (NPV $ million 1999)

Notes: Adapted from NSW EPA (1999) and Review Report (2000). Option A based on EPA scenario 1, Option B based on EPA scenario 5 and Review Scenario 2, Option C based on EPA scenario 3, Option D based on Review Scenarios 3 and 4 with benefit estimates based on EPA scenarios 3 and 5. All figures in Present Values discounted at 7% over 20 years. Figures may not add due to rounding.

5.3 COSTS OF THE PREFERRED OPTION

The costs of implementing national fuel quality standards under Commonwealth regulation are borne mainly by the refining industry and consumers. Impacts on all parties are outlined in greater detail below.

The Review of Fuel Quality Requirements for Australian Transport March 2000 (known as the Fuel Quality Review) commissioned by Environment Australia and undertaken by Coffey Geosciences Pty Ltd provides the best available estimate of the costs of the proposed new fuel standards to the refining industry. However, as outlined in Section 5.5.2, due to the differences between the Commonwealth proposal and the scenarios analysed in the Fuel Quality Review, the costs are likely to be overestimated. The cost of Option D given in Table 5.1 is overestimated because it includes investment already made by one refiner. It is envisaged that the fuel quality standards for petrol and diesel will fall somewhere between the levels modelled under scenarios 3 and 4 of the Fuel Quality Review – not full harmonisation with Euro 4 fuel standards as estimated below.

The Review estimated that costs to the refining industry of full harmonisation with Euro 4 fuel standards would be:
- $1320 million (M) in capital investment over the period to 2008 ($185M on average per refinery); and
- $136M pa in operating costs, an average of $17M pa per refinery from 2005.
These estimates equate to column D of Table 5.1 but have not been discounted to incorporate Net Present Values as presented in the Table.

Allowing a capital charge at 20% per annum, the average extra capital plus operating costs for local refining of Euro 4 fuels would be 1.5c/l for Euro 4 diesel and 1.1c/l for Euro 4 petrol. Under the Commonwealth proposal, Euro 4 diesel would be produced from 2005/6 and full specification Euro 4 petrol would be produced, at the earliest, from 2008.

It is probable that these increased costs of production would be passed on to consumers as increased fuel prices. It is expected that any fuel price changes would be experienced in the 2005 to 2008 period, given the proposed tighter sulfur specifications from 2005.

Economic analysis conducted as part of the Fuel Quality Review, using a General Equilibrium Model, estimated that a 1% increase in fuel prices would cause minor economic impacts such as an increase in the Consumer Price Index (less than 0.02%) and a fall in real wages (0.08%). It should be noted that this level of price increase currently occurs under fluctuating fuel prices caused by changes in the cost of crude oil.

5.4 BENEFITS OF THE PREFERRED OPTION

The benefits of Commonwealth regulation to implement national fuel quality standards flow from avoided health costs occasioned by improvements in urban air quality resulting from reduced pollutant emissions. Although difficult to quantify, the flow on benefits would include reduced greenhouse gas emissions over the longer term.

It is estimated that from 2000 to 2019, avoided health costs will amount greater than $3,410M. The analysis does not include other benefits such as investment opportunities, visual amenity, export potential, or avoided infrastructure damage. The inclusion of estimates for these effects would increase the overall benefits.

This assessment is based on work performed by the NSW Environment Protection Agency, which formed the basis of the Regulation Impact Statement on New Australian Design Rules for Control of Vehicle Emissions, December 1999. The NSW EPA work draws on a number of Australian and overseas studies including the Victorian Transport Externalities Study conducted by the Victorian EPA and the Bureau of Transport and Communications Economics, the National Environment Protection Measure on Ambient Air Quality, and assessments by the World Health Organisation and the US Environment Protection Authority.

The benefit estimates associated with the NSW EPA data were gained through the use of the dose-response technique. This approach examines the relationship between an increase in one or more pollutants and the number of individuals in the population who are affected, and the severity of this impact. A monetary value of this physical impact is then estimated with reference to data on the cost of medical treatment and the cost to employers of lost worker productivity through illness and associated lost working time. Australian cost data are used where possible, with international studies used for comparisons and to provide the dose-response functions for some pollutants.

Air pollutant emissions

The Fuel Quality Review found that there would be substantial reductions in pollutant emissions following harmonisation with European emissions and fuel standards (Euro 3 and then Euro 4). For some pollutants, reductions of up to 60% in emissions were predicted over a 20-year period from 2000.

Table 5.2 gives the estimated reduction in emissions over time for the major pollutants of concern under Scenario 4 modelled in the Fuel Quality Review, which has been taken as the indicator of the costs of implementing the Commonwealth proposal.

Table 5.2: Reductions in emissions under Scenario 4

Greenhouse gas emissions

The Fuel Quality Review assessed changes to transport-sourced greenhouse emissions and changes to greenhouse emissions from more intensive refining operations. Greenhouse gas emissions over the long term are expected to be lower as a result of improved fuel quality specifications associated with national fuel quality standards, relative to the business-as-usual scenario.

Emissions from road transport are estimated to increase by 24% under business as usual (Scenario 1) for the period 2000 to 2010, and by only 15% over the same period for the other scenarios (Scenarios 2-6). The 9% improvement in the latter estimate is predicated on the assumption that the Government expectation of 15% improvement over business-as-usual National Average Fuel Consumption (NAFC) target would be achieved in 2010. Setting and achieving a challenging NAFC target in 2010 forms part of the Environmental Strategy for the Motor Vehicle Industry, which was announced in the Prime Minister's 1997 statement Safeguarding the Future.

Improved fuel parameters will help achieve improved fuel efficiencies, which would facilitate setting and achieving better NAFC targets. This in turn will translate to greenhouse benefits. The fuel parameters key to better fuel efficiencies are high-octane petrol, which enables higher thermal efficiencies to be achieved, and low sulfur content, which is essential for the deployment of advanced fuel efficiency technologies, such as direct injection. It is claimed that direct injection technology is capable of improving fuel consumption by about 10%. Improved fuel quality in respect of other parameters would also promote optimal engine performance, thereby contributing to better fuel efficiencies. Legislated fuel quality enhancements would provide the certainty required for the deployment of advanced engine and vehicle technologies by automotive manufacturers and its uptake by consumers.

In the case of emissions changes from refinery operations, an assessment of incremental refinery emissions suggested increased greenhouse emissions associated with the production of improved fuel quality. Increased energy consumption will result from direct fuel burning in process furnaces, carbon rejection to make hydrogen and by remote electricity generation. Although emissions by refiners are expected to increase (around 2.1 million tonnes per annum CO₂ equivalent) in association with the production of improved fuel quality, these are expected to be offset by lower emissions in road transport. Lower emissions are expected to continue over the longer term beyond 2010.

5.5 IDENTIFICATION OF AFFECTED PARTIES

The parties that will be affected by the introduction of Commonwealth legislation regulating fuel quality standards are:

• state/territory government agencies;
• refining industry;
• fuel importers and distributors;

• fuel retailers;

• automotive industry; and
• consumers.

An assessment of the potential impact on each party is provided below, based on the fuel specifications proposed for discussion by the Commonwealth in Setting National Fuel Quality Standards Paper 2: Proposed Standards for Fuel Parameters. The actual impact on each of the parties will depend on the final set of fuel standards specified in the regulations under the proposed legislation. A summary of the impacts is provided in Appendix 3.

5.5.1 IMPACT ON STATE/TERRITORY GOVERNMENT AGENCIES

Jurisdictions have indicated in principle support towards a national approach to fuel quality. A key concern for State and Territory Government agencies is the proposal that Commonwealth legislation for national fuel quality standards will override State-specific legislation on fuel quality. As outlined under section 4.3, Western Australia, Queensland and South Australia are implementing their own fuel quality legislation.

Some States have indicated that they do not want to see a worse environmental outcome in their airsheds as a result of Commonwealth standards that are less stringent than those they have already imposed. Western Australia, for example, has regulated a level of 1% benzene from 2001, whereas the Commonwealth has proposed a level of 3% be introduced in 2002 and then 2% in 2005. However, levels of benzene in ambient air are generally not an issue in Australia where levels are below the limit recommended by the World Health Organisation ie 5 ppb.

