Australian consumers are getting hit badly by the spike in diesel costs and the country’s almost total dependence on imported fuel, including household that “never fill a diesel tank”. Those that do buy diesel directly are getting hit twice by the inflationary impacts, according to a new report.
Rohan Bowater, the lead oil and gas analyst for Accela Research, says that while there is room for diesel prices to fall, there is “little reason to expect a smooth ride,” because of depleted global stocks, damage to major refineries, ongoing threats to shipping and the approach of the northern winter.
Australia earlier this month announced $13 million in funding to help Pacific nations quit fossil fuels, electrify and transition to renewables as countries across the region race to switch from diesel imports that are eating up budgets.
But Australia has its own unique and unhealthy dependence on imported diesel fuel – and its own unique and unhealthy reasons why it cannot seem to break that dependence; not least of all the federal diesel Fuel Tax Credit, an $11 billion a year tax break that is expected to grow to $13 billion a year in 2026-27.
Green groups, economic think tanks like The Australia Institute and iron ore billionaire Andrew Forrest have campaigned heavily to scrap or reform the federal Fuel Tax Credit Scheme (FTCS), which they argue effectively rewards big miners and industrials for sticking with fossil fuels and failing to electrify.
On these pages, ITK analyst David Leitch has argued that replacing diesel in Australia’s industrial supply chains is a more important imperative for the country than harnessing the data centre boom (which, as it happens, would fuel its own new source of diesel demand).
In its latest federal budget, the Albanese Labor government declined to make any changes to the Fuel Tax Credit, although it has signalled it might in the future, when cost of living and geopolitical pressures have eased.
But, as Accela’s Bowater points out, Australia’s dependence on diesel fuel is creating more economic problems that it’s solving.
“Australian diesel averaged $2.79 a litre across the five largest cities as of mid October,” Bowater says in new analysis shared with Renew Economy.
“For trucking, farming, mining and construction businesses, fuel remains a substantial cost to absorb or pass on.
“That’s how diesel hits inflation twice. First at the bowser, then through the cost of growing, making and moving things,” he writes.
“Households pay even if they never fill a diesel tank. Those increases take time to flow through, with the RBA expecting conflict-related costs to keep working through supply chains into early 2027.
“The nasty mix is higher business costs and weaker household spending power at the same time. If price rises spread and persist, that complicates the case for rate cuts. Cheaper diesel would help, but it will take time to ease the inflation already working through the economy.”
Aid cuts forcing regional fossil fuel dependence
Still, the diesel cost and pollution spiral is much worse for most of Australia’s Asia Pacific neighbours, such East Timor, whose electricity grid is almost exclusively powered by diesel – the cost of which is hampering investment in a shift to renewables.
“For the time being, and for many years to come, we need fossil fuel development to power the diversification of our economy into green energy and a green economy,” East Timor president Jose Ramos Horta told the Global Citizen Now conference in Perth on Monday.
“The cost of our energy in Timor-Leste is a killer of investors”
The Nobel Prize winner said there had also been “draconian” cuts to humanitarian aid budgets, pointing to the World Food Programme and UNICEF.
“So this makes it even more difficult for any of us to quickly transition to cleaner energy,” he said.
“But we know that the only way to go for the survival of our humanity is if we still can stop it.”
With reporting from Aaron Bunch, AAP
