EXECUTIVE SUMMARY (Page ix) (Page ix)

The Environment

The Committee believe that the Government’s proposed new tax system would take Australia backwards in its impact on the environment, and represents the loss of a rare opportunity to change the tax system and implement reforms that would result in greater ecological sustainability. In the face of Australia’s failure to implement ecological tax reform to date, and the far-reaching implications of global ecological threats, the need for tax reform which has enhanced environmental objectives has never been greater.

Ecological tax reform has been embraced in several OECD countries but if the new tax package were to proceed, Australia would be the only country in recent times to introduce a net reduction in taxes and charges for fuel and energy.

The Committee heard compelling evidence that the proposal would deliver higher levels of pollution and waste, and act to discourage the growth of more sustainable practices, including:

• a significant increase in greenhouse gas emissions;
• increases in some major air pollutants, especially in urban areas, with associated health costs;
• loss of market share for solar energy products and services in favour of unsustainable energy sources;
• increased demand for road freight at the expense of rail freight, with significant increases in greenhouse gas emissions and other pollutants as a result;
• the collapse of the gaseous fuels industry:
• a general increase in business transport and a shift to diesel within that away from petrol;
• increased demand for private motor vehicle use at the expense of public transport; and
• an overall increase in the energy and resource intensity of the Australian economy.

Environment Australia told the Committee that the government’s environmental objectives were not changed by the tax reform proposals. Environment Australia argued that the proposed new tax system would improve the robustness of economic sectors and so enhance their capacity to manage any economic adjustment in response to environmental policies. The Committee rejects this view.

There was no evidence of consultation between Environment Australia and Treasury on the subject of the tax package. The Committee found it extraordinary that proposals with such profound implications for the environment should be developed without reference to the relevant Commonwealth department, and appears to indicate how little consideration has been given to environmental concerns.

Reduction in Diesel Fuel Excise (Page x) (Page x)

The tax package would provide a substantial incentive to people to use more environmentally polluting modes of transport, the opposite direction from the one in which transport policy should be moving.

International studies clearly demonstrate that taxes of fuel should be increased in order to internalise the environmental costs produced by the transport industry and that the biggest increase ought to apply to diesel fuel because, at least in urban areas, it has the most damaging effect on human health. The tax package, by reducing the price of the one fuel that the scientific consensus suggests we should be doing most to discourage, does the opposite.

The diesel currently imported to Australia has a high level of sulphur and results in a much higher level of particle emissions than gaseous fuels. According to National Environment Protection Council estimates, 1,062 people die each year from particulate exposure. The Committee heard conservative estimates that at least 65 more people would die each year in Australia as a result of the increase in urban air pollution and traffic accidents if the GST package goes ahead as proposed. These would be predominantly young children and the elderly.

Medical evidence linking particulates from diesel engines with conditions like asthma are translating into social costs which some reports rate as high as $2 billion per year.

The Committee found the evidence presented on the health impacts of diesel fuels profoundly disturbing. There is a significant problem to be addressed in relation to the current level of diesel use, let alone the likely further impacts which would follow from a lowering of the diesel excise and the resulting disincentive to convert to other fuels.

Road and Rail Transport (Page xi) (Page xi)

Diesel use in rail transport is at least three times more efficient per tonne kilometre than in road transport… The Government's proposals would:

• shift ten per cent of inter-stage freight from rail to road;
• (Page xii) increase heavy vehicle traffic and increase the potential for truck-related crashes; increase heavy vehicle traffic and increase the potential for truck-related crashes;
• increase fuel usage and greenhouse gas emissions; and
• increase road congestion.

Public Transport

There was general agreement in evidence to the Committee that the effect of the proposed tax package would be to increase private vehicle use in urban areas at the expense of public transport. All the work that has been put in over the past 10, 15 or 20 years to move people away from the private motor car would be eroded by the Government’s proposals.

(Page xiii) Australia already has very low public transport patronage, only one third that of European cities and one of the lowest in the OECD. Concessional tax treatment of public transport is common public policy in European VAT tax regimes, some countries providing GST-free public transport. Australia already has very low public transport patronage, only one third that of European cities and one of the lowest in the OECD. Concessional tax treatment of public transport is common public policy in European VAT tax regimes, some countries providing GST-free public transport.

Renewable Energy

The reduction in diesel fuel excise would bankrupt this industry and completely undermine the positive environmental impacts of the industry. Approximately 540 million litres of new oil was sold in 1996, of which about 149 million litres, or 28 per cent, was collected for recycling. The evidence also raised serous questions as to what is being done with the 390 million litres of waste oil that is currently not being recycled. Oil that is not recycled appropriately will find its way into the soil, the water table and eventually waterways, damaging terrestrial and marine vegetation and wildlife.

