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Boswell Submission 2005.01: Ethanol - Fuelling the Future - Submission to biofuels taskforce.



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Boswell Submission 2005.01 - Ethanol - Fuelling the Future - Submission to biofuels taskforce. A PDF of this document is available by contacting Paul Leven - 07 3001 8150

ETHANOL - FUELLING THE FUTURE - A PROPOSAL FOR A MANDATORY RENEWABLE FUEL TARGET (MRFT) THE PRIME MINISTER’S BIOFUELS TASKFORCE June 2005

Strategies to consolidate the uptake of biofuels in the Australian Market

Australia uses 20 billion litres of petrol and 15 billion litres of diesel annually, that is 35 billion litres of fuel.

Biofuels currently provide about 0.3% (about 75 million litres) of road transport fuel in the form of biodiesel and ethanol.

Ethanol is currently produced from cereal grains and molasses. It is produced by Manildra Mills in Nowra, NSW, CSR Pty Ltd at Sarina and Rocky Point Mill and Distillery at Woongoolba in Queensland. During the last four years, the volumes of ethanol produced by Australian companies has decreased due to the negative publicity surrounding the Manildra group and the scare campaign waged by most retailers on the ethanol content in fuel.

The Federal Government’s support program is aimed at a modest 350 million litres of biofuels—ethanol and biodiesel—production by 2010. This equals 1.06% of the total current fuel market.

Once reached the target means that by 2010, 3.3 billion litres of the fuel sold in Australia could contain ethanol or biodiesel, if the fuel companies were willing to blend and distribute it.

The Federal Government has also implemented a $37m grants scheme to kick start new and existing biofuel production. The grants scheme, however, has yet to complete it’s job - no grant agreements have been signed and no new formal off take agreements are in place.

All indications are that unless the Government takes some action to secure the market, the Government’s commitment to 350 ML of Biofuel production by 2010 will not be able to be met.

Whilst the Government is working hard to ensure this target is met, there is growing opposition from a large percentage of the fuel industry, reluctant to lose any control of fuel production and refining in Australia.

Ethanol producers are facing increasing obstruction from oil companies to the inclusion of ethanol in fuel.

Biofuels producers can not begin to produce without a market - fuel companies will not agree to contracts with them as there is limited supply.

Campaigns by oil companies to support the sale and distribution of ethanol are token, and proven to be hypocritical when no offtake agreements have been reached with producers of ethanol.

A 10% mandate?

Irrespective of the Federal Government’s support for the 350ML renewable fuel target, some within the industry and the Queensland Government are calling for the Federal Government to mandate 10% ethanol in all fuel sold in Australia.

This is not practical, as it could lead to imported ethanol. It is also highly impractical that ethanol is blended with fuels in remote areas, (as would be necessary under a federal mandate) as the transport costs would be prohibitive and the environmental benefits negligible.

Others have made the case for an introductory blend of 3 or 4% (E3 or E4) ratcheting up slowly to a E10 to allow Australian producers to supply the market. This proposal would lead to uncertainty in the market place, with different distributors marketing differing levels of ethanol blends in the market at the one time (E3, E5 and E10). It also fails to address concerns about the practicality of supplying blends to the entire Australian market.

Additionally, there is little scientific data to support the effectiveness of blends less than 10%.

I have long argued that availability is the key. If the product is made available and consumers are educated on its benefits then E10 fuel will sell itself. The issue for the Government is how to ensure its availability to consumers.

The Premier of Queensland is actively promoting the use of ethanol by motorists and the production of ethanol by the sugar industry.

Last year he led a delegation to Brazil to look at the successful ethanol production systems and the use of ethanol in the vehicle population in that country. The Queensland Government also sponsored an information bus that travelled the ‘sugar coast’ in Queensland during September and October 2004 and an international ethanol conference in Brisbane last month.

The problem remains that a market has to be created. Fuel suppliers need more encouragement to provide ethanol blended fuel to customers.

