The NSW Government has commenced a review of the operation of the NSW Biofuels mandate.

NSW fuel retail businesses were formally advised of the commencement of the review in an email sent earlier this week. The email included a link to a Discussion Paper (https://www.fairtrading.nsw.gov.au/__data/assets/pdf_file/0011/559442/Biofuels-Review-Discussion-Paper.pdf) and a request for comment on this paper by COB on 29 October 2019.

Further information about the Review, including guidelines on how to make a submission, can be found at https://www.fairtrading.nsw.gov.au/consultation-tool/biofuels-act-review

“ACAPMA mounted a substantial campaign against the continuation of the biofuels laws during 2015 review and our opposition to these laws is stronger than ever, said ACAPMA CEO Mark McKenzie.

“There is simply no case for extending these regulations – regulations that have produced a decline in the level of biofuel substation in the period since the 2015 review”, added Mark

The Government’s only argument for continuing these laws appears to be that they are delivering a GHG benefit. Even if you were to accept the highly contestable argument that the substitution of ethanol for petrol in the NSW context delivers a 30% reduction in GHG emissions, the net environmental benefit – relative to a 100% petrol baseline – of these laws is a net emissions reduction of just 0.8% per year.

“This GHG benefit – derived after more than 12 years of mandate operation – pales in comparison with the 10% GHG emissions benefit that has been ‘naturally’ derived by general improvements in fleet fuel efficiency over the same period”, said Mark

This larger benefit was derived by the natural operation of the Australian new vehicle market (i.e. replacement of older vehicles with substantial numbers of new fuel efficient vehicles) and did not come at the cost of the adverse consumer and market impacts – impacts that that have been identified by authoritative assessments conducted by government bodies such as the Australian Productivity Commission (APC), the Australian Competition and Consumer Commission (ACCC) and the NSW Independent Pricing and Regulatory Tribunal (IPART)

The Australian Productivity Commission, for instance, released a report in 2017 that included an assessment of the operation of the NSW Biofuels mandate. The report concluded that these laws had effectively:

  • Reduced consumer choice and increased the price consumers paid for petrol because most elected to purchase premium fuels in lieu of reduced availability of regular unleaded
  • Adversely impacting on the competitive dynamic in the highly competitive fuel retail market by reducing the availability of regular unleaded petrol at many retail sites.

In 2016, the ACCC observed in one of its’ regular petrol monitoring reports that the NSW biofuels mandate was costing NSW motorists up to $85 million per year in fuel costs (https://www.news.com.au/finance/money/costs/nsw-nanny-state-costing-motorists-85m/news-story/2eea09530953f7494d01fa6e23530e70.

Both assessments followed a report prepared by NSW IPART under the auspices of the 2015 Review. IPART concluded that the only beneficiary of the laws was the State’s monopoly biofuels producer – which coincidentally happened to be located in a marginal NSW electorate and had a history of making sizable donations to the NSW Coalition Government.

Extensive lobbying by ACAPMA in the years immediately following the 2015 Review, coupled with a change in the relevant NSW Government Minister that was responsible for these laws, saw a change in the NSW Government stance. This chance resulted in the operation of a more effective exemption mechanism that has protected small to medium businesses by exempting them from the mandate (and spending large capital sums on making fuel infrastructure compatible with biofuels – in order to sell a fuel that consumers simply don’t want).

While this mechanism is welcome, it means that fuel retailers are required to regularly apply for exemptions in what appears to be a pointless exercise.

And so here we are, five years later with the NSW Government commencing a further review of its’ biofuels laws.

“Any reasonable assessment of these laws is that they have failed to get within a bulls roar of the 6% substitution target, have failed to generate increased industry investment and jobs in regional areas promised by the biofuels lobby and delivered negligible environmental benefit – all coming at significant cost to both NSW motorists and fuel retail businesses”, said Mark.

But the early signs of the NSW Government conducting a genuine and objective review of these laws are not good, given several false statements contained in the Discussion Paper designed to set the context for the 2019 Review.

The first example concerns commentary about the widespread use of E10 around the world with the Discussion Paper stating that: “Around the world, biofuels are becoming increasingly used as a mechanism to improve fuel security, lower greenhouse gas emissions, and therefore improve health outcomes in cities and regional areas. The United States and Brazil are the two biggest producers of biofuels, creating 70 per cent of the world’s biofuels. In the United States, federal and state government programs have promoted biofuels to address issues of energy security, sustainability and regional jobs creation”.

“Perhaps the most favourable assessment of this commentary is that it is merely outdated and NSW policymakers have limited up to date knowledge of the global biofuels market”, said Mark.

Everyone in the fuel industry is aware that the use of biofuels has been declining substantially in the USA over the last decade, with the Federal Government and large US State Governments (e.g. California) redirecting their efforts to encourage electric and hybrid vehicles. This change in policy has seen falling demand for biofuels in the USA which has, in turn, prompted some North American biofuels producers to explore alternative markets for supply of biofuels, including Australia.

The authors of the NSW Government’s Discussion Paper also appear to have missed the fact that many of Brazil’s biofuels producers have actually closed their doors in recent years in the face of substantial decline due to higher production costs making them uncompetitive with traditional fuels (see https://www.bbc.com/news/business-33114119)

A second example of the falsehoods contained in the Government’s Discussion Paper concerns commentary in respect of the current European policy with the report stating that: “In 2005, the European Union mandated that renewable fuels (including biofuels) must make up 10 per cent of total transportation fuels by 2020. Sweden is the European leader in renewable energy in the transport sector, with biofuels making up to 20 per cent of the total transportation fuel market”.

This statement implies that biofuels are a major part of the 10% renewable energy target for transportation in Europe. Yet the reality is that most countries that comprise the European Union are directing their efforts at EV’s and hydrogen fuel cells – Sweden is the exception rather than the rule, when it comes to the EU’s Renewable Energy Directive (RED).

The reality is that the EU has forecast that consumption of conventional biofuels –that is the ‘first generation’ biofuels in Australia – will fall from 2022 to 2030 and will be replaced by advanced biofuels (see https://apps.fas.usda.gov/newgainapi/api/report/downloadreportbyfilename?filename=Biofuels%20Annual_The%20Hague_EU-28_8-9-2019.pdf). Unfortunately for NSW, there are not produces of advanced biofuels in Australia and the likelihood of this production in the near term is remote.

And then there is the issue that around 80% of European consumption of biofuels is biodiesel – not ethanol. You therefore must question the validity of any comparison of the NSW Biofuels market (100% ethanol) with the European Biofuels market (80% ethanol).

Put simply, the commentary provided in the Discussion Paper is hardly objective.

“You really have to question whether the NSW Government is looking at this policy objectively or is merely gobbling up the garbage that is being trotted out by the biofuels lobby, begging the question of why would the NSW Government do such a thing?”, said Mark

“The inescapable fact is that the NSW Biofuels mandate has been a manifest failure after 12 years of operation and therefore the only reasonable action is to retire the mandate”, said Mark

That does not necessarily mean that fuel retailers will not continue to sell E10 of the mandate was retired. Likely, the retailers who have invested heavily in the fuel infrastructure needed to sell biofuels will continue to sell E10 to their customers.

“But any suggestion that these laws should continue to operate – imposing unnecessary ‘red tape’ obligations on fuel retailers in the pursuit of a target that is simply not credible – is plainly absurd”, added Mark.

“It is time for common sense to prevail and, for its part, ACAPMA intends to push hard, loudly and very publicly for same”, concluded Mark.

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