Environment and Natural Resources Committee
Inquiry into the Production and/or Use of Biofuels in Victoria
October 2006
Inquiry into the Production and/or Use of Biofuels in Victoria
Report of the Environment and Natural Resources Committee on the Inquiry into the Production and/or Use of Biofuels in Victoria
ORDERED TO BE PRINTED Victorian Government Printer 2006
Parliamentary Paper No. 242 Session 2003-2006
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Parliament of Victoria Environment and Natural Resources Committee Inquiry into the Production and/or Use of Biofuels in Victoria ISBN - 0-9757811-2-X
This report is printed on recycled paper.
Table of Contents
Committee Members ...... vii The Environment and Natural Resources Committee...... ix Terms of Reference ...... xi Chair’s Foreword ...... xiii
Executive Summary ...... xv Table of Recommendations...... xix Table of Findings...... xxi Abbreviations...... xxiii
Chapter One: Introduction ...... 1 Biofuels in Australia...... 1 Transportation fuel use...... 1 The place of biofuels...... 2 Scope of the Inquiry and future directions ...... 3 Inquiry process ...... 4 Inquiry report ...... 4
Chapter Two: The production and use of biofuels in Victoria and Australia ...... 7 Ethanol production and use ...... 7 Ethanol production...... 7 Ethanol Capacity ...... 8 Availability...... 10 Ethanol manufacture and properties ...... 11 Ethanol: chemical composition and properties ...... 11 Production processes and feedstocks ...... 13 Biodiesel production and use ...... 19 Production and capacity ...... 20 Availability...... 23 Biodiesel manufacture and properties ...... 24 Biodiesel: chemical composition and properties ...... 24 Production processes and feedstocks ...... 29
Chapter Three: International developments...... 33 Ethanol and biodiesel ...... 33 Global biofuel production ...... 34 Countries producing biofuels...... 36 Brazil...... 36 The European Union...... 38 Germany...... 39
iii Inquiry into the production and/or use of biofuels in Victoria
United States of America ...... 40 Canada ...... 42 India ...... 43 China ...... 43 Observations on overseas biofuels developments ...... 44
Chapter Four: Barriers, benefits and impacts...... 47 Consumer and mechanical issues ...... 47 Consumer confidence ...... 47 Engine damage...... 51 Fuel consumption...... 57 Distribution, blending and storage...... 60 Octane ...... 62 Cetane ...... 64 Vapour pressure ...... 65 Affinity with water...... 69 Environmental issues...... 70 Greenhouse gases...... 70 Air quality ...... 73 Air toxics ...... 77 Other environmental impacts ...... 80 Social issues ...... 81 Employment...... 81 Health ...... 84 Economic issues...... 86 Energy security ...... 86
Chapter Five: Current government activities...... 91 Commonwealth ...... 91 Report of the Biofuels Taskforce...... 91 The Biofuels Capital Grants Program ...... 92 Fuel excise...... 93 The Cleaner Fuels Grants Scheme...... 94 Energy Grants Credit Scheme ...... 96 The Fuel Tax Act 2006...... 97 Ethanol limit for petrol ...... 98 Standards for biofuels ...... 98 Renewable Energy Development Initiative ...... 99 Victorian Government activities ...... 99 Government fleet ...... 99 Industry Road Map...... 102 Industry support ...... 102 Activities in other states ...... 103 Queensland ...... 103 iv Table of contents
New South Wales ...... 105 Northern Territory ...... 105 Western Australia ...... 105 South Australia ...... 106 Tasmania...... 106 Australian Capital Territory ...... 106 Emerging policy issues for biofuels ...... 107 Biofuel mandates...... 107 Biofuels production in Victoria ...... 110 Bibliography...... 111 Appendix 1 ...... 119 List of submissions...... 119 Appendix 2 ...... 121 List of witnesses...... 121 Public hearings ...... 121 Melbourne 4 September 2006 ...... 121 Melbourne 11 September 2006 ...... 121 Appendix 3 ...... 123 Seminars and conferences ...... 123
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Committee Members
This Inquiry was conducted during the term of the 55th Parliament. The members of the Environment and Natural Resources Committee are: Ms Jenny Lindell, MP (Chair) Hon Andrea Coote, MLC (Deputy Chair) Hon Damian Drum, MLC Ms Joanne Duncan, MP Hon Geoff Hilton, MLC Hon Wendy Lovell, MLC Mr George Seitz, MP
Staff For this Inquiry, the Committee was supported by a secretariat comprising: Executive Officer: Dr Vaughn Koops Research Officer: Mr Derek Benjamin Office Manager: Ms Vanessa Thomas
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The Environment and Natural Resources Committee
The Victorian Environment and Natural Resources Committee is constituted under the Parliamentary Committees Act 2003, as amended.
The Committee comprises seven members of Parliament drawn from both houses and all parties.
Its functions under the Act are to inquire into, consider and report to the Parliament on any proposal, matter or thing concerned with -
1. the environment;
2. natural resources;
3. planning the use, development or protection of land.
Committee Address Address: Level 8, 35 Spring Street Melbourne Victoria 3000 Telephone: (03) 9651 3533 Facsimile: (03) 9651 3537 Email: [email protected] Internet: http://www.parliament.vic.gov.au/enrc
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Terms of Reference
The Governor in Council under section 33 of the Parliamentary Committees Act 2003 refers Terms of Reference requiring:
That the Environment and Natural Resources Committee investigate the potential for Victoria to manufacture and use biofuels for transport applications.
The Committee is asked to inquire into, consider and report to Parliament on:
• current manufacture, availability and use of biofuels for transport applications in Australia and Victoria;
• potential environmental, economic and social impacts of increased manufacture and use of biofuel for transport applications;
• the impact of reducing reliance on oil imports as a result of increased use of biofuel for transport;
• barriers to and incentives for increased use of biofuel for transport;
• the role of government in the manufacture and use of biofuels for transport.
The Committee is required to report to Parliament by 17 October 2006.
Dated 25 July 2006
Responsible Minister:
STEVE BRACKS
Premier
On 14 September 2006 the Governor in Council under section 33 of the Parliamentary Committees Act 2003 amended the reporting date to 27 October 2006 by Order in Council.
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Chair’s Foreword
I am pleased to present the Environment and Natural Resources Committee’s report on its Inquiry into the Production and/or Use of Biofuels in Victoria.
In recent years there has been increasing interest in the role that biofuels may play in the Australian transport sector. The use of biofuels appears to address a number of concerns we have about transport fuel use in Australia, such as the effects of transport emissions on the environment and population health, and the sustainability and security of fuel use. The emergence of a biofuels industry in Australia provides Victoria with an opportunity to examine what role biofuels may play in this State.
This report contains five recommendations that the Committee believes will assist industry and government to explore the future role of biofuels in Victoria.
A number of witnesses told the Committee that the State Government must demonstrate leadership in the promotion and use of biofuels. The Committee notes that the State Government already requires its vehicle fleet to use ethanol blended fuels when available, and recommends that the State Government expand this policy to require that its fleet also use biodiesel when available. The Committee also recommends that the State Government conducts research into costs and benefits associated with the use of biodiesel blends in public transport.
The Committee notes that improved information about the environmental and health effects of ethanol and biodiesel use is required, and recommends that the State Government initiates research to determine the overall effect on emissions associated with the use of ethanol and biodiesel.
While the Committee was pleased with the number and quality of submissions received from the public during the course of this Inquiry, the Committee also felt that it would have benefited if more time had been available to consider issues surrounding the use of biofuels. Consequently a key recommendation of the Committee is that investigations into the biofuels industry be continued by a Joint Investigatory Committee in the 56th Parliament.
I would like to thank those people who shared their insights, information and time with the Committee. The Committee received 43 written submissions and evidence from 16 people during the course of this Inquiry.
xiii Inquiry into the production and/or use of biofuels in Victoria
I would also like to thank my fellow Committee Members for their contribution to the Inquiry – Hon Andrea Coote (Deputy Chair); Hon Damian Drum; Ms Joanne Duncan; Hon Geoff Hilton; Hon Wendy Lovell and Mr George Seitz. Finally, on behalf of my colleagues I would like to thank the secretariat staff for their hard work and support throughout this Inquiry – Dr Vaughn Koops, Mr Derek Benjamin and Ms Vanessa Thomas.
Jenny Lindell, MP
Chair
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Executive Summary
Chapter One: Introduction The Committee received the Terms of Reference for the Inquiry into the Production and/or Use of Biofuels in Victoria on 27 July 2006. While acknowledging that a range of biofuels exist, given the limited time available to conduct the Inquiry, the Committee chose to focus on the use ethanol and biodiesel only.
Thirty-seven per cent of Australia’s final energy consumption is in the transportation sector, with road transportation accounting for most of the petroleum products used in Australia. While Australia possesses its own crude oil supplies, a significant proportion of refined and unrefined product is imported from overseas. This proportion is expected to increase significantly in future years.
Internationally, a desire to reduce reliance on imported oil is often given as justification for policies to increase production of biofuels such as ethanol and biodiesel. However, the advantages of biofuels are not limited to fuel security issues. Biofuels are marketed as sustainable or renewable fuels, and may provide environmental, social and economic benefits such as reduced greenhouse gas emissions and increased regional employment.
Barriers to the adoption of biofuels include a low level of consumer confidence, particularly for ethanol, and well as mechanical and infrastructural barriers. A significant amount of work is being undertaken by governments and the biofuels industry to overcome these barriers.
Chapter Two: The production and use of biofuels in Australia Ethanol
From a production peak of 75ML of fuel grade ethanol in 2002-03, production of fuel grade ethanol declined significantly to 22.7ML in 2004-05. Stakeholders attribute this decline to a low level of demand for ethanol, caused primarily by a lack of consumer confidence resulting from negative media coverage in 2002.
Significant production capacity for fuel ethanol currently exists, with Australia’s largest producers of ethanol, CSR and the Manildra Group, reporting a combined capacity of 150ML. Capacity is expected to increase significantly in the near future. Figures obtained from the Department of Tourism, Industry and Resources indicate that 230 stations retail ethanol blended fuel, with the majority located in Queensland.
Ethanol can be manufactured through industrial processes, by the fermentation of biomass feedstocks that contain sugar, or materials such as starch or cellulose that can be converted into sugars. Australian ethanol is
xv Inquiry into the production and/or use of biofuels in Victoria
typically manufactured by fermentation using wheat starch or C molasses as feedstock. The manufacture of ethanol produces a number of by-products, such as distillers grain, which can be sold to generate an additional income stream. Income generated by the sale of by-products is often critical to the economic viability of ethanol plants.
Biodiesel In 2003-04 approximately 1ML of biodiesel was produced, increasing to 4ML in 2004-05. In 2004-05 biodiesel production capacity was estimated at 15.5ML, with capacity anticipated to increase to almost 900ML by 2007-08. Biodiesel is not readily available, with an estimated 71 outlets retailing biodiesel or biodiesel blends, the majority of which are located in South Australia and Western Australia.
Biodiesel is derived from the methyl esters of fatty acids contained in vegetable and tallow oil triglycerides. It has a high cetane number, good lubricity properties, and possesses an energy content comparable to conventional mineral diesel fuels. The manufacturing process for most forms of biodiesel is essentially similar, and involves combining the vegetable oil or animal fat feedstock with methanol (or ethanol) and a catalyst (sodium hydroxide or potassium hydroxide).
Chapter Three: International developments Ethanol is the most widely used biofuel in the world, with Brazil and the United States producing 90 per cent of the world’s ethanol in 2005 (36GL). Biodiesel production is substantially lower, with an estimated global production capacity of 1.5GL, mostly located in Europe.
The development of international biofuel industries overseas is characterised by government support which enables biofuel industries to compete with petrol and diesel. International biofuels policies appear to be focused on stimulating the agricultural sector, although energy security and climate change concerns are also drivers for biofuels production.
Chapter Four: Barriers, benefits and impacts The principal barrier to the uptake of ethanol blended fuel is a lack of consumer confidence. In 2002 and 2003 unlabelled ethanol blends with concentrations of up to 30 per cent were retailed in the Sydney metropolitan area, creating concern about possible engine damage. Although little evidence of damage was identified, the biofuel industry is still yet to fully recover from the negative sentiment surrounding ethanol.
While general consensus is that vehicles built after 1986 (generally those with electronic fuel injection) can safely operate on ten per cent ethanol blends (E10), several vehicle manufacturers have stated that their vehicles should not use ethanol. In 2003 a maximum blend of ten per cent ethanol in petrol was legislated by the Commonwealth Government. xvi Executive summary
The introduction of ethanol into existing distribution, blending and storage facilities is problematic, with witnesses providing evidence that the fuel properties of ethanol may necessitate the installation of additional infrastructure, and changes to handling procedures. As biodiesel has similar handling characteristics to diesel, it is not anticipated that biodiesel will pose any significant problems to existing distribution, blending and storage arrangements.
The use of biofuels may lead to reduced life-cycle greenhouse gas (GHG) emissions. While actual reductions are dependent upon the feedstock used, life-cycle GHG reductions for E10 range from 1.7 per cent to 3.7 per cent, while GHG reductions from the use B20 range from 7.6 per cent to 19.3 per cent.
Biofuels also provide life-cycle reductions in certain air pollutants, although actual reductions are dependent upon the feedstock used. Research indicates that on a life-cycle basis carbon monoxide (CO) emissions for E10 blends are lower than unleaded petrol (ULP) CO emissions. Particulate matter (PM) and nitrogen oxides (NOx) emissions associated with E10 are higher than ULP, and volatile organic compounds (VOCs) emissions are comparable to ULP.
Analysis of biodiesel pollutant emissions indicates that CO, VOC and PM emissions are lower relative to ULSD. NOx emissions tend to increase with the use of biodiesel. Blended biodiesel fuels produce lower CO, VOC and PM emissions than ULSD, with slightly increased NOx emissions.
Chapter Five: Current government activities The Commonwealth Government convenes a number of grants and rebates programs that support the ethanol and biodiesel industries. Recent changes to excise arrangements for all fuels may have an effect on the biofuels industry. However, over the medium term biofuels will continue to receive support from the Commonwealth Government through production grants, which reduce the effective tax on alternative fuels.
The Victorian Government currently supports the ethanol fuel industry by requiring the Government fleet to use ethanol blended fuel when it is available. The Committee recommends that the Victorian Government extends this policy to require fleet diesel vehicles to use biodiesel when it is available. The Victorian Government also has the capacity to initiate research on costs and benefits associated with the use of biodiesel in public transport.
The introduction of a mandate for biofuel sales and/or production may introduce a range of problems, particularly regarding the capacity of the industry to supply adequate quantities of fuel. It appears that investment in the ethanol and biodiesel industries is occurring with current levels of support from the Commonwealth Government. At this stage the introduction of a mandate for biofuels appears premature.
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Table of Recommendations
Recommendation 1:...... 4
That a Joint Investigatory Committee of the 56th Victorian Parliament be allocated a reference to conduct an inquiry into the production and use of biofuels in Victoria. The terms of reference for the inquiry should draw and expand upon materials considered during the current Inquiry into the Production and/or Use of Biofuels in Victoria, and consider the use of biofuels in non-transport applications.
Recommendation 2:...... 76
That the Victorian Government initiates scientific research into the air quality benefits of ethanol blended fuel use.
Recommendation 3:...... 79
That the Victorian Government initiates scientific research into the air quality benefits of biodiesel fuel use.
Recommendation 4:...... 100
That the Victorian Government requires drivers of Government vehicles to use biodiesel blended fuels where available.
Recommendation 5:...... 101
That the Victorian Government, through the Public Transport Division of the Department of Infrastructure, conducts comprehensive research on costs and benefits associated with the use of biodiesel blends in public transport.
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Table of Findings
Finding 1:...... 51
Consumer confidence can have a critical effect on the biofuels market. The Australian biodiesel industry should take measures to ensure a high level of consumer confidence in biodiesel is maintained.
Finding 2:...... 55
The Committee finds that a cautious approach to the use of ethanol in blends greater than E5 is prudent.
Finding 3:...... 55
The Committee finds that the existing cap of ten per cent ethanol is suitable for sale when appropriately labelled, although further testing may be warranted to establish the capability of particular vehicles, such as older vehicles, to operate on E10.
Finding 4:...... 57
The development of a standard for biodiesel blends above B5 will assist consumer and industry confidence in biodiesel products.
Finding 5:...... 57
Labelling of biodiesel products in excess of B5 at fuel bowsers will assist consumers to make informed choices about fuel use.
Finding 6:...... 68
A cautious approach should be taken by the Victorian Government regarding applications for Reid Vapour Pressure level exemptions for certain fuels.
Finding 7:...... 83
Comprehensive assessment of economic, social, environmental, health and employment benefits should be undertaken prior to the introduction of programs to support the biofuels industry.
Finding 8:...... 90
Australia is not currently facing an energy security problem in relation to transport fuel use. The pursuit of biofuels solely on energy security grounds is unwarranted.
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Finding 9:...... 110
Given current feedstock and biofuels production technologies, there may be improved opportunities for the development of a competitive biodiesel industry in Victoria.
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Abbreviations
ABARE Australian Bureau of Agricultural and Resource Economics
AIP Australian Institute of Petroleum
B5 Diesel containing 95 per cent petroleum diesel and 5 per cent biodiesel
B20 Diesel containing 80 per cent petroleum diesel and 20 per cent biodiesel
B100 100 per cent Biodiesel
BTRE Bureau of Transport and Regional Economics
CH4 Methane
CNG Compressed Natural Gas
CO Carbon Monoxide
CO2 Carbon Dioxide
CSIRO Commonwealth Scientific and Industrial Research Organisation
DITR Department of Industry, Tourism and Resources (Commonwealth)
E5 A blend of petrol containing 5 per cent ethanol
E10 A blend of petrol containing 10 per cent ethanol
E20 A blend of petrol containing 20 per cent ethanol
EPA Environment Protection Authority/Agency
EU European Union
GDP Gross Domestic Product
GHG Greenhouse Gas
GL Gigalitre (1,000,000,000 litres or 1,000ML or 109 litres)
HAPs Hazardous Air Pollutants
LSD Low Sulphur Diesel (<500ppm)
LNG Liquefied Natural Gas
xxiii Inquiry into the production and/or use of biofuels in Victoria
LPG Liquefied Petroleum Gas
ML Megalitre (1,000,000 litres or 106 litres)
MON Motor Octane Number
N2O Nitrous Oxide
NOx Nitrogen Oxides
nPAH Nitro-Polycyclic Aromatic Hydrocarbons
O3 Ozone
PAH Polycyclic Aromatic Hydrocarbons
Pb Lead
PM Particulate Matter
ppm Parts Per Million
PULP Premium Unleaded Petrol
RON Research Octane Number
RVP Reid Vapour Pressure
SO2 Sulphur Dioxide
ULSD Ultra Low Sulphur Diesel (<50ppm)
ULP Unleaded Petrol
VOCs Volatile Organic Compounds
XLSD Extra Low Sulphur Diesel (<10ppm)
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Chapter 1
Introduction On 27 July 2006 the Environment and Natural Resources Committee received a reference under the Parliamentary Committees Act 2003 to inquire into the production and/or use of biofuels in Victoria. The terms of reference state that the Committee is asked to inquire into, consider and report to Parliament on:
• current manufacture, availability and use of biofuels for transport applications in Australia and Victoria; • potential environmental, economic and social impacts of increased manufacture and use of biofuel for transport applications; • the impact of reducing reliance on oil imports as a result of increased use of biofuel for transport; • barriers to and incentives for increased use of biofuel for transport; • the role of government in the manufacture and use of biofuels for transport. The Committee is required to report to Parliament by 17 October 2006. On 14 September 2006 the Governor in Council under section 33 of the Parliamentary Committees Act 2003 amended the reporting date to 27 October 2006 by Order in Council.
Biofuels in Australia Transportation fuel use Approximately 37 per cent of the final consumption of energy in Australia is in the transportation sector, with fuel consumed in road transportation accounting for most of the petroleum products used.1 While Australia has substantial fossil fuel resources – including coal and crude oil – for a variety of reasons a high proportion of the fuel used in Australia’s vehicle fleet is imported from overseas.2 In future Australia is likely to become more reliant on imported transport fuels as demand increases.
1 Productivity Commission, The private cost effectiveness of improving energy efficiency, Productivity Commission, Canberra, 2005, p. 33. 2 See Chapter Four.
1 Inquiry into the Production and/or Use of Biofuels in Victoria
Fossil fuel use in the transportation sector accounts for 15 per cent of all greenhouse gas (GHG) emissions in Australia, and for a large proportion of nitrous oxide, particulate matter and volatile organic compounds emissions, all of which are thought to have a significant effect on population health.3 In 2002, the Bureau of Transport and Regional Economics estimated that by 2010 GHG emissions from the Australian transport sector would increase by 40 per cent from 1990 levels, and by 2020 transport sector emissions would be 70 per cent higher.4 In 2000, 90 per cent of GHG emissions from the transport sector were attributable to road transport.5
Concerns have been raised that Australia’s reliance on fossil fuels may constitute a threat to the security of the Australian fuel supply. There is also considerable debate throughout the world about when the level of maximum oil production, or ‘peak oil’, will occur and what effect declining oil production levels, coupled with expensive oil extraction technologies, may have on the world economy. Some commentators concerned about the vulnerability of fuel supplies to constricted supply and/or increasing costs have suggested that a diversified fuel mix with increased levels of domestic production would minimise risk associated with fuel security. In this context a range of alternative fuels – including biofuels – are being considered as a means to improve security of price and security of supply. The place of biofuels Against this background there has been increasing interest in the use of biofuels – principally ethanol and biodiesel – as alternatives to fossil fuels. Biofuels are produced from organic compounds, and are renewable, and as a result may produce fewer GHG emissions and lower air pollutant levels when the entire ‘well to wheel’ life-cycle of fuel use is considered.6 Studies conducted to date on the two major biofuels, ethanol and biodiesel, suggest that these fuels may have advantages over petroleum based fuels in terms of reduced net GHG emissions, reduced emissions of some air toxic substances, and (in the case of biodiesel) increased biodegradability. The incorporation of biofuels into the Australian fuel mix may also provide an ongoing market for the production of biofuels feedstocks, and so offer some support to the agricultural sector.
While there has been considerable optimism about the future role of biofuels in the Australian fuel mix, it is unlikely that biofuels produced with current
3 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; Productivity Commission, The private cost effectiveness of improving energy efficiency, Productivity Commission, Canberra, 2005, p. 330. 4 Bureau of Transport and Regional Economics, Greenhouse gas emissions from transport, BTRE, Canberra, 2002. 5 Productivity Commission, The private cost effectiveness of improving energy efficiency, Productivity Commission, Canberra, 2005, p. 35. 6 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003.
2 Chapter One: Introduction
technology will account for a large proportion of Australian fuel use in the short to medium term.7 As discussed in this report, there are also a number of consumer confidence, infrastructural and distributional problems that will have to be addressed before biofuels can play a significant role. However, in the right conditions biofuels may form a small but important component of the Australian fuel mix, contributing to increased fuel security, reduced emissions, and agricultural support. Scope of the Inquiry and future directions For the purposes of this Inquiry the Committee considered the use of the two key biofuels, ethanol and biodiesel. Combined, these fuels account for the vast majority of biofuels produced both throughout the world and in Australia. The Biofuels Taskforce, which was appointed by the Prime Minister in 2005 to investigate a range of issues associated with the use of biofuels, also restricted its analysis to these fuels, partly on grounds that they were “biofuels that are liquid transport fuels and… can be readily produced from existing technology.”8 Notably, the majority of evidence received by the Committee in public hearings and in submissions discussed either biodiesel or ethanol in the context of biofuels.
While other fuels can be produced from biological feedstocks, they do not form a significant part of the contemporary biofuels industry. For example, while methanol can be produced from organic matter it is currently produced at a comparatively low cost from fossil fuel resources. It is unlikely at this stage that a viable methanol industry that uses organic products for feedstock could be formed in competition with the conventional methanol industry.
Throughout this report the Committee has focused on ethanol and biodiesel, either as neat products, or as fuels blended with petroleum fuels. However, as noted above, the Committee is aware that there is scope for the consideration of the place of other biofuels in Australia. Given the complexity of the topic, the Committee considers that more time would be required to form recommendations affecting the future direction of the biofuels industry in Victoria, particularly given that there is still much to be learned about the environmental effects and impacts of increased biofuels use in Australian (and Victorian) contexts. The Committee also notes that future use of biofuels may not be restricted to the transport sector, as there may be a role for the application of biofuels in stationary energy contexts. Finally, the Committee believes that consideration of issues relevant to the biofuels industry in Victoria would be greatly assisted if there was more time for
7 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. 8 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 5.
3 Inquiry into the Production and/or Use of Biofuels in Victoria
public consultation, and for close examination of the biofuels industry in this, and other, jurisdictions.
For these reasons the Committee recommends that a Joint Investigatory Committee in the 56th Parliament of Victoria be allocated a Terms of Reference that allows for the continuation of investigations into the biofuels industry and reflect the Committee’s considerations as discussed above.
Recommendation 1:
That a Joint Investigatory Committee of the 56th Victorian Parliament be allocated a reference to conduct an inquiry into the production and use of biofuels in Victoria. The terms of reference for the inquiry should draw and expand upon materials considered during the current Inquiry into the Production and/or Use of Biofuels in Victoria, and consider the use of biofuels in non-transport applications. Inquiry process The Committee advertised the terms of reference and called for written submissions in Victorian newspapers in August 2006. The Committee received 43 written submissions (see Appendix One).
Public hearings were held in Melbourne on 4 September 2006 and 11 September 2006. Details of hearings are provided in Appendix Two. The Committee took evidence from and met with 16 people representing eleven organisations during the course of the Inquiry including state government departments; non-government organisations; peak industry groups; industry experts; and businesses working in the biofuels industry.
Committee members and staff attended a seminar, which is listed in Appendix Three.
Many individuals and organisations contributed to this Inquiry by making written submissions and participating at public hearings. The Committee is grateful to these people for generously sharing their expertise and ideas.
Inquiry report Chapter Two of this report describes current capacity, production and availability of ethanol and biodiesel in Victoria and Australia, and provides an overview of production processes for these biofuels. Some of the characteristics of these fuels are also considered, such as GHG and air toxic emissions compared to petroleum fuels, and storage and handling characteristics.
Chapter Three provides a brief overview of production, capacity and use of biofuels in the international context. Some of the key policy mechanisms applied to the biofuels sector around the world are also considered.
4 Chapter One: Introduction
Chapter Four describes some of the major barriers, impediments and drivers for biofuels in Victoria and Australia. A range of issues are considered, from consumer confidence to mechanical issues associated with the use of biofuels. GHG emissions, air pollutants and air toxic emissions are also described and considered in more detail.
Chapter Five provides an overview of programs and policy mechanisms affecting the biofuels industry throughout Australia. The effect of excise and taxes, as well as the influence of government support on the development of the biofuels industry is also considered.
5
Chapter 22
The production and use of biofuels in Victoria and Australia In this chapter current ethanol and biodiesel production and capacity is examined, along with a short description of the properties of these fuels. Methods and technologies for the production of biodiesel and ethanol are also considered.