The health benefits of ethanol blended fuel.

From an urban environmental point of view, the benefits of a greater uptake of biofuels are indisputable.

There is an overall reduction in the carcinogenic and greenhouse gas emissions from both passenger vehicles and larger transport vehicles.

In passenger cars, the use of an E10 blend greatly reduces the tail pipe emissions when compared to unleaded petrol.

CSIRO/ABARE/BTRE Appropriateness of a 350 ML Biofuels Target.

A large part of Government reluctance to further support the ethanol industry is based on a report by CSIRO/ABARE/BTRE Appropriateness of a 350 ML Biofuels Target.

This report questioned the viability of ethanol as opposed to petrol.

Its viability comparisons are flawed as they are based on a projected oil price of US$23/barrel for West Texas Crude and an assumed exchange rate of US60c. The current Oil price is consistently over US$40/ barrel and the US exchange rate is running at A77c. At this price ethanol, as a renewable alternative, is extremely viable. In Brazil, Ethanol is currently being produced for the equivalent of between US$28 - $30 /barrel.

This report has also been widely criticised by many for its perceived bias against biofuels and inconsistency in

its application of assumptions.

It would be irresponsible to base any Government assessment of the need for further encouragement of the industry on a document that is so widely condemned.

Recent CSIRO Data.

Preliminary results from the most recent CSIRO study (May 2005) suggest that for each litre of ethanol produced there is a 2.5kg reduction in green house gas emissions, the equivalent of removing 70,000 cars from Australian roads.

The CSIRO found that approximately 3.3MJ of energy is required to produce 32ML of energy output from the ethanol plant, being an approximate 10x energy gain. This compares favourably with conventional unleaded petrol whereby 1.08MJ of energy is required to produce 1.0MJ of energy, an energy loss. (Primary Energy Media Release 31.5.05)

Clean Air Legislation.

In an attempt to improve the quality of fuel and air, the Government is sponsoring fuel companies in Australia to remove the toxic agents form their fuel. These include sulphur and other known carcinogens.

The Government’s compensation scheme is based on a 1cents/litre rebate to fuel companies to complete the clean up of their product. Ironically, this type of compensation to sponsor the fuel companies to provide a cleaner product is a world first. It is also effectively using tax payer dollars to achieve a goal that could also be achieved more economically by adding ethanol to the fuel.

The use of ethanol as an octane enhancer negates the need for refinery upgrades and in the E10 concentration would meet all the Euro IV emission criteria for creating a RON 95 fuel.

Fuel companies would still be required to remove sulphur as ethanol has limited impact on the sulphur content of fuel.

International Position on Ethanol

There is overwhelming evidence that ethanol is gaining momentum around the world.

Currently there are 2 leading producers of Ethanol, Brazil and the United States as well as many countries developing fledgling industries, like china, Thailand and The Philippines.

Legislative incentives (both percentage mandates and clean air legislation ) have been necessary to activate fuel industry cooperation and are currently in force in:

The United States of America Brazil EEC Columbia China Japan India The Philippines Thailand Pending legislation expected to be announced soon in the United Kingdom

In an ‘Address to the Nation’ in May, United States President, George Bush, singled out biofuels development as a strategic direction for America.

“President George W Bush today stressed the need for a "comprehensive strategy" to reduce US dependence on foreign oil.

In his weekly radio address, Bush said that next week, officials will "discuss our need for a comprehensive national energy strategy that reduces our dependence on foreign oil".

"This strategy will encourage more efficient technologies, make the most of our existing resources, help global

energy consumers like China and India reduce their own use of hydrocarbons, encourage conservation and develop promising new sources of energy such as hydrogen, ethanol and biodiesel," Bush said, calling the focus one that would "strengthen the long-term economic security of our nation".

ETHANOL - FUELLING THE FUTURE

Mandatory Renewable Fuels Target (MRFT)

PROPOSAL FOR THE ETHANOL INDUSTRY

Mandatory Renewable Fuels Target (MRFT)

Aim To set a mandatory target of utilisation of renewable fuels by requiring distributors to include a small percentage renewable fuels in their inventory.