As it is proposed that the Commonwealth fund enforcement and monitoring costs for national fuel quality standards, it is envisaged that these costs in the jurisdictions would be reduced once the Commonwealth legislation was introduced. States and Territories would no longer incur this expenditure for their State-specific standards and it is likely that the assistance provided by them for the Commonwealth process would be reimbursed.

There is concern in the jurisdictions that Commonwealth standards will result in the closure of some refineries. The impact of tighter standards on the refining industry is discussed below.

5.5.2 IMPACT ON THE REFINING INDUSTRY

The Downstream Petroleum Action Agenda acknowledges that the Australian petroleum refinery industry is in crisis. As currently structured, its high costs make it internationally uncompetitive. The industry's profitability is currently low and declining, having more than halved in recent years, and yet it urgently needs to be able to fund investment to meet the Government’s timetable for new fuel specifications. Significant restructuring and investment is also required to enable industry to compete with large scale, low cost refineries in Asia.

The Action Agenda acknowledge that even though the industry currently faces many challenges, the oil industry is committed to improving air quality, particularly in Australian capital cities.

Significant investment will be required by the refining industry to meet tighter fuel standards. Australia’s eight major refineries have different configurations as a result of different investment decisions and, therefore, different capacities to meet the fuel specifications. The major investment costs are associated with reducing the fuel sulfur content of diesel and the benzene content of petrol, and increasing the octane rating of petrol while reducing its aromatic content.

The cost to the industry will vary depending on the timing of the introduction of the standards and the combination of parameter levels proposed. The final costs to industry will be known when the actual fuel standards are finalised later in 2000, and individual refinery strategies to meet the standards are decided.

Depending on the final fuel standards implemented under Commonwealth regulation, and given the current world downturn in the refining industry, one or more refineries may contemplate closure. Shell has already announced that its Clyde refinery in NSW may close before 2006, when the production of Euro 4 diesel (with 50 ppm sulfur content) becomes mandatory. Shell is currently considering its position in the light of the Government’s proposed fuel standards.

A comprehensive analysis of the potential costs to the refining industry of a number of fuel quality scenarios was undertaken by the Fuel Quality Review. The fuel quality standards proposed for discussion by the Commonwealth include a slightly different timetable for the introduction of Euro 3 and Euro 4 for some parameters, compared to that modelled in the Fuel Quality Review. The comparison for those parameters requiring significant refinery investment is outlined in the Table 5.3 below.

Table 5.3: Fuel parameters requiring significant refinery investment

* These proposed standards are indicative only.
# Euro 4 for petrol has yet to be formally defined. These estimated levels were provided to Coffey Geosciences by the Australian Institute of Petroleum

Despite differences to the Commonwealth proposed fuel standards, Scenario 4 from the Fuel Quality Review provides the best available estimate of the potential costs to the refining industry of Commonwealth regulation of national fuel standards. Some costs, particularly those associated with Euro 4 standards for olefins and aromatics (not included in the Commonwealth proposal) are overstated.

The capital investment cost to refiners of achieving Euro 4 standards under Scenario 4 of the fuel Quality Review is $1320 million (M) above what is already planned. At one refinery, a substantial proportion of the investment required to achieve Euro 4 diesel and petrol is already committed in existing programs. Excluding this refiner, capital investment per refinery averages $185M.

Under Scenario 4 operating expenditure would increase by a total of $136M pa for the production of Euro 4 fuels, an average of $17M pa per refinery.

Allowing a capital charge at 20% per annum, the average extra capital plus operating costs for local refining of Euro 4 fuels would be:

• Euro 4 Diesel 1.5 c/L
• Euro 4 Petrol 1.1 c/L.

The potential overstatement of costs due to levels of stringency not involved in the Commonwealth proposal include:

• $100M capital expenditure and 0.2c/l to achieve 1% benzene compared to 3%; and
• $170M capital expenditure and 0.9c/l operating costs at two refineries for achieving 14% olefins compared to 16%.

In addition, technological advances for refinery production processes may generate savings in the cost of production that may drive down any increase in the price of fuel. However, the actual impact on prices to consumers will be dependent on the companies’ handling of any cost savings.

5.5.3 IMPACT ON FUEL IMPORTERS AND DISTRIBUTORS

Importers

In order to ensure the availability of higher quality fuels for use in road transport throughout Australia, it is necessary to establish clear, attainable standards that do not discriminate between domestic fuel producers and importers. The national standards will, therefore, provide a level of consistency for importers, enabling them to supply the same fuel throughout the country.

The impact on independents and importers (Burmah, Liberty Oil, Gull Petroleum, Woolworths Petrol Plus, etc) will vary depending on readily available supply in the region. It would appear that Euro 2 and 3 specifications are readily available or will be from 2001, but supply of Euro 4 at this point in time is restricted to export orientated refineries in India and South East Asia. Euro 4 will not be introduced into Europe until 2005, when it is expected that this fuel will be more widely available.

While higher quality fuels are in limited supply, the cost of obtaining them will be greater than that of sourcing fuel of the current quality sold in Australia. Information about the likely cost increases to importers is limited.

Distributors

Distributors purchase fuel from the major refining companies and, increasingly, from importers, and then transport it to regional service stations and fuel depots as well as primary producers and mining companies. There are currently about 200 large distributors that represent 40% of product distribution in Australia with 90% of this to regional areas.

Commonwealth legislation regulating fuel quality will also provide national consistency for distributors. Consultation with the Australian Petroleum Agents and Distributors Association (APADA) has indicated that distributors are very supportive of the introduction of national standards. APADA pointed out that State boundaries are not observed in fuel distribution and some distributors traverse three States. State-specific legislation is, therefore, an issue of concern for distributors as it would increase their compliance costs.

The main issue for distributors resulting from the introduction of Commonwealth fuel quality legislation would be the potential requirement for additional investment if extra storage tanks were needed to ensure any fuel mixing did not occur. This would be a requirement if the number of grades of fuel increased, but that is not envisaged in the Government’s proposal.

5.5.4 IMPACT ON FUEL RETAILERS

The impact on fuel retailers will relate mainly to ensuring that they receive only fuel that meets the specified standards, that any forecourt additives for sale have been approved under the legislation and that they keep the appropriate records and paperwork.

Some of the small fuel retailers, particularly in rural and remote areas have limited or no storage and dispensing facilities for premium unleaded petrol (PULP). This could potentially cause some difficulties when PULP becomes the standard fuel. However, it is anticipated that the facilities used for leaded petrol may be replaced with PULP when leaded petrol is phased out in 2002.

5.5.5 IMPACT ON THE AUTOMOTIVE INDUSTRY

The most significant impact of Commonwealth fuel quality legislation on the automotive industry will be the certainty it provides in ensuring that fuel of the appropriate specifications will be widely available in Australia. This is essential to enable deployment of the advanced emissions control technology to meet tighter emissions standards and advanced engine and vehicle technology to achieve improved fuel efficiency. The Federal Chamber of Automotive Industries (FCAI) is in favour of mandatory enforceable national fuel standards.

An issue raised by the FCAI relates to the simultaneous availability of 91 RON and 95 RON fuels. The industry is concerned about potential misfuelling of Euro 3 vehicles (designed for 95 RON fuel) with 91 RON fuel and resultant complaints from consumers should unsatisfactory engine performance result. However, little data is available on the likely rate of misfuelling. Some vehicle manufacturers detune their vehicles to run on 91 RON fuel. Both misfuelling by consumers and detuning by manufacturers contribute to reductions in fuel efficiency and therefore increases in greenhouse gas emissions.

5.5.6 IMPACT ON CONSUMERS

As indicated in Section 5.5.2 above, the Fuel Quality Review estimated that the introduction of Euro 4 petrol by 2008 and Euro 4 diesel by 2006 would result in an increase in the cost of fuel production of 1.1c/l for petrol and 1.5c/l for diesel. It is probable that these costs would be passed on to consumers as increased fuel prices.

