Senator JOYCE—In summary, there is an investment grant of 38c a litre currently in place. At the moment, the farmer, for want of a better word, can still claim the excise rebate, but after 1 July the farmer will not be able to. Is that correct?

Dr Humphreys—Correct.

Senator JOYCE—Ultimately, that makes your product—you are producing B50 or something like that—dearer than buying B5 from the major oil companies.

Mr Lake—There is a table, which we will submit to the committee, which highlights the effect of the change.

CHAIR—Is that in your submission?

Mr Lake—No, it was not part of the submission.

CHAIR—Can we have that, please?

Mr Lake—Absolutely.

Senator JOYCE—So your product, after 1 July, will be dearer than that produced by the major oil companies. Of course, that means it is ‘goodnight’ for you. Were people in the industry aware of the contents of the fuel tax bill? Do you think there was awareness?

Mr Lake—Generally not. Just last week, in a steering committee meeting, Len and I explained to producers and other industry people what the impacts were, and they asked, ‘How did this happen?’ Part of the problem is that the debate and the discussion have been clouded by a very complex system of grants and credit schemes and, as recently as last week, the tax office still had the wrong script on their telephone information service, so people asking about applications for grants for biodiesel were given the wrong information. Even the tax office has had trouble trying to understand this, and that meant that, when the bill was put forward a considerable time ago, people could not understand the calculation of what grant went where or how it was all applied. They are still trying to work it out themselves.
Senator JOYCE—I am posing a hypothetical question for you to answer, rather than it being the sentiment of what I believe. Some people would say: ‘You’re getting a 38c investment grant and you want the excise as well. You want both.’ How is that fair? Why should you get both?

Mr Lake—We are effectively not asking for both; we are asking for the situation we have now, which is that the producer grant coming to us effectively offsets the liability. One way or another, we are still paying the excise. It just so happens that the excise is coming from the producer grant. It could be paid by my grandmother; it really does not matter. It is being paid from a fund. The reality now is that it is being wiped out.

Senator JOYCE—The purpose of the investment grant, obviously, is to get the industry up and running, and I think that is a very viable reason for you to have an investment grant. Industry is, at the moment, being successful. There is a multiple number—and there must be a lot in Western Australia, because they are the same people who lobby me—coming in to set up the biodiesel industry with smaller regional cooperatives. Is that a fair outcome? Would that be a fair statement of how it is developing?

Dr Humphreys—The group of which I am CEO, the Australian Biodiesel Group, was listed on the Australian Stock Exchange last December. We are the only listed company that owns their intellectual property. We developed our intellectual property to produce biodiesel plants. Not a week goes by when we do not get inquiries from farming communities in the west and rural Australia to go and build them a biodiesel plant. We are now starting to explain to them what the impact of this legislation is, and they are not very happy.

CHAIR—It sounds to me as if the government’s earlier decisions in relation to the producer grant and the tax treatment of this industry have been very successful for you.

Dr Humphreys—They have been, yes.

Senator JOYCE—The government has made a decision to give BP a fuel excise exemption for producing biodiesel from tallow which will have a significant impact on the biodiesel sector. Was your industry consulted about this decision and do you think it works in favour of BP? Are you aware of the issue I am talking about?

Dr Humphreys—I am aware of the issue. We are about to open a 160 million litre a year plant in Queensland, at a place called Narangba, which is a couple of miles away from the BP Bulwer refinery. We built that whole plant concept around a steady state condition on a producer grant and on the availability of tallow as feed stock. Even though that was a well-known position, we were not consulted by anybody about the decision on the BP situation and the rationale behind it. Our view—anybody’s view—is that the government is now going out to change the legislation because that is not biodiesel; it is purely a diesel that has been formed from tallow. The effect on us is that it will drive up the price of our feed stock because there is not that much tallow available in Queensland. Secondly, BP have been given $40 million a year to do it. They are being given an excise grant of $40 million a year to produce this diesel from tallow.
 

Senator ALLISON—Dr Humphreys, could you explain the difference between tallow which is hydrogenated and then put into the refining process and biodiesel from tallow? Could you spell that out?

Dr Humphreys—Yes. The third-grade tallow is called ‘fancy tallow’—that is the industry name for it—which contains less than one per cent free fatty acids. It is the level of free fatty acids in tallow that defines the quality of the tallow. So traditional grade fancy tallow has about one per cent or less free fatty acids, and there are some other specs on moisture. The biodiesel industry uses fancy tallow—less than one per cent free fatty acids—but also tallow that contains up to three to five per cent free fatty acids which would not normally be used in the food chain. So the biodiesel industry uses a very similar type of tallow to that used in the food chain, but it can also use specifications of tallow that would not normally be consumed in the food chain.

Senator ALLISON—But how is the end product different?

Mr Lake—What is proposed by BP is effectively a modified fat, which is what biodiesel is. The difference is that biodiesel is clearly defined under the biodiesel standard as transesterified fat or oil, which means you are taking away the glycerine and replacing it with an alcohol. BP have effectively developed a brand new type of fuel which has not gone through the same rigours, tests or life cycle studies that biodiesel had to go through to get any support at all from the government. But, through the stroke of a pen, BP have been given the same benefits and rights that we have literally spent the last eight years getting from the government and that, hopefully, with a better outcome on this excise change, we will maintain. The BP process does not use alcohol. By using hydrolysis and hydrogenation, which is very similar to the process of making margarine, it converts those fatty acid chains into a form that they can blend at five per cent. By doing a five per cent blend with their diesel, they are going under the radar as far as any sort of standard for emissions or life cycle is concerned. They have said, ‘We acknowledge it is a biofuel and potentially an acceptable biofuel.’ But we have no open information a