Ethanol production and use Ethanol production In 2004-05 the Commonwealth Department of Industry Tourism and Resources (DITR) estimated that 22.7 megalitres (ML) of fuel ethanol was produced in Australia.9 Production during 2004-05 was substantially reduced from production in previous years, with an estimated 37ML ethanol produced in 1999-2000, 75ML produced in 2002-03, and 28.5ML produced in 2003-04.10
Table 1: Fuel grade ethanol production (ML), 2002-03 to 2004-05.11
2002-03 2003-04 2004-05 75.0 28.5 22.7
According to witnesses that appeared before the Committee, this dramatic fall in fuel grade ethanol production was directly associated with negative
9 Department of Industry Tourism and Resources, 'Biofuels fact sheet', viewed 24 July 2006,
7 Inquiry into the Production and/or Use of Biofuels in Victoria
publicity about ethanol in 2002.12 Mr Martin Jones, Manager Government Relations of CSR Ethanol Ltd, told the Committee:
The fuel market almost died completely about three years ago with all the scares coming out of the Sydney press in relation to what it may or may not do to motor vehicle engines. I think we were down to supplying about one tanker load per month. We almost sold nothing at the bottom of that cycle. This was all produced in Yarraville.13 Recent developments in the ethanol fuel industry suggest that ethanol production and demand will increase. These include a revived focus on possible roles for renewable fuels in the future Australian fuel mix, and various government programs directed at stimulating the demand for, and supply of, ethanol for fuel.
Ethanol is mainly provided to the retail market as a blended fuel known as E10, which consists of ten per cent ethanol and ninety per cent petrol. Available statistics indicate that most blended ethanol sales in 2005-06 were in Queensland. In total, around 55ML of ethanol blended fuel sales were recorded by the DITR for 2005-06, which accounts for approximately 5.5ML of fuel ethanol sold during that year (assuming a blend of ten per cent).14 Statistics on ethanol blended fuel sales are only available for states and territories listed in Table 2, and do not necessarily capture all of the ethanol blended fuel sold in Australia over that period.
Table 2: Sales of ethanol blended fuel (ML), 2005-06.15
NSW Qld VIC Australia 7.762 46.197 1.321 55.28
Ethanol Capacity As fuel grade ethanol is currently produced at lower levels than three years ago there is likely to be sufficient tested manufacturing capacity to supply increasing demand for ethanol over the short term. Evidence provided to the Committee suggests that two of the major companies in the ethanol industry
12 Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 4; Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 23. 13 Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006, p. 11. 14 Department of Industry Tourism and Resources, Australian petroleum statistics, no. 119, Department of Industry Tourism and Resources, Canberra, 2006. 15 Department of Industry Tourism and Resources, Australian petroleum statistics, no. 119, Department of Industry Tourism and Resources, Canberra, 2006. Statistics not available from this source prior to 2005-06.
8 Chapter Two: The production and use of biofuels in Victoria and Australia
– CSR and Manildra Group – have a combined production capacity of more than 150ML.16
There are three principal producers of fuel ethanol currently operating in the Australian market. These are the Manildra Group, located in Nowra (NSW); the Rocky Point Sugar Mill and Distillery located south of Brisbane (Queensland); and CSR Distilleries located in Sarina (Queensland) and Yarraville (Victoria).17 The production of ethanol is not the core business of these companies – for example, Manildra’s core business is flour milling and CSR’s major enterprise is sugar refining.18
Based on evidence provided to the Committee, and on information from the Biofuels Taskforce report, a breakdown of current and proposed fuel grade ethanol production capacities is provided in Table 3.
16 Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006; Manildra Group, Submission, no. 9, 7 September 2006. 17 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 38; Department of Industry Tourism and Resources, 'Biofuels fact sheet', viewed 24 July 2006,
9 Inquiry into the Production and/or Use of Biofuels in Victoria
Table 3: Current and proposed fuel ethanol production capacities (ML), 2004–2010.19
Ethanol State Feedstock 04- 05- 06- 07- 08- 09-10 Capacity 05 06 07 08 09
Manildra NSW Wheat 70 70 105 105 105 105 CSR QLD & C 4 4 50 50 50 50 VIC molasses Rocky Point QLD C 1.2 1.2 16.2 16.2 16.2 16.2 CURRENT molasses Lemon Tree QLD Sorghum & 0 0 67 67 67 67 Wheat Primary Energy NSW Sorghum & 0 0 120 120 120 120 Wheat Australian VIC All grains 0 0 100 100 100 100 Ethanol (Swan Hill) Australian NSW All grains 0 0 0 0 0 100 Ethanol (Colleambally) Australian WA All grains 0 0 0 0 0 100 Ethanol (Lake Grace) PROPOSED Dalby QLD Sorghum & 0 0 80 80 80 80 Biorefinery Wheat Austcane, Ayr QLD Cane Juice 0 0 100 100 100 100
SymGrain, NSW Wheat 0 0 0 0 0 100 Quirindi Symgrain, VIC Wheat 0 0 0 0 0 100 Western Victoria
Rockdale Beef, NSW Grains 0* 0* 0* 150 150 150 Yanco TOTAL 75.2 75.2 638.2 788.2 788.2 1188.2
Feedstock for both the Rocky Point and CSR distilleries is C molasses, while the Manildra distillery uses waste wheat starch or reject grain as feedstock. Availability DITR figures indicate that there are currently 230 petrol stations retailing ethanol throughout Australia. There has been a substantial increase in the number of stations selling ethanol over the past year, as just 70 stations
19 Sources: Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 41; Centre for International Economics, Impact of ethanol policies on feedgrain users in Australia, Centre for International Economics, Canberra, 2005, p. 7; Michele Graham, Strategy and Research, Australian Ethanol Limited, Transcript of evidence, Melbourne, 11 September 2006, p. 17; Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006, p. 11; Manildra Group, Submission, no. 9, 7 September 2006, p. 12; Babcock & Brown, 'BNB enters into agreement on Australian ethanol production facility', viewed 20 September 2006, < www.babcockbrown.com>.
10 Chapter Two: The production and use of biofuels in Victoria and Australia
were retailing ethanol in June 2005.20 Stations that currently sell E10 include: BP Australia with 30 stations in Queensland and three in the ACT; United Petroleum with 57 locations in Victoria, 41 in NSW, 13 in SA, 13 in Queensland and three in the ACT; and Caltex with 24 sites in northern Queensland.21 Shell Australia does not currently sell an E10 blend, although its E5 blend, marketed as a Shell Optimax Extreme, is available in the ACT, NSW, Queensland and Victoria.22 A number of small independent retailers located primarily in Queensland and NSW also sell ethanol blended fuels.23
In its submission to the Inquiry the Manildra Group told the Committee that of 23ML fuel grade ethanol sold in the six months to June 2006, just 9ML was purchased by the major oil companies for sale in their service stations.24 Thus it appears that the ethanol fuel industry is largely sustained by independent and small scale fuel providers.
Ethanol manufacture and properties Ethanol: chemical composition and properties
Ethanol (C2H5OH) is a clear, tasteless, flammable hydrocarbon. Fuel ethanol can be manufactured through industrial processes by the fermentation of biomass feedstocks that contain sugar, or materials such as starch or cellulose that can be converted into sugars.25 Both processes result in products that are chemically identical. Ethanol is principally used in the manufacture of alcoholic beverages, for industrial applications such as paints manufacturing, or as an automotive fuel, fuel additive or fuel extender.26
Toxicity Air toxic emissions from vehicle use are associated with adverse health effects including cancer, birth defects, and respiratory and nervous system disorders. The relative contribution of ethanol to air toxic emissions compared with conventional fuels is difficult to determine.27 Overseas
20 Department of Industry Tourism and Resources, 'Media release: new ethanol confidence fuels 50% production jump', viewed 25 July 2006,
11 Inquiry into the Production and/or Use of Biofuels in Victoria
studies indicate that while some toxic emissions are reduced with the use of E10, others are increased. As such there is equivocal evidence supporting the use of ethanol blends as a means of reducing toxic air emissions.
Emissions The Biofuels Taskforce drew on work conducted by the CSIRO, Bureau of Transport and Regional Economics (BTRE) and the Australian Bureau of Agricultural and Resource Economics (ABARE)28 for its life-cycle analysis of pollutant emissions associated with the use of a ten per cent blend of ethanol with petrol (E10).29 This analysis indicated that carbon monoxide (CO) emissions for E10 blends were lower than unleaded petrol (ULP) CO emissions. However, on life-cycle analysis, particulate matter (PM) and nitrogen oxides (NOx) emissions associated with E10 were higher than ULP, and volatile organic compounds (VOCs) emissions were comparable to ULP. While tailpipe emissions of CO, VOCs and PM are reduced with the use of E10, benefits may be substantially offset by emissions associated with ethanol manufacture, and with the production of ethanol feedstocks (see Table 4).30 Table 4: Life-cycle emissions associated with the use of E10 relative to ULP (%).31
Fuel type CO NOx VOC PM E10 (molasses -22.3 5.0 0.2 -7.4 cogen energy) E10 (molasses) -22.3 8.1 -0.1 30.8 E10 (sorghum) -26.1 6.5 -0.2 31.2 E10 (wheat) -20.8 12.6 2.2 38.4 E10 (wheat starch waste) -26.1 6.1 -0.2 32.6
Ethanol blended with petrol offers some greenhouse gas (GHG) emissions advantages over ULP, with common production processes for ethanol resulting in an estimated 0.7 per cent to 4.2 per cent reduction in GHG emissions. As is the case with other emissions, GHG associated with the production and manufacture of feedstock and ethanol substantially offsets reductions in tailpipe emissions of associated with the use of E10 (see Table 5).
28 Hereafter referred to as CSIRO et al. 29 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. 30 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 73. 31 Source: Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 74.
12 Chapter Two: The production and use of biofuels in Victoria and Australia
Table 5: GHG emissions associated with the use of E10 relative to ULP (%).32
Fuel type GHG GHG GHG (upstream) (tailpipe) (life-cycle) E10 (molasses cogen 11.1 -7.0 -4.2 energy) E10 (molasses) 20.5 -7.0 -2.7 E10 (sorghum) 25.0 -7.0 -2.0 E10 (wheat) 33.3 -7.0 -0.7 E10 (wheat starch waste) 20.4 -7.0 -2.7
The Committee notes that there is some debate about the relative advantages or disadvantages of ethanol blended petrol regarding emissions.33 While future research may further determine the effect of ethanol blends on emissions, current analyses indicate that the advantages of E10 blends over ULP are mixed. The development of alternate technologies for the production of ethanol – such as lignocellulosic technologies described below – may result in a more definite advantage for ethanol in life-cycle emissions. Production processes and feedstocks Ethanol is generally produced in two grades, hydrous and anhydrous. Hydrous ethanol contains water and is approximately 95 per cent pure. It is suitable as a straight spark ignition fuel in warmer climates.34 Brazil has been using hydrous ethanol since the 1970s oil crisis as a motor fuel in modified vehicles.35 Anhydrous ethanol contains no water (i.e. 100% ethanol) and is produced by placing hydrous ethanol through a dehydration process. Anhydrous ethanol is generally used for the production of fuel grade ethanol, with most countries referring to anhydrous ethanol in relevant fuel standards.36
32 Source: Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 78. 33 For a range of views on this matter see for example Australian Medical Association Victoria, Submission, no. 8, 3 September 2006; Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003; Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003. 34 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002. 35 International Fuel Quality Centre, Setting a fuel quality standard for ethanol: submission to the Australian Department of Environment and Heritage, International Fuel Quality Centre, Houston, 2004, p. 10. 36 International Fuel Quality Centre, Setting a fuel quality standard for ethanol: submission to the Australian Department of Environment and Heritage, International Fuel Quality Centre, Houston, 2004, p. 4.
13 Inquiry into the Production and/or Use of Biofuels in Victoria
While ethanol can be produced from a variety of biomass products such as sugarbeet, sorghum, fruit, potatoes and corn, Australian produced ethanol is typically manufactured using wheat starch or C molasses as a feedstock.37 Northern hemisphere countries typically manufacture ethanol from grain feedstock.38 Mr Martin Jones, of CSR Ethanol Ltd, told the Committee that CSR currently regards grain as the most practical feedstock for future expansion of the ethanol industry:
It is our view that the only substrate that is economically attractive in Australia today is grain, and we would expect that our new investments will be based on grain. The preferred grain is sorghum. It is primarily used in the feed market for cattle, but it is the easiest to process and has the best returns. In Victoria I do not think there is any sorghum to speak of, so any facility down here would be based on wheat.39 The following sections provide a simplified overview of two manufacturing processes for ethanol: through the fermentation of sugars derived from starch or sugar feedstocks such as grains and sugarcane; and through the utilisation of lignocellulosic production techniques. It is possible to derive ethanol from petroleum, coal and natural gas via an ethylene intermediate step (reduction or steam cracking of ethane or propane fractions), but this process is not commercially applied in Australia and is generally not viable on a commercial basis.40
Ethanol production from sugar and starch feedstock Most Australian ethanol is produced from sugar or starch feedstock. The process for making ethanol from sugars and starches is not a new process, although its efficiency has improved dramatically over recent decades.
The primary advantage of producing ethanol from sugar-containing feedstock compared to starch feedstock is that the carbohydrate content is readily fermentable. Starches contain complex carbohydrates that require an additional process known as saccharification to produce ethanol.41
The process discussed below focuses on the production of ethanol from both grain and sugarcane feedstocks. While the production processes are similar, there are differences in the initial stages prior to fermentation, and in
37 Valerie Thomas and Andrew Kwong, 'Ethanol as lead replacement: phasing out leaded gasoline in Africa', Energy Policy, vol. 29, 2001, p. 1136. 38 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 34. 39 Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006, p. 12. 40 Tom Beer, et al., Comparison of transport fuels, Prepared for the Australian Greenhouse Office, Melbourne, 2001, pp. 197, 202; International Fuel Quality Centre, Setting a fuel quality standard for ethanol: submission to the Australian Department of Environment and Heritage, International Fuel Quality Centre, Houston, 2004, p. 15; Mike Roarty and Richard Webb, Fuel ethanol: background and policy issues, Department of the Parliamentary Library, Canberra, 2003, p. 2; Valerie Thomas and Andrew Kwong, 'Ethanol as lead replacement: phasing out leaded gasoline in Africa', Energy Policy, vol. 29, 2001, p. 1139. 41 Valerie Thomas and Andrew Kwong, 'Ethanol as lead replacement: phasing out leaded gasoline in Africa', Energy Policy, vol. 29, 2001, p. 1136.
14 Chapter Two: The production and use of biofuels in Victoria and Australia
the resulting by-products, that make the process of producing ethanol from sugar feedstocks simpler than producing ethanol from starch feedstocks.42 Step 1a refers to the process undertaken for grain feedstocks, while step 1b refers to the process undertaken when sugarcane is the feedstock.
There are three principal steps required to produce ethanol from starch and sugar based feedstocks:
1. the formation of a solution of fermentable sugars; 2. the fermentation of sugars to ethanol; and 3. the separation of ethanol by distillation.43
Step 1a (grain feedstocks): The feedstock is initially milled into a fine powder called meal.44 The meal is mixed with water and enzymes (typically alpha- amylase) to create a slurry. The slurry is then heated to liquefy the starch and reduce bacteria levels in a process known as liquefaction.45 After heating, the resulting product, known as mash, is cooled and additional enzymes (typically gluco-amylase) are added to convert the starch molecules to fermentable sugars.46 This process is known as saccharification.47
Step 1b (sugarcane feedstock): The sugarcane is shredded, mixed with warm water, and placed through rollers to extract sugar juice from the fibrous material (the bagasse). The juice is then passed through a purification process and concentrated by boiling in an evaporator.48 The concentrated juice, or syrup, is then seeded with sugar crystals in a process known as crystallisation.49 The syrup is then separated from the raw sugar crystals in centrifuges. The liquid which remains at the end of the centrifuge process is referred to as molasses, which is the product used for sugar fermentation. The sugar crystals are transported to a refinery to produce the refined white sugar commonly used in households.
42 United States Department of Agriculture, The economic feasibility of ethanol production from sugar in the United States, Washington, 2006, p. 12. 43 Northeast Regional Biomass Program, An ethanol production guidebook for northeast states, Northeast Regional Biomass Program, Washington, 2001, p. 21. 44 Milling can be wet or dry. In wet milling, the grain is soaked and broken down further before the starch is converted to sugar. In dry milling, the grain is broken down during the conversion of starch to sugar. See International Fuel Quality Centre, Setting a fuel quality standard for ethanol: submission to the Australian Department of Environment and Heritage, International Fuel Quality Centre, Houston, 2004, p. 14. 45 Australian Ethanol Limited, 'Ethanol production process', viewed 31 July 2006,
15 Inquiry into the Production and/or Use of Biofuels in Victoria
Step 2: Yeast is then added to the mash (or molasses) to ferment the sugars. The yeast cells convert the sugars to ethanol, with carbon dioxide produced as a by-product. The carbon dioxide can be used for carbonated beverages or passed through a gas absorption scrubber and either captured or vented to the atmosphere.50 Fermentation is complete when carbon dioxide is no longer produced.51 The fermented mash produced through this process is known as beer.
Step 3: Distillation is the process by which the ethanol is separated from the beer. The mixture is heated until the ethanol evaporates (ethanol has a lower boiling point than beer) and the ethanol vapour is captured and condensed to a liquid that is 95 per cent pure.52 This is known as hydrous ethanol. To create ethanol that is suitable for use as a fuel, hydrous ethanol is dehydrated using a molecular sieve to remove water, resulting in 100 per cent (or anhydrous) ethanol.53
The residue mash from the grain process (known as stillage) is collected and separated into wet distillers grain and syrup.54 A large portion of the water contained within the syrup is recycled for use in the ethanol production process, and the remainder is either sold as animal feed or mixed with the wet distillers grain.55 Wet distillers grain is typically dried, resulting in dried distillers grain, and used as livestock feed.56 The residue mash from the sugar distillation and fermentation process (known as dunder) typically has water removed and is sold as fertiliser.57
The ethanol is then denatured with a small amount of product, such as ULP, to make it unfit for human consumption. This ensures that the fuel is not sold for human consumption, which attracts a different excise.58
50 Australian Ethanol Limited, 'Ethanol production process', viewed 31 July 2006,
16 Chapter Two: The production and use of biofuels in Victoria and Australia
By-products The manufacture of ethanol produces a number of by-products which can be sold to generate an additional income stream. Income generated by the sale of by-products is often critical to the economic viability of ethanol plants.
During the fermentation process for both feedstocks, carbon dioxide (CO2) is produced. Some ethanol plants capture CO2 and remove any residual alcohol content. The CO2 is then compressed and sold for use as a beverage carbonator or in the flash freezing of meat.59
A by-product from the use of grain feedstocks is a protein rich animal feed known as distillers grain which can either be sold wet or dry. As dry distillers grain has a longer shelf life than wet distillers grain (typically four days), the stillage is typically dried in a gas fired kiln or pneumatic entrainment dryer for sale as animal feedstock.60 Dry distillers grain is lower in weight than wet distillers grain, and is subsequently cheaper to transport. Wet distillers grain is not usable by the traditional feed manufacturing industry, with use limited to beef and dairy producers located in close proximity to ethanol plants.61
Other products that can be sourced from the grain ethanol production process include bio-fertiliser and fusel oil, while sugarcane ethanol production also produces fertilisers which can be used to increase sugarcane yield, animal feeds, and bagasse which can be burnt as a fuel.62
Resource use Apart from the feedstock costs which are the most significant cost hurdle faced by ethanol producers, ethanol producers are also faced with costs associated with heating during liquefaction stages of production and high water use. While grain crop ethanol production typically uses fossil fuels such as natural gas, production of ethanol from sugarcane may use bagasse as a heating fuel. This provides a significant economic advantage for sugarcane produced ethanol.
59 Tom Beer, et al., Comparison of transport fuels, Prepared for the Australian Greenhouse Office, Melbourne, 2001, p. 199. 60 Dr Chris Hamilton, Biofuels made easy, Lurgi Pacific Pty Ltd, Melbourne, 2004; Stock Feed Manufacturers' Council of Australia, Submission, June 2005, Submission to the Biofuels Taskforce, Biofuels Taskforce, p. 5; United States Department of Agriculture, The economic feasibility of ethanol production from sugar in the United States, Washington, 2006, p. 11. 61 Stock Feed Manufacturers' Council of Australia, Submission, June 2005, Submission to the Biofuels Taskforce, Biofuels Taskforce, p. 5. 62 E.L. Caielli, 'Case Study - Brazil sugarcane as feed', viewed 21 August 2006,
17 Inquiry into the Production and/or Use of Biofuels in Victoria
Most ethanol is created from a wet-milling process. Water contained in the slurry after the alcohol is removed is known as wet distillers grain. Through the use of a centrifuge and evaporation, dried distillers grain is created. Although the ethanol production process is designed for zero water effluent, a high volume of water is still used.63 For example, the Committee heard that the 100ML ethanol plant currently being constructed in Swan Hill by Australian Ethanol Limited will use more than 4.2ML of water per day in its production process. Of this, 0.75ML waste water will be re-used for watering a 60 hectare red gum plantation.64
Ethanol production from lignocellulosic feedstock Globally there is substantial interest and investment in technology that can produce ethanol from lignocellulosic feedstock, such as wood fibres or grass.65 Primary advantages of the lignocellulosic process are that the number of potential feedstocks is greatly increased compared to the starch or sugar ethanol production process, and that as lignocellulosic feedstocks are outside the human food chain, they are relatively inexpensive.66 Although this technology is not yet financially viable, its potential to impact upon the economics of current ethanol production processes is significant.
Lignocellulosic materials are comprised of lignin, hemicellulose, and cellulose. The cellulose and hemicellulose, which typically comprise two- thirds of the dry mass, can be hydrolysed into sugar and fermented into ethanol.67 Lignin, which contains no sugar, encloses the cellulose and hemicellulose, and makes the ethanol production process more difficult.68
Like starch based feedstocks, cellulosic feedstock must be prepared in order for the cellulosic material to be converted into fermentable sugars. Current pre-treatment technologies typically employ the use of chemical additives such as acids, alkalines, organic solvents, ammonia, sulphur dioxide, and carbon dioxide to remove the lignin.69 While dilute acid pre-treatment is the
63 Department of Sustainability and Environment, Submission, no. 32, 13 September 2006. 64 Stewart Rendell, Development Manager, Agriculture, Australian Ethanol Limited, Transcript of evidence, Melbourne, 11 September 2006, p. 21. 65 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 4. 66 P Badger, 'Ethanol from cellulose: a general review', viewed 28 July 2006,
18 Chapter Two: The production and use of biofuels in Victoria and Australia
most developed process and improves cellulose hydrolosis, the process is expensive and has waste disposal issues.70 Alternatives to chemical treatment include physical treatments using liquid hot water (LHW) and biological treatments using fungi to solubilise the lignin.71
Using either acids or enzymes, cellulose is converted into sugars in a process known as hydrolosis. Hydrolosis without pre-treatment typically yields less than 20 per cent conversion of cellulose to sugar, whereas yields after pre-treatment typically exceed 90 per cent.72
Following hydrolosis, material is fermented to produce alcohol, which is purified through distillation and dehydration.73 While the fermentation and distillation process is similar to that used for starch and sugar feedstocks, the sugars produced from cellulosic feedstocks (five carbon sugars as opposed to the six carbon sugars from starch and sugar feedstocks) cannot be readily fermented using traditional yeasts. Specialised yeasts have now been genetically engineered to break down the five carbon sugars.74
As noted by the Biofuels Taskforce, lignocellulosic ethanol production can use a wide variety of feedstocks while also reducing life-cycle CO2 emissions.75 While significant investment into lignocellulosic ethanol production is occurring, particularly in the United States (US), the technology is still to be proved commercially viable. Beer et al. note that large scale ethanol production is dependent upon the economic viability of lignocellulosic ethanol production.76 This concept is supported by Foran and Mardon, who note that if lignocellulosic ethanol production becomes viable it may be possible to substitute 90 per cent of Australia’s oil supplies, and supply all transport fuels within 50 years.77
Biodiesel production and use Biodiesel is a fuel with similar properties to conventional diesel, and is manufactured from animal fats and vegetable oils. The fats and/or oils are
70 Carlo Hamelinck, et al., Prospects for ethanol from lignocellulosic biomass: techno-economic performance as development progresses, Copernicus Institute, Utrecht, 2003, p. 10. 71 Carlo Hamelinck, et al., Prospects for ethanol from lignocellulosic biomass: techno-economic performance as development progresses, Copernicus Institute, Utrecht, 2003, p. 9. 72 Carlo Hamelinck, et al., Prospects for ethanol from lignocellulosic biomass: techno-economic performance as development progresses, Copernicus Institute, Utrecht, 2003, p. 11. 73 Yan Lin and Shuzo Tanaka, 'Ethanol fermentation from biomass resources: current state and prospects', Applied Microbiology and Biotechnology, vol. 69, 2005, p. 629. 74 Northeast Regional Biomass Program, An ethanol production guidebook for northeast states, Northeast Regional Biomass Program, Washington, 2001, p. 24; United States Department of Energy, 'Biomass program', viewed 31 July 2006,
19 Inquiry into the Production and/or Use of Biofuels in Victoria
typically reacted with methanol to form biodiesel and glycerol, with the latter substance usually sold as a by-product. This process is referred to as transesterification.78
Biodiesel is typically produced from feedstocks including canola, soy and palm oils, cooking oils and tallows. Consequently, biodiesel is not a homogenous product, and the qualities of particular fuels vary depending on the oils and/or fats from which they are derived, and on the process used to produce them. For example, biodiesel produced from tallow, or animal fat, can begin to solidify at temperatures below 20°C, while biodiesel derived from rapeseed oil is liquid at temperatures above -3°C. Due to variations in the properties of biodiesel derived from different feedstocks and manufacturing processes, particular fuels may be suited to particular conditions and applications. Production and capacity Biodiesel production In 2005 there were ten licensed producers of biodiesel in Australia.79 In 2003-04 approximately 1ML of biodiesel was produced, and in 2004-05 approximately 4ML of biodiesel was manufactured in Australia.80 The biodiesel industry in Australia is relatively new, so production of biodiesel may expand rapidly over coming years.
Table 6: Total biodiesel production (ML), Australia, 2002-03 to 2004-05.81
2002-03 2003-04 2004-05 1.0 1.0 4.0
Biodiesel capacity In August 2005 the Biofuels Taskforce reported that industry capacity to produce biodiesel was estimated at 15.5ML.82 Table 7 provides a breakdown of current and proposed biodiesel production capacities.
78 In some cases, neat vegetable oils have also been described as ‘biodiesel’, as it is possible in some cases to use these in diesel engines. For the purposes of this report, ‘biodiesel’ refers to the substance produced through the transesterification of oils described here. 79 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005. 80 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005. 81 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 42. 82 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 39.
20 Chapter Two: The production and use of biofuels in Victoria and Australia
Table 7: Current and proposed biodiesel production capacity (ML), 2004-2010.83 Biodiesel State 04- 05- 06- 07- 08- 09- Capacity 05 06 07 08 09 10 Biodiesel Industries NSW 0.5 20 20 20 20 20 Australia, Rutherford Australian Biodiesel NSW 15 40 200 200 200 200 Group, Berkeley Vale84 CURRENT Australian SA 0 44.7 44.7 44.7 44.7 44.7 Renewable Fuels, Adelaide Biodiesel VIC 0 0 60.2 60.2 60.2 60.2 Producers Australia Riverina Biofuels NSW 0 0 44.7 44.7 44.7 44.7 Australian WA 0 0 44.5 44.5 44.5 44.5 Renewable Fuels, Picton AJ Bush QLD 0 0 60 60 60 60 Australian Biodiesel QLD 0 0 See See See See Group, Narangba above above above above Natural Fuels NT 0 0 150 150 150 150 PROPOSED South Australian SA 0 0 15 15 15 15 Farmers Fuel Axiom Energy VIC 0 0 150 150 150 150
BP, Bulwer85 QLD 0 0 0 110 110 110
TOTAL 15.5 104.7 789.1 899.1 899.1 899.1
As indicated in Table 7, there are twelve current or proposed producers of biodiesel in Australia.86 The Committee notes that there is some debate about the actual level of biodiesel production in Australia. A 2003 report on biofuels indicated that in 2002 production of biodiesel was approximately
83 Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006; Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 40; Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 24. 84 According to the Australian Biodiesel Group submission to the Inquiry, current combined production capacity over the Berkeley Vale and Narangba plants is 200ML per annum. See Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006. 85 Information provided to the Committee by Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 24. 86 The Committee notes that the renewable fuel produced by BP at Bulwer refinery is not produced by traditional means, and does not comply with the Australian Standard for biodiesel – although it does comply with the Australian Standard for ULSD. However, the Committee understands that this fuel is derived from tallow, and that life-cycle greenhouse gas emissions associated with the product are substantially reduced compared to ULSD.
