bp
David Stuart
Director - Government Affairs
BP Australia Pty Ltd
ABN 53 004 085 616
717 Bourke Street
Docklands Vic 3008
AUSTRALIA
www.bp.com.au
27 June 2016
Biofuels Regulation 2016
Policy & Legislation Division
PO Box 972
PARRAMATTA NSW 2124
[email protected]
To whom it may concern,
Thank you for the opportunity for BP Australia (BP) to provide feedback on the
Regulatory Impact Statement (RIS) and the public consultation draft of the Biofuels
Regulation 2016 (the Regulation).
BP acknowledges that a biofuels mandate is NSW Government policy. In addition to the
numerous partial exemption applications, quarterly biofuels reporting returns, supporting
business plans, and IPART data requests we have provided over the years, we trust this
submission will provide a level of industry information to inform development and
implementation of a feasible and sustainable policy framework to achieve the NSW
Government’s policy intent.
This submission may be read in conjunction with the Australian Institute of Petroleum
(AIP) submission.
Yours sincerely
David Stuart
BP Australia
Position on mandates
BP supports market based mechanisms for the supply of fuel in Australia; such an
approach has delivered supply reliability and a competitive fuels market.
Acknowledging the increasing role that biofuels play in global transport fuel supply, we
believe that government policy in support of biofuels must:
• Be transparent with clear, credible and tested objectives;
• Be competitively neutral to all market participants;
• Be based on sound science;
• Be stable and signal clear timeframes for withdrawal of government support; and
• Be cognisant of broader policy settings and industry practice.
For this reason we do not support mandates for any fuel due the market distortions,
reduced supply security and increased cost to consumers. These outcomes have been
recognised in numerous government and regulatory reports in Australia.
The primary objective of the Biofuels Act 2007 is to support the development of a
sustainable biofuels industry in NSW, resulting in regional development through
investment in production facilities and jobs in regional centres. The Act’s success in
achieving this objective has been limited, no additional biofuels plants reaching advanced
stages of development, and a number of biodiesel producers having closed, furthermore,
the Act has experienced limited success in stimulating investment.
While it could be argued that the Act has supported incremental capacity expansion of one
existing ethanol producer, this achievement is tempered by the unintended consequence
of concentrating the majority of domestic ethanol production with one supplier. This has
implications on supply security, market structures and cost of product, that will ultimately
disadvantage consumers.
Why the NSW mandate has not been met
Simply put, a 6% ethanol mandate requires 60% of all motor spirit sales in NSW to be E10.
There are several issues that have affected the ability for industry to comply with this
requirement, most of which are outside of industry’s control. BP considers the main
reasons to be:
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Retail site operators not covered by the mandate not wanting to stock E10 and
continuing demand for the wholesale supply of Regular Unleaded Petrol (RULP91);
Motorists choosing premium fuel (PULP) instead of ethanol blended fuel 1;
The conversion expense to store and dispense ethanol or biodiesel – resulting in
reluctance to invest in a disproportionately small part of the fuels market;
IPART - Ethanol Supply and Demand in NSW March 2012 page 3,4
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Recommendations by Original Equipment Manufacturers (OEM) made to motorists.
This includes recommending the use of higher octane fuels in modern vehicles.
Defined as fuels with a Research Octane Number (RON) above 95, higher octane fuels
are those typically traded as ‘Premium 95’ and proprietary brands such as ‘BP Ultimate
98’;
Despite the efforts of manufacturers such as Holden Australia, and associations such
as the Federal Chamber of Automotive Industries (FCAI), consumer sentiment towards
E10 remains low;
An inadequate, and diminishing, price differential between E10 and RULP. Given
consumer concerns associated with biofuels (IPART identify that E10 is 3% less fuel
efficient than RULP 2), market behaviour in New South Wales indicates the pricing for
biofuels is not appropriate relative to the alternatives available;
A small number of sites located close to border regions receive fuel supplied from
terminals located in Victoria and Queensland. This recognises both the most efficient
(cost effective) supply chain and application of The Mutual Recognition Act; and
Unfair negative consumer perceptions of biofuels as a fuel source. Based on historical
issues and, in some circumstances, misleading information, a proportion of motorists
may be reluctant to utilise biofuels despite knowing they are suitable for their vehicle.
BP notes that the NSW has recognised many of these issues and is attempting to address
them through policy initiatives including a move to retail site compliance, wholesale ethanol
pricing regulation, and a consumer education campaign.
RIS - lacking efficacy
Acknowledging the compressed time provided to the NSW Fair Trading Department to
consult, develop policy, and implement the updated policy framework in accordance with
the government’s policy desire, the published RIS lacks efficacy and does not provide a
strong basis for policy formulation.
Some examples of issues associated with the RIS include:
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In light of amendments to the The Biofuels Act 2007 passing the NSW Parliament, the
three options presented and assessed in the RIS are not true options. Option 1 to
‘maintain the status quo’ is clearly inappropriate, yet presented as a legitimate choice
for assessment.
Despite Option 2 ‘simplified regulation’ being rejected on the basis of providing ‘less
(operating) certainty for industry’ and less assurance to the Government that the
mandate could be achieved – the RIS does not adequately demonstrate how Option 3
addresses either of these issues.
The RIS exaggerates positions which are unsubstantiated such as:
o Stating that ‘the benefits of Option 3 to stakeholders and the community have
been assessed as high and are considered to substantially outweigh any costs
IPART - Ethanol Supply and Demand in NSW March 2012 page 52
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to be borne by industry and the Government’. This is despite IPART’s final
report stating that any option to increase ethanol uptake “would increase the
cost of an already expensive policy, with little economic gain for the NSW
community 3”
o Presenting a summary table that states ‘medium likely costs’ and ‘high likely
benefits’ before the policy framework is yet to define key policy details such as
who in industry is covered by the mandate (by setting of the ‘volume sales
threshold’).
