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Thursday, 26 September 2002
Page: 5048


Senator McLUCAS (6:28 PM) —There has been much talk in recent weeks about ethanol, particularly in the context of the crisis facing the sugar industry. It is important that any discussion and debate about an issue as important as the future of the sugar industry and its associated communities is based on sound information. I therefore want to spend some time tonight putting on the record some facts about ethanol. Ethanol has been around for a while. It was first produced in Australia in substantial volumes by CSR way back in 1901. In fact, Henry Ford's original T-model Ford was designed to run on ethanol, according to the Australian Biofuels Association. Today it is important to note that most of the fuel ethanol produced in Australia is from wheat. That is why Labor has correctly pointed out that there is limited benefit to the sugar industry from the ethanol rebate announced by the government.

CSR produce ethanol from molasses at their distillery in Sarina. About half of this is exported in bulk. Most of the rest is used industrially in Australia. Ethanol is used industrially as a solvent and a chemical intermediary and is also blended with other solvents to meet market needs, particularly in the printing industry. The sugar industry is not currently a major supplier of ethanol for blending in petrol. However, sugar communities are in crisis following four bad years of production and record low world sugar prices due mainly to a corrupt world market for sugar. Ethanol could provide the industry with an opportunity to diversify so that income is not from just one major market. We therefore need to look seriously at the longer-term benefits of supporting the development of ethanol plants in North Queensland. We also need to recognise that a significant amount of work has already been done by groups like the Mossman Mill, the Johnstone Shire Council and CSR, but we still do not have a substantial sugar based ethanol for fuel industry in the north.

So how do the economics of ethanol stack up? The Johnstone Shire Council undertook a scoping study to assess the potential for ethanol in Far North Queensland. Its report was finalised in February of this year. The study found that, assuming molasses cost $45 a tonne, a 10 million litre plant could produce ethanol at 79c per litre, a 30 million litre plant could produce it at 51c per litre and a 100 million litre plant could produce it at 37c per litre. There are obviously significant economies of scale to be had in building bigger ethanol distilleries. Based on 1999 estimates and a 10 per cent blend of ethanol in diesel and petrol, the far north regional market for ethanol would be 43 megalitres. If all the molasses were used for ethanol production in the far north, potential production would be approximately 50 million litres. So the far north could produce locally the total requirement for a 10 per cent blend. However, molasses today is not selling for $45 a tonne; it sells for $70 a tonne. This is because of decreased sugar production in recent years combined with the drought increasing the demand for ethanol by livestock producers.

The price of molasses obviously has a significant impact on the economics of ethanol. Clearly, diverting molasses to ethanol production is going to have an effect on the livestock industry and will in all likelihood significantly increase demand and the price of molasses, affecting the economics of ethanol. It is no use investing $35 million to $40 million in an ethanol plant at Mossman or anywhere else in North Queensland without a secure supply of molasses and a secure long-term market. I welcome the research being conducted at the Mackay Sugar Research Institute to test a US ethanol production process called ZeaChem. ZeaChem has the potential to produce 60 to 70 per cent more ethanol from molasses and will significantly reduce costs of production. It could change the whole economics of ethanol production, which obviously at the moment are still marginal. However, there is an increasing recognition that we need to look beyond simple economics in making decisions. We need to focus not only on the short-term economics of a proposal but on the social and environmental costs and benefits. Simple economics based on the unit price of an item does not take into account the longer-term social and environmental costs. In assessing the role of government in investing in the development of an ethanol industry based around sugar we must therefore consider not only the simple economics but also the social and environmental costs and benefits.

Currently almost all motor vehicle fuel consumed in Australia is from fossil fuels: either crude oil or LPG gas. Global warming and greenhouse have highlighted the external costs associated with burning fossil fuels. The Kyoto agreement on climate change is primarily an attempt to bring under control global warming but is also an attempt to provide a market mechanism for trading carbon. Given that ethanol at a minimum is greenhouse neutral, there could be tradeable environmental credits produced through ethanol production. However, the failure of the Howard government and the US government to ratify the Kyoto agreement is limiting any benefits Australian companies wanting to develop ethanol plants could gain through carbon trading. The environmental benefits of a product like ethanol produced from sugar cane must also be looked at within a full life cycle context. You cannot just assess the greenhouse benefits of ethanol based on how much carbon and other products are produced when it is burned in fuel. We need to look at the inputs that go into growing the cane and the carbon produced in this process. That includes the production of fertilisers, use of tractor fuel and a range of other things. This assessment is not straightforward as ethanol is produced from molasses, a by-product of the sugar making process. The broader environmental question of sugar cane growing must also be considered.

Sugar is grown in areas containing some of Australia's most valuable natural assets: the Great Barrier Reef coastal region and the Wet Tropics World Heritage area. The area used for growing sugar cane in Queensland has increased by over 40 per cent since 1988. The area of cane harvested in the 2000-01 season was 424,350 hectares. This expansion has not solved the problems facing the industry, has fuelled considerable environmental concerns and has, sadly, added to the debt pressures facing many farming families. Expanding the industry in the past has been a simple solution to a complex problem and, from an environmental perspective, has produced more problems than benefits. Governments must work with and support growers as they move to more sustainable farming systems. Ethanol, combined with programs like Compass and the revegetation of riparian areas, could provide a catalyst for improving the environmental credentials of the entire sugar industry.

We must also look at the potential social benefits of an ethanol industry in North Queensland. Do we really want everyone to live in major cities and towns? Do we know the real costs of the social dislocation associated with the decline in rural and regional Australia? When people fall through the gaps government pays in the end through increased health, social security or law enforcement costs. Developing an ethanol industry in North Queensland could create many needed jobs. The Johnstone Shire Council's ethanol scoping study found that 18 to 20 people would be employed directly in a facility producing 30 million to 40 million litres of ethanol. There would be more direct jobs in the construction phase and downstream operations as well as the indirect jobs produced through increased business activity in the local community.

However, when looking at the employment benefits of ethanol we need to note that farmers gain no direct financial benefit from molasses sales. They will, therefore, not directly benefit from the development of an ethanol industry without changes to the cane payments system. Millers looking to develop ethanol plants fairly argue that molasses is a by-product of their sugar manufacturing process and should not be the property of the farmer. The millers argue that if farmers want to share in the benefits of a new ethanol plant they should invest financially in some of the risks. We need to look at ways in which this could be achieved, and work needs to be done to evaluate the range of potential business models. In looking at ethanol we need to consider not only the current economics of production but also the social and environmental costs and benefits. As I have explained, these issues are not straightforward. However, Australia's fossil fuel supplies are rapidly declining and we need to develop alternative sources of energy. Renewable sources of energy like ethanol must obviously be considered as part of that process. Labor have established an energy task force to develop policy in this area, and I will be working with that group to ensure that ethanol is seriously considered as part of the mix in meeting Australia's future energy needs.