21 Inquiry into the Production and/or Use of Biofuels in Victoria
23ML.87 In 2005 the Biofuels Taskforce reported that Australia’s ten licensed producers of diesel collectively produced 1ML of biodiesel in 2003-04 and 4ML of biodiesel in 2004-05.88 The Committee heard that there are a large number of small scale and independent producers of biodiesel throughout Australia that may not be captured by current statistics.89 A monthly publication by the DITR, Australian Petroleum Statistics, does not currently collate information on biodiesel production, sales and imports. Consequently actual levels of biodiesel production are currently unknown.
No large scale production facilities currently operate in Victoria, although the Committee understands that three plants are in early planning or construction phases. Biodiesel Producers Limited is currently constructing a biodiesel production plant at Barnawartha in the Albury/Wodonga area. It is expected that this plant will be operational by early 2007.90 Notably, the majority of the biodiesel to be produced at the Barnawartha plant is already under contract.91 Axiom Energy is constructing a 150ML biodiesel plant at the Port of Geelong.92 Using animal fats and plant oils as feedstock, the plant is expected to be operational by mid 2007.93 The Victorian Government has also provided Midfield Meats with a grant of $66,000 to conduct a pilot project investigating the production of biodiesel from tallow under Sustainability Victoria’s Business Energy Efficiency Initiative. This project may lead to the production of more than 10ML of biodiesel per annum.94
It is notable that substantial differences exist between biodiesel capacity and biodiesel production in Australia. These differences are most likely attributable to the fact that biodiesel is an emerging marketable product in Australia, and has not yet been established in the diesel fuel market.
The Committee is also aware that there are a large number of small-scale producers of biodiesel, including for example farmers who produce biodiesel
87 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, pp. 35-36. 88 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005. 89 Grown Fuel, Submission, no. 31, 13 September 2006; Yarrock Pty Ltd, Submission, no. 33, 13 September 2006. 90 Biodiesel Producers Ltd, 'Company profile', viewed 26 July 2006,
22 Chapter Two: The production and use of biofuels in Victoria and Australia
for use on-farm.95 The current production of biodiesel by small scale operators is not known. In its submission to the Inquiry, Grown Fuel suggested that the small scale production of biodiesel, either by regional collectives or by farmers, could provide an important means for maintaining local economies.96 Availability Biodiesel is not yet available for general supply throughout Australia, although a growing number of independent retailers now offer biodiesel to consumers.97 A desktop analysis combining biodiesel retail outlet data from the Biodiesel Association of Australia, Renewable Fuels Australia, South Australian Farmers Fuel and Grown Fuel Biodiesel Consultancy websites indicates that 71 outlets currently retail biodiesel in Australia, either as pure biodiesel (B100) or as a blended fuel (typically B20). Table 8 provides a state and territory breakdown of the number of service stations retailing biodiesel.
Table 8: Service stations retailing biodiesel, 2006.98
State Number of retailers SA 37 WA 22 NSW 9 QLD 2 VIC 1 NT 1
BP Australia has announced plans to make a fuel derived from tallow available to the market and will produce 110ML per annum at their
95 Eco2Sys Pty Ltd, Submission, no. 37, 15 September 2006; Colin Gillam, Chief Executive Officer, Alternative Fuels and Energy, Transcript of evidence, Melbourne, 11 September 2006; Grown Fuel, Submission, no. 31, 13 September 2006; Yarrock Pty Ltd, Submission, no. 33, 13 September 2006. 96 Grown Fuel, Submission, no. 31, 13 September 2006. See also Yarrock Pty Ltd, Submission, no. 33, 13 September 2006. 97 Biodiesel Association of Australia, 'Buying biodiesel', viewed 25 July 2006,
23 Inquiry into the Production and/or Use of Biofuels in Victoria
Queensland Bulwer Refinery.99 It is expected that the fuel will be available to the market in 2007 as a five per cent blend with ULSD.
Biodiesel manufacture and properties Biodiesel: chemical composition and properties Biodiesel is derived from the methyl esters of fatty acids contained in vegetable and tallow oil triglycerides. It has a high cetane number, good lubricity properties, and possesses an energy content comparable to conventional mineral diesel fuels. Biodiesel contains no nitrogen or aromatics, and typically contains less than 15ppm (parts per million) sulphur. Biodiesel may be blended with mineral diesel fuels.
Typically, biodiesel contains about eleven per cent oxygen by weight, which results in a slightly lower energy content (by heating value) than is the case for mineral diesel. Fuel efficiency is approximately equivalent to mineral diesel.100 Most analyses of biodiesel assume that the relative energy density of biodiesel is 90 per cent that of mineral diesel.
One of the key facts from an environmental point of view is that it takes 1 unit — and I will just use units — of energy of biodiesel to produce 3.2 energy units of biodiesel. In other words, what you put in is 1 unit; what you get out is 3.2, so it is a very positive energy balance101 From a life-cycle perspective, biodiesel may have a higher energy balance than petroleum diesel. The ‘energy balance’ of a fuel compares the amount of energy required to produce a fuel with the amount of energy obtained through its use. A study conducted for the US Departments of Agriculture and Energy in 1998 on urban bus fuel use found that the energy balance of biodiesel derived from soybeans was 3.24. This compared favourably with diesel, which had an energy balance of 0.83.102
Toxicity Some commentators have suggested that biodiesel is less toxic than mineral diesel. A study conducted for the Environmental Protection Agency in the US found that tailpipe emissions of polycyclic aromatic hydrocarbon (PAH) and nitrated PAH (nPAH) were reduced when biodiesel blends were
99 BP Australia, 'BP brings biofuels into the mainstream', viewed 26 July 2006,
24 Chapter Two: The production and use of biofuels in Victoria and Australia
used.103 These compounds have been identified as cancer-causing. According to the study these reductions are due to the fact the biodiesel fuel contains no aromatic compounds.104
The overall picture of the relative advantages and/or disadvantages of biodiesel regarding toxic emissions is less clear at this stage. Recent reports on biofuels conducted in Australia have found that evidence on the toxicity of biodiesel is insufficient, and that more research is required before a complete assessment of the fuel can be made.105 It appears that the volume of a number of toxic compounds are reduced in biodiesel tailpipe emissions, but that a few toxic emissions increase.106 In its report to the Prime Minister, the Biofuels Taskforce found that more information on the relative effects of particular emissions, and increased research on the volumes of these emissions produced through the use of biodiesel, is required before the merits of the fuel with regard to air toxicity can be fully assessed.107
Storage, handling and biodegradability In most cases, biodiesel can be stored for no longer than six months without the addition of a stabilising agent.108 Most of the handling characteristics of biodiesel are similar to petroleum diesel, so that no special procedures are generally required. The flash point (i.e. the temperature at which biodiesel will combust) is higher for biodiesel than for petroleum diesel, so that biodiesel may have handling advantages from a health and safety perspective under certain conditions.109 Biodiesel also has advantages over petroleum diesel as a result of its biodegradability.
Various studies on the biodegradability of biodiesel suggest that in aquatic environments, biodiesel breaks down approximately four times faster than mineral diesel. A twenty per cent blend of biodiesel with mineral diesel appears to have a disproportionate effect on biodegradability, with B20 degrading twice as fast as neat mineral diesel under aerobic conditions (i.e. where oxygen is present).110 Biodiesel blends can also assist the
103 CA Sharp, Characterization of biodiesel exhaust emissions for EPA, no. 08-1039A, Southwest Research Institute, 1998. 104 CA Sharp, Characterization of biodiesel exhaust emissions for EPA, no. 08-1039A, Southwest Research Institute, 1998. 105 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. 106 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 89. 107 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 90. 108 Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003, p. 18. 109 Diesel Test Australia, Submission, no. 18, 8 September 2006. 110 Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003, p. 19.
25 Inquiry into the Production and/or Use of Biofuels in Victoria
biodegradability of diesel in anaerobic conditions, where mineral diesel does not tend to break down.111
Lubricity Lubricity is the ability to reduce friction between moving solid surfaces. Lubricity enhancing compounds are naturally present in diesel derived from crude oil, but processes to remove sulphur from mineral diesel can also have the effect of reducing the lubricity of that fuel.112 Overseas studies have shown that biodiesel blends of greater than two per cent will increase the lubricity of Ultra Low Sulphur Diesel (ULSD).113 While additives can also improve the lubricity of ULSD fuels, these can have adverse effects on fuel performance if blended at high levels. Biodiesel does not have the potential for this kind of adverse effect because it is a compatible fuel in its own right, so the blending of biodiesel may offer a low risk means to achieve sufficient lubricity in ULSD fuel.114
Emissions The Biofuels Taskforce life-cycle analysis of various biodiesel fuels pollutant emissions indicated that carbon monoxide (CO), volatile organic compound (VOC) and particulate matter (PM) emissions are lower relative to Ultra Low Sulphur Diesel (ULSD) (standard in Australia from 1 January 2006). Nitrogen oxide (NOx) emissions tend to increase with the use of biodiesel (see Table 9). According to the Biofuels Taskforce report, blended biodiesel fuels also produce lower CO, VOC and PM emissions than ULSD, with a slight increase in NOx emissions.
Some submissions to the Committee argued that the benefit of B20 blends of biodiesel over B5 blends was non-linear – that is, more benefit can be obtained from 1 litre of biodiesel in a B20 blend than from 1 litre of biodiesel in a B5 blend.115 Analysis by the Biofuels Taskforce appears to support this proposition with regard to full-life-cycle emissions associated with the use of biodiesel. At B20, biodiesel appears to produce a relatively small increase in NOx emissions compared with both B100 and B5 – for tallow B20, a 2.25 per cent increase in NOx compared with a 6.35 per cent and 15.33 per cent increase for B5 and B100 respectively. The Committee notes, however, that the source data used by the Biofuels Taskforce (and in the prior CSIRO et al. report) was limited, so that the apparent advantages of B20 fuel in this regard may be an artefact of a limited data set.
111 Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003, p. 19. 112 Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003, p. 18. 113 ULSD has reduced lubricity as a result of processes employed to remove sulphur from the fuel. 114 Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003, p. 18. 115 Diesel Test Australia, Submission, no. 18, 8 September 2006.
26 Chapter Two: The production and use of biofuels in Victoria and Australia
Table 9 describes the life-cycle emissions of various biodiesel blends compared to ULSD. The Committee notes that the Biofuels Taskforce modelled these data on biodiesel blended with a fuel comparable to Low Sulphur Diesel (LSD) – biodiesel blended with ULSD may produce a more favourable comparison to neat ULSD.
Table 9: Life-cycle emissions associated with the use of biodiesel relative to ULSD (%).116
Fuel type CO NOx VOC PM B100 (canola) -27.4 16.79 -26.11 -15.14 B100 (tallow) -36.7 15.33 -29.2 -15.83 B100 (waste oil) -46.91 4.1 -45.24 -23.4 B20 (canola) -16.08 2.51 -13.18 -4.37 B20 (tallow) -17.74 2.25 -13.72 -4.5 B20 (waste oil) -19.54 0.27 -16.54 -5.81 B5 (canola) -13.41 6.41 -8.17 -2.14 B5 (tallow) -13.82 6.35 -8.3 -1.85 B5 (waste oil) -14.27 5.85 -9.01 -2.17
Biodiesel offers some GHG emissions advantages over fossil fuels, particularly in regard to emissions from vehicles when the fuel is used (‘tailpipe’ emissions), but also when the entire ‘life-cycle’ of the fuel is taken into account – including, for example, GHG emissions related to growing crops for biodiesel (see Table 10).
116 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 95.
27 Inquiry into the Production and/or Use of Biofuels in Victoria
Table 10: GHG emissions associated with the use of biodiesel relative to ULSD (%).117
Fuel type GHG GHG (tailpipe) GHG (upstream) (life-cycle) B100 (canola) 298.8 -98.9 -23.0 B100 (tallow) 267.2 -98.9 -29.0 B100 (waste oil) -49.7 -98.9 -89.5 B20 (canola) 51.84 -21.6 -7.62 B20 (tallow) 46.3 -21.6 -8.7 B20 (waste oil) -9.5 -21.6 -19.32 B5 (canola) 14.27 -4.9 -1.5 B5 (tallow) 12.9 -4.9 -1.5 B5 (waste oil) -1.05 -4.9 -4.18
While biodiesel, and biofuels in general, can have certain environmental advantages over other forms of fuel the Committee notes that the ‘upstream’ impacts of feedstock production and fuel conversion are complex, and may potentially undermine the net emissions and environmental advantage of biodiesel over mineral diesel.118 Palm oil, for example, is a cheap source of feedstock for biodiesel largely obtained from Borneo and Sumatra, where extensive tracts of tropical rainforest have been cleared for palm plantations.119
In comparison to ethanol, there appears to be a greater consensus among commentators of the advantages of biodiesel over petroleum diesel, particularly with regard to levels of certain emissions.120 As most analyses of biofuels emissions suggest that NOx tailpipe emissions increase, however, there is a need to determine the relative positive effects of decreased GHG, CO, VOC and PM emissions versus the deleterious effects of increased NOx.
Cloud point and pour point Most forms of biodiesel have cloud points (i.e. the temperature at which wax crystals precipitate in large enough quantities to plug fuel filters) that are
117 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 95. 118 Alternative Technology Association, Submission, no. 13, 8 September 2006. 119 Grown Fuel, Submission, no. 31, 13 September 2006. 120 See for example Australian Medical Association Victoria, Submission, no. 8, 3 September 2006; Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003; Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003.
28 Chapter Two: The production and use of biofuels in Victoria and Australia
higher than those for petroleum-based diesel. Biodiesel also tends to have a higher pour point (i.e. the temperature at which diesel fuel solidifies as a result of wax crystal precipitation) than petroleum-based diesel (see Table 11). This may affect the range of circumstances in which biodiesel fuels can be used. Where biodiesel is blended with petroleum-based diesel, the cloud point and pour point is changed, so that the temperature range at which biodiesel may be used as a blended fuel is greater than for pure biodiesel.
Table 11: Biodiesel and diesel fuel filter plugging, cloud point and pour point by fatty acid.121
Fatty acid Fuel filter plugging Cloud point (°C) Pour point (°C) (°C) Tallow 10 14 na Lard 11 14 11 Palm na 12 12 Soybean -2 2 0 Canola -4 -3 -4 Diesel -20 -18 -27 Canola B20 -11 -15 -18
Production processes and feedstocks The manufacturing process for most forms of biodiesel is essentially similar, and involves combining the vegetable oil or animal fat feedstock with methanol (or ethanol) and a catalyst (sodium hydroxide or potassium hydroxide). These substances are mixed at around 70°C, forming methyl esters (biodiesel) and glycerol.122 Often feedstock oils or fats receive pre- treatment to remove components that may adversely affect transesterification, such as free fatty acids (from tallow) and gummy materials (from vegetable oils).123 Pre-treatment is also required where waste oil, such as cooking oil, is used to manufacture biodiesel.124
It is possible for both tallow and vegetable feedstocks to be interchanged in many biodiesel production plants, as the main difference between the feedstocks is the temperature at which transesterification must occur.125 Not
121 Diesel Test Australia, Submission, no. 18, 8 September 2006, p. 13. 122 Barry Judd, Biodiesel from tallow, Energy Efficiency and Conservation Authority, Wellington, 2002, p. 7. 123 Barry Judd, Biodiesel from tallow, Energy Efficiency and Conservation Authority, Wellington, 2002, p. 7. 124 John Duncan, Costs of biodiesel production, Energy Efficiency and Conservation Authority, Wellington, 2003, p. 9. 125 John Duncan, Costs of biodiesel production, Energy Efficiency and Conservation Authority, Wellington, 2003, p. 10.
29 Inquiry into the Production and/or Use of Biofuels in Victoria
all plants are able to process both feedstocks however, and single-stage manufacturing plants may only be able to produce biodiesel from one type of feedstock.
While ethanol can be used in place of methanol as a feedstock for the production of biodiesel, this is not often employed within the industry as methanol can typically be obtained for lower cost.126 There are also some differences in the viscosity and weights of biodiesels produced with ethanol as a feedstock, although these differences do not tend to materially affect the use of the product in applications.127 More ethanol is required per litre of oil than methanol. Methanol is also easier to recover than ethanol for recirculation in the production process, and generally produces higher conversion fuel rates, both of which partly account for its cost advantage.128
Future technologies for biofuels New technologies for producing biofuels are currently being investigated around the world, with many technologies anticipated to provide significant cost reductions and/or production yields. Given the current high costs of biofuels production, the Committee is supportive of research and development aimed at increasing yield and reducing costs.
Currently research is being undertaken to explore the use of alternate, high yielding feedstocks such as algae and Jatropha .129 For example, Energetix has licensed a US technology that removes CO2, NOx and ammonia from 130 flue gas and uses the CO2 to promote algal growth. The algae is then used as a feedstock for biofuels production.131 The Committee is also aware that in New Zealand biodiesel is currently being produced from algae harvested from sewerage ponds as a commercial enterprise.132
Bioenergy Australia informed the Committee that technologies based on the gasification of biomass and synthesis to form fuels such as methanol, dimethyl ether and hydrogen are being developed.133 Yields from this technology are reported to be twice that of biodiesel and ethanol production on a per hectare basis, with Volkswagen and Volvo undertaking fuel trials.134
126 Barry Judd, Biodiesel from tallow, Energy Efficiency and Conservation Authority, Wellington, 2002. 127 Barry Judd, Biodiesel from tallow, Energy Efficiency and Conservation Authority, Wellington, 2002. 128 John Duncan, Costs of biodiesel production, Energy Efficiency and Conservation Authority, Wellington, 2003. 129 Vilo Assets Management Pty Ltd, Submission, no. 26, 8 September 2006. 130 Energetix, Submission, no. 43, 6 October 2006, Submission to the Biofuels Taskforce, Biofuels Taskforce. 131 Energetix, Submission, no. 43, 6 October 2006, Submission to the Biofuels Taskforce, Biofuels Taskforce. 132 Aquaflow Bionomic Corporation, 'NZ biofuel developer first in NZ invited to join prestigious US research hot-house', viewed 12 October 2006,
30 Chapter Two: The production and use of biofuels in Victoria and Australia
Technologies such as these may play an important role in the future production of biodiesel.135
The Committee was also told that the future development of fuel additives and production techniques are likely to overcome some of the performance problems associated with the use of biodiesel in cold climates – namely, with certain biodiesel varieties in high blends reaching cloud point, and as a result becoming less effective in cooler climates.136 As the biodiesel industry is relatively new, there are likely to be a number of fuel advances that can be achieved with appropriately focused research and development.137
135 Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006; Bioenergy Australia, Submission, no. 23, 11 September 2006; Department of Primary Industries, Submission, no. 25, 11 September 2006. 136 Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006. 137 Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006; Eco2Sys Pty Ltd, Submission, no. 37, 15 September 2006.
31
Chapter 3
International developments In this Chapter biofuels production, capacity and policy instruments in selected countries are considered. A number of countries have made substantial progress towards developing viable biofuels industries, so that there is potential for Victoria to draw on overseas experience to inform its own biofuels policies and development. As is the case in Australia, the vast majority of biofuels produced internationally are either ethanol or biodiesel. Ethanol and biodiesel Ethanol is the most widely used biofuel used for transportation purposes. This is largely due to high fuel ethanol production levels in Brazil and the United States (US). Combined, these countries accounted for more than 95 per cent of world fuel ethanol production in 2002, and 90 per cent of the world’s production in 2005.138 In 2002 around 21.8 gigalitres (GL) of fuel ethanol were produced internationally, and by 2005 this had risen to around 36GL.139
Biodiesel production is substantially less than this, and concentrated in Europe. Currently the most accurate measure for biodiesel volume is capacity, rather than production – although according to the International Energy Agency (IEA) biodiesel production typically correlates closely with biodiesel capacity in Europe.140 Global biodiesel capacity in 2002 was approximately 1.5GL, with Germany, France and Italy accounting for around 83 per cent of global biodiesel capacity, and the European Union (EU) collectively producing around 90 per cent of global biodiesel. By 2005 the EU still produced 89 per cent of biodiesel internationally, with Germany alone producing more than 1.9GL in that year (from 0.6GL in 2002).141 Since
138 Source: International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 30; Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006. 139 Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006. 140 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 28. The Committee notes that this does not presently appear to be the case in Australia. 141 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 30; Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006.
33 Inquiry into the Production and/or Use of Biofuels in Victoria
2002, the US has increased production of biodiesel, and has overtaken Italy to be the world’s third largest producer.142
Global biofuel production Ethanol accounts for approximately 94 per cent of global biofuel production, and biodiesel about five per cent. Between 2000 and 2005 global production of ethanol more than doubled and biodiesel production expanded four fold.143
Brazil produces 45.2 per cent of the world’s ethanol, with the US responsible for 44.5 per cent of global ethanol production. Other significant producers in order of volume include Canada, China, Spain and France. Due in part to domestic policy initiatives, and the emergence of potential export markets (particularly Japan’s climate change policies aimed meeting Kyoto Protocol targets through use of biofuels), Thailand is expected to emerge as a significant producer of fuel ethanol.
As noted above, the EU is the principal region for biodiesel production. Germany is the world’s largest producer of biodiesel with France and Italy also significant. In South East Asia and the Pacific, Indonesia, Malaysia and the Philippines produce biodiesel for domestic markets.144 While a small amount of biodiesel production in the EU is used for stationary heat and power, the vast majority of biodiesel is currently used for transportation purposes.145
Table 12: Top five ethanol and biodiesel producers, 2005.146
Top Five Ethanol Producers, 2005 Top Five Biodiesel Producers, 2005 Country Production (ML) Country Production (ML) Brazil 16,500 Germany 1,920 United States 16,230 France 511 China 2,000 United States 290 European Union 950 Italy 227 India 300 Austria 83
The development of biofuel industries overseas is characterised by government support. As the biofuels industry is a relatively new industry that
142 Worldwatch Institute, 2006 #94@6} 143 Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006, p. 4. 144 European Commission, Communication from the Commission: an EU strategy for biofuels SEC(2006) 142, Brussels, 2006, p. 6. 145 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 28. 146 Source: Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006, p. 6.
34 Chapter Three: International developments
often lacks economies of scale, the cost of biofuels compared to petroleum fuels can make it difficult for widespread use of biofuels to occur without strong policy intervention.147 This has been the case overseas where government support has enabled the biofuel industries to develop to a point where they can compete with petrol and diesel. In Brazil, for example, the ethanol industry was initially heavily supported by government through subsidies and tax breaks, although over time government has diminished its support for the industry.
A key finding of the IEA report Biofuels for Transport: an international perspective was that the costs of producing biofuels are much lower in developing tropical and subtropical countries with lower land and labour costs than in developed, temperate countries. There is often a mismatch between countries where biofuels can be produced at lowest cost and those where demand for biofuels is rising most rapidly.148 In this context, increasing demand may lead to the development of international trade in biofuels.
Another key finding of the IEA report was that while energy security and environmental concerns are drivers, biofuels policies in many countries are largely agriculture driven.149 This finding was also supported in the report of the Biofuels Taskforce, which found that “support for agriculture is, or becomes so once government assistance is established, the primary driver of biofuel assistance in all cases except for countries with limited capacity to increase agricultural production.”150 It appears that internationally, biofuels policies are focused as much on stimulating the agricultural sector as reducing reliance on fossil based fuels.
While ethanol and biodiesel are the main biofuels produced for transport applications, the use of ‘next generation’ cellulosic biomass feedstock has the potential to dramatically expand the resource base for producing biofuels in the future, although ethanol and biodiesel will remain the dominant biofuels regardless of feedstock.151 This will impact on the global production of biofuels.
147 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 21. 148 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, pp. 15-16. 149 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 21. 150 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 10. 151 Worldwatch Institute, Biofuels for transportation: global potential and implications for sustainable agriculture and energy in the 21st century. Extended summary, Worldwatch Institute, Washington, 2006, p. 8.
35 Inquiry into the Production and/or Use of Biofuels in Victoria
Countries producing biofuels Brazil Brazil is the world’s leading producer of ethanol, deriving its supply from sugar cane. The Brazilian government strongly promoted the development of an ethanol industry from the late 1970s, offering incentives to producers and stimulating demand for ethanol. Ethanol now accounts for 30 per cent of the country’s gasoline demand.152
Brazil is the world’s leading exporter of ethanol, and has the capacity to produce more ethanol for export. Independent industry commentators have predicted that Brazil’s ethanol exports will double over the five years from 2005 to 2010, mainly through exporting ethanol to Japan and Sweden.153 Brazil’s State Oil company, Petrobras, has signalled that it plans to quadruple ethanol exports during that same period (2005-10), from 2GL in 2005 to 9GL in 2010.154
The ability of Brazil to produce low cost ethanol is due to a range of factors, including relatively high feedstock yields of sugar cane per hectare, efficient cogeneration facilities, and low labour costs. The cost of producing ethanol in Brazil is very near the cost of producing petroleum fuel, making ethanol a competitive alternative fuel.
Most ethanol produced in Brazil is used for car fuel. Two main varieties of fuel are produced for the market:155
• hydrated ethanol for use as sole fuel in dedicated vehicles (approximately 40 per cent of total ethanol production);
• anhydrous ethanol for use as an additive to petrol for various types of vehicles i.e. E10, E20, etc. (approximately 60 per cent of total ethanol production).
Government policy The Brazilian government’s Proálcool program was the first large scale biofuel program in the world. Introduced in 1975, the objective of the program was to introduce a blend of petrol with ethanol to the Brazilian
152 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 11. 153 D Luhnow and G Samor, 'As Brazil fills up on ethanol, it weans off energy imports', The Wall Street Journal, 2006, viewed 16 January 2006,
36 Chapter Three: International developments
market, and to provide an incentive for the development of vehicles fuelled by pure ethanol.156
Brazilian interest in ethanol was prompted by the oil crisis of the 1970s when the price of fuel rose dramatically. The price of fuel, combined with a growing foreign debt problem and declining sugar prices prompted the Brazilian government to look into alternative fuel sources to reduce dependence on imported oil. The government funded scientific research to identify fuel alternatives and found that Brazil possessed ideal conditions for the production of ethanol from sugar cane.
The program was introduced over a number of years and included the following incentives:
• a guarantee for ethanol fuel prices (maximum cost 65 per cent of petrol prices);
• five per cent tax reduction for alcohol fuelled cars;
• subsidised loans for ethanol producers to improve capacity;
• compulsory sales of ethanol at fuel stations; and
• Government control of fuel stocks to guarantee supply and price.157
Prices received by ethanol producers under the program were determined by the federal government, as were prices for fuel in general. In May 1997 the price of anhydrous ethanol was liberalised, as was the price of hydrated ethanol in February 1999.158 There are now no direct subsidies for the production of ethanol, although the Brazilian government continues to support ethanol production through market regulation and tax incentives. The Brazilian government has mandated that all petrol sold in Brazil must be 22-26 per cent ethanol by volume.159 There is also a lower excise tax for ethanol than gasoline, and ethanol imports are subject to a 20 per cent duty.