However, for new vehicle owners, improved vehicle technology combined with high quality fuel will lower fuel consumption, leading to potential savings.

Economic analysis conducted as part of the Fuel Quality Review, using a General Equilibrium Model, estimated that a 1% increase in fuel prices would cause minor economic impacts such as an increase in the Consumer Price Index (less than 0.02%) and a fall in real wages (0.08%). It should be noted though, that this level of price increase currently occurs under fluctuating fuel prices caused by changes in the cost of crude oil.

Large populations of urban dwelling consumers will benefit from the reduction in pollutant emissions and resultant improvement in air quality outlined in Section 5.4.

6. CONSULTATION

The process for developing national fuel quality standards commenced with the Fuel Quality Review. The final report from the Review was released in March 2000. Three discussion papers were then released in early May 2000 for a two-month public comment period with submissions requested by 30 June 2000. The papers present the Commonwealth’s proposal for fuel standards and are entitled:

1. Summary Report of the Review of Fuel Quality Requirements for Australian Transport;

2. Proposed Standards for Fuel Parameters (Petrol and Diesel); and

3. Proposed Model for Standards Implementation.

Fuel Quality Review

In order to assess the potential impacts of new fuel quality specifications on all stakeholders, including Australian refineries, vehicle manufactures and consumers, and taking into account the objectives of the regulators, it was necessary to obtain a high level of cooperation from stakeholders.

During April and May 1999, the Review Team consulted with a broad range of stakeholders including many within government, the automotive industry and the petroleum industry, to solicit views on future fuel quality scenario development.

The stakeholder consultation process commenced with the circulation of a letter to the stakeholders, informing them that a series of scenarios was to be developed to represent the range of likely changes in fuel quality over the next ten years. Comment was sought from the stakeholders regarding the key issues to be considered in the fuel quality scenarios.

Written responses were received from 28 stakeholders. A Coffey representative also attended meetings with 30 of the major stakeholders, including State government agencies, petroleum companies and motor vehicle manufacturers. The stakeholder consultation process continued throughout 1999, with the stakeholders providing comment on the draft scenarios, particularly in relation to the incorporation of the Prime Minister’s commitments under the Measures for a Better Environment tax package agreement.

The main issues identified by the stakeholders for consideration in the development of the scenarios included:

• Air quality and the Ambient Air National Environment Protection Measure (NEPM). More stringent new vehicles emission standards were seen as an essential strategy to combat the detrimental air quality effects that would arise from projected growth in vehicle kilometres travelled and assist with achieving and maintaining compliance with the ambient air quality standards specified in the NEPM;

• Greenhouse commitments. Stakeholders considered that improvements in vehicle fuel efficiency are important in helping to meet Australia's commitment to the greenhouse gas emission targets set in the Kyoto Protocol;

• Emissions standards harmonisation;

• The government’s expectation of a 15% improvement over business-as-usual in the national average fuel consumption (NAFC) by 2010;

• The increasing demand for high octane petrol following the introduction of more stringent emissions standards. Government agencies were concerned that this would put pressure on refiners to increase benzene, aromatics and olefins in order to achieve higher pool octane. Refiners were concerned that limits on these compounds would substantially increase the investment required to make higher octane petrol. The use of octane enhancement additives was also raised as an issue with potential impacts on the environment and fuel efficiency performance. The increase in greenhouse gas emissions from refineries through production of higher octane petrol was also seen as an important issue for consideration in the development of fuel quality scenarios;

• The possibility of supplying dual grade ‘city/country’ diesel, with low sulphur diesel supplied in the major city areas and higher sulphur diesel supplied in the country areas for an interim period; and

• Incentives for the promotion of green fuels suitable for use in transport and switching of vehicles to such fuels.

Commonwealth’s proposal for national fuel quality standards

As part of the consultation process for developing national fuel quality standards, the Commonwealth held face to face meetings with stakeholders in the jurisdictions during May and June 2000. The main objective of these meetings was to provide an opportunity for stakeholders to discuss the proposals presented in the discussion papers and any issues of concern relating to the proposed standards or the process for implementing them.

The Commonwealth team consisted of representatives from Environment Australia, Australian Greenhouse Office, Department of Industry, Science and Resources, and the Department of Transport and Regional Services. An Interdepartmental Committee representing other relevant Commonwealth Government departments was also consulted during development of the Commonwealth legislation and proposed fuel quality standards.

The main issues arising from this consultation process include:

• The proposal that Commonwealth legislation will override any inconsistent State regulations. Western Australia, Queensland and South Australia have introduced or will be introducing State-specific legislation where some standards, e.g. for benzene, are more stringent than the standard proposed by the Commonwealth. They have indicated quite strongly that they do not want to see Commonwealth standards result in a worse environmental outcome in their jurisdictions.

• Concern has also been expressed that the timing for the introduction of fuel standards will close some refineries, which would also have implications for dependent industries, e.g. the petrochemical industry.

• The timing of the introduction of fuel standards to facilitate the new emissions control ADRs. The Commonwealth proposes introducing standards for technology enabling parameters 12 months in advance of the mandated date for the new ADRs, as specified under Measures for a Better Environment. The automotive industry has indicated that Euro 3 vehicles will be introduced during the 12 months leading up to the mandated date. It will, therefore, be necessary to ensure that appropriate fuel is available during this lead up time. On the other hand, the refining industry have concerns that this cuts into time available for the investment needed to upgrade plant and in gaining the necessary approvals from their companies.

• In relation to timing, the refining industry has also indicated that once new diesel plant is established to produce 50 ppm sulfur, the old plant will then be converted for 50 ppm sulfur petrol. Therefore, the Commonwealth’s proposal for the introduction of 50 ppm sulfur for both petrol and diesel at the same time will be difficult as 6 months will be required for conversion of plant for 50 ppm petrol after the new diesel plant is operational.

• The availability of 91 RON and 95 RON fuels at the same time. The FCAI have expressed concern about the potential for misfuelling of 95 RON vehicles with 91 RON fuel and resulting maintenance and servicing problems. They want financial incentives to encourage uptake of 95 RON. The FCAI believe that a competitive disadvantage will arise for manufacturers of 95 RON vehicles if 91 RON fuel is cheaper because it will encourage consumers to buy 91 RON vehicles.

• The AIP have requested that a Euro 2 equivalent standard, based on their current refinery exchange standards, be introduced in 2001 to address petrol substitution issues. There has also been a general view that operational, as well as environmental, aspects should be covered by the one instrument. Other stakeholders saw the merit of this view for 2001.

• The use of pool averaging as compared with flat limits as a way of providing flexibility for refiners to achieve standards for some parameters, e.g. olefins and aromatics, which affect octane levels.

• Financial incentives to encourage the production of cleaner fuels necessary for the effective operation of new emissions control technology.

• There has been extensive discussion about the use of additives to enhance octane levels and their operability and environmental implications. These include MTBE, MMT, ETBE and biofuels including ethanol.

7. CONCLUSION AND RECOMMENDED OPTION

As demonstrated above, Commonwealth legislation regulating fuel quality standards would provide the national consistency required to avoid competition problems and trade barriers that will result from State-specific fuel quality regulations. It is the only option available that will ensure standards are implemented in time to facilitate the effective and efficient performance of new emissions control technology necessary to meet tighter emissions standards implemented through new Australian Design Rules for motor vehicles. Commonwealth fuel quality legislation capable of mandating fuel specifications nationally will ensure that fuel of specifications that are essential for the optimal operation of vehicles will be widely available in Australia.

The Commonwealth Government has clearly stated goals and objectives relating to improving air quality and reducing toxic and greenhouse emissions from the transport sector. These goals and objectives will not be met unless cleaner fuels are mandated in Australia. Commonwealth legislation is the only cost effective option available to ensure objectives are met in the required timetable.

