Used Oil Recycling
Environment Australia, 2001
ISBN 0 642 548 188
ISSN 1446 6422
During the development of the PSO, financial modelling was undertaken to determine the appropriate level of benefits for each category and the levy rate required to fund those benefits. That modelling also estimated likely changes in recycling rates over the first four years of the arrangements. An examination of estimates against actuals follows.
Levy collection rates are on a par with estimates. Modelling predicted approximately $25 million in revenue collection per year. This compares to the actual collection of $12.3 million over 6 months or potentially $24.6 million for the year (which will fall slightly when exemptions from the levy are introduced).
Benefit payments are well below forecast figures. Modelling predicted payments of approximately $18 million in the first 12 months. Actual payments for the first 6 months were only $2.7 million (ie potentially $5.4 million for the year). This difference may be a result of one or all of the following:
Consequently, it is difficult to determine how recycling rates have been affected by the PSO at this time. Original figures provided by industry suggested that approximately 165 million litres of oil were being recycled each year, with a further 250 million litres in storage. Based on payments reported by the ATO, approximately 65 million litres of recycled oil products were sold during the first half of 2001 (ie potentially 130 million litres for the year). Assuming an average conversion rate between waste oil and recycled oil product of 70% (ie 30% loss in volume during the de-watering and recycling processes) total waste oil collection over the same period would be around 186 million litres. While this figure shows an improvement over the base figures, it is still a lower increase than was expected. It is also difficult to judge the accuracy of this increase as the original base figure of 165 million litres was an estimate based on 'best guesses' from a variety of recycling operations.
The main difference in the estimates, however, appears to be accounted for by the absorption of stock-piled oil. Industry information indicated that up to 250 million litres of oil was in storage, awaiting sufficient financial incentive to be processed, and that the 5 cent/litre payment for high grade burner fuel would be sufficient to bring that oil on to the market. That information appears to have been incorrect.
The impacts of the arrangements will be monitored over the rest of the calendar year. Should benefit claims continue to be significantly lower than anticipated, the benefit structure and rates may be reviewed (see below).
As anticipated, the first six months of operation revealed a number of aspects of the arrangements which may need to be reviewed in the next 12-18 months. Areas flagged to date are:
Since the introduction of the PSO, more than 50 submissions have been received from companies seeking exemptions from the oil levy. These claims are primarily from companies purchasing oil for input into the production of a non-oil final product (eg plastics, tyres), on the grounds that their use of the oil does not generate a recoverable oil waste and does not contribute to environmental damage through oil disposal.
During the second half of 2000-01, Environment Australia examined all submissions, and consulted with affected stakeholders, the ATO and the ACS in order to develop an exemptions policy that would be both administratively feasible and consistent with the objectives of the program. The policy is currently being considered by the Government.
When the PSO levy was established, it was agreed that, for the sake of consistency, it would be subject to the same indexation arrangements as other excises (ie indexation twice a year in line with movements in the Consumer Price Index). The first such round of indexation occurred in February 2001, increasing the levy from 5 cents/litre to 5.2 cents/litre.
Following the Government's decision to reduce indexation on fuels, it was decided that the indexation on the oil levy should be reviewed. The removal of indexation of the levy is currently being considered by the Government.
Changes to benefit categories and rates
The introductory period of the arrangements has brought to light several recycled oil products and uses which were not known when the current benefit structure was designed. Additionally, a number of companies have made claims that their products, whilst covered under the current categories, should fall into a separate category for reasons of superior environmental outcomes.
Environment Australia will conduct an examination of these products to determine whether the claims have merit, whether the current benefit structure is adequately covering the recycled oil market and whether benefit rates are providing adequate incentives to bring about improved recycling outcomes. Any changes to the rates will be enacted via amendment to the Product Stewardship (Oil) Regulations 2000.