In the 1980s Brazil focused largely on the use of ethanol blends and the provision of ethanol cars to the market. In the 1990s the focus shifted toward flexible fuel vehicles which could use petrol and/or ethanol interchangeably.160 The introduction of this technology was largely initiated
156 I Klabin, 'Success with bioenergy: the Brazilian experience', Paper presented at the 2005 World Congress World Agricultural Forum, Missouri, USA, 2005. 157 I Klabin, 'Success with bioenergy: the Brazilian experience', Paper presented at the 2005 World Congress World Agricultural Forum, Missouri, USA, 2005, p. 4. 158 O Lucon, 'The Brazilian ethanol learning curve', Paper presented at the International Workshop on Bioenergy Policies, Technologies and Financing - 9th LAMNET Project Workshop, Sao Paulo, Brazil, 2004, p. 37. 159 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 28. 160 M Lev'On, 'Workshop Report', Paper presented at the IPIECA Biofuels Workshop, Buenos Aires Argentina, 2005, p. 9.
37 Inquiry into the Production and/or Use of Biofuels in Victoria
by Brazilian car manufacturers, who had signed a Memorandum of Understanding at the beginning of the Proálcool program to produce ethanol fuelled cars.161 The number of flex-fuel cars in the Brazilian vehicle fleet has been increasing strongly, and it is expected that by the end of 2006 they will make up 60 per cent of the fleet.162 Seven out of ten new cars sold in Brazil are flex-fuel.163
In Brazil biodiesel is produced on a much smaller scale than ethanol. The Brazilian Government established a National Programme for the Production and Use of Biodiesel in 2002. In January 2005 law came into effect authorising the introduction of biodiesel. The law permits B2 blends, which will become mandatory in 2008. After 2013 the mandatory blend will be B5.
There are two industrial biodiesel plants in Brazil that produce fuel from sunflowers, wild radish and palm oil. 164 The European Union The European Commission (EC) issued a directive (2003/30/EC) in 2003 to increase biofuel use. The EC established a goal of obtaining at least two per cent of EU transportation fuel from biofuels by the end of 2005, then growing the biofuels share by 0.75 per cent annually until December 2010, when it would reach 5.75 per cent. 165 EU standards allow biofuel blends up to five per cent without labelling.166
EU Member States are able to set higher targets for biofuel use and the goal is not mandatory, however member states are expected to report annually on activities to aid compliance. Despite various policies to support biofuel production, in 2005 just 1.4 per cent of EU transportation fuel was produced from biofuels, rather than the targeted two per cent.167
Another directive was adopted by the EU in 2003 (2003/96/EC) which addressed the tax treatment of biofuels. Under this directive fuels blended
161 H Junior, 'Future perspectives of flexfuel vehicles in Brazil', Paper presented at the International Workshop on Bioenergy Policies, Technologies and Financing - 9th LAMNET Project Workshop, Sau Paulo, Brazil, 2004, p. 74. 162 A Elobeid and S Tokgoz, Removal of US ethanol domestic and trade distortions: impact on US and Brazilian ethanol markets. Working Paper, Centre for Agricultural and Rural Development, Iowa State University, Iowa, 2006, p. 7. 163 D Luhnow and G Samor, 'As Brazil fills up on ethanol, it weans off energy imports', The Wall Street Journal, 2006, viewed 16 January 2006,
38 Chapter Three: International developments
with biofuels can be exempted from the EU minimum rates, subject to certain conditions.168
The EU is the world’s principal producer of biodiesel, with Europe responsible for almost all of the global production of biodiesel. Germany produces over half of the EU’s biodiesel, with France and Italy also important biodiesel producers. While biodiesel is by far the dominant biofuel produced in Europe, ethanol production is increasing. The EU’s leading ethanol producer is Spain.169
While the adoption of biofuels will assist in achieving Kyoto Protocol targets within the EU, the European Commission has acknowledged that use of biofuels to reduce GHG emissions is relatively expensive compared to other available methods. An important driver for the adoption of biofuels by some countries in the EU is that, as the World Trade Organisation (WTO) trade negotiations place pressure on countries to reduce or remove traditional farm subsidies, the provision of subsidies for ‘energy crops’ offers an alternative means to support the agriculture sector. The United Kingdom, for example, offers a £1,000 per acre subsidy for the cultivation of ‘energy crops’, including canola and sugar beet.170 Concerns about energy security are also an important driver for the promotion of biofuels in the EU, as the EU currently imports 50 per cent of its transport fuel, with this figure expected to rise to 70 per cent by 2020. Germany Biofuel production in Germany has focused on biodiesel, sourced from canola and rapeseed, with little attention paid to ethanol. Biodiesel has been produced in Germany since the early 1990s, although it was not until 1998 that biodiesel production became large scale with the establishment of three industrial biodiesel plants.171 Rising petroleum diesel prices in the late 1990s spurred an interest in biodiesel.
Production capacity for biodiesel is expected to rise to over two million tonnes per year by the end of 2006.172 Biodiesel now accounts for four per cent of all diesel and two per cent of all transport fuels consumed per annum in Germany. B100 in Germany is available through petrol stations and fleet operators, with around one in every ten petrol stations selling B100.173 In January 2004 blends of up to B5 were legalised across the EU, which has contributed to increasing German biodiesel production.
168 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, pp. 151-152. 169 R Schnepf, European Union biofuels policy and agriculture: an overview, Congressional Research Service, The Library of Congress, 2006, p. 2. 170 Department of Primary Industries, Submission, no. 25, 11 September 2006, p. 21. 171 UFOP, Biodiesel production and marketing in Germany, UFOP, Berlin, 2006, p. 6. 172 UFOP, Biodiesel capacity in Germany 2006, viewed 9 August 2006,
39 Inquiry into the Production and/or Use of Biofuels in Victoria
Many commentators attribute the success of biodiesel in Germany to coordination between key stakeholders and the establishment of policies and mechanisms to help with biodiesel implementation.174 These include, for example, full excise exemptions for biofuels and blends until 2009, which has substantially supported expansion of production.175
The Union for Promotion of Oilseed and Protein Plants (UFOP) in particular played a key role by establishing an alliance between farmer organisations and rapeseed breeders. The UFOP promoted biodiesel and undertook active promotion of biofuels.176 Today the UFOP continues to play a key role in the biodiesel industry, acting as a peak body for many organisations involved in the production, processing and marketing of oil and protein- bearing plants.
The German motor vehicle industry was involved in the development of the market for biodiesel, which meant that industry offered warranties for the use of biodiesel in German vehicles. This meant that warranties remained valid for a large proportion of German vehicles, and that the motor vehicle industry introduced continuous improvement in car engine design for biodiesel use.177 Standards were also introduced for biodiesel and biodiesel blended fuels, which assisted consumer and market confidence in the product. United States of America The United States (US) currently imports around 60 per cent of its oil, predominately from the Middle East. In his State of the Union address earlier this year, the President of the US acknowledged the country’s reliance on oil and outlined plans to replace 75 per cent of the oil imported from the Middle East with alternative fuels. Among other strategies, the plan includes the development of hydrogen-fuelled vehicles and increased use of biofuels.
Ethanol has been used as a transport fuel in the US since the early 1980s, currently accounting for two per cent of total US petrol consumption on a volume basis.178 In 2005 the annual production of fuel ethanol in the US was 14,778 ML.179
174 D Stevens, 'IEA Bioenergy Task 27, liquid Biofuels. Final summary report', viewed 9 August 2006,
40 Chapter Three: International developments
Forty per cent of the US’s petrol supplies are ethanol blended fuels, with blended fuels available in every US state.180 E10 is the predominant blend available. E85 is also promoted in some areas, although availability is currently limited. In 2006 650 retail stations offered E85 across the country, an increase of more than 300 per cent from 2004.181
Corn is the main feedstock used in the production of ethanol, accounting for 95 per cent of ethanol production.182 Other feedstocks used include barley, wheat, sorghum and sugar cane.
The production of ethanol in the US has been consistently rising and there has been an increase in production initiatives over the past year. In May 2006 the monthly production of ethanol was 293,000 barrels per day, an increase of more than 56,000 barrels per day compared to May 2005.183
The oil crisis in the 1970s initiated US interest in ethanol production as a means of providing an alternative fuel to petroleum based products. In the 1980s the US began assisting ethanol production, partly as a means of assisting the agricultural industry.184 The government offered insured loans to small ethanol producers, an import tariff was imposed on foreign produced ethanol, the ethanol-gasoline blend tax credit was extended and ethanol was subsidised up to 60 cents per gallon. A drop in the price of oil in the mid 1980s saw ethanol production and use decline as it struggled to compete with gasoline.
Amendments to the Clean Air Act in 1990 indirectly boosted ethanol production as the amendments set requirements for oxygenated fuel. The principal oxygenate used was MTBE (Methyl Tertiary Butyl Ether - made from natural gas and petroleum). Concerns about MTBE leaking from underground storage tanks and contaminating ground water led to it being banned in a number of states. As a consequence, ethanol is increasingly used as a replacement fuel oxygenate.
Currently, federal and state governments provide an average subsidy of more than 70 cents per litre for ethanol produced from corn feedstock in the Midwest. Recent policies and initiatives that have assisted the ethanol industry include:
180 United States Department of Energy, 'Fuel blends: ethanol', viewed 26 September 2006,
41 Inquiry into the Production and/or Use of Biofuels in Victoria
• Clean Cities Program – an initiative of the US Department of Energy, the program supports the adoption of practices that contribute to the reduction of petroleum consumption in the transportation sector;185
• Volumetric Ethanol Excise Tax 2004 - a tax refund of 51 cents per gallon on each gallon of ethanol blended with gasoline. Applies to all levels of blending;
• Energy Policy Act 2005 – included the Renewable Fuels Standard setting a baseline for renewable fuel use. From the start of 2006 oil refiners were required to use at least four billion gallons of renewable fuel. This level increases incrementally to 7.5 billion gallons per year by 2012; and186
• Lignocellulosic ethanol production – in 2006 US$650 million was offered in federal funding for research leading to the commercialisation of lignocellulosic ethanol production by 2012.
The use of biodiesel in the US has also increased in recent years, with B2 and B5 becoming increasingly common.
The production of biodiesel was encouraged by the Clean Air Act amendments in 1990 and the Energy Policy Act 1992. The Energy Policy Act was amended in 1998 to include biodiesel fuel use as a way for federal, state, and public utility fleets to meet requirements for using alternative fuels. Since the beginning of 2005 biodiesel has been subject to a tax incentive amounting to 0.5 - 1 cent per percentage point of biodiesel blended with diesel, depending upon the source i.e. soybean oil, recycled oil. This will continue until the end of 2007.
As is the case in the EU, another driver for the promotion of the biofuels industry in the US is the provision of support to the agricultural sector in the face of pressure from the WTO trade negotiations to reduce agricultural subsidies. Support for the biofuels industry can provide a means of continuing agricultural support without the use of traditional farm subsidies. Canada According to the Biofuels Taskforce, Canadian policy for biofuels production has largely developed in the context of Kyoto Protocol obligations and agricultural support. The Canadian Government has introduced a target that by 2010 35 per cent of petrol sold in Canada must be E10. The development of the ethanol industry in Canada is largely supported through capital works loans. Some Canadian provinces have also introduced programs to develop
185 United States Department of Energy, 'Clean cities: about the program', viewed 26 September 2006,
42 Chapter Three: International developments
the manufacturing base for ethanol, with a view to the possible introduction of mandated fuel requirements in future. Canada has also made considerable progress toward development of commercial technologies for the production of cellulosic ethanol.187 India India is the world’s second biggest sugar producer. India produces a significant amount of ethanol from sugar-cane based molasses, which until recently was used mainly for non-fuel purposes.188 Ethanol is increasingly used in fuel blending, with the government introducing a bioethanol program in 2002 which mandated production of E5 in nine states.189 Originally the mandate was to extend to all states by 2004, but the implementation period has been extended as demand for ethanol has outstripped supply.
One of the main drivers for increased biofuels production in India is the country’s high dependence on imported fuels – currently 70 per cent of India’s transport fuel is imported.190 In addition to reducing dependence on imported fuel, the main drivers for ethanol for transport are concerns about air quality, and promoting ethanol production as a means for stimulating income and employment in the rural sector.191
Biodiesel is a relatively new fuel in India. In 2003 the government indicated that a biodiesel mandate would be introduced in the future - B20 by 2011.192 Currently biodiesel production is limited to pilot projects and it is not commercially available. China Growing demand for imported fuel and deteriorating urban air quality have been the impetus for policies directed at increased biofuel production in China. The policy objective of China with regard to biofuels is to meet 15 per cent of transportation energy needs by 2020. The government provides subsidies to encourage biofuel production.
187 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 60; International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 41. 188 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 163. 189 Worldwatch Institute, 'Conference handout', Paper presented at the Biofuels for transport: global potential and implications for sustainable agriculture and energy in the 21st century, Berlin, 2006, p. 38. 190 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 63. 191 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 63. 192 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 63.
43 Inquiry into the Production and/or Use of Biofuels in Victoria
China is the third largest ethanol producer in the world, with corn the primary feedstock.193 It is predicted that sugar, sorghum, wheat and cassava could also become significant feedstocks for ethanol production in the future. Trials of E10 began in July 2003 and the government intends to mandate use of this fuel nationwide by 2020.194 Some commentators have suggested that corn-based ethanol fuels will be used by 25-30 per cent of the country in the not too distant future.195
Biodiesel production is expected to increase as a key fuel source, with the government listing it as a research and development priority. Capacity building is occurring as China tries to increase their production of biodiesel from 50,000 tonnes in 2004 to two million tonnes a year by 2020.
With production capabilities still developing and the population continuing to grow, China is likely to emerge as a buyer of biofuels as production struggles to keep up with demand.196 China is expected to release implementation plans for the biofuels component of its 2006-2010 planning period later this year.197
Observations on overseas biofuels developments In countries where biofuels production policies have been actively pursued one (or more) of three factors have been of considerable influence. These are: climate change and Kyoto Protocol obligations; agricultural support; and energy security.
In many countries biofuels have been seen as a way of achieving GHG reductions. In particular, Kyoto Protocol members have seen the pursuit of biofuels as a way in which to achieve obligations under the Protocol. However, due to the abatement costs of biofuels compared to cheaper abatement options (see Chapter Four) it is unlikely that any of these countries would actively pursue biofuels if additional benefits were not associated with biofuel production and use.
A significant driver for the promotion of biofuels production in a number of countries has been agricultural support, where one of the main aims of
193 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 164 194 Worldwatch Institute, 'Conference handout', Paper presented at the Biofuels for transport: global potential and implications for sustainable agriculture and energy in the 21st century, Berlin, 2006, p. 36. 195 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 64. 196 Worldwatch Institute, 'Conference handout', Paper presented at the Biofuels for transport: global potential and implications for sustainable agriculture and energy in the 21st century, Berlin, 2006, p. 37. 197 Sydney Morning Herald, 'China plans to boost ethanol output', viewed 12 August 2006,
44 Chapter Three: International developments
biofuels policy has been to sustain agricultural production in rural and regional economies. In the EU and the US, for example, where there is international pressure to reduce subsidies to farmers, the biofuels industry may provide a means for continued support of the agriculture sector. In India, a significant intent of policies to increase the production of ethanol is to assist and stimulate the domestic sugar industry.198 In Thailand, part of the justification for expansion of the ethanol industry is to reduce dependence on imported oil, and to provide an export market for products derived from farm production.199
Concern regarding energy security has played a substantial role in the formation of policies for biofuels in a number of countries, including Brazil, the US, China, and India, and is an important consideration for directives issued within the European Union. According to the Prime Minister’s 2004 white paper Securing Australia’s energy future, there is currently minimal justification for Australia to pursue development of biofuels on grounds of energy security.200
198 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 164. 199 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 164. 200 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004, p. 116.
45
Chapter 4
Barriers, benefits and impacts Like any product entering a well established market, biofuels face significant barriers which hinder their entry into the transport fuel market. Barriers include a low level of consumer confidence in certain biofuels and concerns regarding possible engine damage caused by the use of biofuels.
There are also a variety of benefits that warrant encouraging the pursuit of biofuels. For example, biofuels generally provide a positive greenhouse gas (GHG) outcome compared to their conventional counterparts.
The following chapter examines the barriers and benefits associated with biofuels. In particular, Chapter Four will closely examine the possible environmental, social and economic effects resulting from the production and use of biofuels for transport applications, and how these effects may drive or hinder further development of the biofuels industry.
Consumer and mechanical issues Consumer confidence Ethanol The Committee heard that the principal barrier to the uptake of biofuels, particularly ethanol blended fuels, is the lack of consumer confidence in the product. While biofuels proponents, particularly the Queensland Government, have undertaken various campaigns to improve consumer confidence, consumer confidence remains relatively low and represents a significant barrier to the uptake of biofuels in Australia.
In 2002 and 2003 unlabelled ethanol blends with concentrations of up to 30 per cent ethanol were retailed in the Sydney metropolitan area.201 During this period at least one manufacturer stated that if E20 was offered in the market it would advise customers against its use, and that problems arising from ethanol use would not be covered by the manufacturer’s warranty.202
201 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 126; Mike Roarty and Richard Webb, Fuel ethanol: background and policy issues, Department of the Parliamentary Library, Canberra, 2003, p. 4. 202 Jeremy Thompson, 'Ethanol industry mixed up in controversy', viewed 14 September 2006,
47 Inquiry into the Production and/or Use of Biofuels in Victoria
Concern about engine damage caused as result of using high ethanol blend concentrations emerged, resulting in much of the negative sentiment toward ethanol that exists today.
Although concerns regarding engine damage were expressed during this period, the Committee notes that little evidence of any actual damage resulting from ethanol blended fuel use was provided in any of the submissions to the Inquiry. The Service Station Association of Australia told the Committee that it was unaware of any vehicle damage caused by high ethanol blends. Bill Frilay, Manager Government Business, BP Australia also told the Committee that no E10 engine damage claims had been made against the company.203 During an investigation into engine damage caused by E10 in NSW, Caltex and Manildra Park expressed similar sentiments.204 The RACV noted that the NRMA reported experiencing problems with splash blending of ethanol resulting in wide variation in the proportion of ethanol in ethanol blends, although it is unclear if these problems resulted in engine damage.205
Low levels of confidence in ethanol blends resulted in petroleum companies suspending Queensland ethanol trials.206 For example, BP Australia concluded its Brisbane trial of E10 in 2002 citing low consumer confidence.207 While low consumer confidence led to the suspension of trials, the Committee was told that other aspects of the trials were successful.208
In December 2002 public concerns were raised about ethanol fuel in Sydney. It became a media issue. Our trial, although very successful and 1,100 kilometres away, was brought into it indirectly, because we were the only company using ethanol signage, which meant good copy for public affairs programs. We decided to cease the trial in February 2003. Basically the trial had been a technical success, but in the furore at the time we decided to hold for a bit.209 In April 2003 the Commonwealth Government legislated a cap of ten per cent ethanol in petrol through the Fuel Standard (Petrol) Determination
203 Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006; Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006. 204 Premier of New South Wales, Premier announces mandatory biofuel policy, Sydney, 2005. 205 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. Splash blends are blends where the volatility of the base petrol is not adjusted for the increased volatility of ethanol prior to the blending of the two. Splash blending typically involves adding ethanol to individual distribution petrol tankers, and relying on the motion of the tanker to blend the petrol prior to distribution at retail stations. 206 Due to the availability of feedstock, particularly molasses, Queensland was by far the most progressive state/territory government in the promotion of ethanol as a fuel additive 207 BP Australia, 'E10 - the new unleaded', viewed 9 August 2006,
48 Chapter Four: Barriers, benefits and impacts
2001.210 The Fuel Quality Information Standard (Ethanol) Determination 2003 took effect on 1 March 2004 requiring labelling of all ethanol blended petrol up to and including the legislated ten per cent limit.211
In 2003 the Australian Automobile Association engaged ANOP Research Services to undertake a survey of motorists’ attitudes.212 The study indicated that 63 per cent of those surveyed were not happy or had reservations with buying ethanol blended petrol, with 35 per cent citing potential damage to their engine as their primary concern.213 ANOP were engaged again in 2005 to conduct a similar survey, with 56 per cent of those surveyed unhappy or having reservations with buying ethanol blended petrol, and 28 per cent citing potential damage to their engine as their primary concern.214 A comparison of the 2003 and 2005 survey results relating to drivers’ attitudes towards ethanol are contained in Table 13 and Table 14.
Table 13: Attitudes towards ethanol, 2003 and 2005.215
Attitudes to Buying Petrol Containing Ethanol Petrol with ethanol: YEAR 2003 2005 Happy to buy 22% 25% Not happy to buy 44% 35% Have reservations 19% 21% Unsure 15% 19% Total not happy/have 63% 56% reservations
210 Department of Environment and Heritage, Setting national fuel quality standards: proposed fuel quality standard for fuel grade ethanol, Department of Environment and Heritage, Canberra, 2005, p. 2. 211 Department of Environment and Heritage, Setting national fuel quality standards: proposed fuel quality standard for fuel grade ethanol, Department of Environment and Heritage, Canberra, 2005, p. 2. 212 ANOP Research Services Pty Ltd, Motorists' priorities and attitudes: detailed report on 2003 ANOP national study, Report prepared for the Australian Automobile Association, Sydney, 2003. 213 ANOP Research Services Pty Ltd, Motorists' priorities and attitudes: detailed report on 2003 ANOP national study, Report prepared for the Australian Automobile Association, Sydney, 2003, p. 28. 214 ANOP Research Services Pty Ltd, Motorists' attitudes: 2005 ANOP national survey, Prepared for the Australian Automobile Association, Sydney, 2005, p. 18. 215 ANOP Research Services Pty Ltd, Motorists' attitudes: 2005 ANOP national survey, Prepared for the Australian Automobile Association, Sydney, 2005, p. 18.
49 Inquiry into the Production and/or Use of Biofuels in Victoria
Table 14: Reasons for attitudes towards ethanol in petrol, 2003 and 2005.216
Main Reasons for Attitudes to Ethanol in Petrol Why happy to buy: YEAR 2003 2005 (the 22% which were (the 25% which were ‘Happy to Buy’) ‘Happy to Buy’) 1. No problem with it. 13 13 Makes no difference 2. Environmental benefits. 3 5 Renewable source 3. Provided it’s limited. If it 5 4 doesn’t affect car Why have doubts: 2003 2005 (the 63% which were ‘Not (the 56% which were ‘Not Happy to Buy’ or ‘Have Happy to Buy’ or ‘Have Reservations’) Reservations’) 1. Concerned about 35 28 damage to engine. Unsafe 2. Don’t know enough. 14 13 Need more information, facts 3. Concerned about 4 5 performance. Not suitable for my car
The ANOP survey results are consistent with market research activities undertaken by BP and Caltex.217
Biodiesel There are no significant consumer confidence problems associated with biodiesel use. However, given the problems associated with low consumer confidence in ethanol, the Committee urges the biodiesel industry to adopt a carefully managed approach to the sale of biodiesel. In particular, the biodiesel industry should ensure that all biodiesel and biodiesel blends greater than five per cent are appropriately labelled.218
216 ANOP Research Services Pty Ltd, Motorists' attitudes: 2005 ANOP national survey, Prepared for the Australian Automobile Association, Sydney, 2005, p. 18. 217 Australian Institute of Petroleum, Submission, no. 27, 24 June 2005, Submission to the Biofuels Taskforce, Biofuels Taskforce, p. 20. 218 B5 meets the Australian diesel fuel standard
50 Chapter Four: Barriers, benefits and impacts
Finding 1:
Consumer confidence can have a critical effect on the biofuels market. The Australian biodiesel industry should take measures to ensure a high level of consumer confidence in biodiesel is maintained. Engine damage Ethanol Oxygenates, such as ethanol, are compounds which contain oxygen and can be added to petrol to improve the octane number or reduce carbon monoxide content.219
The oxygen contained in ethanol can affect the air to fuel ratio at which the engine operates. Vehicles manufactured after 1986 generally have closed loop emission control systems with electronic fuel injection systems, and an engine management computer which can compensate for oxygenates such as ethanol by automatically adjusting the engine’s operation to maintain a constant air to fuel ratio.220 For this reason post-1986 vehicles generally operate satisfactorily when using E10. Vehicles manufactured prior to 1986, typically those which have open-loop emission control with carburettors or mechanical fuel injectors, have a fixed air to fuel ratio and are unable to automatically adjust to changing fuel oxygen levels. Consequently pre-1986 vehicles are typically not suited to the use of E10.221
…ethanol is an oxygenate so you have a lean-out effect of the fuel which means the engine tends to run lean. Whilst fuel injection systems can to a limited extent cope with that change to the fuel by programming, earlier vehicles with carburettors can not necessarily do that with ethanol-blended fuel and you could get problems with operability. 222 In March 2005, 88.9 per cent of registered vehicles were made on or after 1986, with 84 per cent using unleaded petrol.223 In Victoria, there are 400,000 passenger vehicles built before 1986.224 This represents 13.5 per cent of the Victorian passenger vehicle fleet.225 In Sydney, the number of pre-1986 vehicles is small, representing approximately four per cent of the
219 Caltex Australia, 'Product glossary', viewed 14 September 2006,
51 Inquiry into the Production and/or Use of Biofuels in Victoria
Sydney fleet and two per cent of the total kilometres travelled.226 Given that the percentage of ‘in use’ pre-1986 vehicles will only ever decrease, any potential impact of E10 is expected to diminish over a relatively short time period.
… elderly cars – and they will be phased out over time – are not the linchpin or the cornerstone for introducing or not introducing E10, or ethanol and gasoline.227 The Committee does not consider this issue to be a long term barrier to the use of ethanol.
Alcohol also has a tendency to cause the deterioration in a range of engine materials such as rubber and plastic and has the potential to accelerate corrosion of certain metals such as aluminium.228 As the concentration of ethanol in petrol increases, the risk of damage to certain engine components, such as fuel systems, also increases.
Many modern day vehicles are now designed so that the impact of low ethanol blends has little discernible impact upon the engine.229 With many countries now mandating or encouraging the use of ethanol blended fuels, the number of ethanol compatible vehicles is likely to increase.
While vehicle manufactures and associations have generally been cautious about providing support for E10, most concede that post-1986 vehicles are suitable for E10 use. Holden, Ford, Toyota and Mitsubishi have indicated that their petrol engine vehicles built after 1986 (generally those vehicles with electronic fuel injection systems) will operate satisfactorily on E10.230 Indeed, Australian automobile manufacturers now affix a label to the fuel filler cap noting that E10 is suitable for use in the vehicle.231
Since January 2006, Ford Australia’s locally manufactured vehicles (Falcon and Territory) have carried E10 information labels (Ethanol Fuel (E10) Suitable) on the inside of the fuel filler cap. This label is designed to provide information clarity and also regularly remind motorists that they can use E10 blended petrol where it is available.232
226 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 73. 227 Dr Chris Hamilton, C H Energy Pty Ltd, Transcript of evidence, Melbourne, 11 September 2006. 228 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 102. 229 Some car manufactures are also designing vehicles that operate with up to 85 per cent ethanol blends for sale in the US and Brazil. Holden Australia currently manufactures engineers for flexi fuel vehicles that are capable of handling 85 per cent blends, although these engines are currently exported to the US and Brazilian markets. 230 Premier of New South Wales, Premier announces mandatory biofuel policy, Sydney, 2005. 231 ANZ, 'Industry brief: automotive biofuels', 2005, viewed 7 August 2006,
52 Chapter Four: Barriers, benefits and impacts
The Royal Automobile Association of Victoria takes an alternate view on the reasoning behind local manufacturers agreeing to place labels on locally built models, stating that:
This agreement [to label] does not appear to represent any shift in the industry’s general technical positions on ethanol, but rather has been reported as the result of a voluntary agreement-in-principle between those individual car makers and the Federal Government.233 The International Energy Agency has stated that in most countries it is generally accepted that most cars are compatible with E10.234 Automobile manufacturers in the United States have also expressed little concern over ethanol’s potential to corrode metal providing that the ethanol is limited to ten per cent.235
This information appears to contrast with a statement made by the RACV that the number of engines that can not use ethanol is significant.236 An examination of the Federal Chamber of Automotive Industries website supports this notion, identifying numerous brands and models of automobiles and motorcycles which are unsuitable for ethanol blended fuels.237 The list, while not exhaustive, is comprehensive and identifies that while many post-1986 vehicles are suited to ethanol use, a large number of individual models are not suited to certain ethanol blends. Furthermore, the list identifies two motor vehicle manufacturers that have no models suited to either E5 or E10, while five of the nine motorcycle manufacturers do not advocate the use of E5 or E10. Of particular interest in regard to motorcycles is that the four major motorcycle manufacturers (Honda, Kawasaki, Suzuki and Yamaha), representing 71.9 per cent of the Australian motorcycle sales market in 2005, do not produce motorcycles suitable for ethanol use.238
In consideration of the large number of vehicles which are apparently not suited to ethanol use, caution should be exercised before any mandate for ethanol in fuel is introduced. Extensive consultation with industry should be conducted if any proposal to introduce mandated ethanol blends is considered.