In implementing fuel standards, the requirements and expectations of the automotive industry need to be balanced carefully with the production capabilities of the refining industry and the significant investment that will be required if they are to produce cleaner fuels. The Commonwealth proposal has been developed in close consultation with both industries and all stakeholders to ensure the best possible outcome for all Australians and is recommended as the most viable option for achieving the Government's objectives.

8. IMPLEMENTATION AND REVIEW

The preferred option, ie the Commonwealth’s proposal for national fuel quality standards, would be implemented under primary legislation that provides the machinery for establishing a national fuel quality standards regime. It is proposed that the actual standards for each of the petrol and diesel parameters would be set in regulations under the Act. This would provide the necessary flexibility to amend the standards quickly or to deal with other fuel quality issues as they arise without having to go through the lengthy process required to amend the legislation.

Under the legislation, statutory independent review will be required two years after the first set of standards comes into effect, i.e. January 2002, and thereafter every five years.

From January 2002, the Minister will be required to present an annual report to the Parliament that describes compliance with the legislation, prosecutions made under the legislation and any other relevant actions, such as whether any regulations were made under the legislation.

It is not envisaged that compliance will result in paper burden costs in the production and supply chain as existing record keeping processes, if operated effectively, should be sufficient. There may only be a requirement that the quality of these processes be improved to ensure that sufficient records are kept and that they are accurate.

Effectiveness of the Commonwealth’s proposal for national fuel quality standards will be measured in a number of ways. These include the availability of cleaner fuel to consumers, measured reductions in emissions compared to business as usual projections, and the effectiveness of the new advanced emissions control technology.

9. REFERENCES

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______ (1994) Leaflet on the Toxic Air Contaminant Identification Process: Diesel Exhaust, California Air Resources Board, Sacramento California USA, June 1994.

Carnovale, F., Alviano, P., Carvlaho, C., Deitch, G., Jiang, S., Macaulay, D. & Summers, M. (1991) Air Emissions Inventory of the Port Phillip Control Region: Planning for the Future, Environment Protection Authority of Victoria, Melbourne, Victoria.

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______ (1996) Sustainable Energy Policy for Australia, Commonwealth of Australia, Green Paper, Canberra, in AATSE, 1997.

Coffey Partners (1996) Parameter projections for the reviews of ADR 37/01 and ADR 70/00 by ACVEN, report prepared for Department of Transport, Federal Office of Road Safety, Hawthorn, Victoria.

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______ (1996) Air quality standard for particulate matter, Concawe Health Management Group, Brussels.

______ (1997) Motor vehicle emission regulations and fuel specifications in Europe and the United States, 1997 Update, Concawe, Brussels.

______ (1998) A Study of the Number, size and Mass of Exhaust Particles Emitted from European Diesel and Gasoline Vehicles under Steady-state and European Driving Cycle Conditions, Report No 98/51, Brussels, February 1998.

Denison, L., and Chiodo, J. (1996) Respirable Particles in Australia: Current Issues and Future Directions, paper presented at 13th International Clean Air & Environment Conference, Adelaide, 1996.

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______ (1996a) Communication from the Commission to the European Parliament and the Council on a future strategy for the control of atmospheric emissions from road transport taking into account the results from the Auto/Oil Programme (COM(96) 248 final), 18 June 1997, Brussels

______ (1996b), Proposal for a Directive on the Quality of Petrol and Diesel Fuels, in Europe Energy No 476, 26 September 1996

______ (1997) Resolution on the communication from the Commission to the European Parliament and the Council on a future strategy for the control of atmospheric emissions from road transport taking into account the results from the Auto/Oil Programme (COM(96)0248-C4-0492/96), Official Journal of the European Communities, No C132/206, 28 April 1997.

Environmental Protection (Diesel and Petrol) Regulations 1999 – (Western Australia) Environmental Protection Act 1986.

European Parliament, 1997, Report on the proposal for a European Parliament and Council Directive on the quality of petrol and diesel fuels and amending Council Directive 93/12/EEC COM(96)0248-C4-0462/96-96/0163(COD).

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FORS (1997) LPG In-service Vehicle Emissions Study - Supplementary Report No.1 to Motor Vehicle Pollution In Australia Report, report prepared by the NSW Environment Protection Authority for the Federal Office of Road Safety and Environment Australia, May 1997.

Grant, L.D., Graham, J.A., Kotchmar, D.J. & Tilton, B.E. (1993) Health effects of motor vehicle related criteria air pollutants, International workshop on human health and environmental effects of motor vehicle fuels and their exhaust emissions, Sydney

Hensley, M (1996) Health and air Research Program - Main Findings in Proceedings of the Health and Urban Air Quality in NSW Conference, NSW Department of Health and NSW EPA, Sydney, 3-4 June 1996.

James, B. (1994) Perth Photochemical Smog Study: Motor Vehicle Emission Inventory, WA Department of Transport, Nedlands, WA.

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______ (1996b) Shaping Sydney's Transport: A framework for reform: Discussion paper, NRMA Ltd, Sydney.

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______ (1996a) Developing a Smog Action Plan for Sydney, the Illawarra and the Lower Hunter, NSW Government Green Paper, Chatswood, NSW.

______ (1996b) Developing an Air Quality Management Plan for Sydney, the Illawarra and the Lower Hunter, Chatswood, NSW.

______ (1996c) Metropolitan Air Quality Study: Outcomes and Implications for Managing Air Quality, NSW.

______ (1998) Action for the Air: the NSW Government’s 25 Year Air Quality Management Plan, February 1998.

______ (1999) Preliminary Economic Analysis of Adopting New Vehicle Emission Standards, Economics and Environmental Reporting Branch, NSW EPA, April 1999.

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______ (1994) Victorian Transport Externalities Study: Volume 4, Vic EPA, Melbourne.

______ (1995) Victorian State of the Environment Report, Vic EPA, Melbourne.

______ (1999) Air Emissions Inventory – Port Phillip Region.

______ (2000) Draft Air Quality Improvement Plan, Port Phillip Region, Victorian Environment Protection Authority, Melbourne.
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APPENDIX 1

Table A1.1 Australian diesel - product characteristics summary – 1998

Table A1.2 Regular unleaded petrol (ULP) – product characteristics summary
– 1998

Table A1.3: Premium unleaded petrol (PULP) – product characteristics
summary – 1998

APPENDIX 4

LIST OF STAKEHOLDERS

FUEL QUALITY STANDARDS BILL 2000

NOTES ON CLAUSES

Part 1 – Preliminary

Clause 1 – Short title

This clause provides for the Act to be cited as the Fuel Quality Standards Act 2000.

Clause 2 – Commencement

This clause provides that the Act will commence on a day or days to be fixed by proclamation.

It is intended that the offence provisions will commence on the same date that the first determinations setting out petrol and diesel standards take effect. This date is not specified in the Bill because consultations on the standards will not be finalised until after the Bill is introduced.

Section 4 of the Acts Interpretation Act 1901 permits the making of instruments before the relevant provisions of the Act commence, as if they had commenced. It is intended that the Minister will determine the first standards at the earliest possible date, but the standards will not come into force until a later date. Early publication of the standards is in order to give notice to affected fuel suppliers.

Other parts of the Act, for example provisions relating to the Fuel Standards Consultative Committee (clause 24), may be proclaimed to commence at an earlier date.

Clause 3 – Main object of Act

This clause sets out the main object of the Act. It focuses on the regulation of fuel quality to reduce pollution from fuel use, enable new engine and emission control technology, and allow more effective operation of engines. This object reflects the current focus on automotive fuels. It is intended that the legislation be used, over time, to address significant issues relating to fuel quality. Safety of fuels, for example, may become a more prominent consideration in the future.

Clause 4 – Definitions

This clause defines certain terms used in the Act.

The meanings of fuel and fuel additive are to be set out in the regulations. Petrol and automotive diesel will be the first fuels specified for the purpose of the Act. The regulations will later include fuels such as Liquefied Petroleum Gas (LPG) within the meaning of fuel, as relevant standards are developed. The meaning of fuel additive will also be set out in regulations to ensure that the definition is consistent with the types of additive used in fuels that are regulated under the Act.