Particulates - ‘smoke’ (Page 4)

Diesel particulates are toxic and extremely detrimental to health. In August 1998 the California Air Resources Board (ARB) approved a proposal to list particulate emissions from diesel-fuelled engines as a Toxic Air Contaminant (TAC). Overall, more than 40 substances in diesel are listed as TACs by the ARB and by the US Environmental Protection Authority as hazardous air pollutants

(Page 5) Long-term exposure to diesel has been associated with a 40 per cent increase in the relative risk of lung cancer. In addition, there is a greater incidence of cough, phlegm and chronic bronchitis among those exposed to diesel exhaust than among those not expose. Long-term exposure to diesel has been associated with a 40 per cent increase in the relative risk of lung cancer. In addition, there is a greater incidence of cough, phlegm and chronic bronchitis among those exposed to diesel exhaust than among those not expose.

The burning of waste sump oil as a cheap fuel produces harmful emissions of lead, cadmium, chromium, zinc, sulphur, nitrogen, hydrocarbons and chlorinated hydrocarbons.

Environmental Standards for Vehicles (Page 7) (Page 7)

Australian emission standards for diesel vehicles are extremely lenient. Most four-wheel drive diesel vehicles permitted under Australian standards would not be allowed on the road in the US, Japan or Europe.

Recycled Oil (Page 48) (Page 48)

The Committee heard compelling evidence from oil recyclers suggesting that the reduction in diesel fuel excise would bankrupt the sector and completely undermine the positive environmental impact of the industry.

Mr Fred Wren, the Managing Director of Wren Oil in Western Australia, told the Committee that approximately 540 million litres of new oil was sold in 1996, of which about 149 million litres, or 28 per cent, was collected fro recycling.

In broad terms, oil recyclers collect waste oil from all sources, clean or re-refine it and then, place the product back into the marketplace. The main product is diesel extender. With excise exemptions, re-refined oil can be sold competitively for blending with diesel to run remote power stations. The removal of diesel excise without compensation for oil recyclers would make new diesel cheaper and the existing market would be lost.

Mr David Braham, General Manager of Mulhern Waste Oil, told the Committee that his company collects 80-85 per cent of waste oil in the Adelaide area, and a higher proportion of waste oil from outlying areas of South Australia and the Northern territory. He said that with the removal of diesel fuel excise his small family business would be unable to compete with the major petroleum companies.

(Page 49) "The cost of production is approximately 25 cents a litre and that will be below the selling price of diesel by the major petroleum companies. They will completely undercut us, so we are dead in the water there – unless the excise is left on diesel after the GST is introduced."

In Western Australia, Wren Oil collects about 12 million litres of waste oil per annum. Mr Fred Wren, Managing Director, told the Commit-tee that he began collecting sump oil in 1981 and learned about the harmful chemicals it contained:

"We collect sump oil from every type of transport – from all mining, shipping, industrial and domestic sources that one can thing of. Sump oils contain lead and other heavy metals. Most of the waste oil in Australia is burned untreated as a cheap fuel oil with the emissions going through the air we breathe…The place is still full of waste oil. Where do we put it?"

Mr Braham supplied information to the Committee which indicated that untreated waste sump oils contain about ten per cent of additives, including toxic substances such as zinc, phosphorus, barium, calcium, magnesium, silicon and sulphur. Other hazardous contaminants from engines include heavy metals such as the waste oil produces harmful emissions: more than fifty per cent of the lead, cadmium, chromium and zinc is emitted to the air, as well as oxides of sulphur and nitrogen and hydrocarbons.

Waste oil is not classified as a hazardous liquid but it contains hazardous materials which may be carcinogenic, and which are certainly harmful to the environment when disposed of improperly.

Mr Wren relayed the events of a 1992 meeting with the Australian Institute of Petroleum where an industry spokesman said that the oil industry’s first preference was to dump waste oil in roads for dust control or in pits out in the bush.

"I told them the meeting that Wren Oil recycled small amounts of hydraulic oil. They said, ‘Keep it small’. They would not like to see lubricants as the cream and when finished it should be burnt. The diesel excise exemption works very well at no cost of the expenditure side of the budget: it is just an invisible cost to the revenue side of the budget as foregone excise. The GST tax reforms that remove the diesel excise will kill off this market completely. What do we do with 12 million litres of waste oil? Senators, tell us where to put it."

(Page 50) The Committee was disturbed by the evidence it received in relation to waste oil and believes that there are profound implications for the environment if the tax package is implemented as proposed. Quite apart from the economic effect on oil recycling businesses, and the associated job losses, there would be a massive increase in the volume of waste oil to be disposed of. The Committee considers that waste oil should be regarded as a retrievable energy source and that its processing should attract appropriate government support. The Committee was disturbed by the evidence it received in relation to waste oil and believes that there are profound implications for the environment if the tax package is implemented as proposed. Quite apart from the economic effect on oil recycling businesses, and the associated job losses, there would be a massive increase in the volume of waste oil to be disposed of. The Committee considers that waste oil should be regarded as a retrievable energy source and that its processing should attract appropriate government support.