The RIS does not recognise the interaction with several other key policy initiatives of
the NSW Government to understand the industry including:
o The NSW Government’s data collection exercise due for submission on 30 June
(in three days’ time and four weeks after the RIS was published).
o The process about to be being undertaken by IPART to better understand the
effect of wholesale ethanol pricing regulation on retail sales.
The result of stakeholders (including policy developers) working in such compressed
timeframes in isolation of other initiatives will be, at best, a basic understanding of the
industry and policy landscape to support achievement the NSW Government’s policy
intent.
Responses to questions posed in the RIS
Is the proposed commencement date for the Regulation and the remaining provisions of
the Biofuels Amendment Act appropriate?
No. As at the end of June, key policy details remain undefined.
BP welcomes ongoing engagement with the NSW Government to define and address
these issues, including the adoption of a transition period which recognises the complexity
of upgrading aspects of the fuels supply chain.
Such an approach will need to accommodate lead times for the sourcing and
implementation of infrastructure changes by a specialist contractor base in New South
Wales.
Are the proposed penalty notice arrangements appropriate?
No.
Despite Option 3 being selected on the basis of ‘certainty for industry’, the subjectivity of
terms such as ‘reasonable’ (referenced nine times in Section 8 of the Regulation alone) and
‘relevant’, necessitate a period of interpretation and for industry to understand.
3
IPART – Ethanol mandate, Options to increase the uptake of ethanol blended petrol. Final Report
May 2015 page 2
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While such ‘greyness’ may be understood by decision makers closely involved in the
exemption process – departmental inspectors responsible for enforcement of the
Regulation using either punitive fines or the threat of expensive litigation in lieu thereof,
require ‘black and white’ rules to ensure transparency, fairness and due process to market
participants responsible for compliance.
Throughout a transition period, any non-conformance with the Regulation should be
addressed through the exemption application / review process.
What is the appropriate volume sales threshold (litres per year)?
What issues should be considered in setting the regulatory threshold?
BP does not have enough information to inform a position on this question.
Clearly in setting the volume sales threshold, the Government will need to balance the
competing demands of small to medium size business viability, with the optimal market
coverage of the Regulation to support ethanol-based fuels sales.
Is the reasonable steps test in the proposed Regulation sufficient or should additional
items be included?
Based on our experiences storing, distributing, and retailing biofuels in Australia, we
believe the five areas of ‘reasonable effort’ (distribution infrastructure, retail site availability,
ongoing supply, communication to the market, and appropriate blending ratios) all defined
in Section 8 of the Regulation are suitable.
Key to implementing these provisions will be operation of the related exemption
framework, especially in circumstances where significant investment and long
implementation timelines are required.
Is two years the appropriate maximum period for an exemption?
BP is supportive of a two year exemption period. This will permit stability in the application
of the policy framework and acknowledges the long lead times and considerable expense
that will likely be incurred by industry.
Where efforts have been implemented and proven over a two year period, retailers should
be able to reapply for another two year exemption.
Should an alternative exemption process be developed?
What factors should be considered?
BP does not possess enough information to inform a position on this question.
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Based on the principles documented in the RIS, whereby different types of applications
may have different evidentiary or assessment processes, BP is supportive of a process
which may permit ‘streamlined’ applications and varying exemption requirements.
Is the availability requirement appropriate?
BP like all market participants seeks to supply products and services that consumers
demand. These demands for fuel, convenience store products, and market information
vary from site to site.
BP agrees that reasonable steps should be taken to make E10 available and accessible.
However, notwithstanding the NSW Government policy to deliver a 6% mandate, retail
sites simply cannot force consumers to purchase a product they do not wish to buy, or
invest rare capital to further support a low demand product. Ethanol blended fuel sales
have been declining for a period of time in NSW, making the Government’s planned
education campaign and wholesale pricing regulation critical to achieving the policy.
Until such enabling policy measures take effect and, as the Government expects, stimulate
demand, it is inappropriate to impose criteria to match the availability and accessibility ‘as
any other type of petrol’. As such, BP proposes Section 10(2)(a) and 10(2)(b) of the
Regulation delete references to bowsers and nozzles.
Does the Regulation need to include additional recordkeeping requirements?
Primary wholesalers
BP does not support any requirement on wholesalers to report, on the basis that the
compliance obligation (indeed compliance philosophy) has moved to a retail site focus.
Retaining the wholesale reporting obligation simply duplicates reporting processes,
imposing a burden on BP and the NSW Government alike.
BP proposes Section 10(1)(a) and 10(1)(c) of the Regulation delete references to ‘primary
wholesaler’.
Sustainability Criteria
The reference to sustainability criteria in the Regulation is welcome and recognises that
some biofuels are of limited environmental benefit including their impact on food
production and higher life cycle carbon emissions.
However, BP is concerned that Section 11(1)(f) as drafted places the onus of proof on the
incorrect party. In addition to being unfamiliar with the detailed requirements of the
referenced sustainability criteria, the majority of retailers have little control over the fuel in
which they are provided, and lack the resources to certify such standards.
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Interestingly, BP notes that whilst the NSW Government considers a sustainability
standard important enough to include as an obligation on retailers– there is no referenced
equivalent provision for biofuels producers or wholesalers, nor is there demonstrable
capacity of the Government to audit such certification claims. Such measures should be
adopted and referenced in the Regulation.
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