A 1998 field trial into E10 undertaken by Apace Research notes that the use of a ten per cent ethanol blend offered benefits in terms of reductions in exhausts and GHG emissions with no major detrimental effect on any of the
233 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. 234 International Energy Agency, Biofuels for transport: an international perspective, International Energy Agency, Paris, 2004, p. 102. 235 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 14. 236 Barry Park, 'Fuel for thought', The Age, 23 August 2006, p. 6. 237 Federal Chamber of Automotive Industries, 'Vehicle model suitability for E5 or E10 use', viewed 23 August 2006,
53 Inquiry into the Production and/or Use of Biofuels in Victoria
other aspects of engine or vehicle performance.239 The studies’ trials into engine and fuel system wear using five vehicles, three with electronic fuel injection and two carburetted, noted that:
…there was no indication that E10 had promoted any abnormal, detrimental, accelerated, or excessive wear in the inspected vehicles’ engines. All fuel system components, seals, injectors and gaskets, showed little to no abnormal wear compared to the inspectors’ experiences of neat petrol driven vehicles.240 Prior to the ten per cent standard being introduced in Australia, a number of Australian studies investigated the impacts of E20 blends in the belief that these may provide additional benefits to those offered by E10. A 2002 study undertaken by Orbital Engines for Environment Australia, while noting a lack of information and conflicting information, identified a number of potential problems with a 20 per cent ethanol blend.241 These problems include:
• high engine speed knock is likely to occur due to the increase in octane sensitivity;
• possibility of a 20 per cent blend stripping away existing deposits within the fuel systems, causing fuel filter blockages and plugging of fuel metering components;
• perishing and swelling of elastomeric and plastic material making up the fuel system, particularly in older vehicles; and
• potential for corrosion of fuel systems metal components.242
A 2004 study into E20 undertaken by Orbital Engine Company for Environment Australia, also indicated engine wear problems for post-1986 vehicles using E20.243 The study concluded that greater levels of engine wear were apparent in vehicles using E20 compared to those using gasoline, and that vehicles using E20 displayed greater levels of engine deposits than their gasoline counterparts.244 This study was used as
239 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 13. 240 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 128. 241 Orbital Engine Company, A literature review based assessment on the impacts of a 20% ethanol gasoline fuel blend on the Australian vehicle fleet, Perth, 2002. 242 Orbital Engine Company, A literature review based assessment on the impacts of a 20% ethanol gasoline fuel blend on the Australian vehicle fleet, Perth, 2002, p. 5. 243 Orbital Engine Company, Market barriers to the uptake of biofuels study: testing gasoline containing 20% ethanol (E20): phase 2B final report to the Department of the Environment and Heritage, Perth, 2004. 244 Orbital Engine Company, Market barriers to the uptake of biofuels study: testing gasoline containing 20% ethanol (E20): phase 2B final report to the Department of the Environment and Heritage, Perth, 2004, p. 8.
54 Chapter Four: Barriers, benefits and impacts
evidence for the establishment of the Australian ten per cent ethanol blend standard.245
In comparing these reports, the Biofuels Taskforce noted there has been limited testing for the suitability of E10 in the current Australian fleet and that further testing would be beneficial in validating the suitability of vehicles to operate on E10.246
Evidence received by the Committee was generally supportive of a labelled ten per cent cap on petrol.247 While the Committee has been provided with little evidence indicating that the current ten per cent cap on ethanol in petrol is inappropriate, the Committee encourages a cautious approach to the use of ethanol and supports further testing on vehicle suitability to operate on E10.
Finding 2:
The Committee finds that a cautious approach to the use of ethanol in blends greater than E5 is prudent.
Finding 3:
The Committee finds that the existing cap of ten per cent ethanol is suitable for sale when appropriately labelled, although further testing may be warranted to establish the capability of particular vehicles, such as older vehicles, to operate on E10.
Biodiesel Like ethanol, there remains debate about the effects of biodiesel and biodiesel blends upon vehicle operability. Standard international practice is for the marketing of B5, B20 and B100, although B5 and B20 are the dominant fuel blends.248 The bulk of biodiesel in Australia is sold in blends of 20 per cent or less.249
245 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 127. 246 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 129. 247 Federal Chamber of Automotive Industries, Submission, no. 24, 11 September 2006; Dr Chris Hamilton, C H Energy Pty Ltd, Transcript of evidence, Melbourne, 11 September 2006; Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006; Keith Seyer, Director, Technical and Regulatory, Federal Chamber of Automotive Industries, Transcript of evidence, Melbourne, 4 September 2006. 248 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 140. 249 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006.
55 Inquiry into the Production and/or Use of Biofuels in Victoria
While a biodiesel standard (through the Fuel Standard Biodiesel Determination 2003) and a diesel standard (through the Fuel Standard Automotive Diesel Determination 2001) are in effect, there is no standard for biodiesel blends.250 The Committee understands that the Department of Environment and Heritage is currently assessing this issue and will release a discussion paper in the coming months.251
The Department of Environment and Heritage notes that the use of biodiesel will soften and degrade certain types of elastomers and natural rubber compounds, typically fuel hoses and fuel pump seals, contained within diesel engines.252 However, the move towards low sulphur diesels has prompted the manufacture of fuel system components suited for use with biodiesel.253 The RACV express similar concerns highlighting that higher biodiesel blends can cause problems with engine lubricating oils, causing them to become more acidic and/or to become diluted.254
Australian trials of biodiesel and biodiesel blends highlighted in the Biofuels Taskforce report did not identify any significant disadvantages from the use of biodiesel or biodiesel blends.255 For example, Camden Council’s trial of B100 versus ultra low sulphur diesel (ULSD) (diesel containing < 50 ppm of sulphur) in waste collection vehicles showed no evidence of abnormal mechanical wear and tear for the B100 engine compared to the conventional diesel engine.256
A number of vehicle manufacturers, distributors, parts manufacturers and industry bodies argue that the maximum biodiesel blend should be no greater than B5.257 However, some manufactures state that the use of any biodiesel blend will void the vehicle’s warranty.258 The Federal Chamber of Automotive Industries notes that their “members will not warrant damage caused by using biodiesel blends greater than B5 unless such use is sanctioned by a particular manufacturer”.259 In Europe, where the market
250 B5 currently meets the Australian diesel standard 251 Daniel Sheedy, Clean Fuels and Vehicles, Department of Environment and Heritage, personal communication, 13 September 2006. 252 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 64. 253 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 64. 254 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 69; Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. 255 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 139. 256 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 139. 257 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 138; Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 75. 258 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. 259 Keith Seyer, Director, Technical and Regulatory, Federal Chamber of Automotive Industries, Transcript of evidence, Melbourne, 4 September 2006.
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penetration of biodiesel is far higher than Australia, vehicles are designed for a maximum biodiesel content of five per cent. However, some car manufactures such as Audi and Volkswagen warrant the use of B100, while other manufacturers warrant the use of B100 provided fuel system seals are modified.260
As B5 meets the existing diesel fuel standard, and as the risk of B5 causing engine damage appears extremely low, the Committee believes that a five per cent blend is suitable for general retail. The Committee also note that many of the engine components adversely affected by biodiesel are similarly affected by ULSD. As ULSD has been mandated in Australia since 2006 components of all diesel vehicles in Australia are likely to be compatible with both ULSD and biodiesel.
The Committee can see no reason to prohibit the sale of blends greater than B5, but finds that a standard for blends above B5 is urgently required. The Committee also finds that consumers would benefit if a label was affixed to all bowsers retailing blends greater than B5 warning consumers about possible risks to vehicle engine warranties.
Finding 4:
The development of a standard for biodiesel blends above B5 will assist consumer and industry confidence in biodiesel products.
Finding 5:
Labelling of biodiesel products in excess of B5 at fuel bowsers will assist consumers to make informed choices about fuel use.
Fuel consumption Ethanol While the addition of ethanol to petrol will act as an oxygenator and increase engine efficiency, this benefit is offset by ethanol’s lower energy content relative to petrol (typically 68 per cent of the energy content of a litre of petrol).261 The lower energy content of ethanol compared to petrol, roughly two-thirds that of petrol, means that 1.5 units of ethanol will provide
260 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. 261 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 32; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 66; Dr Chris Hamilton, C H Energy Pty Ltd, Transcript of evidence, Melbourne, 11 September 2006.
57 Inquiry into the Production and/or Use of Biofuels in Victoria
equivalent mileage to one unit of petrol.262 Figure 1 provides a comparison of the energy content of ethanol compared to other automotive fuels.
APACE Research Ltd’s 1998 study indicated that an E10 ULP mixture compared to a neat ULP mixture would increase fuel consumption by 2.8 per cent.263 It was noted that this was consistent with the theoretical loss of energy (3.1 per cent). 264 Shell Australia’s submission to the Inquiry advised that E10 blends contain approximately three per cent less energy compared to petrol.265 As noted by the Australian Automobile Association, based upon an average yearly fuel spend of $1,500, a ten per cent ethanol blend (assuming an equivalent price to that of neat petrol) that increases fuel consumption by three per cent represents an extra $45 in costs.266 Submissions from Synergetics and RACV also suggested that while a three cent per litre differential in favour of E10 may provide an apparent incentive to purchase E10, it does not provide any actual financial benefit to the consumer.267
Theoretically, given the increase in fuel consumption resulting from the use of E10 compared to petrol, it could be expected that the price paid for E10 should be two to three per cent lower than petrol. This is the case in the United States where ethanol blended fuel is sold at a lower price than unleaded petrol.268 However, as identified in the Biofuel Taskforce report, ethanol fuels are often marketed at an equivalent price to traditional fuels.269 Bill Frilay, Manager Government Business, BP Australia told the Committee that BP were offering a three cent per litre discount on its E10 blend, although the discount is dependent upon a free of charge BP discount card.270
Biodiesel
Biodiesel contains approximately ten per cent less energy than diesel (33.3 MJ/L compared to 38.6 MJ/L), with fuel economy proportional to the biodiesel blend.271 For example, B20 will reduce fuel economy by
262 James Jordan and James Powell, 'The false hope of biofuels', The Washinton Post, 2 July 2006. 263 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 78. 264 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, pp. 72,78. 265 Shell Australia, 'Shell fuel finder', viewed 26 July 2006,
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approximately two per cent.272 Figure 1 provides a comparison of the energy content of biodiesel compared to other automotive fuels.
A large number of variables impact upon biodiesel fuel consumption. For example, vehicle type, climate and feedstock will all impact upon the fuel consumption. Limited studies assessing these variables have been undertaken. However, some studies, such as the Newcastle City Council biodiesel trial and a South Australian biodiesel trial, both using B20, found fuel consumption comparable to that of conventional diesel.273 Results from Camden Council of a B100 trial showed no increase in fuel consumption measured in litres per hour and a three per cent increase in litres per kilometre.274
As with ethanol blend pricing some witnesses argued that if biodiesel were to be marketed at an equivalent price to diesel, a cost would be imposed upon the consumer. According to these witnesses, given the drop in fuel economy, the price of biodiesel or biodiesel blends should therefore be lower than diesel. However, while a price decrease may seem like an incentive to purchase biodiesel, the price decrease will have to be lower than the energy content differential to justify a saving to the consumer. The RACV note the importance of labelling in relation to this issue.275
Some fuel retailers have observed that most consumers are not prepared to pay a premium for ‘green fuel’. The Committee does not endorse the view that prices should only reflect the relative fuel economy of any given fuel. Emissions reductions and GHG benefits from biofuels may provide justification for prices that do not reflect fuel economy.
Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 20. 272 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006. 273 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 139. 274 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 139. 275 Royal Automobile Club of Victoria, Submission, no. 41, 27 September 2006.
59 Inquiry into the Production and/or Use of Biofuels in Victoria
Figure 1: Comparison of the energy content of selected automotive fuels (MJ/l).276
Ethanol LNG LPG Propane LPG Mixture LPG butane E10 Autmotive Gasoline Biodiesel Automotive Diesel
0 5 10 15 20 25 30 35 40
Distribution, blending and storage Ethanol While little evidence was provided to the Committee on the cost impacts associated with the distribution, blending and storage processes for ethanol, the Committee recognises that these are significant issues facing the industry, and that further Government consideration of this issue is warranted.
Ethanol’s affinity with water, and its ability to act as a solvent, and thus introduce impurities to the fuel, adds significant costs to the blending, distribution and storage of ethanol.277
…. even with an efficient distribution system, the costs associated with the blending, distribution and sale of biofuels – particularly ethanol – are significant. Terminal costs depend on the size of installation and must cover storage tanks, modified fire fighting equipment, linework, pumps and gantry loading arms. For larger installations, e.g. Shell’s Newport Terminal, these costs will be several million dollars.278 Retailing ethanol fuel at service stations is particularly problematic with most stations only marketing four or five products: unleaded petrol; premium
276 Australian Institute of Petroleum, Downstream petroleum 2005, Australian Institute of Petroleum, Canberra, 2005, p. 13. 277 Australian Institute of Petroleum, Submission, no. 27, 24 June 2005, Submission to the Biofuels Taskforce, Biofuels Taskforce; Tom Beer, et al., Comparison of transport fuels, Prepared for the Australian Greenhouse Office, Melbourne, 2001, p. 222. 278 Shell Australia, 'Shell fuel finder', viewed 26 July 2006,
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unleaded petrol, lead replacement petrol, diesel and autogas.279 In some cases, the sale of ethanol blended fuels by retailers would require the addition of new dedicated ethanol facilities, for example, storage tanks and pumps, or the retrofit of another product’s existing facilities.280
If you are going to take an existing tank and convert it to an E10 tank, you do have to have a proper cleaning process to prepare that tank because ethanol attracts water, and if you have water or rust inside your tank the ethanol in the E10 fuel will pull that out you will end up with a whole lot of gunk that blocks filters, et cetera. It is not a problem so much for the car; it is going to be a problem more for the fuel system. So there does need to be a standard cleaning-up of the tank if you are going to convert it to E10.281 Shell Australia also noted that the modification of retail sites for the provision of ethanol blends will require significant financial investment for tank testing, branding and signage, resulting in an additional cost of up to $20,000 per site.282 A cost estimate of $20,000 is consistent with figures quoted in the Legislative Assembly of Queensland’s Inquiry into Petrol Pricing in Queensland, as well as ethanol infrastructure grants offered by the Queensland Government and the Commonwealth Government.283
The Committee notes that the Commonwealth Government’s grant to encourage the development of infrastructure at services stations will provide a significant incentive for services stations to consider the retail of ethanol blended fuels on their premises.284
Biodiesel Unlike ethanol, distribution, handling and storage of biodiesel poses little more difficulty than conventional diesel.
Natural Fuels Australia Ltd’s submission to the Biofuels Taskforce noted that biodiesel does not require any cost additions to the existing infrastructure for the storage and distribution of mineral diesel.285 The Committee received no evidence relating to problems associated with biodiesel distribution and does not expect the distribution requirements for biodiesel to differ significantly from those of conventional diesel.
279 Mike Roarty and Richard Webb, Fuel ethanol: background and policy issues, Department of the Parliamentary Library, Canberra, 2003, p. 4. 280 Impact of Petrol Pricing Select Committee, Inquiry into petrol pricing in Queensland, Legislative Assembly of Queensland, Brisbane, 2006, p. 106. 281 Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006. 282 Shell Australia, 'Shell fuel finder', viewed 26 July 2006,
61 Inquiry into the Production and/or Use of Biofuels in Victoria
As most of the handling characteristics of biodiesel are similar to conventional diesel, no special procedures are generally required. For example, biodiesel’s higher flash point means that biodiesel and biodiesel blends are safer to store and handle than traditional diesel.286 While biodiesel is hygroscopic and will require management practices that limit the fuel’s exposure to water, this is no different from the requirements for conventional diesel.
Biodiesel and biodiesel blends rapidly biodegrade in aquatic environments.287 While conventional diesel is also biodegradable, although at a much slower rate, the addition of biodiesel to conventional diesel accelerates its biodegradability.288 As a consequence, fuel management practices must ensure that exposure of biodiesel to water is kept at a minimum to minimise the rate at which the fuel can biodegrade. Secondly, management practices must ensure that biodiesel stock is regularly ‘turned over’, typically every three to six months, to avoid biodegradation of the fuel.289 The Committee notes that attention to these issues is required but does not consider these issues a barrier to the uptake of biodiesel or biodiesel blends. On the contrary, the biodegradability of biodiesel may be viewed as a benefit. For example, due to its ability to rapidly biodegrade, the environmental impact of a biodiesel fuel spill will have far less impact than a conventional diesel fuel spill. Octane Ethanol The octane number of a fuel relates to a measure of the resistance to the abnormal combustion phenomenon known as ‘knock’.290 In a normal engine, the fuel within the cylinder is ignited by the spark, spreading out within the piston until all the fuel is consumed. In abnormal engine operation, some of the fuel auto ignites under pressure causing a rapid increase in cylinder pressure resulting in a knocking sound. It is worth noting that while engine knock at low or high speeds can cause engine damage, engine knock at high speed (which is not always audible) can lead to more severe engine damage than low speed engine knock.291
286 Vilo Assets Management Pty Ltd, Submission, no. 26, 8 September 2006. 287 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 19. 288 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 19. 289 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 20. 290 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 60; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 10. 291 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 83.
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Fuels with a high octane rating are more resistant to engine knock than low octane fuels.292 High octane fuels can also increase engine efficiency through higher compression ratios.293
The octane performance of a fuel is measured in two different operating conditions, the Research Octane Number (RON) and the Motor Octane Number.294 The RON relates to a measure of the engine at low speed and is typical of city driving. The MON relates to the measurement of the engine at high speeds and is typical of highway driving. The RON is typically greater than the MON with the difference between the RON and MON known as the ‘sensitivity’.295 Manufacturers of petrol try to keep the sensitivity at about 8 to 10 units. The sensitivity of E10 is around 14 units.
Ethanol is one of a number of substances that can be added to petrol to increase the fuel octane rating. The use of ethanol in fuel will reduce an engine’s tendency to knock and subsequently increase its efficiency. However, the octane rating of petrol can be increased by means other than the addition of ethanol. Such actions include:
• using higher octane crude oil;
• employing refinery processes which can convert low octane petrol components into higher octane components; and
• using chemical additives other than ethanol.296
The use of ethanol by major refiners as an octane enhancer within Australia is yet to be determined. However, several smaller petroleum suppliers that struggle to obtain higher octane fuels are marketing ethanol blended fuels as high octane fuels.297 For example, Manildra Park Petroleum markets a 95 RON fuel blended with ten per cent ethanol to create a 98 RON fuel.298
We have also found that in Queensland the Newman Group and the Freedom group are using the octane benefit of ethanol when added to a 95 premium unleaded and
292 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 61. 293 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 61. 294 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 83; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 61; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 10. 295 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 61; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 10. 296 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 32. 297 Impact of Petrol Pricing Select Committee, Inquiry into petrol pricing in Queensland, Legislative Assembly of Queensland, Brisbane, 2006. 298 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 39.
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turning it into a 98 premium unleaded, which cannot be bought by independents. Those networks are then able to sell a 98 octane petrol at a 95 octane price, and that is being extremely well received.299 A decision by the major oil refineries to use ethanol as an octane enhancer will be dependent upon regulations relating to Reid Vapour Pressure (RVP), ethanol availability and the supply cost of ethanol.300 Cetane Biodiesel The cetane number is a measure of the readiness of a fuel to auto-ignite when injected into the engine and is also an indication of the smoothness of combustion.301 The higher the cetane number the better the ignition quality. As such the cetane rating is very much like the octane rating for petrol.
Good ignition from a high cetane number assists in easy starting, starting at low temperature, low ignition pressures, and smooth operation with lower knocking characteristics. Low cetane fuel with poor ignition qualities causes misfiring, tarnish on pistons, engine deposits, rough operation and higher knocking (thus noise level).302 The cetane number is dependent upon the feedstock used (see Table 15). A US EPA study found that the natural cetane number for biodiesel was 55, while the average for conventional diesel was 44.303 As such, when diesel is blended with biodiesel, the cetane number of the fuel increases.304
299 Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006. 300 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 33. 301 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 33. 302 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 34. 303 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 14. 304 Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003, p. 65.
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Table 15: Comparison of the cetane number of various diesel fuels.305
Fuel Cetane Number Diesel 51 to 58 Biodiesel (FAMAE) >40 Palm oil methyl ester 62 Soy methyl ester 46 Sunflower methyl ester 49 Tallow methyl ester 58
Vapour pressure Ethanol Evaporative emissions are the fuel vapours that are released prior to fuel combustion. Evaporative emissions are affected by a variety of factors such as fuel volatility, ambient air temperature, driving conditions and vehicle design.306 Evaporative hydrocarbon emissions result from:
• diurnal losses (ambient air temperature affects fuel temperature giving rise to vapour loss);
• running losses (vaporisation of fuel while vehicle is operating and generating heat);
• hot soak losses (vapour loss after vehicle stops and cools down);
• resting losses (fuel permeation through rubber engine components and liquid fuel-leakage); and
• refuelling losses (vehicle refuelling and bulk tanker refilling).307
Due to the low volatility of diesels fuel, evaporative emissions from diesel are not as significant as gasoline.308
The high volatility of ethanol blended fuels may act as a barrier to uptake. Volatility (measured by RVP, which is the fuels vapour pressure at 37.8
305 Tom Beer, et al., Comparison of transport fuels, Prepared for the Australian Greenhouse Office, Melbourne, 2001, p. 139. 306 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 77. 307 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 77. 308 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 77.
65 Inquiry into the Production and/or Use of Biofuels in Victoria
degrees Celsius) is the tendency for a substance to evaporate at ordinary pressure and temperature.309
In an internal combustion engine, fuel is vaporised prior to ignition. As such, fuel volatility has a significant effect on the amount of fuel used. For example, an excessive amount of vapour in the fuel system may result in decreased fuel flow to the engine resulting in rough engine operation or loss of power.310 Conversely, low volatility levels may cause engine starting problems, particularly on colder mornings when the fuel has a lower volatility. Table 16 details the possible effects of volatility on vehicle performance.
Table 16: Effects of fuel volatility on vehicle performance.311
Low Volatility High Volatility Poor cold start Hot drivability problems Poor warm-up performance Vapour lock Poor cold weather drivability Unequal fuel distribution in carburetted vehicles
The vaporisation of fuel has a greater impact on the performance of carburetted engines than electronic fuel injected vehicles.312
In addition to the problems caused by high RVP levels, high volatility levels, which are increased in summer months, also can lead to increased evaporative emissions which can contribute to the formation of photochemical smog.313
Photochemical smog is made up mainly of ozone, nitrogen dioxide and peroxy acetyl nitrate. The constituents of photochemical smog that have an adverse effect on people and the environment are collectively known as oxidants or photochemical oxidants. Photochemical oxidant is formed by the action of sunlight on mixtures of nitrogen oxides and non-methane hydrocarbons, for example VOCs (which include evaporative hydrocarbon
309 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 12; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 11. 310 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 32; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 12. 311 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 80. 312 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 12. 313 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 12.
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emission from fuels). High temperatures can increase the rate of oxidant formation.314 As such, the formation of photochemical smog is a greater problem in summer months than winter months.
As previously discussed, the addition of ethanol to petrol changes the properties of the fuel. Consequently, the use of ethanol in petrol affects the volatility of the petrol. APACE’s research into fuel volatility theoretically predicted that while E10 would provide improved warm-up and cool weather drivability, the use of E10 could also increase the possibility of hot weather and vapour lock drivability problems.315 However, results from field trials suggested that despite E10’s theoretically greater susceptibility to vapour lock, there was no evidence to suggest that a practical difference in the serviceability of E10 and neat petrol under hot conditions existed.316
While pure ethanol has a lower RVP than that of petrol, when combined with petrol, the RVP mixture is greater than the vapour pressure of either the petrol or ethanol alone.317 Environment Australia note that the peak RVP generally occurs with an 5-10 per cent ethanol blend, being approximately 6.5 per cent above the RVP of neat petrol.318 In blends above ten per cent the volatility declines, with blends between 30-40 per cent having an RVP roughly equivalent to neat petrol.319 This is roughly consistent with the CSIRO report into Biofuels which noted that the highest RVP occurred at concentrations of approximately five per cent, decreasing slowly with increasing concentration levels.320
While the Australian Government is currently liaising with the states and territories regarding the regulation of E10 RVP levels, the regulation of RVP is currently regulated by individually by all states (with the exception of Tasmania).321 As evaporative emissions from fuel are a precursor to smog, and driven by temperature, RVP limits typically apply in the summer months in urban areas.322 Queensland and NSW, the only states were the use of
314 Queensland Government Environmental Protection Agency, A strategy for improving air quality in south east Queensland, Queensland Government, Brisbane, 1999, p. 110. 315 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 82. 316 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 106. 317 International Fuel Quality Centre, Setting a fuel quality standard for ethanol: submission to the Australian Department of Environment and Heritage, International Fuel Quality Centre, Houston, 2004, p. 7; Orbital Engine Company, A literature review based assessment on the impacts of a 20% ethanol gasoline fuel blend on the Australian vehicle fleet, Perth, 2002, p. 33. 318 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 12. 319 Orbital Engine Company, A literature review based assessment on the impacts of a 20% ethanol gasoline fuel blend on the Australian vehicle fleet, Perth, 2002, p. 33. 320 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 62. 321 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 21. 322 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 147.
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ethanol is at a sufficient level to impact upon the urban air shed, have increased their respective permissible summer RVP levels for E10 to allow for its sale.323 Modelling undertaken for these states indicates that the impact of ethanol blended fuels on ozone formation was not of concern and is not likely to compromise air quality standards.324
The volatility specifications here in Victoria do not allow ethanol blends in summer. Companies, if they want to be legal, have to apply for a variation to the present fuel standards. That is a barrier.325 The Committee understands that oil companies operating in Victoria can seek a variation for RVP for ethanol blended fuels from the Victorian EPA.326 In Brazil and the US, this increase in RVP is usually overcome by blending a low volatility blend stock with the ethanol, in a process known as BOB (blend stock for oxygenated blends).327 While this approach lowers the volatility of the fuel, the cost of the blendstock adds additional costs to the fuel.328 This is likely to be the only option available to Australian fuel producers should tighter RVP standards be established.329
The Committee questions the provision of waivers for variations to RVP levels, particularly when an ethanol blend with lower RVP levels can be produced (albeit at a premium). Should the use of ethanol blends in Victoria become widespread, the waiver of RVP limits for ethanol blends poses a potential risk in relation to summer smog formation. This view is supported by Mobil Australia who advocate careful consideration and thorough scientific evaluation of potential air quality effects before any waiver is provided in Victoria.330
Finding 6:
A cautious approach should be taken by the Victorian Government regarding applications for Reid Vapour Pressure level exemptions for certain fuels.