Supply is defined as a supply of fuel (including re-supply) by way of sale, exchange or gift. In other words, each step in the chain of supply from producer to consumer may constitute a supply. This clause also permits the Minister to specify a Commonwealth, State or Territory law to be an emergency law for the purpose of clause 12. The Liquid Fuel Emergency Act 1984 is also defined as an emergency law.

Clause 5 – Applicable fuel standard for fuel supplies

This clause provides that a reference to a fuel standard in relation to the supply of fuel shall be taken as a reference to the standard as it applies in the area where the supply occurs.

Sub-clause 21(2) provides that a fuel standard determined by a Minister may have more stringent parameters for specified areas in Australia. Under sub-clause 21(3) these parameters must not amount to preference to a State or part of a State over another State or part of a State within the meaning of section 99 of the Constitution.

Clause 6 – Act binds the Crown

This clause provides that the Act shall bind the Crown in each of its capacities. The Crown is not liable to be prosecuted for an offence.

Clause 7 – External Territories

The Act will apply to every external territory other than Norfolk Island.

Clause 8 – Relationship to other Commonwealth laws

This clause provides that the provisions of the Act are in addition to, not in substitution for, the requirements of any other law of the Commonwealth. The record keeping requirements of the Act, for example, are not intended to have any effect on similar record keeping requirements under taxation legislation.

Clause 9 – Relationship to State and Territory laws

The Act is not intended to exclude or limit the operation of any State or Territory law that is capable of operating concurrently with the Act, except to the extent that the regulations provide for a State and Territory law relating to the supply of fuel to be excluded.

The Commonwealth Act is intended to provide for a uniform, national application of standards. In general, where the Commonwealth has specified a standard in respect of a fuel characteristic, the Commonwealth standard will operate to the exclusion of a State or Territory standard in respect of the same characteristic.

In some circumstances, for example where fuel characteristics must vary according to climatic conditions, State or Territory regulation may be more appropriate. In these instances, the Commonwealth may specify a default standard, to operate only in the absence of consistent State or Territory standards.

The regulations will specify the extent to which State or Territory laws are excluded. This is in order to be able to accurately reflect the field that the Commonwealth standards occupy.

Clause 10 – Offences

This clause provides that the Criminal Code applies to all offences against the Act. Chapter 2 of the Criminal code sets out the general principles of criminal responsibility that apply to the offences.

Where a maximum penalty is specified to apply to an offence against the Act, a person convicted of that offence is punishable by a penalty not exceeding the penalty specified.

Part 2 – Regulation of fuel and fuel additives

Division 1 – Overview

Clause 11 – Overview of Part

This clause provides a brief overview of Part 2, including its various divisions. The part sets out the regulatory regime to apply to activities involving fuel and fuel additives.

Division 2 – Supply of fuel

Clause 12 – Supply of fuel

Clause 12 creates an offence where a constitutional corporation or Commonwealth entity or person, in the course of constitutional trade and commerce, supplies fuel that does not meet a relevant standard under the Act. An offence is also committed if a person holds an approval that varies the standard and the fuel does not comply with the standard as varied.

An offence has not been committed, however, if the Minister has granted an approval that varies the standard in respect of the supply, and the fuel meets the requirement(s) of that approval. Nor has an offence been committed if the supply is in order to comply with a direction or order under an emergency law.

Clause 12(2) provides that a person will not be guilty of the offence if he or she has reason to believe that the fuel will be subject to further processing to bring it into compliance with a standard, or into compliance with an approval that applies to the fuel. This provision is intended to ensure that supplies occurring in the course of production may not give rise to an offence. It is intended that a person may not rely on this clause unless they believe, on reasonable grounds, that further processing will occur to bring the fuel into compliance with a standard or a standard as varied. A reasonable ground for such belief may arise where fuel was supplied for this purpose to a person who had the capacity to bring the fuel into compliance with a standard or a standard as varied.

Clause 12 provides for a criminal penalty of up to 1000 penalty units for an individual.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 12 is therefore 5000 penalty units.

Division 3 – Approvals

Clause 13 – Grant of approval

This clause provides that the Minister may grant an approval in writing that varies the standard with respect to specified supplies of fuel.

An approval may be granted to the person who will be the supplier of the fuel, or any other specified person. A person to whom the approval applies, other than the person to whom it is granted, is referred to as a regulated person in this Division. This provision is intended to cater to situations such as where a motor sports organisation applies for an approval to supply non-compliant fuel on behalf of teams participating in an organised motor racing event.

An approval comes into force on the day specified in the approval, and remains in force for the period specified in the approval. This requirement has been included to ensure that an approval may not be granted for an indefinite period.

Clause 14 – Application for approval

This clause provides that an application for an approval must be made in accordance with the regulations and accompanied by any application fee that is prescribed to be payable by the regulations.

Clause 15 – Criteria for granting approval

The approvals process is intended to cover circumstances where the application of the standards would be inappropriate or excessively burdensome, and it is possible to vary the standards without compromising the objectives of the legislation. In deciding whether or not to grant an approval, the Minister must consider:
– the protection of the environment,
– the protection of occupational and public health and safety,
– the interests of consumers, and
– the impact on economic and regional development, and
– any other matters he or she considers are relevant.

Under section 33 of the Acts Interpretation Act 1901, the Minister may vary or revoke an approval.

Clause 16 – Conditions of approval

This clause provides that the Minister may impose conditions on an approval to ensure that the objects of the Act are met. Conditions may, for example, deal with the disposal of non-compliant fuel that has been approved for use in a particular event.

Clause 17 – Condition about informing people of obligations

Clause 17 provides that it will be a condition of any approval that the holder informs any other person to whom a condition of the approval applies, of that condition. The holder must also inform such other persons, who are regulated persons under the Act, of any variation of a condition, and any revocation of an approval. How information about conditions is to be provided may be prescribed in regulations made under the Act. Where such regulations do apply, it will be a condition of the approval that the holder complies with the requirements of the regulations.

Clause 17 is intended to ensure that there is no exploitation of the facility for one party to seek an approval on behalf of another party. It would require, for example, a motor sports organiser to inform all racing teams of relevant conditions. It would also apply to ensure that a purchaser of non-compliant fuel for a specific purpose informs the supplier of that fuel of any conditions attached to the approval which affect the supplier.

Clause 17A – Approvals and reasons for approvals to be made public

This clause is intended to ensure the transparency of the approvals process. It requires that as soon as practicable after granting an approval under section 13, the Minister must have a notice published in the Gazette setting out specified details of the approval, including the reasons for granting the approval.

Clause 18 – Person must not contravene conditions of approval

Clause 18 provides that it is an offence for either the holder of an approval, or a person covered by an approval, who is a constitutional corporation or a Commonwealth entity, to contravene a condition of an approval in the course of constitutional trade or commerce. For an offence to be established, the holder of an approval or a regulated person, must have contravened a condition of the approval intentionally, or with knowledge, or must have been reckless as to whether their action or omission contravened a condition. A maximum criminal penalty of 100 penalty units applies to an individual who has contravened a condition of approval.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 18 is therefore 500 penalty units.

Division 4 – Fuel documentation

Clause 19 – Supplies of fuel to be accompanied by documentation

Clause 19 provides for documentation to accompany fuel that is covered by a standard, when it is supplied in Australia. The documentation must contain a statement as to whether or not the fuel complies with the standard, and any other information relating to the fuel that is prescribed by the regulations. The provision does not apply however, where the supply is to an end-user of the fuel. This exception removes the obligation to provide documentation in relation to retail sales to individuals. It also has the effect of removing the obligation in relation to bulk sales for use by companies, for example bus or trucking companies. It is, however, expected that these bulk purchasers will be in a position to seek and receive an assurance of compliance without a legislative requirement.

The penalty for failing to provide required documentation is up to 60 penalty units for an individual.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 19 is therefore 300 penalty units.

