In 2007, the then NSW Government passed new laws to mandate the sale of ethanol and biodiesel blended fuels by the State’s larger fuel retailers. The 2007 laws sought to limit consumer choice by prohibiting the sale of regular unleaded petrol by January 2012 and required liable fuel retailers to sell 6% ethanol as a proportion of all petroleum product sales.
In practical terms, the achievement of this target requires that 6 out of every 10 customers (i.e. 60%) visiting the State’s service stations purchase E10.
The consumer response to the government’s early efforts to promote biofuels was to shun E10 in favour of the higher priced premium petrol products.
The hypocrisy of the NSW Governments actions at the time was breathtaking, said ACAPMA CEO Mark McKenzie
“On the one hand, the government was attacking the industry for high petrol prices and on the other hand it was promoting a policy for its political donors in the biofuels industry that was causing motorists to pay more to purchase ‘pure’ petrol products”, added Mark
Following a high-profile campaign by fuel retailers, led by ACAPMA, the NSW Liberal Coalition government was forced to back down on the planned prohibition of the sale of regular unleaded petrol in NSW in 2012.
“At that time of this legislative backflip, sales of E10 had stagnated at just 37% of all petrol sales”, said Mark.
In the following two-years, E10 sales fell from 37% of all petrol sales (July 2013) to 31% of all petrol sales (July 2015). That is, just 50% of the NSW Government’s ‘mandated’ target.
Sales of the higher priced ‘premium petrol’ continued to increase over the same period- from 37% to 45% of all petrol sales.,
The decline in E10 sales over this period resulted in renewed lobbying (and alleged additional political donations to the NSW Coalition and Labour parties) by the State’s monopoly biofuels producer – the Manildra Group.
The intensity of this lobbying effort – of both major political parties-increased substantially in advance of the March 2015 NSW Election.
Soon after being elected, the NSW Government announced that it would conduct a “formal review” of the NSW Biofuels mandate.
In commencing the review, the Baird Coalition Government stated that the purpose of the review was to examine why the 2007 legislation had failed and examine options for the future of the legislation but – in the face of the now proven political donations from the State’s monopoly ethanol producer, only a fool would believe such a claim.
As part of the review, the NSW Government commissioned a study by the NSW Independent Pricing and Regulatory Tribunal (IPART) about the opportunities to increase the effectiveness of the mandate.
In its first report, IPART determined that the Biofuels mandate had not only failed but was also never likely to succeed without imposing substantial costs on the fuel industry and NSW motorists at large.
Further, and having considered whether the mandate had delivered any public-good benefits to the NSW community, IPART determined that the only beneficiary of the first 8 years of the biofuels mandate had been the State’s monopoly biofuels producer.
Instead of heading this advice and despite protestations by the fuel retail industry about the substantial business risk to smaller fuel retailers (and the consequent risk of increased fuel prices flowing through to NSW motorists because of higher compliance costs), the NSW Coalition Government pushed through changes to the Biofuels mandate with dedicated support from the State’s peak motoring body – the NRMA.
“Put simply, the NSW Coalition Government rammed through legislation with the support of the NSW Labor opposition to expand the failed 2007 mandate to smaller fuel retailers from 1 January 2017”, said Mark
“This, despite strong and vocal opposition from MP’s within its own ranks, from the NSW Greens and from the fuel industry”, Mark added.
The new laws came into effect on 1 January 2017.
Now, more than 18 months on, it is opportune to assess whether the NSW Government new something that the rest of us didn’t.
In other words, have the changes to the mandate that came into effect on 1 January 2017 increased the market uptake of E10 and biodiesel in NSW?
The answer to this question can be found in the NSW Government’s own data.
A quick review of data presented on the NSW Department of Fair Trading’s website shows that E10 sales in NSW have continued to decline (see figure 1) – falling from 27% of all petrol sales in Q4 2016 to below 20% in Q4 2017.
In addition, the percentage of biodiesel sales have fallen to 0.2% of all diesel sales to just 0.1% (See figure 2) – relative to the Government’s stated target of 5%.
Figure 1: Sales of E10 as a % of all petrol sales in NSW (Source: NSW Department of Fair Trading)
Figure 2: Sales of Biodiesel in NSW as a % of all diesel sales (Source NSW Department of Fair Trading)
In one sense, the abject failure of this legislation would not be so serious if the costs to industry, motorists and NSW taxpayers had been negligible.
But that is simply not the case.
ACAPMA estimates that the cost of the biofuels mandate to the State’s 400 plus fuel retail businesses – many of them small NSW businesses – has been in the order of $146.5M.
“Given that we operate in a commercial market, this cost would ultimately have been passed through to NSW motorists over the years and therefore the biofuels mandate has made fuel prices more expensive to NSW motorists than they might otherwise have been, said Mark
But NSW motorists are also taxpayers.
The ultimate cost payed by NSW residents for this failed legislation therefore far exceeds just the cost to industry, with the NSW Government having funded the NSW Department of Fair Trading to administer these laws.
The 2015 Biofuels legislation is currently scheduled for a review in June 2019. Any reasonable person would be led to conclude that, based on all available evidence, it is time to terminate the NSW biofuels mandate.
But such reason ignores the apparent influence of political donations and marginal seat politics.
The fuel retail industry must therefore be vigilant in scrutinising the actions of the biofuels lobby and aspiring politicians in the lead-up to the March 2019 NSW election and the June 2019 review of the NSW biofuels mandate.
“We made the mistake of believing that the NSW Government would conduct the 2015 review of the NSW Biofuels mandate on its merits – we will not make the same mistake in 2019”, concluded Mark.