323 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 15; Department of Primary Industries, Submission, no. 25, 11 September 2006. 324 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 148. 325 Peter Scott, General Manager, External Affairs, Shell Australia, Transcript of evidence, Melbourne, 4 September 2006. 326 Environment Protection (Vehicle Emissions) Regulations 2003 (Victoria), ; Peter Scott, General Manager, External Affairs, Shell Australia, Transcript of evidence, Melbourne, 4 September 2006. 327 Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 12. 328 Mobil Oil Australia, Submission, no. 42, 28 September 2006. 329 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 148. 330 Mobil Oil Australia, Submission, no. 42, 28 September 2006.
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Affinity with water Ethanol Ethanol has a high affinity with water, with water and ethanol readily dissolving within each other. When contained within a mixture of petrol such as E10 this may result in serious damage to engine operation.
Water can enter petrol in two ways, in solution with the fuel or as a separate phase from the petrol. Water in the petrol solution poses little problem to engine operation, as the water merely dilutes the combustion mix, resulting in slightly less efficient engine operation.331
While ethanol blended fuels can absorb a significant amount of water (the use of anhydrous ethanol enables E10 to absorb a significant amount of water before phase separation will occur), too much water will result in phase separation.332 The percentage of water that can be absorbed in an ethanol blend ranges from 0.3 to 0.5, dependent upon the temperature, aromatics and ethanol content.333 When phase separation actually occurs, the water will begin to remove the ethanol from the petrol and the water and ethanol will sink to the bottom of the fuel tank.334 Phase separation for an E10 blend contaminated by 0.5 per cent water will separate with 93 per cent petrol at the top of the tank and seven per cent ethanol/water at the bottom of the tank.335
Phase separation can occur in both vehicle and storage tanks. As the fuel is typically drawn from the bottom of a vehicle’s fuel tank, the water/ethanol phase will be drawn into the engine and cause the vehicle to stop immediately.336 While phase separation is more likely to occur as a result of inappropriate fuel storage practices by distributors and retailers or through accidental introduction of water while refuelling, the Biofuels Taskforce (see
331 David Korotney, 'Water phase separation in oxygenated gasoline', viewed 29 August 2006,
69 Inquiry into the Production and/or Use of Biofuels in Victoria
below) also note possible phase separation issues resulting from switching between neat petrol and ethanol blends.337
The Committee did not receive any evidence describing occurrences of phase separation. The Committee believes that processes which minimise the risk of phase separation occurring should be part of an industry risk management strategy, and does not consider this issue to be a major barrier to the uptake of ethanol blends.
Environmental issues Greenhouse gases Based upon the CSIRO’s 350ML Biofuels Target report, a 350ML biofuel market penetration would reduce GHG by 442,000 tonnes.338 Taking into account biofuels’ impact on GDP and government expenditure in developing the industry, the cost of this abatement is estimated at $204 per tonne in terms of reduced GDP, and $267 per tonne as a cost to government.339 In comparison, the Australian Government reports government expenditure on programs provided abatement at $4 per tonne, or $3.40 per tonne for those programs solely designed to provide abatement.340 Consequently, the cost of abatement through the use of biofuels is comparatively expensive. There appears to be little justification for the promotion of biofuels on grounds of GHG abatement alone.
While a direct comparison between ethanol and biodiesel blended fuels is outside the scope of this Inquiry, the GHG benefits from biodiesel appear to outweigh those of ethanol. However, it should be noted that the outcomes are dependent on a range of factors such as the feedstock type and yield, manufacturing process and transport distances.341
Ethanol Table 17 provides a breakdown of life-cycle GHG emissions for an E10 fuel produced from a variety of feedstocks compared to ULP.
337 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 143; Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002, p. 20. 338 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 7. 339 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 7. 340 Department of Environment and Heritage, Annual report of the Department of Environment and Heritage, Australian Government, Canberra, 2005, p. 29. 341 Synergetics Pty Ltd, Submission, no. 36, 15 September 2006, p. 12.
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Table 17: Percentage change of full life-cycle greenhouse gas emissions (as g/km) from E10 relative to ULP (%).342
Impact E10 E10 E10 E10 wheat E10 wheat ULP (g/km) category molasses molasses sorghum starch with cogen waste Upstream
CO2 4.7 15 23.9 25.6 17 56.21
CH4 -9.2 -7.9 -4.0 -4.2 -6.3 0.054
N2O 1329.8 1359 -1152.3 3073.3 46.2 0.0003 GHG 4.3 13.2 17.4 25.1 13.1 67.7 (CO2-e) Tailpipe
CO2 -7 -7 -7 -7 -7 340.5
CH4 3.7 3.7 3.7 3.7 3.7 0.007
N2O -0.1 -0.1 -0.1 -0.1 -0.1 0.002 GHG -7 -7 -7 -7 -7 341.3 (CO2-e) Life-cycle
CO2 -5.4 -3.9 -2.7 -2.4 -3.6 396.7
CH4 -9 -7.8 -3.9 -4.1 -6.2 0.5
N2O 168.2 171.9 -145.9 388.8 5.8 0.002 GHG -5.1 -3.7 -3.0 -1.7 -3.7 409.07 (CO2-e)
The results indicate that the upstream processes to produce ethanol blends result in higher GHG emissions than ULP. E10 produced from wheat produces the most GHG, being 25 per cent greater than ULP and 30 per cent more than sorghum. The most efficient process, using a molasses feedstock combined with cogeneration, still generates greater upstream GHG emissions than ULP (4.3 per cent).
Tailpipe GHG from the E10 blends remain lower than ULP, with all blends showing a consistent seven per cent decrease.
All blends show a life-cycle decrease in GHG emissions, although the benefits are only marginal for some feedstock blends, with savings ranging from 1.7 per cent to 5.1 per cent.
342 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 89.
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Biodiesel Adapted from a report by CSIRO et al., Table 18 provides a breakdown of the GHG emissions for a range of biodiesel blends relative to the use of ULSD(<50ppm) and extra low sulphur diesel (XLSD)(<10ppm) in a rigid truck (a load carrying vehicle with a gross vehicle mass exceeding 3.5 tonnes).343 As much of the analysis of the CSIRO et al. report was predicated upon studies undertaken in the US, it is important to recognise that the diesel component of the biodiesel blends analysed contained sulphur levels above and below 500ppm, potentially well in excess of Australian ULSD and XLSD sulphur requirements of <10ppm and <50ppm respectively.344 As such, it could be argued that the benefits of the biodiesel blends in this analysis have been significantly understated.
The difference between the upstream GHG savings of waste oil compared to other feedstocks is due to modelling which assumes waste oil is a waste product with no existing market. If low grade tallow was used for the production of biodiesel, its emissions profile would mirror that of waste oil.345
Table 18: Percentage change of full life-cycle GHG emissions (CO2-e) of B5 and B20 relative to ULSD and XLSD (rigid truck) (%).346
Blend GHG GHG GHG GHG GHG Life- GHG Life- upstream upstream Tailpipe Tailpipe cycle cycle (compared (compared (compared (compared (compared (compared to ULSD) to XLSD) to ULSD) to XLSD) to ULSD) to XLSD) B5 14.27 15.17 -4.9 -4.1 -1.5 -0.1 canola B5 12.9 13.9 -4.9 -4.1 -1.5 -0.4 tallow B5 -1.05 1.16 -4.9 -4.1 -4.18 -3.04 waste oil B20 51.84 48 -21.6 -21 -7.62 -6.7 canola B20 46.3 42.93 -21.6 -21 -8.7 -7.76 tallow B20 -9.5 -8.22 -21.6 -21 -19.32 -18.34 waste oil
343 The current diesel standard requires a maximum sulphur content of 50 ppm effective from 1 January 2006. As of 1 January 2009, the sulphur standard will be lowered to a maximum of 10 ppm. 344 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 4. 345 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 96. 346 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 95.
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Clearly the upstream GHG emissions from waste oil biodiesel provide the most significant GHG savings, with the upstream emissions of canola and tallow significantly reducing their respective GHG benefits. For B5 blends the GHG gas benefits diminish when compared to XLSD, with canola providing negligible greenhouse benefit compared to XLSD.
While the GHG benefits of waste oil biodiesel blends are substantial, the Committee expects that in the long term, waste oil resources will be fully utilised. The Committee believes that significant technological improvements in the upstream processing of canola and tallow, or any other emerging feedstock, will be needed to deliver significant GHG savings. Air quality Air pollution is estimated to cause an estimated two million premature deaths each year.347 For example, the World Health Organisation estimates that in the European Union, particle matter up to 2.5 microns causes an estimated loss of statistical life expectancy of 8.6 months for the average European.348 In Melbourne alone, it is estimated that pollution induced deaths ranged between 238 to 478 in 2000.349 It is not surprising then that governments around the world are pursuing measures by which to reduce pollution levels from the transport sector. The use of policies which promote biofuels is one means by which governments may achieve this goal.
The following section provides an examination of relevant criteria air pollutants. Due to their abundance and broad range of sources, criteria pollutants are given particular attention by regulators.350 Thus it is typical for authorities to establish standards for criteria pollutants, whereas air toxics are typically managed by the use of guidelines, goals and targets.351
In Australia the six criteria air pollutants relating to transport are carbon monoxide (CO), sulphur dioxide (SO2), ozone (O3), particulate matter (PM), 352 oxides of nitrogen (NOx) and lead (Pb). Sulphur dioxide and lead are not considered to be problems in Australian air sheds (a body of air contained by meteorology and topography in which a pollutant once emitted is
347 World Health Organization, 'WHO challenges world to improve air quality', viewed 6 October 2006,
73 Inquiry into the Production and/or Use of Biofuels in Victoria
contained) and have been excluded from analysis.353 Ozone is formed as a result of a secondary reaction between NOx and non-methane volatile organic compounds (VOCs) and are denoted as VOCs for the purposes of this Inquiry.354
A number of studies have been conducted throughout the world on the impact of biofuels on air quality, although to date, debate still surrounds the impact of biofuels on air quality. Exacerbating this problem is the fact that a variety of issues such as the vehicle type, feedstock type and the respective urban air shed all impact upon the performance of biofuels. While most research suggests that biofuels will deliver reductions in certain air pollutants such as carbon monoxide, it is unlikely that biofuels will deliver across the board reductions.
Ethanol Based upon work undertaken by the Biofuels Taskforce, Table 19 illustrates that E10 blends deliver significant reductions in CO emissions, with full life- cycle reductions ranging between 20 and 26 per cent. Interestingly, upstream CO emissions of sorghum and wheat waste starch were substantially lower than the other feedstock blends.355
Lifecycle reductions for VOCs were negligible with three of the five blends showing minor reductions. The most significant increase in VOCs came from the wheat feedstock E10, showing an increase of 2.2 per cent compared to ULP. All NOx values increased, with the largest increase of 12.6 per cent for the wheat feedstock E10. Given the relationship between NOx and VOCs in the formation of ozone, the Committee is concerned about the potential for E10 blends to increase the risk of summer smog.
While the modelling work originally undertaken by the CSIRO for the 350ML Biofuel Target report estimated a 0.1 per cent decrease for tailpipe emissions, the analysis undertaken by the Biofuels Taskforce used a figure of 40 per cent, stating that:
In the view of the Taskforce, the results from the UK and the US studies indicate that the assumption of negligible impact of E10 on PM tailpipe emissions in the 2003 350ML Target Report needs to be re-visited. However, caution should be used, as a total of three studies (two in near zero temperatures) is not robust, and the Taskforce considers that there is an urgent need for further experimental work under Australian conditions on the impact of E10 on PM emissions from petrol vehicles. A value of 40% has been adopted in this report for the PM tailpipe reduction, but in light of the small number of studies and in the absence of any theoretical work explaining the
353 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 73. 354 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 73. 355 While waste wheat starch has a low value increase due to it being a waste, the low value increase for sorghum may be explained by its by-products. That is, the yields of usable by-products from sorghum based ethanol are much higher than for wheat. see CSIRO
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relatively large value of the decrease, the Taskforce stress that this value should be viewed only as a sensitivity factor to examine the health-cost impact of the 350ML target.356 Despite the use of a 40 per cent figure for reductions in PM tailpipe emissions, with the exception of molasses with cogeneration, all blends showed significant increases in particulate emissions, with increases ranging from 30 to 38 per cent compared to ULP.
Table 19: Percentage change of full life-cycle air pollutants emissions (as g/km) from E10 and ULP (passenger cars)(%).
Impact E10 E10 E10 E10 wheat E10 wheat ULP (g/km) category (%) molasses molasses sorghum waste and cogen starch Upstream CO 239.1 238.8 18.5 327.5 20.4 0.085
NOx 4.9 11.3 7.9 20.4 7.2 0.451 VOC 3.9 3.6 3.4 6.4 3.4 0.658 PM (urban) 1 99 110.6 110.2 107.5 0.007 PM (non-0.3 0 -.8 7.9 -3.6 0.007 urban) Tailpipe CO -26.9 -26.9 -26.9 -26.9 -26.9 4.85
NOx 5 5 5 5 5 0.461 VOC -14.4 -14.4 -14.4 -14.4 -14.4 0.168 PM -40 -40 -40 -40 -40 0.003 Lifecycle CO -22.3 -22.3 -26.1 -20.8 -26.1 4.935
NOx 5 8.1 6.5 12.6 6.1 0.912 VOC 0.2 -0.1 -0.2 2.2 -0.2 0.826 PM -7.4 30.8 31.2 38.4 32.6 0.017
Given the potential for high levels of PM to increase the risk of adverse health impacts coupled with the risks associated with the formation photochemical smog from VOCs and NOx, the Committee is concerned about the overall air quality benefits provided by E10 and recommends that further scientific studies be conducted in this area. As the Victorian Government has committed the Government fleet to using E10, where cost-
356 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 75.
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effective and available, the Committee suggests that these vehicles be used for scientific studies to determine the air quality benefits of E10 use. 357
Recommendation 2:
That the Victorian Government initiates scientific research into the air quality benefits of ethanol blended fuel use.
Biodiesel The air quality benefits derived from the use of biodiesel blends appear to be less equivocal than those observed of ethanol blends. Table 20, adapted from the Biofuels Taskforce report, provides an analysis of the life-cycle air pollutant emissions from B5 and B20 blends relative to ULSD and XLSD. As much of the data for analysis was derived from studies undertaken in the US, it is important to recognise that the diesel component of the B5 and B20 cited in the Biofuels Taskforce report contained sulphur levels above and below 500 ppm, potentially well in excess of Australian ULSD and XLSD sulphur requirements.358 As such, it could be argued that the benefits of the biodiesel blends in this analysis have been significantly understated.
With the exception of NOx all pollutant emissions are decreased with the use B5 and B20 blends compared to ULSD. NOx increases range from 5.85 to 6.41 per cent for B5 blends and 0.27 to 2.51 per cent for B20 blends.
The introduction of XLSD in 2009 will see an increase in biodiesel pollutant emissions compared to ULSD, although biodiesel blends will still generally deliver emission reductions for all pollutants except NOx. Compared to XLSD, NOx emissions will increase between 10 and 13 per cent, representing a significant increase compared to ULSD NOx levels.
357 Department of Sustainability and Environment, Our environment our future: sustainability action statement 2006, Victorian Government, Melbourne, 2006, p. 78. 358 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 4.
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Table 20: Percentage change of full life-cycle air pollutant emissions (as g/km) of B5 and B20 relative to ULSD and XLSD (rigid truck).359
Impact B5 B5 B5 B20 B20 B20 category (full canola tallow waste oil canola tallow waste oil life-cycle) (% change to each diesel type) To ULSD CO -13.41 -13.82 -14.27 -16.08 -17.74 -19.54
NOx 6.41 6.35 5.85 2.51 2.25 0.27 VOC -8.17 -8.3 -9.01 -13.18 -13.72 -16.54 PM -2.14 -1.85 -2.17 -4.37 -4.5 -5.81 To XLSD CO -11.27 -11.69 -12.14 -14.13 -15.81 -17.63
NOx 10.9 10.81 10.27 12.53 12.24 10.04 VOC -4.92 -5.07 -5.8 -10.43 -10.91 -13.88 PM 0.08 0.06 -0.28 -5.75 -5.87 -7.27
Air toxics Air toxics are gaseous, aerosol or particulate pollutants which have the potential to cause adverse health impacts.360 The term ‘air toxic’ is often used interchangeably with the term ‘hazardous air pollutants’ (HAPs).361
While air toxics can be produced by natural occurrences such as forest fires, air toxics are typically formed by: the incomplete combustion of hydrocarbons; through evaporation of petrol; or by fuel passing through an engine unburned.362
There is increasing recognition of the possible health impacts associated with exposure to air toxics, with evidence suggesting that exposure to air toxics may increase the risk of cancer or other health effects such as
359 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. 360 APACE Research Ltd, Intensive field trial of ethanol/petrol blend in vehicles: volume 1 main report, Sydney, 1998, p. 8; Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 78; Environment Protection and Heritage Council, 'Air toxics', viewed 26 September 2006,
77 Inquiry into the Production and/or Use of Biofuels in Victoria
damage to reproductive, neurological, immune and respiratory systems.363 Certain air toxics are also deposited onto soils and surface water, and subsequently absorbed by plants so that they work their way up through the food chain.364
Ethanol Based on research undertaken by APACE, Table 21 provides an analysis of exhaust emissions from a sample of pre and post-1986 vehicles. With the exception of aldehydes, data indicates that ethanol fuels perform better than conventional fuels in terms of decreasing air toxics with substantial reductions in 1,3-Butadeine, Benzene, Toluene and Xylene.
Table 21: Toxic Exhaust Emissions for pre and post-1986 vehicles.365
Exhaust Pre 1986 (mg/km) Post-1986 (mg/km) Petrol E10 % Petrol E10 % Toxics 1,3-Butadiene 28.84 24.41 -15.37 4.19 3.56 -15.01 Benzene 88.2 65.79 -25.41 18.08 13.61 -24.7 Toluene 169.82 128.8 -24.15 22.74 16.9 -25.67 Xylenes 140.88 105.03 -25.45 19.7 15.29 -22.39 Aldehydes Formaldehyde 31.12 39.27 26.19 5.22 6.56 25.74 Acrolein 3.38 3.95 17.13 1.22 1.2 -2.06 Acetaldehyde 7.55 24.2 220.5 2.15 6.3 193.03
Using a risk assessment index, APACE research also calculated that the use of E10 compared to neat petrol in the combined testing fleet decreases carcinogenic risk by 24 per cent.366 A similar approach to APACE’s risk assessment index was also used by the Biofuels Taskforce. Based upon the Californian EPA’s air toxicity index, the air toxicity index is reduced for E10 relative to ULP and LP by 17 per cent and 19 per cent respectively.367
363 United States EPA, 'Toxic air pollutants', viewed 25 September 2006,
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Biodiesel Both the Biofuels Taskforce report and the report by CSIRO et al. note that a lack of data make it difficult to assess the air toxic tailpipe emissions from biodiesel.368
Sharp (1998) notes that the mass of a range of compounds, including numerous air toxics, is significantly reduced in biodiesel compared to diesel.369 Significant reductions in aldehydes are also observed, with B100 showing 30 per cent lower formaldehyde and acetaldehyde levels than diesel.370
Polycyclic aromatic hydrocarbons (PAH) and nitro-polycyclic aromatic Hydrocarbons (nPAH) levels are also shown to be reduced in the order of 90 per cent for B100 for nearly all types of PAH and nPAH that were tested.371
A 2002 US EPA study into biodiesel exhaust emissions noted that data on this topic was also limited, but did note with some confidence that total toxics are on average reduced when biodiesel is added to diesel fuel.372 Available data suggested that acetalhyde, ethylbenzene, formaldehyde, naphthalene and xylene were all significantly reduced with increasing biodiesel concentrations.373 The study also noted that conflicting data for benzene, 1,3-butadiene and toluene suggested that emissions of these substances are not affected by the addition of biodiesel to diesel fuel.374
The Committee agrees with the Biofuels Taskforce in recognising that there is a comprehensive lack of data regarding the relationship between air toxics and biodiesel fuel use, and recommends that further research into this area is warranted.
Recommendation 3:
That the Victorian Government initiates scientific research into the air quality benefits of biodiesel fuel use.
368 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 90; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 103. 369 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 103; Christopher Sharp, Characterization of biodiesel exhaust emissions for EPA 211(b), Southwest Research Institute, Jefferson City, 1998. 370 CA Sharp, Characterization of biodiesel exhaust emissions for EPA, no. 08-1039A, Southwest Research Institute, 1998, p. 18. 371 CA Sharp, Characterization of biodiesel exhaust emissions for EPA, no. 08-1039A, Southwest Research Institute, 1998, p. 21. 372 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 93. 373 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 95. 374 United States EPA, A comprehensive analysis of biodiesel impacts on exhaust emissions: draft technical report, US EPA, Washington DC, 2002, p. 97.
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Other environmental impacts In addition to the possible environmental impacts mentioned above, biofuels production and/or use has the potential to result in negative environmental outcomes such as erosion, high sediment, nutrient and pesticide run-off to waterways, groundwater contamination, additional water use and loss of biodiversity.
In 2003, the Panel of Scientists charged with developing Queensland’s Reef Water Quality Protection Plan noted that:
It has been suggested that dunder (a by-product of ethanol production from sugar cane), green cane trash blanketing (GCTB), and leachates from mill mud could have an effect on the levels of dissolved oxygen in water. In the case of GCTB, anecdotal reports refer to pungent, black-brown water draining from canelands after rain, particularly where water has been ponded for some time.375 While no concrete data describing adverse environmental impacts from biofuels use was submitted as evidence to the Committee, several submissions noted the potential for adverse upstream environmental outcomes to occur in the absence of appropriate management and monitoring systems. For example, the Department of Sustainability and Environment suggested that biofuels production will require significant water resources and may have direct and indirect implications for native biodiversity.376 Similarly, the Alternative Technology Association noted that GHG benefits from biofuels may be offset by environmental degradation such as deforestation and topsoil erosion from the utilisation of farmland for biofuel feedstocks.377 Both of these examples assume that the provision of biofuel feedstocks will supplement existing farming activities rather than substitute existing activities. For example, demand for grains could be supplied by the substitution of grain crops for existing crops such as cotton, or by planting grain crops in previously uncultivated areas. The Committee notes that environmental problems may result from substituting or supplementing crops. For example, intensified agricultural practices may lead to soil erosion.
The CSIRO et al. 350ML report expresses little concern for ‘other environmental impacts’ emanating from the production and use of biofuels, provided that wastes are disposed of appropriately.378 The report suggests that of all biofuels production, ethanol production from grain feedstocks is the industry most likely to deliver negative environmental impacts. For example, increased demand for grains could lead to the expansion and/or
375 Joe Baker, A report on the study of land-sourced pollutants and their impacts on water quality in and adjacent to the Great Barrier Reef, Premier's Department, Brisbane, 2003, p. 107. 376 Department of Sustainability and Environment, Submission, no. 32, 13 September 2006. 377 Alternative Technology Association, Submission, no. 13, 8 September 2006. 378 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 107.
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intensification of grain cropping.379 This may lead to cropping on lands previously uncultivated or enhance soil degradation.
The Biofuels Taskforce raised the issue of groundwater contamination from ethanol storage. Ethanol’s characteristics allow fuel to enter the water table more easily than petrol. Once in the water, ethanol also increases the solubility of petroleum constituents such as benzene, toluene, ethylbenzene and xylene.380 Ethanol also inhibits the biodegradation of these pollutants resulting in plumes of petrol contaminated groundwater extending further than non-ethanol petrol.381
While biodiesel production and use is unlikely to directly produce any significant environmental impacts, like ethanol, increased demand for biodiesel feedstocks could result in negative environmental impacts. For example, an increase in canola cropping on previously uncultivated land could lead to loss of wildlife habitat, increased demand for water resources, and soil erosion.
Social issues Employment Many of the submissions received by the Committee noted the creation of jobs, particularly in regional communities, as a potential benefit resulting from the growth of an Australian biofuels industry.382
In their submission to the Committee, Sustainability Victoria stated that:
…current proposals for biofuels plant amount to approximately $250 million to $500 million in new investment in Victoria….No estimate has been made of the potential jobs associated with a new biofuels industry, but this should number in several thousand jobs in construction and several hundred ongoing operations related jobs if all the major proposals for Victoria are realised.383 A 2005 report prepared for the Queensland Department of State Development and Innovation predicted that 2,038 direct and indirect jobs would be created if the Queensland biofuels sector was to produce 130.6ML
379 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 108. 380 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 91. 381 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 91. 382 Axiom Energy Ltd, Submission, no. 22, 8 September 2006; CSR Ethanol Ltd, Submission, no. 21, 8 September 2006; Manildra Group, Submission, no. 9, 7 September 2006; Regional Development Victoria, Submission, no. 28, 8 September 2006; Sustainability Victoria, Submission, no. 30, 12 September 2006; Victorian Farmers Federation, Submission, no. 20, 8 September 2006. 383 Sustainability Victoria, Submission, no. 30, 12 September 2006, p. 20.
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of ethanol annually.384 If the ethanol production were expanded to produce 435ML per annum, the report estimates 6,886 direct and indirect jobs would be created.385 No reference was made to the potential loss of jobs that may result from the entry of a biofuel industry into a regional location.
CSR Ethanol estimate that a “worldscale” ethanol distillery located in a regional area could provide 30-40 full time positions, and would likely lead to the creation of around 90 facility servicing jobs.386
The Appropriateness of a 350 million litre biofuels target report cites a number of studies which examined the potential regional benefits of ethanol production, including employment.387 The studies consistently estimated that each new biofuel plant created 30-40 direct jobs, and 180-200 indirect jobs.388 Estimates on the number of indirect jobs depend on the multiplier used, which varied considerably between studies, with a multiplier of 5-6 the most common. The CSIRO et al. report stated that a multiplier of 1-2 was more realistic.389
In July 2005 ABARE revisited the Appropriateness of a 350 million litre biofuels target report and found that if the all the projects successful in gaining support under the Biofuels Capital Grants Program were to proceed, approximately 216 direct jobs and 432 indirect jobs would be generated.390
However, consideration needs to be given to the net impact on employment of a biofuels industry. An employment boost in one region due to biofuel production might be at the expense of another region or industry, in which case employment is redistributed rather than created. For example, Australian Pork Limited informed the Committee that if ethanol production increases significantly, employment in livestock industries will decline as they are priced out of buying grain for feedstock.391 The Stock Feed Manufacturers’ Council of Australia expect that an increase in competition for cereal grains supplies will result in higher grain costs and lead to a drop in feed demand. This would impact upon stock feed companies as the industry is highly competitive, with many manufacturers competing for market share.392 The report by CSIRO et al. notes that regional biofuel
384 Manildra Group, Submission, no. 9, 7 September 2006; John Urbanchuk, et al., Economics of a Queensland ethanol industry, LECG, Philadelphia, prepared for the Queensland Department of State Development and Innovation, 2005, p. 26. 385 John Urbanchuk, et al., Economics of a Queensland ethanol industry, LECG, Philadelphia, prepared for the Queensland Department of State Development and Innovation, 2005, p. 27. 386 CSR Ethanol Ltd, Submission, no. 21, 8 September 2006, p. 5. 387 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, pp. 155-159. 388 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 159. 389 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 156. 390 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 115. 391 Australian Pork Ltd, Submission, no. 27, 8 September 2006, p. 11. 392 Stock Feed Manufacturers' Council of Australia, Submission, no. 15, 8/9/06, p. 11.
