Biofuels politics in QLD is a risk for all
In an apparent effort to garner the support of the Katter Party in a knife-edge parliament, the Liberal National Party introduced a motion into the Queensland Parliament late yesterday calling on the Labor Government to introduce a 10% ethanol mandate and immediately establish a consultative board to work out how best to effect the mandate.
The motion occurred fewer than two weeks after the Hon. Mark Bailey (Minister for Energy and Water) and the Hon. Steven Miles (Minister for Environment and Heritage Protection) released a joint statement on behalf of the Queensland Government signalling the Government’s intent to examine strategies for supporting growth of the Queensland biofuels industry.
The earlier announcement by the Queensland Government included a commitment to work with industry to understand the issues involved. It also included a commitment to ensure that consumer choice of fuel product is maintained on the forecourt of the state’s 1380 service stations – a position that was welcomed by ACAPMA.
The Association was, however, extremely alarmed by the LNP’s motion last night to advance a specific solution without first allowing reasonable time for all stakeholders to contribute to the QLD Government’s consultative process.
“You only have to look over the border into NSW to see the substantial problems that arise from poorly considered policy in this area,” ACAPMA CEO Mark McKenzie said.
In fact, State and Federal Governments have been experimenting with strategies to promote biofuels for more than 15 years.
The most significant effort was the $37M Biofuels Capital Grants Program operated by the Australian Government. Despite spending more than $37M between 2003 and 2008, the program failed to catalyse the use of biodiesel and ethanol in Australia.
A subsequent review of this program (www.iisd.org/gsi/sites/default/files/biofuels_subsidies_aus.pdf) revealed that less than $1 dollar of regional benefit was realised for every $3 of government expenditure.
More importantly, a number of farmers were lured into thinking there was big money in biofuel production only to lose their life savings on failed biofuel start-ups.
“Any objective examination of the history of biofuels enterprise in Australia over the past 15 years reveals a history of train wrecks for all stakeholders, which is why the Queensland Government must consider this issue carefully,” Mark said
In 2012, growing industry concerns about the additional costs borne by fuel retail businesses and the lack of any evidence of motorist benefit motivated ACAPMA to unite with other industry stakeholders to successfully secure a roll back in key elements of the Biofuels Act (NSW) 2007.
A key factor in securing this concession was the fact that an examination of the first 5 years of operation of the legislation failed to demonstrate any tangible cost savings for NSW motorists, nor any significant environmental benefits for the wider NSW Community.
Interestingly, the net effect of the mandate in NSW over the past 5 years appears to have been a dramatic increase in the sales of premium fuel and less than 50% achievement of the NSW Government’s goal to achieve 6% ethanol use. This trend is evidenced by the fact that the average sales of premium fuels in NSW are almost 40% of all fuel sales – twice the national average of 20%.
‘In New South Wales we have seen consumers turning to higher grade (and higher cost) premium fuels when they could not purchase regular unleaded at their local service station, demonstrating a lack of consumer confidence in ethanol,” Mark said.
While petrol consumers are generally considered to be cost-sensitive, the NSW experience reveals that a significant proportion of motorists to avoid using ethanol blended petrol. Removing choice for regular unleaded will therefore likely result in motorists paying more for their fuel.
“Maintenance of choice between regular unleaded and E10 on the forecourts of QLD service stations is therefore a key consideration in any future government approach to biofuels,” Mark said
While ethanol is generally considered to be a ‘drop-in’ fuel for motorists – that is, it does not require the vehicle to be modified to operate on the fuel – this fuel cannot simply be dropped into existing fuel storage and distribution infrastructure.
Generally, the fuel industry must invest in new infrastructure to support the widespread market use of ethanol and this cost must be recovered from consumers over time.
If market demand for an alternative fuel (such as ethanol) is artificially created by government legislation, then there is a risk that this demand will fall away if the legislation is ultimately removed or amended by a subsequent government.
This in turn, represents a substantial risk for the many small to medium businesses that comprise the fuel chain as they must make a substantial capital investment to accommodate the fuel, knowing that there is a risk they may never recover this investment in the future.
“In short, neither fuel consumers nor the many small businesses that comprise the fuel industry, nor biofuels producers themselves have benefited from more than 15 years of government biofuels intervention,” Mark said.
“We must therefore take heed of the experiences in an effort to set the right strategy for biofuels market growth in Qld in the future,” Mark said.
For its part, ACAPMA is committed to working with government and industry to support the sale of all fuels – including biofuels – but such action must be premised on the creation of sustainable consumer demand.
Such a demand cannot be achieved in there is no tangible benefit to consumers, irrespective of any potential benefits to the agricultural industry.
“We believe that the Queensland Government is taking the right approach in advancing future strategies from a position of maintaining consumer choice and considering all of the options before deciding on a specific course of action and we look forward to discussing this issue with the Government in the future,” Mark said.
“Further, we will strongly oppose any action that fails to take due account of past experiences and the significant consumer and industry risks associated with the introduction of an ethanol mandate.”