The federal government’s key independent advisory body has recommended the axing of a controversial policy designed to boost ethanol use by NSW motorists because it increases petrol prices and reduces competition.

The Productivity Commission also says a mandate that 6 per cent of all petrol sold by major retailers in NSW must be ethanol may not have the claimed environmental benefits.

But the recommendation has been rejected by the NSW government as it prepares to launch an advertising campaign in support of its most recent attempts to encourage motorists to use E10, a blend of regular unleaded and up to 10 per cent ethanol.

Last year, the government legislated reforms including requiring a wider range of petrol stations to sell E10, establishing an online fuel price board and asking the Independent Pricing and Regulatory Tribunal (IPART) to regulate the wholesale price of ethanol in a bid to drive down its price.

But they have been controversial amid warnings that retailers forced to sell E10 for the first time need to increase the price of petrol to recoup the cost of equipment upgrades.

Fairfax Media has also revealed that Australia’s largest ethanol producer Manildra secured 20 meetings with a NSW minister and donated more than $160,000 to the Coalition before the introduction of new laws.

In a report on the regulation of the Australian agricultural industry, the Productivity Commission says assessment of the NSW ethanol mandate shows “retailers cut the supply of regular unleaded petrol to meet the biofuel sales target”.

This “reduced consumer choice and increased the price consumers paid for petrol because they substituted to premium fuels”.

“The mandate affected the competitive dynamic between retailers by reducing the availability of regular unleaded petrol at many retail sites”, it says, citing research by the Australian Competition and Consumer Commission and IPART.

The commission’s report also questions the claimed environmental benefits of ethanol use – a key reason the mandate was introduced by the NSW Labor government in 2007.

“The extent to which biofuels offer carbon emissions savings depends on how they are produced,” it says.

“If native vegetation is cleared in order for the land to be used in biofuel production (or to replace agricultural land diverted to biofuel production), this can lead to several times more carbon emissions being released than the fossil fuels they displace.”

The commission’s report recommends the ethanol mandate in NSW and Queensland be removed by the end of 2018. It also recommends removal of the federal government’s favourable excise arrangements for domestic ethanol producers.

NSW Minister for Innovation and Better Regulation Matt Kean said the government “notes the Productivity Commission report and its recommendations”.

“The government remains committed to the biofuels mandate, which has bipartisan support,” he said.

Extracted from SMH.