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related jobs are likely to lead to few, if any, net jobs for the Australian economy.393
The Committee notes that the majority of reports fail to identify this issue. As such, the Committee finds that any Victorian Government support for biofuel plants be dependent upon analysis which accounts for the potential creation and loss of jobs generated through expansion of the biofuels industry, as well as expected social, environmental and health benefits.
Finding 7:
Comprehensive assessment of economic, social, environmental, health and employment benefits should be undertaken prior to the introduction of programs to support the biofuels industry.
It is likely that in the short to medium term, expansion of the Australian biofuels industry will be heavily reliant upon government support. The CSIRO et al. report examined the level of government assistance required to expand Australian biofuel production to meet the 350ML biofuel target.394 The report found that $43.6 million would be needed to subsidise the 350ML of biofuel production. Based on the assumption that four new ethanol plants would be required to meet the production requirements, it estimated that 144 direct and 288 indirect jobs would be created, at a cost to the government (through subsidies) of $100,926 per job.395 If only direct jobs were examined, the cost to government would be $302,788. 396
These findings were reviewed by ABARE in 2005, which estimated that government expenditure required to assist the industry to meet the 350ML target would be $118 million in 2009-10.397 For each ongoing direct job created $546,000 would be expended by the government, or $182,000 per total job (direct and indirect).398 As a strategy to create jobs in regional areas, government subsidisation of a biofuels industry appears to be an expensive exercise. However, to gain a true reflection of the cost to government of subsidising a biofuels industry, the range of benefits of biofuels, such as air quality and GHG benefits, would need to be incorporated into any analysis.
393 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 162. 394 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 162. 395 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 162. 396 CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 162. 397 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 117. 398 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 117.
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Despite claims of job growth in regional areas resulting from biofuel industry development, there is considerable uncertainty regarding the net employment benefits of biofuels. The assumptions used for many reports, particularly assumptions for employment multipliers, add confusion and complexity to this issue.
The Committee believes that new biofuel production plants have the potential to create new employment, particularly in regional areas close to feedstocks, but wishes to emphasise that a growth in employment in the biofuels sector could be at the cost of another sector. In addition, the Committee believes that the provision of subsidies will also create an imbalance in the market by providing one industry with a financial advantage over another, and as such urges caution in the use and application of report employment data in the policy making process. Health Epidemiological studies suggest that exposure to pollutants, both air toxics and common criteria pollutants, may lead to detrimental health effects such as birth defects and respiratory damage. The Environment Protection and Heritage Council for example, noted that the health impacts from exposure to benzene include bone marrow depression and leukaemia.399 Criteria pollutants are generally associated with a range of non-cancerous effects such as respiratory problems and skin irritations, although some evidence suggests a link between PM and lung cancer.
In their investigation into the health impacts of biofuels production and use, the Biofuels Taskforce undertook analysis of the annual health cost impact of a change in pollutant emissions resulting from consuming 350ML of biofuels in 2010. A breakdown of 290ML of E10 and 60ML of B5 was used.
The work, based predominantly upon analysis undertaken in the CSIRO’s 350ML report, estimated a health saving of $89.9 million in 2010. Table 22 provides a reproduction of the health cost impacts from the Biofuels Taskforce report.
Compared to traditional ULP/PULP and diesel, consumption of 350ML of biofuels in 2010 will provide an average health cost saving of 25.7cents per litre. While significant health cost reductions will be generated from the production of ethanol, the benefits provided by biodiesel are low due to biodiesel’s high NOx tailpipe emissions (B5 NOx emissions are higher than ULSD or XLSD emissions – see Table 20), although given that the analysis
399 Environment Protection and Heritage Council, Air toxics NEPM - benzene health review Environment Protection and Heritage Council, Adelaide, 2003, p. 1.
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used a high sulphur content these results may understate the benefits of biodiesel.400
Table 22: Annual health cost impact of change in pollutant emissions resulting from consumption of 350ML of biofuels in 2010.401
Fuel Type Change in Change in emissions (tonnes) Cost biofuels 402 ML CO NOx VOCs PM Total ($ Average million) (c/L) Ethanol Upstream 290 1,830.4 298.5 -96.9 79.1 -2.1 -0.7 Tailpipe 290 -75,568.8 1,537.4 3,338.8 -531.6 -88.3 -30.4 Total 290 -76,738.4 1,835.9 3,241.9 -452.5 -90.4 -31.2 Biodiesel Upstream 60 -31.9 -174.1 -69.5 -2.6 -1.0 -1.7 Tailpipe 60 -3,316.4 3,053.9 -416.7 -5.5 1.5 2.5 Total 60 -3,348.3 2,879.8 -486.2 -8.1 0.5 0.8 Biofuels Upstream 350 1,798.5 124.4 -166.4 76.5 -3.1 -0.9 Tailpipe 350 -81,885.2 4,591.3 2,922.1 -537.1 -86.8 -24.8 Total 350 -80,086.6 4,715.7 2,755.7 -460.6 -89.9 -25.7
The Biofuels Taskforce also examined the health-cost impacts of a 350ML biofuels target utilising a 2005 Bureau of Transport and Regional Economics Study.403 The analysis indicated a health cost saving of $34.4 million (in 2004-05 dollars), approximately $55 million less than the previous estimate.404
Due to the large number of assumptions involved in estimating health costs, estimating the health cost impacts of biofuels use is fraught with difficulties and uncertainty. As such, the Committee believes that the results provided
400 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 98. 401 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 98. Annual health cost shown in 2004-05 dollars. 402 As discussed previously, the Biofuels Taskforce assumes a 40 per cent reduction of PM tailpipe emissions for E10 blends. 403 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 98. 404 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 98.
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above should be viewed as only broadly indicative of the health cost impacts associated with biofuels.
Economic issues Estimates of the costs to the economy associated with subsidies to the biofuels industry generally consider issues such as:
• the need to fund the subsidy from taxes which decreases overall economic efficiency;
• the use of biofuels which are more expensive than their existing counterparts impose a cost on the economy; and
• the transfer of resources away from one sector to another results in a loss in output value for the other sector.405
Based on the work undertaken in the CSIRO et al. report, analysis undertaken by ABARE estimates that the cost to the economy of providing assistance for the production of 350ML of biofuel is $90 million (in $2004-05 by 2009-10).406 Compared to the CSIRO’s original estimate of $74.3 million, this represents an increase of $15.7 million.407 These costs can be partially offset through the benefits provided by improved air quality and GHG reductions.408 Energy security The Australian transport sector is heavily reliant upon petroleum based fuels, with petroleum based fuels meeting more than 97 per cent of Australia’s transport fuel needs.409 Australian Institute of Petroleum (AIP) figures indicate that 77 per cent of petroleum products consumed in Australia were supplied by local refineries.410 This figure correlates closely with evidence provided to the Committee by the Service Station Association
405 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 118; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003, p. 166. 406 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 118. 407 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 118. 408 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 118. 409 Commonwealth of Australia, Securing Australia's energy future, Department of the Prime Minister and Cabinet, Canberra, 2004, p. 82. 410 Australian Institute of Petroleum, Downstream petroleum 2005, Australian Institute of Petroleum, Canberra, 2005, p. 4.
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of Australia that Australia imports 25 per cent of its refined product due to the lack of local refining capacity.”411
Australian refineries obtain approximately 35 per cent of their crude oil supplies from local sources.412 Sixty-five per cent of Australia’s crude oil is obtained from international markets, with Vietnamese, Malaysian, and Indonesian crudes comprising 56 per cent of crude oil imports.413 Interestingly, as the characteristics of Australia’s crude oils do not exactly match the products demanded in Australia, and as high prices are currently offered for Australian crude oil, in 2004-05 62 per cent of Australia’s crude oil was exported.414
ABARE predicts that the share of imports in liquid fuels consumption, in crude or refined form, is expected to increase from 22 per cent in 2003-04 to 51 per cent in 2029-30.415
Several submissions to the Inquiry noted that increased biofuel use will allow Australia to reduce its reliance upon petrol and diesel imports, which in turn will improve energy security.416 For example, Biodiesel Producers Limited stated that:
The impact of reducing reliance on oil imports as a result of the increase in the production and use of biofuels cannot be overstated. Reducing the transportation sector's reliance on oil is clearly the key to improving our nation's energy security. Together with measures such as improving vehicle fuel efficiency, using biomass derived ethanol and biodiesel as additives to gasoline and diesel can help offset some of our demand for petroleum. 417 The Committee agrees that biofuels production will assist to decrease Australia’s reliance upon petroleum product imports, but due to a number of factors, particularly low production levels of biofuels, and the small contribution of biofuels to total transport fuel use, the Committee does not agree that pursuit of biofuels on energy security grounds is warranted, particularly when there appear to be few problems with existing energy security.
411 Australian Institute of Petroleum, Downstream petroleum 2005, Australian Institute of Petroleum, Canberra, 2005, p. 4; Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006. 412 Australian Institute of Petroleum, 'Security of supply', viewed 3 October 2006,
87 Inquiry into the Production and/or Use of Biofuels in Victoria
Energy security can be defined as ‘the reliable and adequate supply of energy at reasonable prices’.418 The definition highlights two key principles integral to the notion of energy supply:
• affordability; and
• reliability and adequacy of supply.
These principles provide a useful framework in which to examine biofuels contribution to energy security.
Affordability
Crude oil
Australia is a price taker of oil. This in itself is no cause for concern providing that the price for oil remains affordable. Despite recent concerns over rising petrol prices, pre tax petrol and diesel prices have declined in real terms over the past 25 years, with Australia having amongst the lowest pre and post tax petrol and diesel prices in the OECD.419 The Commonwealth Senate’s Rural and Regional Affairs and Transport References Committee note that there is no fundamental geological constraint on oil and that oil prices are high due to the growth of Chinese demand for oil and insufficient supply due to lack of investment in new capacity.420
Biofuels
The Australian biofuels industry is currently heavily subsidised, with the industry the recipient of preferential tax treatment and a variety of government programs offering financial assistance to the industry. In the absence of high levels of government support, it is likely that the cost of locally produced biofuels, particularly ethanol, will be greater than the cost of importing traditional fuels. In addition, greater benefits to energy security may be achieved by diverting financial assistance to other areas such as the provision of funding for other technologies.
418 J Bielecki, 'Energy security: is the wolf at the door?' The Quarterly Review of Economics and Finance, vol. 42, no. 2, 2002. 419 Australian Institute of Petroleum, Downstream petroleum 2005, Australian Institute of Petroleum, Canberra, 2005, p. 14. 420 Rural and Regional Affairs and Transport References Committee, Australia's future oil supply and alternative transport fuels: interim report, Australian Senate, Canberra, 2006, p. 3.
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Reliability and adequacy of supply
Crude oil
The Biofuels Taskforce note that there is no evidence to suggest that the fuel supply industry has failed to ensure adequacy of supply.421 This view is reinforced by the AIP who note that the petroleum industry is capable of coping with significant supply disruptions, stating that:
…by comparison with other countries, the reliability of our fuel system is outstanding given Australia’s unique logistical and geographic challenges.422 Biofuels
The overall production of biofuels in Australia is relatively low, representing only 0.1 per cent of the automotive gasoline and diesel market in Australia.423 Should the 350ML biofuels target be met in 2010, the contribution of biofuels to the automotive gasoline and diesel market will still be minor, representing only one per cent of market share.424 The Natural Gas Vehicles Group report that the average annual increase in fuel use over the preceding five years was 2.5 per cent, and that based on this consumption increase, the 350ML target would represent only 0.89 per cent of total fuel use by 2010.425 Even under optimum conditions, it is unlikely that biofuels will ever occupy a significant market share.
While significant capacity for biofuels production exists, low demand for the product has translated into a relatively low level of production to date. Should a significant shift in demand for biofuels eventuate as the result of government intervention, it is unclear whether the industry has the ability to provide a reliable and adequate supply. For example, if a large biofuels industry based on crop feedstocks emerged as a significant contributor to the Australian fuel mix, a prolonged period of drought may impact significantly upon fuel availability and price.
While progress towards self sufficiency in fuel production is an essential component of any fuel security strategy, self sufficiency does not itself necessarily deliver improved security of supply. The Committee believes that a robust approach to fuel security which ensures access to a diverse range of fuels (including biofuels), investment and access to a variety technologies, and strategies which prioritise fuel efficiency and conservation are essential to fuel security. As such, while the development of an
421 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 123. 422 Australian Institute of Petroleum, Downstream petroleum 2005, Australian Institute of Petroleum, Canberra, 2005, p. 9. 423 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 124. 424 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 124. 425 The Natural Gas Vehicles Group Pty Ltd, Submission, no. 34, 14 September 2006.
89 Inquiry into the Production and/or Use of Biofuels in Victoria
Australian biofuels sector is an important component of energy security, the Committee has received no evidence which compels the Committee to advocate the pursuit of biofuels solely on energy security grounds.
Finding 8:
Australia is not currently facing an energy security problem in relation to transport fuel use. The pursuit of biofuels solely on energy security grounds is unwarranted.
90
Chapter 5
Current government activities In this chapter the main policy and regulatory mechanisms affecting the biofuels industry in Australia are discussed. These range from programs and funds to support industry development, tax and business regulations, and standards for fuels. Commonwealth and Victorian government activities are discussed, followed by a brief discussion of activities in other states. Finally, the issue of mandatory biofuels blends and/or targets is discussed.
Commonwealth In 2001, the Commonwealth Government set an objective that fuel ethanol and biodiesel produced in Australia would contribute at least 350 million litres (ML) to the total fuel supply by 2010.426 In May 2005, the Prime Minister formed the Biofuels Taskforce, which was charged with examining scientific evidence on the impacts of ethanol and other biofuel use on human health, environmental outcomes and automotive operations. Report of the Biofuels Taskforce In August 2005, the Biofuels Taskforce released its report on the state of biofuels for transport in Australia, along with policy recommendations for the Commonwealth Government. The report made a number of key observations and recommendations on the biofuels industry.
In response to the report of the Biofuels Taskforce, the Prime Minister announced a number of activities which the Commonwealth Government would conduct in order to meet a biofuels production target of 350ML by 2010. These measures include:427
• development of Industry Action Plans in cooperation with oil companies with the aim of achieving the biofuels production target;
• encouraging users of Commonwealth vehicles to purchase E10 wherever possible;
426 Liberal Party of Australia, Biofuels for cleaner transport, Liberal Party of Australia, Melbourne, 2001, p. 3. 427 Department of Industry Tourism and Resources, 'Government biofuels initiatives', viewed 26 July 2006,
91 Inquiry into the Production and/or Use of Biofuels in Victoria
• undertaking tests on vehicles representing the Australian fleet to determine compatibility with E5 and E10 fuels, and working with the Federal Chamber of Automotive Industries (FCAI) to ensure that accurate information is provided to the public on the use of ethanol blended fuels;
• increasing fuel quality compliance inspections for ethanol blends;
• consideration of a proposal to allow E5 blends of ethanol to be sold without labelling;
• working with industry to establish standard biodiesel fuels;
• working with States and Territories to develop universal fuel quality standards;
• commissioning research on the health impacts of using ethanol for fuel; and
• conducting a B5 trial at Kakadu National Park. The Biofuels Capital Grants Program In 2003, the Commonwealth Government announced the provision of a $37.6 million fund for one-off capital grants for projects providing new or expanded biofuels production.428 The Biofuels Capital Grants Program aimed to increase the availability of biofuels for the domestic transport market. Grants were provided at a rate of 16 cents per litre for new or expanded projects producing a minimum of five ML of biofuel per annum. Grants were limited to a maximum of $10 million per project.429
The allocation of grants under the program is now complete. The successful applicants are listed in Table 23:430
428 Department of Industry Tourism and Resources, 'Government biofuels initiatives', viewed 26 July 2006,
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Table 23: Biofuels Capital Grants Program, successful applicants, 2006.431
Company Biofuel Plant location Grant value produced CSR Distilleries Operations Ethanol Sarina, Qld $4.16m Biodiesel Industries Biodiesel Rutherford, NSW $1.28m Australia Schumer Pty Ltd Ethanol Woongoolba, Qld $2.40m Biodiesel Producers Ltd Biodiesel Barnawartha, Vic $9.60m Australian Renewable Biodiesel Port Adelaide, SA $7.15m Fuels Ltd Riverina Biofuels Pty Ltd Biodiesel Deniliquin, NSW $7.15m Lemon Tree Ethanol Pty Ltd Ethanol Millmerran, Qld $5.85m
The plant under construction at Barnawartha is expected to be producing biodiesel by February 2007.432 Fuel excise Under changes to the Commonwealth Excise Act 1901, fuels are liable for an excise based on energy content. Consequently, fuels including biodiesel, Liquefied Petroleum Gas (LPG), Liquefied Natural Gas (LNG), ethanol, methanol and Compressed Natural Gas (CNG) are subject to the excise rates listed in Table 24.
Table 24: Fuel excise rates from 1 July 2006.433
Fuel type Energy content (megajoules Excise rate per litre) (cents per litre) High-energy content fuels Above 30 38.143 e.g. petrol, diesel, biodiesel Mid-energy content fuels Between 20 and 30 25 e.g. LPG, LNG, ethanol Low-energy content fuels Below 20 17 e.g. methanol Other Between 38-41 (megajoules 38 e.g. CNG per cubic metre) (cents per cubic metre)
431 Department of Industry Tourism and Resources, 'Biofuels', viewed 26 July 2006,
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Anyone who produces or manufactures these fuels is required to pay the appropriate excise, regardless of the volume of fuel produced or its intended use. This means that, for example, people producing biodiesel for their own use are required to obtain an excise license from the Australian Tax Office, and to pay the relevant excise tax on any fuel produced. While there is no charge for excise licenses, they must be renewed annually. Biodiesel is an unusual fuel compared with other transport fuels because it is relatively easy to produce in small scale, domestic environments. The Committee heard from some witnesses that the excise on biodiesel should be amended so that small scale producers were not liable:
Beer is an example of an excisable product… [but] home brew beer is exempt from excise when made for personal consumption and not for sale. Biodiesel being made and used under the same circumstances, for farm and family use, should also be excise tax exempt.434 The Cleaner Fuels Grants Scheme To offset the effects of universal fuel excise rates, the Cleaner Fuels Grants Scheme awards production grants to certain fuels, including biodiesel, LPG, LNG, ethanol, methanol and CNG. Until 1 July 2011, these production grants are equivalent to the excise rate for fuels, which means that there is no net tax on the production of eligible fuels, including biodiesel and ethanol. Between 1 July 2011 and 1 July 2015, however, production grants for ethanol and biodiesel will be incrementally reduced to approximately half of the excise rate, as described in Table 25.
Table 25: Production grant rates and effective tax, ethanol and biodiesel, 1 July 2010 – 1 July 2015.435
Year Ethanol Effective tax on Biodiesel Effective tax on production ethanol (cents production biodiesel (cents grant (cents per per litre) grant (cents per per litre) litre) litre) 2010 25.0 0 38.143 0.0 2011 22.5 2.5 34.343 3.8 2012 20.0 5.0 30.543 7.6 2013 17.5 7.5 26.743 11.4 2014 15.0 10.0 22.843 15.3 2015 12.5 12.5 19.043 19.1
Currently the production grant for biodiesel also applies to imports of biodiesel to Australia. Imported ethanol does not receive a production grant,
434 Grown Fuel, Submission, no. 31, 13 September 2006, p. 3. 435 Australian Tax Office, 'Excise rates', viewed 26 September 2006,
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although in 2011 imported ethanol will be treated equivalently to domestically produced ethanol. The effect of this on local production of ethanol is unclear. Some witnesses suggested that Brazilian ethanol could be purchased at a lower price than Australian produced ethanol, so it is possible that the industry may experience increased competition from overseas producers when the import market is opened up in 2011.436 Other witnesses, by contrast, did not expect imported ethanol to affect local production.437
The Cleaner Fuels Grants Scheme effectively negates the fuel excise for specified products, including biofuels. In order to be eligible for the grant, however, fuel producers must demonstrate that their fuel meets the relevant standard. As most alternative fuels, such as ethanol and LPG, are produced commercially on a large scale, in most cases costs associated with testing fuel quality against the relevant standard can be easily absorbed as an operating expense. However, this is not necessarily the case for small scale biodiesel producers, as testing fuel quality against the standard can be expensive.
In fact the grant that gives you the 38.1 cents offset is available only if you meet the Australian standard for biodiesel. So in terms of a challenge for a small player, if they do not have the right equipment they will not consistently make biodiesel that meets the Australian standard. That is one challenge. The other area in meeting that quality standard is that it is quite expensive in relation to the testing equipment, because you have to provide certificates. The so called backyarder who is taking some fish and chip oil, chucking in some catalyst and turning it into biodiesel has to be very careful that they are meeting all the standards; they would have to adhere to all the quality standards and all the testing regimes. In one sense that is the key challenge, that it can be quite expensive to make that fuel comply with government regulations.438 The Committee received evidence from Grown Fuel that the typical cost of testing for a 50,000 litre/week biodiesel plant was $275 per week for targeted testing and $850 six times per year for testing against the whole standard.439
The Committee acknowledges that the separation of excise liability from the Cleaner Fuels Grants Scheme is an effective mechanism to ensure that the quality of alternative fuels is maintained to a high standard when the fuel in question is produced in large scale operations. It is also clear however, that it is uneconomic for small scale producers of biofuels to claim grants from
436 Australian Lot Feeders' Association, Submission, no. 12, 7 September 2006; Stock Feed Manufacturers' Council of Australia, Submission, no. 15, 8/9/06. 437 Jerome Carslake, Senior Policy Advisor, Victorian Farmers Federation, Transcript of evidence, Melbourne, 4 September 2006, p. 20; Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006, p. 13; Peter Scott, General Manager, External Affairs, Shell Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 34. 438 David Vinson, Technical Director, Axiom Energy Ltd, Transcript of evidence, Melbourne, 11 September 2006, pp. 71-72. 439 Grown Fuel, Submission, no. 31, 13 September 2006, p. 3.
95 Inquiry into the Production and/or Use of Biofuels in Victoria
the Scheme, and as a result, domestically produced biofuels are effectively taxed at an equivalent rate to standard transport fuels for these producers. In practice, the Committee heard that some of these small scale biodiesel producers are choosing to avoid their tax obligations:
Lots of people are making biodiesel in their backyard for their own use. The tax office recognises that. Officially they all pay excise to the government. Unofficially the tax office is not interested because it costs too much to try and chase it down.440 Energy Grants Credit Scheme The Energy Grants Credit Scheme was introduced 1 July 2003, and provided grants for specified activities using specified fuels. The scheme is currently being phased out due to changes to fuel excise and credit arrangements (described above and below). Specified arrangements will remain in place until the scheme is finally phased out during the period 1 July 2006 to 1 July 2012.
The purpose of the scheme was to reduce costs for businesses that used diesel and alternative fuels. Activities that were eligible to claim the grant included the following:
• road transport;
• agriculture;
• fishing;
• forestry;
• mining;
• marine transport;
• rail transport;
• nursing and medical activities;
• electricity generation;
• burner use; and
• other specified industrial processes (including refining bauxite into alumina and the use of diesel to manufacture explosives).
440 Colin Gillam, Chief Executive Officer, Alternative Fuels and Energy, Transcript of evidence, Melbourne, 11 September 2006, p. 80.
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The types of fuels eligible for the grant varied depending on whether the credit was claimed for road transport activities or other activities. For road transport activities, eligible petroleum-based fuels were diesel, LPG, CNG, and LNG. For other activities, eligible fuels included diesel, heavy fuel oil and light fuel oil.
