Australian taxpayers are funding the mining fleet that uses most of the nation’s diesel fuel. Mining accounts for 35% of Australia’s annual diesel use of about 10 billion litres, and the government provides about AU$4.5 billion a year to keep it operating. Unlike on-road heavy vehicles, where rebates are tied to vehicle emission standards, mining’s fuel tax credits are uncapped and growing. This could be fixed with one amendment to the Fuel Tax Act in the May budget.

At 52.6c a litre, the Diesel Fuel Tax Credit (DFTC) roughly covers the purchase cost of an ultra-class haul truck (burning 150 litres an hour for 6500 hours a year) over its life. So, in effect, the government is effectively funding the purchase of the fleet, which the industry says it cannot economically replace with cleaner alternatives.

Mining’s diesel use has grown 90% since FY2010-11, while diesel intensity per tonne of coal produced increased by more than 50% in that period, according to IEEFA analysis. This is driven by more open-cut mining and deepening strip ratios – more material must be mined and transported further for each tonne of saleable coal produced – in line with long-term trends.

The mining industry receives about AU$4.5 billion a year in diesel rebates, accounting for 47% of Australia’s AU$9.6 billion DFTC spend in FY2023–24, with most going to Tier 1 coal and iron ore mining companies.

Safeguard Mechanism for large emitters – the compliance gap
Australia’s Safeguard Mechanism applies to industrial emitters above 100,000 tonnes of carbon dioxide equivalent (CO₂e) a year. For each facility, the Clean Energy Regulator (CER) sets a declining annual baseline of allowable emissions; facilities exceeding it must buy or relinquish carbon credits.

A 30% exceedance requires an explanation of why onsite abatement was not undertaken. No further financial consequences apply, and the fuel tax rebate keeps flowing unconditionally.

The CER’s results found that nearly one in five Safeguard facilities had gross emissions 30% or more above or below their baselines in 2024, leading to significant credit use, with coalmines accounting for half. Explanatory statements commonly cited increased mining haulage distances resulting in increased diesel consumption.

Five of Rio Tinto’s Hamersley Iron Ore mines also exceeded the threshold, with Rio Tinto claiming :”Increased diesel consumption at this Mine was primarily due to a higher work index. As mining operations mature and expand further from processing facilities, mobile equipment must travel greater distances to move material, therefore consuming more diesel.”

Mining’s DFTC eligibility
Some commentators have proposed a $50m cap per entity on the DFTC to limit rebates but protect agriculture and small producers. Instead, introducing an eligibility condition tied to environmental compliance is a relatively minor amendment. Whether a capped or targeted environmental compliance condition is used, the free-issue of tax credits must be governed.

The condition is a targeted instrument — it applies a performance threshold, and it reaches only those simultaneously claiming the largest rebates while operating furthest outside their emissions baseline. The condition is straightforward: any open-cut mining facility whose gross annual emissions exceed 30% above its CER-designated baseline is ineligible to claim the DFTC for the following claim period. When the facility returns to compliance, eligibility restores automatically. The 30% threshold is the CER’s own definition of substantial exceedance.

Underground-only facilities, where fugitive methane dominates emissions, are excluded. New entrants to the Safeguard Mechanism receive a one-year grace period. By design, this amendment does not affect anyone not covered by the safeguard mechanism. Farmers, smaller miners, agricultural contractors, regional businesses and builders. They fall below the 100,000 tonne threshold that defines a safeguard facility. Most critical minerals miners currently fall below this threshold. The ineligibility condition cannot reach them. Existing Safeguard flexibility mechanisms — baseline borrowing, multi-year assessment periods — remain available.

The Mining industry will argue that for some open-cut operations, methane rather than diesel is the primary driver of a Safeguard exceedance — making DFTC conditionality the wrong instrument for a methane problem. The response is easy: underground-only coal mine facilities, where fugitive methane dominates emissions, are to be explicitly excluded. For open-cut facilities, diesel combustion drives the carbon dioxide emissions that contribute most Scope 1 emissions. The 30% buffer provides for an unusual weather event or a temporary production spike.

The proposal is governed by an objective publicly available and independently verified data point – CER data. When a facility returns to compliance, eligibility automatically restores.

Mining industry financial capacity
The DFTC is not a payment for mining’s economic contribution — it is a rebate for off-road fuel use, one that happens to be uncapped, unconditional, and inflation-adjusted. The question is not what the industry contributes to the economy, but whether these tax credits should remain the only major off-road fuel rebate in Australia with no environmental performance threshold.

Mining is in strong financial shape: thermal coal prices have risen to around US$140 per tonne in March with futures markets forecasting an expectation that prices will hold at these increased levels. Gold producers are receiving record prices.

New Hope’s March 17 earnings call illustrates the impact. CEO Rob Bishop confirmed that diesel constitutes approximately 13% of New Hope’s operating cost base, rising to around 20% when rail logistics (also diesel-exposed) are included. On rising energy prices: “that increasing diesel cost is far outweighed by the increase in revenue we received from coal”.

BHP, Rio Tinto , Glencore and Anglo American have each deferred diesel decarbonisation to beyond 2035.

Fortescue has a different strategy. It aims to achieve its first mine electrification -deploying battery drills, excavators, and haul trucks at scale in the Pilbara this year. The technology exists. The investment decision is a matter of incentive, not readiness.

Mining companies have experienced growing unit costs – higher labour and other input costs placing pressure on margins. Those that use the current boom to decarbonise their fleet will not only reduce their diesel-dependence but will set up lower long-term operating costs. Electrified equipment, whilst more expensive to purchase offer lower operating and maintenance costs over its working life. Coal miners with life extensions ahead of them, could predicate those extensions on fleet renewal. Without the right incentive signals, most will not.

There’s a further fiscal flow-on effect. Every year, extreme weather events cost Australia $4.5 billion in economic losses. The government backs a $10 billion cyclone-flood reinsurance pool. Meanwhile, on 29 March, the government announced powers to underwrite fuel purchases via Export Finance Australia — expanding its fuel security. Conditioning the DFTC on safeguard compliance is the kind of risk-reduction linkage that the OECD recommends – financial support tied to mitigation, not writing blank cheques.

Based on CER’s 2023-24 data, about a dozen mines would be captured immediately — across coal, iron ore, and gold mining. This become clearer on April 15 when 2024-25 data is published. But it could recover $330 [tba] million in the first year commencing July 2026. IEEFA modelling indicates that under a business-as-usual assumption up to 40% of open-cut facilities could be captured by 2029-30, as baselines continue declining and strip ratios deepen. Preliminary CER data for FY2024-25 shows total Safeguard exceedances rose a further 48.9%.

A temporary fuel excise reduction, if announced in the budget, would automatically reduce DFTC per litre for the period of operation — as occurred in 2022. That is cost-of-living relief, and a separate instrument. It does not create an incentive for fleet investment decisions made over 15–20 year asset lives, and it restores automatically when the honeymoon period ends.

Australia’s largest diesel user is partly cushioned from the rising cost of diesel, as the mining industry’s own executives have publicly confirmed. The policy mechanism already exists. It’s updated annually and provides a definitive measure of performance and a lever to create long-term structural change in diesel use.

This amendment needs to be in place before the cycle peaks — not designed during the next downturn, when the industry will again claim it cannot afford to act.
Source: IEEFA