Australia’s net zero targets are a threat to the nation’s two remaining oil refineries, a free market think tank says, arguing they should be given an exemption to preserve fuel sovereignty.

Energy Minister Chris Bowen this week declared the Federal Government was committed to keeping Ampol’s Lytton refinery in Brisbane, pictured, and Viva Energy’s Geelong facility open to provide 20 per cent of Australia’s fuel needs during a global oil crisis.

“You know, the two refineries — I’ve increased the ability for them to access payments, to maintain their viability in a very competitive refining environment internationally,” he said 10 days after a fire broke out at Viva’s refinery.

While Labor is now providing more generous subsidies from the Fuel Security Services Payment, it is also taxing oil refiners as part of its commitment to net zero.

Since coming to power, it has since July 2023 required oil and gas producers emitting more than 100,000 tonnes of carbon dioxide to trade carbon credits.

This is part of Labor’s bolstered Safeguard Mechanism, designed to slash carbon emissions by 43 per cent by 2030 on the way to net zero by 2050.

“Passage of this legislation ensures the country’s largest emitters remain internationally competitive in a decarbonising global economy while contributing towards Australia’s emissions reduction task,” Mr Bowen, who is also Climate Change Minister, said in March 2023 media release.

The Institute of Public Affairs, a free market think tank, calculated Ampol’s Lytton refinery faced a carbon tax bill of $79.9 million by 2029-30 while Viva in Geelong faced an $85.6 million bill by that time under the Safeguard Mechanism.

Over coming years, it argued this would curtail Australian fuel production.

“We must restore our sovereign capability, and the first cab off the rank should be to exempt our remaining refineries from the Safeguard Mechanism,” IPA research fellow Saxon Davidson said.

“Fuel is the headline vulnerability we are facing, however the policy of net zero emissions by 2050 is a direct threat to our energy security and manufacturing sectors.”

Mr Bowen last month announced the Commonwealth would subsidise oil refining, at 1.8 cents for every litre produced, when margins dropped to 10 cents a litre, up from 6.4 cents previously.

This was considered too low to cover production costs under Labor’s emergency changes to the Fuel Security Services Payment in the wake of the Iran war. Australia’s two remaining refineries last year produced 12 billion litres of petrol, diesel and jet fuel, which is very small compared to the capacity of mega refineries in Asia that process crude oil.

“We must use the lessons of the current fuel crisis to ensure our future as a self-reliant nation,” Mr Davidson said.

“This means making Australia a country that takes advantage of our natural resources and services the needs of our country first, and abandoning emission reduction targets set by global conferences.”

The Liberal Party under former leader Sussan Ley last year announced a Coalition government would scrap “punitive mandates” under the Safeguard Mechanism, even though it debuted in 2016 under a previous Coalition government.

Legislation establishing it was passed in 2014 when Tony Abbott was the Liberal prime minister who abolished a hated carbon tax, introduced by Labor PM Julia Gillard at the behest of the Greens and left-leaning independents.

Since 2012, the year Labor’s short-lived broader carbon tax debuted in Australia, five oil refineries have closed under both sides of politics.

Two of the closures were announced that year, when the carbon tax debuted under a minority Labor government, starting with Shell’s Clyde refinery.

But since the abolition of the carbon tax 12 years ago, Caltex’s Kurnell refinery in Sydney (2014), BP’s Bulwer Island refinery in Brisbane (2015), BP’s Kwinana refinery in Perth (2020) and Exxon Mobil’s Altona facility in Melbourne (2021) have closed - all on the Coalition’s watch. Those closures occurred before Labor’s toughened Safeguard Mechanism came into effect.