Fuel Standard (Petrol) Determination 2001 and the Fuel Standard (Automotive Diesel) Determination 2001

Regulation Impact Statement
Environment Australia, 2001

2. The Problem

2.1 Worsening Urban Air Quality and Increasing Greenhouse Gas Emissions

The transport sector is the single largest contributor to urban ambient air pollution. Vehicles are 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).

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. Recent research 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 transport sector is also one of the largest contributors to national greenhouse gas emissions. It 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.

The nature of the problem is such that an integrated strategy, coordinating action across a number of different areas, including vehicle emission standards and fuel quality, is required to address the issue.

2.2 Existing Commonwealth Regulation

In December 1999, the Commonwealth Government gazetted mandatory new vehicle emission standards as Australian Design Rules (ADRs) under the Motor Vehicle Standards Act 1989. The gazettal of these new, tighter emission standards effectively requires vehicle manufacturers to adopt new vehicle and emission control technologies. However, existing Australian fuel quality is a constraint to the effective functioning of many of these new technologies. The relatively high sulfur content of both petrol and diesel in Australia has been identified as a particular problem for the effective operation of engine catalysts necessary to meet tighter emission standards.

As ADRs are nationally applicable it is necessary to ensure that fuel of the appropriate quality is widely available in Australia. The key fuel parameters required for the deployment of advanced vehicle technologies are fuel octane ratings and sulfur content.

2.3 Existing State Fuel Quality Regulation

Almost all the States and Territories currently have some form of fuel quality regulatory regime. In the past this was mainly limited to the lead content of petrol. Several jurisdictions however, amended their legislation in response to the announcement by the Commonwealth of proposed fuel changes under the Measures for a Better Environment (MBE) initiative. Further detail on State-specific standards is outlined in the RIS included in the Explanatory Memorandum for the Fuel Quality Standards Bill 2000, (p.14).

As pointed out in the RIS to the Fuel Standards Bill, State-specific legislation has the potential to result in different standards for each jurisdiction which could give rise to competition issues, by creating barriers for refiners and importers to interstate markets and raising compliance costs. There is evidence that this problem has already arisen with some companies having to pay premiums under the refinery exchange program where they cannot meet the State standards and need to source the fuel from the local refinery. Under the refinery exchange system, local refineries provide fuel for the State/local area to other companies for supply. For example, fuel sold in NSW as BP or Mobil may have been produced at the Shell or Caltex refineries in Sydney.

In Western Australia where BP owns the local refinery which is producing fuel to state specific standards, other companies are charged a premium for the cleaner fuels. It has been claimed by oil companies (The Australian 6 March 2001) that State-specific legislation in South Australia has resulted in a 0.7c per litre premium for unleaded petrol and 0.32c a litre for diesel supplied by Mobil, the only refinery in the State that can produce the 'boutique' fuel resulting from the standards.

2.4 Need for Further Government Intervention

In order to achieve the environmental and human health benefits associated with new vehicle emission standards, complementary national fuel standards are required. Introduction of such standards by the Commonwealth Government will ensure a nationally consistent approach to the regulation of fuel quality in Australia.

A national approach will also avoid the competition issues that are already arising for Australian refineries that cannot meet State-specific standards resulting in higher premiums under the refinery exchange program.