In 2016, the Australian Government commenced a review of Australia’s Fuel Quality Standards. These standards stipulate key parameters for the various grades of fuel sold in Australia, to ensure that these parameters support the economic and environmental aspirations of the national community.
The formal review of Australia’s fuel quality standards kicked off with the release of a discussion paper in 2016. This paper outlined current issues associated with Australia’s fuel quality standards and sought feedback from industry and consumer representatives on options to address these issues.
Following consideration of the substantial number of submissions received to the Discussion Paper, the Australian Government Released a Regulatory Impact Statement (RIS) in January 2018. This Statement presented several options for reducing the sulfur content of petrol sold in Australia (The global vehicle manufacturing community has long maintained that high sulfur levels are an inhibitor to the introduction of new fuel-efficient vehicles, owing to the potential for the emissions control systems of these vehicles to be damaged over time).
While both documents highlighted consensus on the need to reduce the sulfur levels stipulated in the existing Fuel Quality Standards, there was fierce debate the timing for these changes.
On the one hand, vehicle manufacturers and suppliers were calling for the changes to be introduced as soon as possible. Their argument was premised in the assertion that the existing sulfur concentrations in regular unleaded petrol were effectively creating a barrier to the introduction of more fuel-efficient vehicles into the Australian vehicle fleet (The position of vehicle manufacturers did not appear to take account of the fact that the existing higher grades of petrol sold in Australia largely accommodate the low sulphur requirements of the new vehicles that are likely to be sold in Australia over the near term).
On the other hand, the fuel refining industry (led by the Australian Institute of Petroleum) argued that the changes needed to be introduced over a timeframe that would allow reasonable amortisation of the capital investment needed to support introduction of the new fuel quality standards. Failure to accommodate this requirement, the AIP argued, would potentially put Australia’s domestic refining industry at risk in the face of strong competition from larger foreign refineries – with potential adverse and energy security consequences for the Australian economy.
The fuel industry argument was largely supported by Australia’s motoring bodies (led by the Australian Automobile Association) who were concerned that a ‘rushed’ timeframe would potentially expose Australia’s motorists to a sharp rise in fuel prices – either because of a temporary shortage of low sulfur fuel in the Regional Market, or due to the pass through of necessary capital conversion costs from Australia’s fuel producers to consumers.
Following more than two years of consideration, the Australian Government formally announced a timeframe for the introduction of new fuel quality standards in Australia on 25 February 2019 and the new Regulation was formally ratified by the Australian Parliament shortly after.
The new petrol standard requires that the maximum allowable levels of sulfur in all grades of petrol be reduced to 10ppm from 1 July 2027. Achievement of this requirement will require Australia’s refiners to invest up to $1 billion in necessary upgrades of their existing production facilities to accommodate the new fuel quality standard.
“The Australian government has advanced a thorough and considered approach on this initiative, which has included comprehensive consultation with stakeholders in the national fuels industry, the Australian motor vehicle industry and the national motoring body”, said AIP CEO Paul Barrett
“This decision demonstrates that the Australian Government understands the implications for local refineries related to this complex and challenging investment. They have decided on an appropriate timeframe for industry to investigate the most cost-effective solution, which will likely include adoption of the latest refining technologies, to comply with the new standard’, said AIP CEO Paul Barrett
The consultation process has resulted in a legislated timeline that provides the best balance between delivering environmental improvements (and minimising the risk of negative impacts on consumers), whilst also providing the long-term policy certainty needed by the local refining industry to accommodate potential investment and business decisions.
“Our public submissions made throughout the review process have consistently demonstrated that the sulfur and aromatic levels in the petrol products currently available to Australian motorists are already substantially below the regulated limits”, said Mr Barrett
“Importantly, the Industry has committed to report to Government annually to safeguard this existing fuel quality over the transition period to the commencement of the new petrol standard”, Mr Barrett added.
The Government’s decision also includes milestones for measuring progress towards achievement of the 2027 fuel quality standards. One of these milestones is the conduct of a substantial progress review in 2022, to determine the aromatic limits in petrol to be supplied to the market from 2027 (when there will be greater clarity in the market and regulatory environment internationally for both the refining and car industries).
“The timeframe for the new fuel quality standards acknowledges the very significant investment that needs to be made by the Australian refining industry whilst meeting the challenges posed by the continuing strong competitive pressures coming from larger refineries in the wider Asia Pacific region”, Mr Barrett said
“The decision also highlights the importance the Government places on the economic contribution of domestic refineries, particularly in their local communities, and in supporting supply reliability and security to the local market”, Mr Barrett concluded.