Division 5 – Alteration of fuel

Clause 20 – Altering fuel the subject of a fuel standard

Clause 20 creates an offence of altering fuel that is the covered by a standard. The fuel must be altered in Australia by a constitutional corporation or Commonwealth entity or person in the course of constitutional trade and commerce, and that person must intend to use the fuel in Australia. It is a requirement of the offence that the altered fuel does not comply with the base standard (the standard determined under sub-clause 21(1)). If the fuel was supplied under an approval which varies the standard, the offence requires that the altered fuel does not comply with that varied standard. This offence provision applies whether or not the fuel complied with the standard as varied before the alteration. The reference to the base standard is intended to remove any doubt as to the applicable standard. The offence does not rely on the "supply" of the fuel but the act of alteration. The place that the fuel was supplied is not relevant unless an approval is relied upon.

Clause 20 provides for a criminal penalty of up to 1000 penalty units for an individual.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 20 is therefore 5000 penalty units.

Division 6 – Fuel standards

Clause 21 – Making of standards

Clause 21(1) authorises the Minister to make a determination that specifies the matters that constitute a fuel standard in respect of a specified kind of fuel. A determination under this clause is a disallowable instrument for the purposes of section 46A of the Acts Interpretation Act 1901.

In applying a more stringent standard, the Minister must not give preference to one State or part of a State, within the meaning of s.99 of the Constitution.

It is intended that a standard for a particular fuel will set out limits or values for particular characteristics of the fuel. For example, the standard for unleaded petrol will set content levels for components such as lead and aromatics, and upper and/or lower bounds for attributes such as octane rating or distillation points. Other matters that might be included in a standard include the test procedures to be used in determining a particular characteristic of a fuel sample.

The broad intention of this legislation is to provide for uniform, national laws. An exception will occur where there is a need to provide for more stringent standards for fuel supplied to particular areas, for example in order to protect the environment and/or public health, or provide for the operability of vehicles in a particular area. This is permitted under clause 21.

This clause states the requirement that the Minister have regard to the main object of the Act in making a determination of standards.

Clause 22 – Guidelines for more stringent standards

Clause 22 requires the Minister to develop written guidelines to be followed in applying a more stringent standard to an area. These guidelines are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901.

Clause 23 – Consultation

This clause was not agreed to by the Senate. It was replaced by the new clause 24A.

Clause 24 – Fuel Standards Consultative Committee

Clause 24 establishes the Fuel Standards Consultative Committee (the Committee). The Minister must consult this Committee before he or she makes certain decisions, which are set out in clause 24A.

Clause 24A – Consultation

This clause provides that the Minister must consult the Fuel Standards Consultative Committee, and have regard to their recommendations, before making certain decisions. These include: granting an approval to vary a standard (including a decision about the duration of the approval); making a determination about a fuel standard; entering an additive on the Register of Prohibited Fuel Additives, or removing an entry on the Register; and preparing guidelines for making more stringent standards.

This requirement is waived in relation to a determination made within 6 months of the commencement of clause 21. The first determinations will establish standards for petrol and automotive diesel fuels. The objective of this provision will nevertheless have been met because of an extensive consultation process involving State and Territory agencies, industry and community stakeholders. These consultations will have concluded before the Fuel Quality Standards Bill is enacted. The Minister will therefore have had the opportunity to receive and consider the views of the same range of stakeholders who will be represented on the Committee. The deferral of the operation of this consultation provision will also ensure that the first determinations can be published soon after the passage of the Bill through the Parliament. This will provide petrol and diesel producers with reasonable notice of relevant standards.

Clause 25 – Membership of Committee

Clause 25 provides that the membership the Committee will be determined by the Minister. However the Act provides that the Committee must include one representative of each State, the Australian Capital Territory, and the Northern Territory; one representative of the Commonwealth; one person representing fuel producers; one person representing a non-government body with an interest in the protection of the environment, and one person representing the interests of consumers. The Committee is designed to represent a range of interests, but to be flexible enough to provide advice on particular standards being considered. Thus, the Committee members representing fuel producers may vary according to the specific fuel to be regulated, and different industry bodies will also be added, for example to represent vehicle manufacturers, or representatives of specific consumer interests, where this is appropriate.

Sub-clause 25(4) provides that the Minister must appoint the Chair of the Committee, and that all members be appointed by a written instrument. Each Committee member holds office on a part-time basis.

Clause 26 – Procedures of Committee

This clause provides that the Committee is to determine its own procedures.

Clause 27 – Expert advisers

The Minister may appoint expert advisers to assist the Committee in commenting on any of the matters listed under clause 24A. The advisers will not be members of the Committee. They will be appointed by written instrument.

Clause 28 – Remuneration

This clause provides that a member of, or an expert adviser to the Committee, is to be paid the remuneration that is determined by the Remuneration Tribunal. If a Tribunal determination is not applicable, then the remuneration or allowances payable to a Committee member or expert adviser will be as prescribed by the regulations.

Clause 29 – Appointment conditions of Committee members etc.

This clause provides that the regulations may prescribe matters relating to the members of the Committee and expert advisers, such as their term of appointment, resignation, disclosure of interests, termination of appointment and leave of absence.

Division 7 – Supply and importation of fuel additives

Clause 30 – Supply of a fuel additive

Additives are commonly used by producers of petrol and automotive diesel fuels for a number of objectives, such as improved combustion of the fuel. Additives are also marketed directly to consumers for addition to fuel, again for a range of purposes, generally relating to vehicle performance or fuel efficiency. The meaning of fuel additive will be set out in regulations. This is to ensure that the definition can be tailored to the types of additives that are used in the range of fuels that will be the subject of fuel standards.

While the vast majority of existing additives are believed to be environmentally benign, or even beneficial, from time to time it becomes apparent that an additive used in fuel may be harmful to the environment or human health (through emissions or escape into the environment). In some cases, additives may cause damage to vehicles, such as sensitive emission control technologies.

Clause 30 creates the offence of supplying a prohibited fuel additive in Australia. The offence applies to a constitutional corporation or Commonwealth entity or person who in the course of constitutional trade and commerce supplies a fuel additive which is entered in the Register of Prohibited Fuel Additives. The provisions authorising the keeping of the Register are in Division 8. The supply of a prohibited fuel additive is punishable by a penalty of up to 500 penalty units for an individual.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 30 is therefore 2500 penalty units.

Clause 31 – Importation of a fuel additive

Clause 31 creates the offence of importing a fuel additive into Australia, where the additive is entered in the Register of Prohibited Fuel Additives. The importation offence is punishable by a penalty of up to 500 penalty units for an individual.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 31 is therefore 2500 penalty units.

Division 8 – Register of Prohibited Fuel Additives

Clause 32 – Minister to keep Register

This clause provides that the Minister must keep a Register of Prohibited Fuel Additives. This Register may be maintained by electronic means.

Clause 33 – Inspection of the Register

Clause 33 provides that the Minister must make the Register available for any person to inspect at the times and places published in the Gazette. The Register is also to be made available for inspection on the Internet.

Clause 34 – Notice of proposed entries in the Register

This clause provides that the Minister must publish, in accordance with the regulations, notice of his or her intention to amend the Register by entering or removing a fuel additive or class of fuel additives. This notice must invite submissions on the proposal and provide information as to the addresses (including the Internet address) to which submissions may be sent, and specify the day by which submissions must be sent. The period within which submissions may be lodged must be at least 60 days from the date of the publication of the notice.

Clause 35 – Minister to consider submissions and make a decision

This clause provides that the Minister must consider all submissions received by the day specified in the notice inviting submissions about the proposal to enter a fuel additive, or remove a fuel additive from the register. After the Minister has made his or her decision about whether or not to amend the Register to add or remove a fuel additive, notice of that decision must be published in accordance with the regulations. Notice of the decision, and also notice that application may be made to the Administrative Review Tribunal for review of the decision, must be given to each person who made a submission.

