Andrew Forrest, the chairman of one of the nation’s largest mining companies, has privately lobbied the federal government to phase out the multibillion-dollar diesel fuel subsidy and use the money to support development of a green energy industry.

Dr Forrest, whose Fortescue Metals Group claims about $300m through the scheme, has proposed the rebate be tapered off for large companies including his own – and major miners such as BHP and Rio Tinto – from 2025.

Dr Forrest has also raised the idea with key members of Labor’s leadership in the hope of securing bipartisan support ahead of a federal election next year, sources close to the discussions confirmed. The scheme costs taxpayers about $7.8bn ­annually.

Dr Forrest is believed to have argued the case for the phase-out of the scheme to Scott Morrison and other senior government ministers ahead of the climate summit in Glasgow this month.

The rebate scheme was first introduced by the Howard government in 1999 and now refunds excise on diesel fuel for businesses such as mining companies that run vehicles and heavy equipment on private roads.

The rebate also applies to diesel used for electricity generation, such as power plants on remote mining sites, and a partial rebate exists for some heavy transport vehicles that use public roads and also pay a road user charge.

Its cost to the budget has blown out from about $1.5bn in its first years of operation to an estimated $7.84bn in 2020-21. The cost for the tax credit is tipped to reach about $8.9bn by 2024. Its loss, even on the delayed and staggered basis proposed by Dr Forrest, would cost the nation’s largest coal, iron ore and gold miners billions of dollars in lost tax credits.

Dr Forrest’s proposal, according to sources briefed on the plan, would return between $5bn and $7bn a year to the budget. That money, Dr Forrest has suggested, could be used to retool Australia to support green hydrogen, green ammonia and green electricity.

Almost three-quarters of the subsidy goes to a small number of companies, including Fortescue, Dr Forrest has argued.

In his pitch, Dr Forrest said this would give people a choice between locally produced, pollution-free energy and imported, polluting diesel fuel. Under Dr Forrest’s plan, small, medium-sized and family businesses would still be able to claim a rebate, as would most agricultural businesses and tourism operators. It would be phased out over five years.

The Australian understands details of the push have been kept under tight wraps within government circles amid fears of a backlash from resources companies – and from Coalition MPs already concerned about the economic impact of cutting emissions.

It is not clear whether Dr Forrest has canvassed the plan directly with Deputy Prime Minister Barnaby Joyce, but the mining magnate is known to have met with the Nationals leader in late October, as part of efforts to convince the party’s leadership to agree to the adoption of stronger carbon targets ahead of COP26.

Criticised as a subsidy for fossil fuel by environment groups, and defended vigorously by miners as a key plank in the Australian industry’s cost competitiveness, the fuel tax credit scheme has been a politically sensitive issue for the past decade.

Mining companies claim about 45 per cent of the total rebate each year, and the industry has repeatedly signalled its willingness to run a public campaign on the issue at any sign of wavering support for the subsidy within either of the major parties.

A spokesperson for Mr Forrest confirmed that Mr Forrest had undertaken private meetings with government leaders.

Fortescue has already set a 2030 deadline to stop buying new heavy diesel equipment, and has said it will spend billions of dollars on renewable energy generation at its Pilbara mine sites to end their reliance on fossil fuels and achieve net zero emissions by 2030. Although other companies have also begun investing in alternatives to diesel – such as battery-powered trucks, and wind and solar energy generation – Fortescue’s targets are far more ambitious than its closest rivals.

BHP plans to reduce its emissions by 30 per cent by 2030 and hit net zero by 2050. Diesel accounted for 40 per cent of the company’s operational emissions in recent years.

Fortescue alone is estimated to claim about $300m worth of the fuel rebate each year, with the company’s larger competitors – including BHP and Rio Tinto – believed to claim significantly more, given their mining operations are far larger than those of Fortescue. Miners such as Newcrest Mining and international majors such as Glencore, Anglo American and Newmont would also face the prospect of losing rebates if either major party implemented Dr Forrest’s proposals.

A successful push to deny major diesel users access to the rebate would win Dr Forrest few friends in the resources industry, which has made him one of the richest men in the country.

The idea is also unlikely to be well received by Fortescue’s institutional investors, who are already growing concerned about the company’s increasing green hydrogen commitments and plans for an increasing number of renewable energy projects.

Last month, analysts at Goldman Sachs queried the level of funding committed to Fortescue Future Industries – the mining company’s renewable energy arm to which Dr Forrest has recruited former prime minister Malcolm Turnbull and ex-intelligence official Nick Warner – warning there was “very little ­disclosure on projects and the benefits”. “We think decarbonising the Pilbara could cost (the company) over $US7bn ($9.7bn),” analysts Paul Young and Hugo Nicolaci wrote in a note to clients.

The Australian this month reported that the company would probably have to spend about $195bn to develop all the Fortescue Future Industries hydrogen and renewable energy projects announced in more than 20 countries over the last 18 months.

Fortescue executives said no final investment decisions had been made on any of the projects.

Extracted in full from: Fortescue founder Andrew Forrest wants diesel subsidy funds funnelled to green energy (