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Wednesday, 4 May 1994
Page: 165

Senator IAN MACDONALD (11.23 a.m.) —The moral and political bankruptcy of the Labor Party and the disdain with which it treats the Australian public are evidenced daily, but they are no better demonstrated than by the Bounty (Fuel Ethanol) Bill 1994 that is now before the Senate.

  The Minister for Industry, Science and Technology (Senator Cook) in introducing this bill pretended it to be part of the government's caring `green' direction—but in reality it is just another cynical exercise of the Labor Party to buy the second preferences of the Green and Democrat parties and to bribe the left wing faction of the Labor Party—that is, the Democrats and the Greens—to pass last year's dishonest budget. That budget broke practically every major election promise the Labor Party made in the last election campaign.

  What concerns me more than the moral and political bankruptcy of the Australian Labor Party—and we have all come to expect it—is the fact that the Labor Party sycophants in the Canberra press gallery allow Labor's dishonesty to pass daily, unchallenged. This duplicity is demonstrated by this bill. The Labor Party now supports ethanol enthusiastically. But let me quote to the Senate this gem, deliberately said as it was in answer to a dorothy dixer in 1990:

  The former Queensland Government . . . was a vigorous supporter of ethanol. It wanted a 10 per cent ethanol-petrol blend to be used in Queensland. This, of course, has been discontinued by the Goss Government since it took office.

  Ethanol has been tried as a fuel in only two countries in the world—the United States and Brazil. In both cases it was a financial disaster. The Brazilian Government provided subsidies worth more than $2.7 billion a year, but the new Government of Brazil is abandoning that program. . .

  A 10 per cent ethanol-petrol blend in Australia. . . has two drawbacks: the economic ones and the environmental ones. If the 10 per cent blend were to be an excise-free blend, it would cost Australians $435 million a year in revenue forgone. Subsidies for industry to keep the price below current bowser petroleum prices would amount to another $400 million a year.

The other area of concern was the `environmental costs' which were described as `prohibitive, and refer to the disposal of liquid wastes from ethanol distillation as `a major problem'. Quoting another person, the person who was saying this in the Senate in 1990 went on to say:

. . . in Brazil the waste disposal problem had turned rivers black, caused by the effluent coming from ethanol plants.

That person went on to say:

This would also increase pressure on marginal lands and on the environment.

Who said all that? It was none other than Senator Cook, the minister now responsible for this bill. Four years ago a 10 per cent ethanol blend was bad for the environment and it was a financial disaster. Yet here we have the Labor Party, which is morally and politically bankrupt, today supporting a bill by the same minister who four years ago roundly criticised that proposal.

  I might say that four years ago I defended ethanol proposals in Queensland because I thought they were good for the sugar industry. But Senator Cook in answer to a dorothy dixer—something specifically put up by the minister—rubbished the proposal. Here we are, four years later, because Labor is pandering to the Greens and the Democrats, or what is left of the Greens—I understand the Greens are about to split up and one of them about to join the Democrats. Certainly what is left of the Greens are being pandered to by the government to try to get their second preferences and also to get through last year's dishonest budget, which should never have been passed.

  What is this bill that Senator Cook is now proposing, contrary to what he said four years ago? The Bounty (Fuel Ethanol) Bill provides for the payment of a bounty on Australian production of certain types of fuel ethanol. The payment of a bounty to ethanol producers forms part of the government's $36 million three-year lead abatement strategy announced in last year's budget. The strategy was justified by the considerable health risks and environmental damage associated with toxic lead levels.

  Of the $36 million allocated for the strategy, $25 million has been allocated to the bounty scheme. This will involve a payment of $6 million in 1994-95, $8 million in 1995-96 and $11 million in 1996-97. The bounty scheme will run for three years commencing on 1 July 1994. The rate of payment of the bounty will be 18c per litre and will be payable on defined `new production' of fuel ethanol, where it is produced in Australia from biomass feedstocks sourced from plants and animals grown in Australia and where production exceeds 350,000 litres per annum.

  Ethanol is a volatile liquid which is flammable and toxic and is produced on the fermentation of agricultural crops, such as sugar cane, sugar beet, cereal grain, sweet sorghum and cassava. When mixed into unleaded petrol as a 10 per cent blend, ethanol is an effective fuel requiring no modification to the engines of cars designed for leaded petrol. Blended with petrol ethanol lifts the octane range by three points, taking it into the range at which older cars designed for leaded fuel can operate.

  Ethanol has a number of environmental benefits, due mainly to the fact that it burns cleaner than other fuels. These benefits are a reduction in carbon monoxide exhaust emissions of between 10 per cent and 30 per cent; a reduction of greenhouse gas emissions and lead levels; and a net reduction in carbon dioxide emission, a major concern in global warming.

  Importantly, ethanol is also produced from a renewable energy resource. But, on the downside, ethanol use can cause aldehydes which are eye irritants and possible carcinogens. The production of ethanol in Australia is constrained by a number of obstacles. Ethanol is more expensive to produce than fuel oils, while low volumes mean that producers are unable to make cost gains from economies of scale. In addition, to produce ethanol competitively and in commercial quantities requires a considerable investment in technology and infrastructure which industry has thus far been reluctant to make.

  Ethanol is currently produced in Australia primarily for the chemical industry and sourced from Sarina in the Mackay district of north Queensland not far from where I live. However, the Manildra Group operating in New South Wales sells a portion of its ethanol to the Caltex oil company for fuel purposes. Its plant near Nowra on the south coast of New South Wales has the potential to utilise 100,000 tonnes of wheat to produce 28 million litres of ethanol.