MRET is the model to follow The MRET has been highly successful and is a working model of how a MRFT could be applied to the Australian Fuel industry.

The MRFT would require fuel distributors to purchase a specified percentage volume of ethanol from producers and blend it in an E10 blend. The fuel is to be made available to consumers at locations chosen by the distributors, most notably in urban areas. (Current legislation specifies a 10% ethanol blend as the maximum allowable, ensuring consumer confidence is not threatened by rogue operators. )

The introduction of a MRFT would consolidate and support the efforts of the Government on biofuels and indicate in a practical way that although the reality is that Australia will be reliant on fossil fuels for a while, the Government is prepared to force the Nation to wean itself onto renewable fuels.

The availability of E10 in urban areas will be backed up by an advertising campaign aimed at consumers, encouraging the choice of E10.

It will focus on the health benefits of choosing a clean air alternative. The concept of making a decision about your health and that of your children every time you fill up your car.

Benefits As opposed to a mandatory E10 blend, an MRFT means that E10 and biodiesel sales will be concentrated in urban areas were they will have the greatest impact on air quality. Distributors will be able to supply this fuel to consumers in the most cost effective way.

Not all fuel must have an ethanol blend however consumers will be given the choice.

The majority of ethanol blended fuel will be sold in urban areas, near the refinery, where the environmental issues and health benefits will be greatest, and the transport more cost effective.

An MRFT scheme would provide surety for producers and ensure the product is marketable but would allow the E10 fuel to be distributed and marketed in urban areas where it would be most cost effective and have the greatest impact on the environment.

More importantly an MRFT scheme would mean n annually increasing volumes of E10 in the Australian fuel market allowing consistency of branding and the opportunity for suppliers to build consumer confidence in the product.

This plan compliments the Government’s existing support program and is supported by a large number of participants in the ethanol industry.

It provides environmental benefits as well as surety for regional biofuels producers.

Administration The Office of the Renewable Energy Regulator is a statutory authority established to oversee the implementation of the Australian Government's mandatory renewable energy target.

It is expected that this office would also be able to oversee the administration and compliance of a MRFT within its charter, at a negligible cost.

With a limited number of biofuels suppliers, it is net proposed that a certificate scheme similar to the MRET be introduced at this stage. Further consultation with industry is required on this point.

Proposed Mandatory Renewable Fuel Targets (MRFT) 2005 0.25% 2006 0.25% 2007 0.5% 2008 0.5% 2009 0.5% 2010 1% 2011 1.5% 2012 2.0% 2013 2.5% 2014 3.5% 2016 4.0 2017 4.5% 2018 5.0% 2019 5.5% 2020 5.75%

The strategy will begin in late 2005 with 0.25% of the nation’s fuel consumption required to be renewable fuels.

Australia’s four foreign owned oil companies and independents would be required to purchase this volume of renewable fuel, as a minimum amount from the national fuel (petrol and diesel) pool.

That would represent over a 50% per cent increase over current fuel ethanol and biodiesel sales.

In consultation with industry, the Government will ratchet the level up every year and incorporate the 2010 target of 350 million litres of biofuels.

Therefore by, or before 2010, one per cent of the fuel consumed in Australia will be required to be renewable.

After 2010, there would be incremental annual production increases leading to a 5 per cent renewable target by the year 2018, then the European community target of 5.75 % renewable fuels target by 2020.

The European community is scheduled to meet its 5.75 per cent biofuels use target by 2010.

Target levels should be reviewed periodically in consultation with the ethanol and petroleum industries and reassessed in the year 2010.

Excise arrangements The MRFT complements the existing excise regime with the ethanol being excise free until 1st July 2011, that is once the Governments target has been met. The level of excise will ratchet up annually in 5 equal steps until its final 12.5 cents per litre on 1st July 2015.

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