Biodiesel and ethanol were also eligible for grants under the scheme under specified circumstances. For road transport activities, ethanol, biodiesel and biodiesel blends greater than 50 per cent (i.e. > B50) were eligible fuels. For other activities, biodiesel blends less than 50 per cent (i.e. From 1 July 2006 to 1 July 2010 the following grants are payable for the use of neat biodiesel (B100) and ethanol (E100) under this scheme: Table 26: Fuel grant entitlements, biodiesel and ethanol, 1 July 2006 to 1 July 2010.441 Fuel type 1 July 2006 1 July 2007 1 July 2008 1 July 2009 1 July 2010 Biodiesel 14.808 11.106 7.404 3.702 0.000 (cents/litre) Ethanol 16.647 12.485 8.324 4.162 0.000 (cents/litre) Biodiesel and ethanol are not eligible for the fuel tax credit scheme (described below) until 1 July 2011, as prior to that date no effective fuel tax will be levied on those products. The Fuel Tax Act 2006 The Fuel Tax Act 2006 introduced a standardised system of tax credits designed to ensure that fuel tax is effectively applied only to fuel used in private vehicles and for private purposes, and fuel used on-road in light vehicles for business purposes. The intention of the Act is that there is no effective fuel tax for carrying out a business (unless that business involves on-road transportation) or domestic heating and electricity generation. In effect, the fuel tax is removed for industry sectors such as mining, agriculture and off-road transportation (such as rail). The Fuel Tax Act 2006 has provisions that restrict grants of tax credits for vehicles that do not meet certain environmental criteria (unless used in primary production on an agricultural property, off public roads, or if not powered by a diesel engine). Businesses are also unable to claim tax credits in excess of $3 million if they are not members of the Greenhouse Challenge Plus program. One of the 441 Australian Tax Office, 'Fuel grants', viewed 26 September 2006, 97 Inquiry into the Production and/or Use of Biofuels in Victoria major changes with the Fuel Tax Act 2006 is that petrol will become an eligible fuel for tax credits in addition to diesel. As noted above, alternative fuels (including biodiesel and ethanol) will not generate fuel tax credits until 2011, as no effective fuel tax (that is, fuel tax less production grant) will be paid on those fuels until that date. According to the ATO, as the fuel tax levied on alternative fuels is expected to be less than the road user charge for eligible vehicles, there will be no effective tax credit for alternative fuels (biodiesel, ethanol, methanol, LPG, LNG and CNG) for the foreseeable future. For off-road fuel use, alternative fuels will be eligible for a tax credit equivalent to the amount of fuel tax paid. This means that, in effect, any price advantage for alternative fuels over conventional fuels in regard to taxes or grants will be reduced for most transport and off-road businesses by 1 July 2011, and removed by 1 July 2015. The Act has only been in effect since 1 July 2006, and at this stage its effect on the biofuels industry cannot be assessed. At its introduction stakeholders in the biodiesel industry suggested that the Act would adversely affect biodiesel production, as it would effectively bring ordinary fuel concessions in line with those allocated to biodiesel for certain industries and applications. Consequently, stakeholders argued that the competitive advantage of biodiesel in certain contexts (such as farming applications) would be eliminated. Ethanol limit for petrol On advice that ethanol blends in excess of 20 per cent could cause problems in older vehicles, the Commonwealth Government capped the proportion of ethanol to be blended with petrol for general use at ten per cent in 2003. A requirement to label ethanol blended petrol was introduced on 1 March 2004 and amended in January 2006 to simplify the labelling standard. Standards for biofuels Under the Fuel Quality Standards Act 2000, the Fuel Quality Standards Regulations 2001 and the Fuel Standard (Biodiesel) Determination 2003, a standard has been established for biodiesel that took effect from September 2003. The standard outlines chemical composition and testing methods for biodiesel. The Department of Environment and Heritage is currently considering the introduction of standards for ethanol and diesohol (a diesel/ethanol blended fuel), and has released discussion papers for each product. Public comments on proposed standards for ethanol closed in August 2005. Further development of standards for these products has not occurred to date. Australian fuels and transport industries will receive $0.2 million in 2005–06 and 2006–07 to establish standard forms of biodiesel to provide certainty to 98 Chapter Five: Current government activities the market. Standards already exist under the Fuel Quality Standards Act 2000 for B100 and for automotive or petroleum diesel, but not for blends of the two. Blends have proliferated on the Australian market and presently include such variations as B5, B20, B49. Establishing standard forms of biodiesel, such as B5, B20 and B49 will increase consumer confidence and provide certainty to the market, potentially leading to increased sales of biodiesel.442 Renewable Energy Development Initiative The Renewable Energy Development Initiative is a competitive merit-based grant program directed at supporting renewable energy innovation and commercialisation. The Renewable Energy Development Initiative was announced as part of the white paper, Securing Australia's Energy Future. It provides grant funding up to $100 million in competitive grants to allocate to Australian businesses over seven years, and grants of between $50,000 and $5 million for research and development (R&D), proof-of-concept, and early-stage commercialisation projects with high commercial and greenhouse gas abatement potential. In round two of the program, two biofuel initiatives received funding: one investigating innovative technologies for the production of biodiesel from microalgal feedstock (SA); and the other for research on technologies for ethanol production from sugarcane feedstock (Qld). Victorian Government activities Government fleet On 17 July 2006, the Minister for the Environment announced that Government vehicles would use ethanol blended fuel whenever possible.443 The Minister announced that the Government would obtain a minimum of 150 hybrid cars that are able to use ethanol without deleterious effects. The Victorian Government also indicated that it would conduct trials on the use of biodiesel in heavy vehicles.444 A number of witnesses told the Committee that government support for biofuels could substantially assist development of the industry.445 They 442 Department of Environment and Heritage, 'New environment-related spending 2006-07 budget and key recent initiatives', viewed 26 September 2006, 99 Inquiry into the Production and/or Use of Biofuels in Victoria argued that governments could do a great deal to promote public confidence in biofuels, through specifically targeted promotion and advertising, and by encouraging or mandating the use of biofuels in government fleets. The use of biofuels in government fleets would support the industry directly (through purchase of fuel on the market) and would also demonstrate the viability of biofuels to the public, thus addressing consumer confidence issues.446 The Committee notes that the Victorian Government supports the use of ethanol blended fuels by its fleet.447 In Chapter Two the Committee noted that the two major biofuels – ethanol and biodiesel – appear to have net greenhouse gas (GHG) emissions benefits when life-cycle emissions are considered. Of these fuels, biodiesel appears to have the greatest GHG benefits. Some witnesses to the Inquiry called for the Government to mandate the use of biofuels in its fleet.448 As the biofuels industry in Australia is still a developing industry, the Committee believes that calls for mandated consumption are at this time premature. At this time, the Committee believes that the Government commitment to obtain ethanol blended fuel for its fleet “where it is available” is sufficient. However, as the environmental benefits of biodiesel meet, and in many cases exceed the benefits of ethanol blends, the Committee believes that the Victorian Government should also require drivers of Government vehicles to fill up with biodiesel blended fuel where it is available. Recommendation 4: That the Victorian Government requires drivers of Government vehicles to use biodiesel blended fuels where available. Public transport In its submission to the Inquiry, the Department of Infrastructure indicated that individual trials of biodiesel blends (B10 to B20) in metropolitan buses had produced “very good results, with little to no adverse effect on bus performance and fuel consumption and no engine modifications… required.”449 The use of B100 in buses resulted in a five per cent power loss for lower power rated engines.450 Results from trials of ethanol were less favourable, with operators expressing concerns about safety issues David Vinson, Technical Director, Axiom Energy Ltd, Transcript of evidence, Melbourne, 11 September 2006. 446 Alternative Fuels and Energy, Submission, no. 19, 8 September 2006; Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006; Grown Fuel, Submission, no. 31, 13 September 2006; Sustainability Victoria, Submission, no. 30, 12 September 2006; David Vinson, Technical Director, Axiom Energy Ltd, Transcript of evidence, Melbourne, 11 September 2006. 447 Minister for the Environment, 'Victoria encourages bioenergy', viewed 26 September 2006, 100 Chapter Five: Current government activities associated with on-site storage, and with fuel consumption increased by up to 50 per cent with use of ethanol.451 The Department of Infrastructure informed the Committee that it has the ability to encourage public transport operators to use biodiesel blends for buses. However, the Department also indicated that further research and costing studies have to be conducted before a decision on the use of biodiesel would be made.452 In Chapter Two, the Committee noted research suggesting that there are a range of positive benefits associated with the use of biodiesel, particularly as a blended fuel. However, the Committee also noted that there was a need for robust research to be conducted on the overall effects – particularly regarding air quality and GHG emissions – associated with the use of biodiesel. The Committee believes that the Victorian Government should use its influence within the Victorian public transport sector to undertake a comprehensive analysis of costs and benefits associated with the use of biodiesel fuel blends. This research should be designed to provide a comprehensive picture of the effect of biodiesel blends on vehicle emissions, and to determine whether there is an optimal level at which biodiesel can be blended with petroleum diesel in order to maximise emissions, costs, and environmental benefits. Recommendation 5: That the Victorian Government, through the Public Transport Division of the Department of Infrastructure, conducts comprehensive research on costs and benefits associated with the use of biodiesel blends in public transport. The Victorian Government’s recent transport policy announcement, Meeting our transport challenges, indicates that diesel powered public transport will play an important role in Victoria’s transport system. As noted in the Department of Infrastructure’s submission to the Committee, the “expansion of bus services will have a flow on effect into the fuel market, particularly that of diesel.”453 The Committee believes that the viability of biodiesel for use in public transport should be established through research urgently. Should research on this fuel demonstrate overall benefits, provisions for the use of biodiesel should be incorporated into plans for the expansion of public transport services. The Committee also suggests that future transport policy should explicitly consider the environmental and health effects of emissions from public transport initiatives. 451 Department of Infrastructure, Submission, no. 39, 19 August 2006, pp. 2-3. 452 Department of Infrastructure, Submission, no. 39, 19 August 2006, p. 3. 453 Department of Infrastructure, Submission, no. 39, 19 August 2006, p. 8. 101 Inquiry into the Production and/or Use of Biofuels in Victoria Industry Road Map As part of the Provincial Victoria Statement, Moving Forward, the Earth Resources and Energy Industries Package announced by the Victorian Government in 2005 provides $100,000 for the development of an Industry Road Map for alternative fuels industries. According to a joint media release by the Minister for State and Regional Development and the Minister for Energy Industries and Resources in November 2005, the Industry Road Map will “help the biofuel industry attract investment, plan for the future and expand.”454 The Biofuels Action Plan was also referred to in the Government’s Our Environment Our Future policy statement in July 2006.455 Regional Development Victoria (RDV) has carriage of the Biofuels Action Plan. In its submission to the Inquiry, RDV indicated that the key objective of the initiative is to attract investment and build critical mass through the development of strategies and actions to support the industry.456 RDV also indicated that the action plan will consider options for mandating the use of ethanol in petrol, in response to statements made by the Minister for State and Regional Development in support of E10 in December 2005.457 Industry support The Victorian Government has funded or otherwise supported a small number of projects for biofuel use. These include: • financial assistance of $66,000 to assist a Victorian meat processor to use biodiesel produced from tallow to fuel its transport fleet; • support for the Mt Evelyn Biodiesel Project, in partnership with the Alternative Technology Association, Shire of Yarra Ranges, Alternative Fuels and Energy, Fastfuel, Tiamat Goldiesel, local businesses and consumers. The Committee notes that the Mt Evelyn Biodiesel project was cancelled this year, when changes to the fuel tax and fuel grants system by the Commonwealth Government (see above) altered the financial viability of the program.458 454 Department of Premier and Cabinet, 'Moving forward: major boost for earth resources and energy industries', viewed 2 October 2006, 102 Chapter Five: Current government activities Activities in other states Queensland In 2005, the Queensland Government announced the Queensland Ethanol Industry Action Plan. The intention of the plan was to develop the “emerging industry” of ethanol manufacture in Queensland, and to support and diversify the State’s sugar and grain industries. In particular, the Plan was regarded as a means to maintain the viability of a sugar industry that was “under pressure to be competitive and remain relevant in changing domestic and international markets.”459 Around $7.3 million was allocated for development of the ethanol industry.460 The Action Plan brings together a number of activities coordinated or supported by the Queensland Government to develop Queensland’s ethanol industry. From a policy perspective, the Government announced that policy objectives it would pursue include: • lobbying the Commonwealth Government to introduce a national mandate for E10 fuel; • promoting quality standards for ethanol fuels, and encourage monitoring of standards under relevant State and Commonwealth Acts; • lobbying the Commonwealth Government to retain domestic ethanol production grants indefinitely; and • assisting the provision of infrastructure for the production, distribution and export of ethanol through the provision of funds.461 The major areas that the Queensland Government intends to focus on in order to promote the use of fuel ethanol are: consumer confidence; supply capacity; the distribution network; ‘value added’ ethanol products; and market expansion. A number of activities for the promotion of ethanol production have been supported through the Queensland Government’s Sugar Industry Innovation Fund (SIIF). Under this program, funds have been awarded to existing and 459 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005, p. 5. 460 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005; Western Australia Department of Agriculture, 'Biofuels', viewed 2 Oct 2006, 103 Inquiry into the Production and/or Use of Biofuels in Victoria new developments in ethanol production. Some of the projects currently supported under the fund include:462 • An award of $50,000 to Mackay Sugar Cooperative Ltd to investigate the integration of world’s best practice ethanol production into its operations; • $250,000 assistance for Bundaberg Sugar, including $50,000 to conduct a feasibility study for the development of ethanol production at the Tableland Mill, and $200,000 for site design on completion of the feasibility study; • $250,000 assistance for CSR Limited to conduct engineering design work on the Sarina Mill dehydration plant, funds from which may also be used to purchase ethanol dehydration technologies from the United States; and • $250,000 assistance to Austcane Limited to conduct a feasibility study for an integrated sugar mill, cogeneration plant and ethanol distillery. The Queensland Government has also stated that it intends to provide funding for storage infrastructure upgrades and construction for ethanol products, including rebates for cleaning storage tanks for E10 use and the conversion of bowser equipment and signage, and in future, funding for blending infrastructure for diesel ethanol blends. The Government will also provide incentives for owners to modify diesel motors to run on diesel/ethanol blended fuel.463 Around $4.8 million has been allocated for the Queensland Ethanol Conversion Initiative (QECI), a program that provides financial support for service station operators to offer ethanol- blended fuels such as E10. This program also provides financial support to fuel distributors for the installation of fuel blending facilities and/or distribution capacity and to individual organisations for the conversion of fleet vehicles for the use of ethanol/diesel fuel blends.464 The Queensland Government supports the ethanol industry through its own fleet by directing, wherever possible, that State Government vehicles use E10. In 2002, Queensland under the Environmental Protection Act 1994 (Environmental Protection Regulation 1998) introduced higher Reid Vapour 462 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005. 463 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005. 464 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005; Western Australia Department of Agriculture, 'Biofuels', viewed 2 Oct 2006, 104 Chapter Five: Current government activities Pressure (RVP) limits in urban areas over summer months to accommodate E10 blends.465 New South Wales The New South Wales Government has also endorsed the use of E10 blends in the government fleet when that fuel is available. In addition, executive officers and public service staff who drive government-owned vehicles as part of their remuneration package are also required to obtain E10 fuel “where this is practicable, available and cost effective.”466 In August 2006, the New South Wales Premier announced that the state would investigate the feasibility of introducing mandatory E10 fuels by 2011. A taskforce has been formed by the New South Wales Government to investigate whether an E10 mandate is appropriate.467 Sydney Ferries are currently conducting a biodiesel trial that includes analysis of CO2, NOx and PM emissions. The trial commenced in 2006, and will be expanded to other water craft following completion of initial studies. Initial studies have looked at the use of B20, with B80 and B100 to be assessed in future. The NSW Greenhouse Office provided a grant of $50,000 for the trial.468 Northern Territory Natural Fuels Australia and Charles Sturt University are working in cooperation with the Northern Territory Government to trial B20 in the Darwin bus fleet. Although not directed at transport activities, trials have also been conducted in the Northern Territory on the use of B100 for electricity generation in existing diesel generators. Western Australia The Western Australian Government announced that a biofuels taskforce would be formed to undertake a range of investigations in 2005. The Taskforce will have a role in working with government and industry by providing recommendations and strategies on:469 465 Queensland Government, Queensland ethanol industry action plan 2005-2007, Queensland Government, Brisbane, 2005. 466 Premier of New South Wales, 'M2006-05: Biofuels and other alternative fuels', viewed 2 October 2006, 105 Inquiry into the Production and/or Use of Biofuels in Victoria • reviewing and addressing opportunities and impediments to the development of a biofuels industry in Western Australia; • increasing consumer acceptance and use of biofuels; • using biofuels as cost-effective alternatives to petrol/diesel, particularly in regional areas; • maximizing Western Australia's participation in providing biofuels to meet the Commonwealth's renewable fuel target; • maximizing Western Australia's opportunity to leverage funds from Commonwealth funding programs related to biofuels; • provision of a consultation mechanism with industry and the Federal Government; and • promoting a whole of Government and industry approach to the use of biofuels. Investigations by the Western Australia Biofuels Taskforce are continuing.470 South Australia In 2005 the South Australian Government announced a clean fuel initiative directed at reducing GHG emissions and fuel consumption by the public sector. Biofuels initiatives include the use of B5 in all metropolitan trains and diesel buses. This accounts for consumption of around 0.8ML of neat biodiesel annually. In future B20 may be introduced if this program proves successful.471 Tasmania The Tasmanian Government is currently considering the viability of an ethanol and biodiesel market. Australian Capital Territory The ACT Government supports biofuel initiatives to enhance Australia's fuel security and regional economic development, provided they also promote environmental and health performance, and will consider the use of E10 by the ACT Fleet when it becomes readily available in the ACT. Under the ACT Government’s fuel contract arrangements, the ACT Government fleet is 470 Western Australia Department of Agriculture, 'Biofuels', viewed 2 Oct 2006, 106 Chapter Five: Current government activities unable to access E10 as their fuel suppliers, namely Shell and Mobil, do not operate E10 bowsers in the ACT. Emerging policy issues for biofuels Biofuel mandates As noted above, a number of Australian jurisdictions have indicated their support for the introduction of mandates for the sale of ethanol or biodiesel. Suggestions that ethanol blended petrol be universally mandated have been made by the governments of Queensland and New South Wales. The Victorian Government has signalled its support for the Commonwealth Government investigating the feasibility of a mandate for a blend of ethanol in petrol.472 The Commonwealth Government has not made any commitment to introduce mandated levels of ethanol or other fuels in Australia at this time. Ethanol During the course of the Inquiry the Committee heard a number of views on the appropriateness of a mandate for biofuels. For example, in their submissions to the Inquiry, Ford and Shell Australia told the Committee that an efficient and competitive market is dependent upon the ability of motorists to select their fuel type; whether it be petrol, diesel, LPG or biofuels.473 Australian Pork Limited argued that transport fuel policy was being confused with industry assistance and that the option of mandating ethanol content in fuel would be “about the worst type of public policy that could be imagined.”474 In contrast, the Manildra Group argued that some form of mandatory uptake was essential to the industry, stating: Based on the current production capacity within the existing industry, Manildra Group consider that some form of mandatory implementation of the Federal Government’s Renewable Fuel Policy will be necessary to ensure that fuel is available at the pump. Compared with the annual national consumption of 19 billion litres of petrol, any level of mandating can be relatively small in the first instance and still ensure the initial success of the program.475 One of the main problems with mandating the use of biofuels according to these witnesses is that the ability of industry to supply adequate quantities of biofuels is untested. The negative repercussions of a shortfall in supply of biofuels, should a mandate be introduced, could substantially outweigh the 472 Minister for the Environment, 'Victoria encourages bioenergy', viewed 26 September 2006, 107 Inquiry into the Production and/or Use of Biofuels in Victoria benefits of biofuels use.476 Given that the current supply of ethanol is only sufficient to provide 0.1 per cent of the fuel market, a substantial increase in production would have to occur for an E5 or E10 mandate to be met. If there were insufficient domestic supply of biofuels following the introduction of mandated blends, fuel prices may increase, and/or biofuels may have to be imported into Australia. An alternative strategy for the introduction of a biofuels mandate is to require fuel retailers and/or suppliers meet a biofuels production and/or sales target. This may provide a staged approach to increasing industry and market capacity for biofuels. As discussed in Chapter Four, current evidence suggests that environmental benefits from the use of ethanol are proven but small, and evidence supporting the use of ethanol on health grounds is equivocal. Increasing the proportion of ethanol in the Australian fuel mix will add a measure of fuel security, but it is unlikely that ethanol will provide a substantial domestic alternative to petroleum products. The effects of ethanol on older vehicles and vehicles identified by the Federal Chamber of Automotive Industries as not suitable to use E10 (as discussed in Chapter Four) could also complicate the introduction of a mandate for ethanol in fuels. While support for the ethanol industry overseas, and in other jurisdictions, has proved an effective measure to justify support for the agricultural sector, the Committee did not receive evidence that the Victorian agricultural sector is presently in need of this kind of support. The Committee notes that, with regard to ethanol feedstock production, Victoria may be at a comparative disadvantage to Northern states, such as Queensland and New South Wales, where sorghum is a viable energy crop. Until alternative ethanol production processes (such as lignocellulosic production of ethanol) become commercially viable, it is likely that the majority of Australian ethanol production will occur in Queensland and New South Wales. For these reasons, the Committee believes it is premature at this time to commit to mandated ethanol fuel blends. Biodiesel Evidence received by the Committee was also divided on whether a mandate for the use of biodiesel should be introduced in Victoria. Many of the concerns that apply to ethanol also apply to biodiesel – constrained supply, feedstock availability, and a probable limited contribution to fuel security. However, the Committee notes that the environmental and health benefits associated with the use of biodiesel are less controversial (although 476 Ron Bowden, Chief Executive Officer, Service Station Association of Australia, Transcript of evidence, Melbourne, 4 September 2006; Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006; Colin Gillam, Chief Executive Officer, Alternative Fuels and Energy, Transcript of evidence, Melbourne, 11 September 2006; Dr Chris Hamilton, C H Energy Pty Ltd, Transcript of evidence, Melbourne, 11 September 2006; Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006; Shell Australia, Submission, no. 6, 6 September 2006. 108 Chapter Five: Current government activities more study is still required), and that biodiesel is likely to be compatible with most of the existing and future Australian diesel fleet. Biodiesel can also be produced from substances that Victoria has significant quantities of – for example, Victoria produces 110,000 tonnes of tallow every year, which could produce in excess of 110ML biodiesel.477 The Committee notes, however, that significant activity is already taking place in the biodiesel market without the introduction of mandates on fuel blends. As described in Chapter Two, biodiesel production capacity is expected to increase from 15.5ML in 2004-05 to 899.1ML in 2007-08.478 Ethanol production capacity is also expected to grow substantially between 2004-05 and 2009-2010, from 75.2ML to 1188.2ML.479 This indicates that market participants regard biodiesel and ethanol as commercially viable products under current market conditions, without the introduction of a mandate to stimulate production and sales. The Committee also notes that recent analyses of biofuels industry in Australia – such as the Biofuels Taskforce and the CSIRO et al. Appropriateness of the 350ML biofuels target – suggest that at current oil prices the ethanol and biodiesel industries are viable without further assistance from government.480 While decisions made, and programs introduced, at a federal level continue to have a significant impact on the biofuels industry, the Committee notes that just three of the nineteen proposed Australian ethanol and biodiesel plants listed in Chapter Two are recipients of the Commonwealth Biofuels Capital Grants Program. It appears that currently investment in the biofuels industry is considered commercially viable without further assistance from state or federal governments by way of mandated fuel blends or further financial assistance. Consequently, the Committee believes that a universal mandate for the sale of biodiesel may not be required. Use of biofuels by government fleets The Committee notes that, as described above, a number of State and Territory governments have directed government fleets to use biofuels (usually as blended fuels) whenever practicable. The Committee believes that this policy provides reasonable support to the biofuels industry without unduly constraining government to obtain biofuels at unreasonable cost. As 477 Sustainability Victoria, Submission, no. 30, 12 September 2006. 478 Australian Biodiesel Group Ltd, Submission, no. 14, 8 September 2006; Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 40; Bill Frilay, Manager, Government Business, BP Australia, Transcript of evidence, Melbourne, 4 September 2006, p. 24. 479 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005, p. 41; Centre for International Economics, Impact of ethanol policies on feedgrain users in Australia, Centre for International Economics, Canberra, 2005, p. 7; Michele Graham, Strategy and Research, Australian Ethanol Limited, Transcript of evidence, Melbourne, 11 September 2006, p. 17; Martin Jones, Manager, Government Relations, CSR Ethanol Transcript of evidence, Melbourne, 11 September 2006; Manildra Group, Submission, no. 9, 7 September 2006, p. 12. 480 Biofuels Taskforce, Report of the Biofuels Taskforce to the Prime Minister, Australian Government, Canberra, 2005; CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. 109 Inquiry into the Production and/or Use of Biofuels in Victoria noted above, the Committee believes that the Victorian Government should extend its policy requiring the Government fleet to use ethanol blends to biodiesel products. Biofuels production in Victoria As noted above, Queensland and New South Wales appear to have a competitive advantage over Victoria in the production of ethanol, as the environment in those states is better suited to the production of efficient ethanol feedstocks. With significant quantities of tallow produced within Victoria, and with a climate suited to the cultivation of crops such as canola, there may be greater opportunities for the development of a competitive biodiesel industry in this state. Given the substantial investments overseas for the development of commercially viable lignocellulosic ethanol technologies, research in Victoria may also be more profitably directed toward the development of new technologies for the production of biodiesel from alternative feedstocks, such as algae. Current knowledge suggests that as a fuel, biodiesel has a number of advantages over ethanol. Biodiesel production uses less water than ethanol, and some of the main feedstocks that are likely to be obtained from within Victoria, such as canola and tallow, are not currently utilised to a large extent as feed for animals. Emissions reductions from the use of biodiesel are at least equivalent, and in many cases exceed, emissions reductions from the use of ethanol. Few, if any, modifications to existing practices, infrastructure or vehicles are required for the distribution, handling and use of biodiesel, again in contrast with ethanol. Vehicle warranty issues are similar for the use of biodiesel and ethanol. One of the main arguments in support of ethanol production, however, is that it may be used by a large vehicle base as there are more petrol vehicles operating in Victoria than diesel vehicles. As noted in Chapter One, the Committee believes that many of the issues considered throughout this report warrant further investigation by a Joint Investigatory Committee in the 56th Parliament. The Committee believes that future investigations into the Victorian biofuels industry should seriously consider whether industry and government would benefit from a focus on biodiesel, with future demand for ethanol satisfied from interstate import arrangements. Finding 9: Given current feedstock and biofuels production technologies, there may be improved opportunities for the development of a competitive biodiesel industry in Victoria. The report was adopted by the Committee on Monday 16 October 2006. 110 Bibliography Articles / Books / Reference Works Akmal, M and Riwoe, D, Australian energy: national and state projections to 2029-30, Australian Bureau of Agricultural and Resource Economics, Canberra, 2005. American Coalition for Ethanol, 'How is ethanol made?' viewed 31 July 2006, 111 Inquiry into the Production and/or Use of Biofuels in Victoria Australian Tax Office, 'Excise rates', viewed 26 September 2006, 112 Bibliography CSIRO, et al., Appropriateness of a 350 million litre biofuels target, Australian Government Department of Industry Tourism and Resources, Canberra, 2003. Department of Environment and Heritage, Annual report of the Department of Environment and Heritage, Australian Government, Canberra, 2005. Department of Environment and Heritage, Setting national fuel quality standards: proposed fuel quality standard for fuel grade ethanol, Department of Environment and Heritage, Canberra, 2005. Department of Environment and Heritage, 'New environment-related spending 2006-07 budget and key recent initiatives', viewed 26 September 2006, 113 Inquiry into the Production and/or Use of Biofuels in Victoria Environment Australia, Setting the ethanol limit in petrol, Environment Australia, Canberra, 2002. Environment Australia, National standard for biodiesel – discussion paper, no. 6, Environment Australia, Canberra, 2003. Environment Australia, Setting national fuel quality standards: paper 6 - national standard for biodiesel., Environment Australia, Canberra, 2003. Environment Protection and Heritage Council, Air toxics NEPM - benzene health review Environment Protection and Heritage Council, Adelaide, 2003. Environment Protection and Heritage Council, 'Air toxics', viewed 26 September 2006, 114 Bibliography Jordan, J and Powell, J, 'The false hope of biofuels', The Washinton Post, 2 July 2006, p. B07. 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Park, B, 'Fuel for thought', The Age, 23 August 2006, pp. 6-7 (Drive section). Premier of New South Wales, Premier announces mandatory biofuel policy, Sydney, 2005. Premier of New South Wales, 'M2006-05: Biofuels and other alternative fuels', viewed 2 October 2006, 116 Bibliography Stevens, D, 'IEA Bioenergy Task 27, liquid Biofuels. Final summary report', viewed 9 August 2006, 117 Inquiry into the Production and/or Use of Biofuels in Victoria Worldwatch Institute, 'Conference handout', Paper presented at the Biofuels for transport: global potential and implications for sustainable agriculture and energy in the 21st century, Berlin, 2006. Worrall, D, 'Weather helps biodiesel project', viewed 26 July 2006, 118 Appendix 1 List of submissions Alternative Fuels and Energy Ltd Alternative Technology Association Australian Biodiesel Group Limited Australian Lot Feeders' Association Australian Medical Association (Victoria) Australian Pork Limited Australian Sugar Milling Council Axiom Energy Ltd Biodiesel Producers Ltd Bioenergy Australia CSIRO CSR Ethanol Ltd Department of Infrastructure Department of Primary Industries Department of Sustainability and Environment Diesel Test Australia Eco2Sys Australia Pty Ltd Energetix Federal Chamber of Automotive Industries Ford Motor Company of Australia Limited Grown Fuel Hobsons Bay City Council Macedon Ranges Shire Council Manildra Group 119 Inquiry into the Production and/or Use of Biofuels in Victoria Midfield Meat International Mobile Oil Australia Pty Ltd Professor Steve Hall RACV Regional Development Victoria Shell Australia Shire of Yarra Ranges South Australian Farmers Fuel Pty Ltd Southern Farming Systems Limited Stock Feed Manufacturers' Council of Australia Sustainability Victoria Synergetics Pty Ltd The Natural Gas Vehicles Group Pty Ltd Tom Crook Victorian Farmers Federation Vilo Assets Management Pty Ltd Woolworths Limited Yarriambiack Shire Council Yarrock Pty Ltd 120 Appendix 2 List of witnesses Public hearings Melbourne 4 September 2006 Mr Ron Bowden Chief Executive Officer Service Station Association of Australia Mr Keith Seyer Director, Technical and Regulatory Federal Chamber of Automotive Industries Mr Graeme Ford General Manager, Policy Mr Jerome Carslake Senior Policy Advisor Victorian Farmers Federation Mr Bill Frilay Government Relations Manager BP Australia Mr Peter Scott General Manager, External Affairs Shell Australia Melbourne 11 September 2006 Mr John Spragg Manager, Government Relations Mr Robert Parkes National President Stock Feed Manufacturers’ Council of Australia Mr Martin Jones Manager, Government Relations CSR Ethanol Ms Michele Graham Strategy & Research Mr Stewart Rendell Development Manager Australian Ethanol Limited Dr Chris Hamilton C H Energy Ltd 121 Inquiry into the Production and/or Use of Biofuels in Victoria Mr David Vinson Technical Director Axiom Energy Ltd Mr Colin Gillam Chief Executive Officer Mr Brian Louey-Gung Managing Director Ms Chantha Chey Marketing Manager Alternative Fuels and Energy Pty Ltd 122 Appendix 3 Seminars and conferences Green Capital, “Fuelling the future: clean solutions for crude problems”, Melbourne, 5 September 2006. 123