Earlier this month, the Queensland Government recently released a discussion paper to support a consultation with key stakeholders on a proposal to introduce an ethanol mandate in that State.

The discussion paper clearly states that a decision has been made to implement a mandate for the use of ethanol blended fuel from 1 July 2016.

The paper seeks industry and community comment on the issues that should be considered in the design and implementation of a mandate for ethanol to comprise 2% of all petrol sales from 1 July 2016.

The key question now is how the mandate will operate in practice? Specifically, who should be liable for achievement of the mandate and what will the Government do to minimise the substantial costs imposed on the downstream petroleum industry to accommodate this mandate.

ACAPMA generally opposes fuel mandates as these actions typically create an artificial demand that forces industry to invest in infrastructure, with no guarantee that this demand will be sustained in the event that there is a subsequent change in Government policy in the future. That is, they constitute a substantial investment risk for fuel distribution and fuel retailing businesses.

In the case of Queensland, however, the reality of the politics of the current state parliament is that the Labour Government has already made the decision to impose a mandate – largely on political grounds – and this decision is openly supported by the LNP opposition.

The Government Discussion Paper openly states that the purpose of the mandate is to support the growth of the State’s infant biofuels industry, with a view to realising wider environmental and regional development benefits for the Queensland economy.

The Discussion Paper proposes that all petrol wholesalers be made legally liable for the achievement of the mandate, together with ‘major fuel retailers’ – who are defined as fuel businesses operating 10 sites or more.

While it could readily be argued that the net community benefits cited in the paper are dubious at best, ACAPMA has instead focused on the absolute lack of fairness demonstrated by government in advancing a policy that effectively asks one industry to fund the development costs of another.

“The current proposal fails any fairness test and could potentially result in the State’s 1380 service stations spending a combined sum of up to $372m in infrastructure upgrades to accommodate the development of the biofuels’ industry – with the majority of this cost being borne by small fuel retail businesses and ultimately, Queensland motorists,”  ACAPMA CEO Mark McKenzie said.

Accordingly, ACAPMA is working to promote greater political and departmental understanding of the likely costs on fuel retailers who are not currently selling E10.

Based on the NSW experience, these costs will vary from a relatively modest $25k for sites with existing infrastructure that is compatible with E10 to as high as $900k for those sites that do not currently have compatible underground storage tanks (i.e. ACAPMA estimates the seals used in the underground tanks of approximately 20% of the State’s service stations will be destroyed by the corrosive nature of ethanol – and therefore these sites require replacement of underground tanks to prevent environmental contamination of soil).

“These costs are substantial in their own right but the total cost to the downstream petroleum industry rises even further when the costs borne by fuel distributors to adjust their storage infrastructure and trucking fleets, are also taken into account,” Mark said.

ACAPMA is currently preparing a submission to the Government Discussion Paper prior to the closing date of 3 July 2015.

“Given that the decision to introduce a mandate has already been made, our role is now to promote greater government understanding of the likely costs that will be imposed on our industry as a result of the mandate – and then help the government to design an implementation plan that will minimise these costs,”  Mark said.

“Our thanks go to those members that have already provided input to this discussion but we encourage all other Queensland fuel businesses to contact us so that we can incorporate their thoughts in our final submission.”.

Feedback can be provided by contacting the Secretariat on 1300 160 270.