Clause 36 – Guidelines for making a decision

This clause provides that the Minister must develop written guidelines that he or she must have regard to in making a decision under this Division. These are disallowable instruments for the purposes of section 46A of the Acts Interpretation Act 1901. These guidelines are intended to ensure that a consistent, objective process is followed in deciding whether or not a fuel additive should be prohibited. It will also provide guidance to any interested parties who wish to make submissions in relation to the listing or de-listing of an additive on the Register.

Part 3 – Enforcement

Division 1 – Overview

Clause 37 – Overview of Part

Clause 37 provides a brief overview of Part 3, including its various Divisions. Part 3 sets out an enforcement regime for the purpose of finding out whether the Act has been complied with, or for assessing the correctness of information provided under the Act.

Division 2 – Appointments of inspectors and identity cards

Clause 38 – Appointment of inspectors

Clause 38 provides that the Secretary may appoint inspectors, including Commonwealth, State or Territory officials, as inspectors. The Secretary must be satisfied that the person he or she appoints is suitably qualified and experienced to exercise relevant powers. An inspector must comply with any directions of the Secretary when exercising powers or performing functions as an inspector.

Clause 39 – Identity card

This clause provides that the Secretary must issue an identity card to an inspector. The card must comply with the requirements of the regulations and contain a recent photograph of the inspector. Identity cards must be returned to the Secretary as soon as practicable after a person issued with an identity card ceases to be an inspector.

Division 3 – Monitoring powers

Clause 40 – Powers available to inspectors for monitoring compliance

Clause 40 specifies the powers that are available to inspectors for the purpose of finding out whether the Act has been complied with, or of assessing the correctness of information provided under the Act. An inspector may enter premises with consent or an authorising warrant for the purpose of exercising the monitoring powers specified in clause 41.

Clause 41 – Monitoring powers

Clause 41 empowers an authorised officer to exercise a range of powers while on a premises to monitor compliance with the Act or regulations. An inspector may:
– search the premises and any thing on the premises;
– inspect, measure, take samples of, etc. any fuel or fuel additive on the premises;
– take photographs, videos etc. of the premises or any thing on the premises;
– inspect and take extracts from or make copies of any book, record or document;
– take onto the premises any equipment or materials required for monitoring;
– secure evidential items or material until an offence related warrant is obtained to seize it. This power can only be exercised where, in the course of exercising a monitoring power, an inspector finds a thing that he or she believes on reasonable grounds is evidential material, and which he or she believes on reasonable grounds will be lost, destroyed or tampered with before the warrant can be obtained;
– operate equipment for specified purposes; or
– remove documents and disks, or transfer information onto a disk, tape or other storage device, in accordance with the requirements of this clause (41) and clause 49.

Clause 49 provides that an inspector may operate electronic equipment at premises in the exercise of powers under the Act if he or she believes on reasonable grounds that the equipment can be operated without damaging it.

Clause 42 – Inspector on premises under warrant may require persons to answer questions etc.

Where the inspector is acting under a monitoring warrant, the inspector may require a person to answer questions or produce records etc. A person who refuses to do so is guilty of an offence under sub-clause 42(2), unless they are able to rely on their right not to incriminate themselves. The penalty for an individual is up to 6 months imprisonment.

Division 4 – Offence-related powers

Clause 43 – Searches and seizures related to offences

This clause provides that an inspector may enter a premises and exercise an offence-related power in clause 44, if he or she has reasonable grounds for suspecting that there may be evidential material on any premises. Entry requires the consent of the occupier or an offence-related warrant. If entry is made in accordance with an offence-related warrant, the inspector may seize the evidential material found on the premises.

Clause 44 – Offence-related powers

The general offence-related powers in clause 44 are similar to the monitoring powers in clause 41, and must also be exercised in accordance with clause 49.

Sub-clause 44(5) only permits equipment or documents to be seized in prescribed circumstances. These include: where an offence-related warrant authorises access to a premises, or if it is not practicable for an inspector to make a documentary copy or to transfer the material to disk or other electronic storage; or if possession of the equipment could constitute a Commonwealth offence. Under sub-clause 44(7) seizure may also be permitted if, in the course of searching for a particular thing under an offence-related warrant, the inspector believes on reasonable grounds that another thing could be evidential material, or if the inspector believes on reasonable grounds that the other evidential material should be seized to prevent the commission, continuation or repeating of an offence.

Division 5 – Obligations and incidental powers of inspectors

Clause 45 – Inspector must produce identity card on request

This clause provides that an inspector must produce an identification card at the request of the occupier of the premises an inspector wishes to exercise powers in relation to. If the inspector fails to produce his or her identity card, he or she cannot exercise his or her powers under Part 3.

Clause 46 – Consent

This clause provides that an inspector must inform the occupier of his or her right to refuse consent to entry before the inspector can obtain consent to enter premises. It also provides that a person must provide consent voluntarily, for entry after consent to be lawful.

Clause 47 – Announcement before entry

Clause 47 provides that before entering premises under a warrant, an inspector is required to announce his or her authority to enter premises and to give a person at the premises an opportunity to allow entry to the premises. This requirement can be waived on a number of grounds, including to ensure human safety, to prevent serious environmental damage, or where an inspector has a reasonable belief that the announcement would frustrate the execution of the warrant.

Clause 48 – Details of warrant to be given to occupier etc.

This clause requires that the occupier of a premises, or another person apparently representing the occupier, must be provided with a copy of the warrant being executed. The inspector must also identify himself or herself to that person. The signature of the magistrate who issued the warrant need not be on the copy of the warrant provided.

Clause 49 – Use of electronic equipment already at premises

Clause 49 enables an inspector to operate electronic equipment at premises in order to exercise a power under this Part if he or she believes the equipment can be operated without damaging it.

Clause 50 – Securing electronic equipment for use by experts

Clause 50 enables an inspector to take whatever action is necessary to secure electronic equipment if the inspector believes on reasonable grounds that information or material relating to an offence under the Act may be accessible by operating the equipment, and expert assistance is needed to operate it, or that the information and material may be destroyed if the equipment is not secured. Equipment can only be secured for up to 24 hours, or until operated with expert assistance.

Clause 51 – Compensation for damage to electronic equipment

This clause provides that compensation is payable for any damage to electronic equipment operated with insufficient care during the exercise of a power under this Part. This clause also addresses how the quantum of compensation may be determined and be payable. It also defines damage to data as including the erasure of data or addition of other data.

Division 6 – Occupier’s rights and responsibilities

Clause 52 – Occupier entitled to be present during search

Clause 52 provides that an occupier (or apparent representative of an occupier), who is present when a warrant is exercised has a right to observe the search, provided that he or she does not impede the search. Two or more areas of the premises may be searched at the same time however.

Clause 53 – Occupier to provide inspector with all facilities and assistance

The occupier (or apparent representative of an occupier), if present, must provide the inspector executing the warrant and any person assisting the inspector, all reasonable facilities and assistance necessary for the effective exercise of their powers. A penalty of 30 penalty units applies where the occupier or apparent representative fails to meet this obligation.

Division 7 – General provisions relating to seizure

Clause 54 – Copies of seized things to be provided

This clause requires an inspector to give a copy of a thing or information seized, to the occupier of the premises or their apparent representative, as soon as practicable after it has been seized. This obligation does not apply in specified circumstances.

Clause 55 – Receipts for things seized

This clause requires an inspector to provide a receipt for a thing seized. One receipt may cover multiple items seized.

Clause 56 – Return of seized things

This clause provides that an inspector must return seized things in specified circumstances.

Clause 57 – Magistrate may permit a thing to be retained

This clause provides for a magistrate to permit a thing to be retained for up to three years, where otherwise it would be required to be returned. An inspector may apply for an order to retain a thing within 60 days of the seizure or before the end of an earlier order permitting the thing to be retained, and after taking reasonable steps to ascertain and notify those who may have an interest in the retention of the thing. This clause says that the Magistrate must be satisfied that it is necessary for an inspector to retain a thing for investigation and enforcement purposes under the Act.

Clause 58 – Disposal of goods if there is no owner or owner cannot be located

This clause provides that if there is no owner of a seized thing or an owner cannot be located with reasonable effort, where otherwise the thing would have to be returned, the Secretary may dispose of the thing as he or see sees fit.