  Caltex blends the ethanol with fuel and distributes the blend through its `Bogus' chain of service stations on the south coast. Caltex has been able to economically trial the sale of its ethanol blend because the New South Wales government has forgone its five per cent fuel excise and the ethanol has been produced as a by-product of the production of gluten in starch.

  Ethanol in Australia is currently produced in two main ways, using either molasses or starch from wheat. The Manildra Group uses starch, while the other major producers operating from north Queensland use molasses. A 1990 paper suggested that all of the Queensland molasses converted to fuel ethanol would be required to produce a five per cent ethanol blend for Queensland use. To provide a 10 per cent ethanol fuel blend for the whole of Australia would need the entire Queensland sugar crop.

  The 1990 estimates suggest that a capital investment of $200 million to $300 million would be needed just to make 300 megalitres of ethanol to supply a 10 per cent blend for Queensland's needs. Production of 300 megalitres of fuel ethanol would reduce Australia's import bill for crude oil by about $100 million at a world price of US$40 a barrel. At the current oil price of around US$15 per barrel, this would reduce the import bill by less than $50 million.

  But the same land required to produce that 300 megalitres of ethanol could earn $160 million from exported sugar at a price of around 10c per pound—the average price for 1993 was 10.03c per pound, although the March 1994 average price was around 11.7c per pound. So, whilst using ethanol would reduce the import bill for Australia by reducing the amount we would pay for imported crude oil, it would cost us money because the money we could earn from that same amount of land, through the sale of sugar on the export market, is almost three times what we would save by the reduction in the crude oil price. So, at present there is not much in it for the Queensland sugar industry.

  A bounty may produce other more acceptable sources. A 1992 article in the Australian quotes a Dr Russell Reeves of APECE Research saying that ethanol can be produced at a cost that is competitive with crude oil prices from woody biomass such as forest thinnings, sawdust, cotton and grain crop stubble, rice hulls, bagasse and waste paper.

  There is some concern in the industry that, once the bounty is gone, it may not be profitable for Manildra to supply ethanol for fuel. According to sugar industry sources, for ethanol to be competitive, oil has to be at about $40 to $45 per barrel—it is currently only at $15 per barrel. The cost of production of ethanol is about 45c per litre at the factory gate, whereas the cost of petrol is about 25c per litre at the consumer's market.

  I note the research by Trangie Agricultural Research Centre which suggests that ethanol can be produced from agricultural crop residues for 24c a litre. If this is correct we may be getting to a state where ethanol can be produced commercially. However, there is some doubt that ethanol will be used as fuel after the three-year period of the bounty finishes, despite the so-called protection in the bill. There is concern that the production capacity of Manildra, having been expanded by bounty subsidies, will at the end of the three-year bounty period be used to compete unfairly with other producers of industrial ethanol.

  To be registered for the bounty, the bill requires information about the marketing strategy for fuel alcohol, including reduction of pollutants and proposals for short- and long-term environmental considerations. It is necessary to prove the production is so-called new production and that more than 350,000 litres will be produced in each year.

  The bill gives the minister for resources and energy responsibility for approving the registration of an individual company based on the information provided. To receive the bounty, the minister must consider that the company will be able to `contribute significantly to the development of a competitive, robust and ecologically sustainable fuel ethanol industry'.

  So it is of some concern to us that this later criterion is not defined in the act and is rather dependent upon the minister's judgment. As I mentioned earlier in my speech, four years ago the minister was totally opposed to ethanol for all the reasons he gave and this year he is in favour of it. So one would have a lot of doubt about the minister's genuineness and his ability to make a satisfactory judgment on this and any other issue.

  Fuel ethanol has definite advantages for the environment and the community. The main things holding back the industry are the high front-end capital costs and low production volumes. This legislation came into being as a result of the deal made between the government and its subsidiaries—the left wing factions, the Australian Democrats and the Greens—at the time of the last budget. It was a $25 million bribe to get the budget through. It is a blight on the Australian public system at the moment that this Labor government simply throws $25 million around to buy its way through the budget. That is what happened last time. We are just throwing away that $25 million of taxpayers' money as a result of the deal done between the government and the Greens.

  Whilst I have some reservations, as I said in my speech, I acknowledge that the proposal is a good one from the environmental point of view and, for this reason, the Liberal and National parties will support the legislation. But we wonder whether enough thought has gone into this bill. We wonder whether the fuel ethanol industry can ever be self-sufficient without subsidies and whether, after the three-year bounty period, ethanol fuel production will continue.

  We wonder whether it is more likely that this bounty will simply allow another competitor into Australia's current export trade in chemical ethanol but subsidised at taxpayers' expense to the detriment of the existing ethanol export trade based in north Queensland. So, whilst this bill is intentioned, correctly, to get the fuel ethanol industry going, there is a real doubt about whether the industry can exist after three years without subsidies.

  If that is the case, all this bill will have done is, at taxpayers' expense, given a competitor the ability to build up the capital works necessary to get its factory going and simply give it that easy, taxpayer subsidised way of building a factory to compete with an existing factory in north Queensland, which got there without subsidies. This bill and the work that Manildra is doing will be good for the grain industry in New South Wales, and that in itself is a reason to support the bill. But we wonder whether it is fair if the only result from this is to use taxpayers' moneys to subsidise the establishment of a factory which will, after the three years, simply compete with an existing industry in north Queensland.

  We have supported the bill on the basis that it is a bounty for three years only—and we stress this—whilst suspecting that the fuel ethanol industry will be viable only if the bounty is later extended. The experience in the USA and Brazil was that when government subsidies were removed the ethanol fuel production ceased. For environmental reasons we are prepared to give the proposal the benefit of the doubt, so to speak, and we hope that the bounty does have the effect of establishing a viable, prosperous fuel ethanol industry that can exist in the future without permanent and distorting subsidies.