Source: The Conversation (Au and NZ)
Mining giant BHP has come under fire for spending hundreds of millions of dollars on new diesel trucks in the Pilbara, despite promising a transition to electric trucks in its climate strategy. Like other mining companies, BHP’s diesel-driven fleet is eligible for fuel tax credits on diesel.
The company’s controversial decision to shelve its plans raises the pressing issue of the diesel fuel rebate. This rebate began as targeted support for a struggling agricultural sector in the 1980s, but has morphed into an almost billion subsidy for some of the nation’s most profitable corporations.
So, what is the diesel fuel rebate? And is this fossil fuel subsidy still fit for purpose? Why do we have a diesel rebate? Since federation in 1901, diesel and petroleum products imported into Australia have been subject to import taxes.
Since 1929, tax collected from the petrol pump has been earmarked to build and maintain the nation’s road network. Australia’s diesel fuel rebate scheme was introduced in 1982. The Fuel Tax Credits Scheme, as it’s officially known, was designed to cushion farmers from rising fuel costs.
Farm and mine businesses buying diesel for off-road uses like tractors, harvesters and irrigation pumps could claim a rebate. At the time, Australia’s mining sector was far smaller. Now, 44 years later, the rebate scheme still allows businesses like agriculture and mining to claim back the federal fuel tax paid on diesel used in eligible machinery, equipment and heavy vehicles.
Today, the mining industry receives about half of the diesel rebate. Diesel up, petrol down Since 2010, Australia’s consumption of liquid fuel has changed dramatically, with official statistics showing falling petrol demand and rising diesel use over the past decade.
Petrol use has gradually declined as vehicle efficiency has improved. In contrast, diesel consumption has nearly doubled. This surge in diesel consumption reflects Australia’s growth in freight, heavy vehicles and, particularly, mining.
The diesel rebate scheme is now one of Australia’s largest fossil fuel subsidies, alongside tax concessions for aviation fuel and a range of support measures for coal and gas production, with recent analysis putting its annual cost at around $11.2 billion by 2026–27.
Mining is by far the largest beneficiary, claiming about $5 billion a year in diesel rebates according to one analysis. This includes roughly $1.5 billion for coal mining alone. Agriculture receives only a fraction of the total.
What began as support for farmers using off-road fuel has become a standing subsidy for Australia’s most profitable miners. Meanwhile, aviation fuel pays little excise – about 3 cents per litre – to fund the Civil Aviation Safety Authority.
This compares to a fuel excise rate of 52c per litre on petrol and diesel, which the Australian government halved on April 1 this year in response to fuel price spikes from the US-Israeli war in Iran.
Since 1992, the formal link between petrol and diesel excise and road funding has ended, with fuel tax now flowing into general revenue rather than a dedicated roads fund. The rebate was originally justified on fairness grounds – off‑road users were not meant to subsidise public roads – but once fuel tax stopped being a dedicated roads charge, that logic largely evaporated.
Fuel tax cuts in response to war The May 2026 federal budget fuel package was worth more than $10 billion, centred on a permanent government-owned fuel reserve. These are reminders Australia’s fuel security problem is immediate, not theoretical.
The government’s response has been to buy and store more fuel, rather than reduce our structural dependence on imported oil and support a shift to electrification and renewable energy. Australia’s fuel rebate entrenches higher diesel use.
But the “we need more fuel” argument ignores the fact Australia’s economy is decisively decoupling from fossil energy consumption. Uncoupling from oil is not a theoretical future possibility – it is slowly happening. Oil consumption in particular has plateaued since the early 2000s, even as GDP has roughly doubled.
If Australia wants to meet its emissions-reduction commitments, it should hasten the shift away from fossil oil, not maintain a subsidy for it. A fair share of resources Australia has long failed to gain a fair share of revenue from our finite mineral wealth.
Our petroleum resource rent tax is notoriously weak. Mining companies argue tougher taxes will drive investment offshore. But Australia has some of the world’s highest-grade iron ore, coal and critical minerals. A tax regime would have to be extraordinarily high to make extraction unprofitable.
We are now in the fourth major oil crisis. Unlike the others, this one arrives with cheaper renewable alternatives readily available. Wind, solar, batteries and electric vehicles are now cheaper than fossil alternatives and faster to deploy.
During a fuel crisis, we should scrutinise where our finite tax revenues are directed. The fuel rebate was designed mostly for farmers, when the mining industry was a fraction of its current size. Does the policy need to return to its original aim?
Or is a new form of road user tax required? Whatever the mechanism, it makes sense to direct revenue towards electrification, not lock in another decade of diesel dependence. Response from BHP: In a statement, a spokesperson for BHP said it has net zero goal for reducing its scope 1 and 2 greenhouse gas emissions to net zero by 2050.
Despite this progress, many of the technologies the resources industry will need to achieve net zero are not yet ready to be deployed, BHP said. “For example, no Australian mining operation is currently utilising critical 240-ton battery-electric haul trucks as the technology is not advanced enough to scale to an operational fleet,” the spokesperson said.
BHP is partnering with equipment producers to run trials of battery-electric equipment, including two 240-ton battery electric haul trucks, on a BHP site in the Pilbara, and four battery-electric locomotives which we plan to commence trialling in coming months.
Ray Wills does not work for, consult, own shares in or receive funding from any company or organisation that would directly benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.
Peter Newman receives funding from the federal government to attend IPCC meetings as a lead author on transport and cities, and receives funding for a research project on Net Zero Precincts from CRC RACE.
Original source: https://analysis1.mil-osi.com/2026/05/26/for-44-years-australia-has-subsidised-diesel-use-is-it-time-to-stop/