Division 8 – Warrants

Clause 59 – Monitoring warrants

This clause empowers a magistrate, on application by an inspector, to issue a warrant to enter premises for the purpose of finding out whether any or all provisions of the Act or regulations are being complied with. The clause sets out conditions for the issue of, and terms of, the warrant.

Clause 60 – Offence-related warrants

This clause enables a magistrate to issue a warrant to enter premises and exercise offence-related powers (conferred by clause 44). The clause also sets out conditions for the issue of, and terms of, the warrant.

Clause 61 – Offence-related warrants by telephone, telex, fax etc.

This clause permits an inspector to apply to a magistrate for an offence-related warrant by telephone, telex, fax or other electronic means, in an urgent case. Warrants may be applied for and issued by electronic means in urgent cases where a delay caused by an application in person would frustrate the effective execution of the warrant. The clause specifies the procedure to be followed in applying for and executing such warrants. Signed warrants issues by the magistrate may authorise any entry, search, seizure or other exercise of power. The warrant may need to be later produced in court to demonstrate that the exercise of a power by an inspector was authorised. Sub-clause 61(10) requires a court to assume a power was not authorised if the warrant is not produced, unless the contrary is proved.

Clause 62 – Offences relating to warrants

Clause 62 creates offences relating to warrants. It is an offence, punishable by up to 2 years imprisonment, for an inspector to knowingly make a false or misleading statement in an application for a warrant. Inspectors also face a maximum penalty of up to 2 years imprisonment for a range of other misrepresentations relating to warrants that are specified in sub-clause 62(2).

Division 9 – Powers of magistrates

Clause 63 – Powers conferred on magistrates in their personal capacity

This clause provides that powers conferred on a magistrate by Part 3 are conferred personally, not on the magistrate as a court or member of a court. A magistrate need not accept the power conferred however.

Clause 64 – Immunity of magistrates

This clause provides that a magistrate exercising a power under sub-clause 63(1) has the same protection and immunity as if he or she were exercising that power as a member of the court of which he or she is a member.

Division 10 – Injunctions

Clause 65 – Injunctions

This clause deals with the granting of injunctions in relation to conduct that is or would be a contravention of the Act. The intention is to ensure that if a potential contravention is detected, illegal behaviour may be prevented. The Minister, or any aggrieved person, such as another fuel supplier or a representative of an interested consumer or environmental group, may seek an injunction from the Federal Court of Australia to restrain the person from engaging in conduct that may constitute an offence. Similarly, it will be possible to seek an injunction requiring a person to do a thing that is required to be done under the Act. This clause also provides for the discharge or variation of injunctions and interim injunctions.

Sub-clause 65(2A) is an "extended standing" provision. It deems an individual who is an Australian citizen or ordinarily resident in Australia and who has been engaged in a series of activities for the protection or conservation of, or research into, the environment in Australia, at any time in the two years preceding the event in relation to which the injunction is sought, to be an "aggrieved person" for the purpose of making an application for an injunction. Sub-clause 65(2B) is also an "extended standing" provision. It deems an organisation or association established in Australia, whether incorporated or not, which has engaged in a series of activities in Australia for the protection or conservation of, or research into the environment, at any time in the two years preceding the event in relation to which the injunction is sought, and which has included in its objects or purposes the protection or conservation of, or research into, the environment, to be an "aggrieved person" for the purpose of making an application for an injunction.

Sub-clause 65(2C) makes clear that the intention of sub-clause (2A) and (2B) is to extend the meaning of "aggrieved person" for the purpose of applying for an injunction under clause 65.

Part 4 – Record keeping and reporting obligations

Clause 66 – Record keeping

This clause provides that a person who is a constitutional corporation or a Commonwealth entity or who supplies fuel in the course of constitutional trade and commerce, must keep and maintain records in relation to such supplies. The regulations will set out the form that these records must take.

The intention of this provision is to ensure that the Commonwealth can trace fuel movements through the supply chain. The regulations will specify the detailed record keeping requirements that the Commonwealth considers are necessary to assist in monitoring compliance with the Act and enforcement of provisions. For example, the regulations might require that a record of the statement given by a supplier under clause 19 be retained for a period set out in the regulations. They may also specify requirements to keep records of fuel sources, movements and any modifications to fuel such as the addition of additives.

The criminal penalty for failing to keep necessary records is up to 60 penalty units for an individual. Strict liability applies to this offence.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 66 is therefore 300 penalty units.

The Commonwealth considers that the size of the penalty is justified by the importance of record keeping to adequate monitoring and enforcement of the Act's provisions.

Clause 67 – Annual statements

Annual statements are required to be made by a person who produces and supplies (if the person is a constitutional corporation or a Commonwealth entity or supplies fuel in the course of constitutional trade and commerce), or imports and supplies, fuel that is the subject of a standard. Clause 67 provides details of timing and form that must be complied with. A penalty of 60 penalty units for an individual applies where the annual reporting requirement is breached.

Sub-section 4B(3) of the Crimes Act 1914 provides that a court may impose on a body corporate found guilty of an offence, a pecuniary penalty of up to 5 times the amount of the maximum pecuniary penalty that the court could impose on an individual convicted of the same offence. The maximum penalty for a body corporate under clause 67 is therefore 300 penalty units.

This provision will enable the Commonwealth to collect information relating to fuel produced in and imported to Australia on an annual basis. Data relating to volumes of production, for example, will be increasingly significant as alternative fuels for motor vehicles become more widely available. An accurate understanding of fuel use is essential to determining vehicle fleet emission rates.

Part 5 – Other matters

Clause 68 – Delegation by Minister

This clause enables the Minister to delegate, in writing, his or her powers or functions to the Secretary, or an SES employee, or an acting SES employee. The Minister may delegate all or any of his powers other than the power to grant an approval under section 13, and the power to make a determination of a standard under section 21. Delegates under the Act must comply with any directions of the Minister. Such power of delegation is considered prudent for the efficient operation of the Act.

Clause 69 – Delegation by Secretary

This clause enables the Secretary to delegate, in writing, his or her powers or functions to an SES employee or an acting SES employee. Subclause 69(2) provides that a delegate must comply with any directions of the Secretary. Such power of delegation is considered prudent for the efficient operation of the Act.

Clause 70 – Review of decisions

This clause provides that an application can be made to the Administrative Review Tribunal (ART) for the review of specified administrative decisions made under the Act. It also includes "extended standing" provisions. Subclause 70(2) provides that for the purposes of an application to the ART, the meaning of persons whose interests are affected in section 61 of the Act which establishes the Tribunal is extended by subsections (3) and (4). Subclause 70(3) is intended to extend standing to an individual who is an Australian citizen or ordinarily resident in Australia, and who has been involved in a series of activities for the protection or conservation of, or research into, the environment in Australia at any time in the previous two years.

Subclause 70(4) is intended to extend the standing of organisations in relation to ART reviews. It provides that an organisation or association can be a person whose interests are affected by a decision if they are established in Australia, whether incorporated or not, and have engaged in a series of activities in Australia for the protection or conservation of, or research into the environment, at any time in the two years preceding the decision; and at the time of the decision that may be the subject of an application for review, the objects or purposes of the organisation or association included protection or conservation of, or research into, the environment.

The Bill refers to the Administrative Review Tribunal on the basis that the main provisions of the Act will not commence until after the date that the Administrative Review Tribunal comes into being.

Clause 71 – Annual Report

This clause provides that the Secretary must report annually to the Parliament through the Minister on the operation of the Act.

Clause 72 – Review of operation of Act

This clause provides that an independent review (as defined) of the operation of the Act must take place every 5 years. The first review must commence as soon as possible after the second anniversary of the commencement of Part 2 – the standards relating to fuel quality. The Minister must cause a copy of each review report to be tabled in each House of Parliament within 15 sitting days of the day on which the report is given to the Minister.

Clause 73 – Regulations

Clause 73 enables regulations to be made under the Act.

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