This year, the Australian federal government will spend billions on a scheme that makes it cheaper for miners and other industries to use diesel and petrol. It’s known as the fuel tax credit scheme, and there are growing calls for it to be wound back.
With the federal budget under pressure, Nour Haydar speaks with Adam Morton about the most costly anti-climate policy in the Australian government budget, working against efforts to cut emissions
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Australia, an LNG exporter, stands to benefit from regional energy diversification efforts but also faces a domestic crunch for transport fuels. Tim Buckley, director of the Climate Energy Finance think-tank, said that at the start of the year Australia had just 25 days’ worth of diesel reserves and 29 days of petrol. “We have essentially no buffer against what is unfolding.”
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Data Centres Australia also took shots at the idea that these facilities could be curtailed during grid peaks, infeasible because “cloud and AI inferencing workloads require continuous availability”. Ditto for more stringent requirements for embodied emissions and efficiency, water use restrictions (“the bottleneck sits with water utilities, not operators”), and any requirements for transparently disclosing what is happening inside the data centres (“differentiating AI from non-AI workloads is technically problematic”).
Tim Buckley, the director of Climate Energy Finance (one of the signatories of the principles), fired back at DCA head Belinda Dennett: “A lobbyist for private vested interests singing for your supper and trying to get involved after the event and in doing so, undermining the much-needed community interests your members require to build social licence and government approvals.”
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Nevertheless, the numbers show investment in new projects is “running laps around the targets required for Australia to hit its net zero targets”, says Climate Energy Finance director Tim Buckley.
“The best way to get Australian energy prices trending down sustainably is to get more net new supply of generation online ahead of demand growth,” he said on LinkedIn.
“Rooftop solar and 250,000 [behind the meter] batteries really help solve this challenge, but we need a lot more utility scale projects – scale and speed!”
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A coalition of energy and environment groups, including the Clean Energy Council, Electrical Trades Union, Australian Conservation Foundation and Climate Energy Finance, proposed a set of “public interest principles for datacentres” that include investing in new renewable energy and using water responsibly.
“If you want to build a datacentre, you should have to build the renewables and water recycling to power it,” the ACF chief executive, Adam Bandt, said. “Big tech corporations should be forced to do their fair share so they don’t drain our resources.”
The Australian Energy Council says key policy questions still need answering: will datacentres need to be 100% renewable? And will that be based on total demand, or take into account when the electricity is being used?
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Demand is expected to balloon from 1.35 gigawatts now to between 5-8 GW by 2035 on projections prepared in a Clean Energy Finance Corporation and Baringa report.
New approvals should come with clear community benefits, Climate Energy Finance director Tim Buckley said.
“After all, the data centres can only be built leveraging the existing publicly funded water and grid infrastructure we have all paid for,” Mr Buckley said.
Climate and Energy Minister Chris Bowen said data centres should be building new solar and wind capacity and have “flexibility and redundancy” built in to protect the network.
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Tim Buckley, director of Climate Energy Finance and a signatory to the statement, emphasised the urgency of the situation in a LinkedIn post.
“Without effective planning to enable new renewable energy, the surge in demand will push up retail power prices, significantly increasing climate pollution, slowing the transition to renewables, the realisation of a Future Made in Australia, and straining electricity grids and scarce water resources,” Buckley wrote.
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CEF Director Tim Buckley said data centre investment is red hot, governments are expected to ensure giving approvals to new infrastructure projects comes with clear community benefits.
“After all, the data centres can only be built leveraging the existing publicly funded water and grid infrastructure we have all paid for,” Buckley said. “Approvals should be conditional upon new long-term firmed renewables power purchase agreements (PPA) as a pre-requisite … and come with clear community alignment and best practice, including developing a green energy powered future made in Australia.”
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The alliance notes that where data centre growth drives the need for new transmission, firming or network augmentation, those costs should not be socialised onto households and small businesses.
“Data centre investment is red hot, so we expect our governments to ensure that giving approvals to new infrastructure projects comes with clear community benefits,” says Climate Energy Finance director Tim Buckley.
“After all, the data centres can only be built leveraging the existing publicly funded water and grid infrastructure we have all paid for.”
“Approvals should be conditional upon new long-term firmed renewables PPA as a pre-requisite.”
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The policy is known as the fuel tax credits scheme. It has received occasional attention in the past, notably in an annual report by the progressive Australia Institute. But there is now a growing chorus of people saying it is a clear fossil fuel subsidy, makes little sense and should be wound back, if not outright abolished, in this term of parliament.
The scheme works like this: most Australians pay an indexed excise, currently 51.6 cents, on every litre of petrol or diesel they buy. Some businesses – those that use the fuel to run vehicles on private roads, or that drive heavy vehicles on public roads, or use diesel for machinery – get that tax refunded.
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Highlights
The Clean Energy Council’s 4Q2025 report shows a rebound in large-scale renewable and storage investment across Australia, with record commissioning and strong financial activity. Five generation projects (1.2 GW) and five storage projects (1.1 GW) reached FID, while 2.1 GW of generation and 1.9 GW / 4.9 GWh of storage became operational, surpassing Q3 2025 records. The pipeline remains strong with 81 generation (13 GW) and 75 storage projects (13 GW / 35 GWh) under construction or financially committed. NSW awarded six major 8-hour battery contracts, including the 300 MW / 3,500 MWh Great Western BESS, and launched additional tenders to expand firmed renewables and accelerate zero-emissions generation.
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