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Petrol and diesel are the major fuels used in road transport

Petrol and diesel are the major fuels used in road transport

Energy reform for the future

Improved fuel excise arrangements will be phased in over the next nine years. The new arrangements will promote long–term sustainability and move to a neutral tax treatment for fuels. The Government will impose excise on all fuels used in internal combustion engines starting from 1 July 2008. Additional incentives will encourage further production and use of cleaner fuels.

The current fuel excise arrangements are complex and distortionary. They have led to uncertainty about the long–term excise treatment of some fuels.

To achieve a more consistent fuel excise regime and a more certain investment climate, effective excise rates for currently untaxed fuels will increase in a series of five, even, annual steps starting on 1 July 2008. The Government will determine final rates later this year. Final excise rates will have regard to the energy content of fuels. Existing subsidy arrangements for ethanol will continue until the new arrangements commence in 2008. Broadly similar treatment will apply to biodiesel from 18 September 2003. That is, excise will apply but this will be fully offset by a subsidy until 1 July 2008.

The Government will encourage early take–up of ultra low sulphur diesel by increasing the excise for regular diesel (compared to ultra low sulphur diesel) by 1 cent per litre on 1 July 2003 and again on 1 January 2004. Agricultural diesel users will not be disadvantaged as off–road grants under the Energy Grants (Credits) Scheme will be increased.

From 2006, additional measures will further encourage the production and use of more environmentally–friendly fuels. These target cleaner petrol and diesel, fuels which hold the biggest market share.

Grants funded by further increases in excise/customs duty will encourage the production and importation of low sulphur diesel and low sulphur premium unleaded petrol.

In addition, the listing of biodiesel and liquefied natural gas (LNG) as alternative fuels in the on–road component of the Energy Grants (Credits) Scheme will make these fuels more attractive.

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