Report of the Biofuels Taskforce on Behalf of the Other Taskforce Members, Dr David Brockway, Dr John Keniry and Mr Max Gillard
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Dear Prime Minister I have pleasure in presenting the Report of the Biofuels Taskforce on behalf of the other Taskforce members, Dr David Brockway, Dr John Keniry and Mr Max Gillard. In preparing the report we consulted widely, including taking 64 submissions and meeting with 40 interested parties. I would like to thank those participants as well as other private sector and government bodies and individuals for their excellent cooperation in assisting the Taskforce. I would also like to take this opportunity on behalf of the Taskforce to thank our Secretariat for outstanding work. The Taskforce Secretariat consisted of Peter Burnett, Marie Taylor, Helen Wilson, Graham Love, Bill Physick, Louise Tamaschke, Theresa Graham and Su Muir. Yours sincerely Dr Conall O’Connell Biofuels Taskforce 2 August 2005 © Commonwealth of Australia 2005 This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process without prior written permission from the Australian Government, available from the Attorney-General’s Department. Requests and enquiries concerning reproduction and rights should be addressed to the Commonwealth Copyright Administration, Copyright Law Branch, Attorney- General’s Department, National Circuit, Barton ACT 2601, or posted at http://www.ag.gov.au/cca. ISBN 0646-45241-X Web address of this report: www.pmc.gov.au/biofuels Produced by the Biofuels Taskforce Printed by Pirion (02) 6280 5410 Edited by WordsWorth Writing (02) 6232 7511 Contact officer For further information about the content of this report, please contact: Phillip Glyde First Assistant Secretary Industry, Infrastructure and Environment Division Department of the Prime Minister and Cabinet Contents Overview of key issues 1 Can a target of 350 ML by 2010 for biofuels be met? 1 What is stopping progress? 1 What can be done to help? 2 What would it cost to reach the target? 3 What benefits would we get for that cost? 3 Are there emerging opportunities? 4 Chapter 1 Summary and conclusions 5 Context 5 Costs 5 Benefits 6 Policy drivers in other countries 10 Possible barriers to a viable biofuels market in Australia 10 Future technology 15 Chapter 2 Background 23 Methodology and approach 24 Chapter 3 Biofuels in Australia 29 Synopsis 29 Background 30 Fuel quality standards for ethanol in petrol, and information standard for labelling 35 Other fuel quality standards for biofuels 36 Australian petrol market 36 Future fuel supply 37 Fuel ethanol capacity, production and use 37 Biodiesel capacity, production and use 39 Biofuels production and capacity 40 Government policy settings 44 Chapter 4 Biofuels internationally 55 Synopsis 55 Overview 55 Biofuels by region 57 Conclusions 64 Chapter 5 Environmental and health costs and benefits 69 Synopsis 69 Introduction 70 Methodology 71 Biofuels Taskforce iii Environmental performance of ethanol 72 Environmental performance of biodiesel 82 Other environmental impacts 91 Benefits of avoided health costs and GHG emissions reductions 92 Discussion 100 Chapter 6 Economic costs and benefits 103 Synopsis 103 Main economic findings of the 2003 350 ML Target Report 104 ABARE 2005 revised assessment of the viability of biofuels production 105 Sensitivity of the viability analysis to changes in key prices 111 Regional employment effects 114 National and regional costs 115 Costs to the national economy 118 Energy security implications of increased biofuels use 120 Chapter 7 Consumer confidence and engine operability 125 Synopsis 125 Ethanol 126 Biodiesel 138 Chapter 8 Other market uptake barriers 141 Synopsis 141 High levels of commercial risk 142 Access to infrastructure and claims of discrimination against biofuels 145 Reid vapour pressure 147 High capital and transport costs 148 Appendix 1 List of submissions 149 Appendix 2 Taskforce meetings 151 Appendix 3 ABARE analysis 153 Appendix 4 ACIL Tasman review of 2003 350 ML Target Report 195 Appendix 5 FCAI vehicle list 227 Appendix 6 Media release 233 Glossary and acronyms and abbreviations list 234 References 236 iv Biofuels Taskforce Tables Table 1 Issues raised in submissions and consultations 25 Table 2 Product components of demand for petroleum-based transport fuels 36 Table 3 Current and proposed ethanol production capacity, 2004–05 to 2009–10 (ML) 41 Table 4 Current and proposed biodiesel production capacity, 2004–05 to 2009–10 (ML) 41 Table 5 Biofuels production, 2002–03 to 2004–05 (ML) 42 Table 6 Effective fuel tax rates for alternative fuels at 1 July, 2003 to 2015 (cents/L) 46 Table 7 Alternative fuel grant rates at 1 July, 2005 to 2010 (cents/L) 47 Table 8 Effective fuel tax treatment of biodiesel 49 Table 9 Current support measures for Biofuels 66 Table 10 Percentage change of full life-cycle air pollutants emissions (as g/km) from E10 and ULP (passenger car) (%) 74 Table 11 Percentage change of full life-cycle GHG emissions (as g/km) from E10 relative to ULP (%) 78 Table 12 Impact of tailpipe toxic emissions from petrohol for pre- and post- 1986 vehicles using an air toxic index (ATI) derived from air toxic unit risk factors (California EPA) 79 Table 13 Percentage change of full life-cycle air pollutant emissions (as g/km) from BD100, LSD, ULSD, and XLSD (rigid truck) (%) 83 Table 14 Percentage change of full life-cycle air pollutant emissions (as g/km) of BD20 relative to LSD, ULSD, and XLSD (rigid truck) 84 Table 15 Percentage change of full life cycle air pollutant emissions (as g/km) of BD5 relative to LSD, ULSD, and XLSD (rigid truck) 84 Table 16 Percentage change of full life cycle GHG emissions (CO2-e) of BD100 relative to LSD, ULSD, and XLSD (rigid truck) (%) 87 Table 17 Percentage change of full life cycle GHG emissions (CO2-e) of BD20 relative to LSD, ULSD, and XLSD (rigid truck) (%) 87 Table 18 Percentage change of full life cycle GHG emissions (CO2-e) of BD5 relative to LSD, ULSD, and XLSD (rigid truck) (%) 88 Table 19 Assumed unit health costs for pollutant emissions ($A/tonne) 95 Table 20 Assumed average ‘low’ and ‘high’ unit health costs for criteria pollutant emissions ($A/tonne) 96 Table 21 Annual health cost impact (in 2004–05 dollars) of change in pollutant emissions resulting from consumption of 350 ML of biofuels in 2010 98 Table 22 Greenhouse gas savings (CO2-e) for various scenarios 100 Table 23 Revised medium-term assumptions 106 Table 24 Long-term viability of ethanol production—new producers 109 Table 25 Long-term viability assessment for biodiesel—new producers 110 Table 26 Estimated government assistance per job 117 Biofuels Taskforce v Figures Figure 1 Biofuels production capacity, current and potential 42 Figure 2 Estimated biofuels production 42 Figure 3 Fuel ethanol production projections, 1975–2020 56 Figure 4 Biodiesel production projections, 1990–2020 57 Figure 5 Projected emissions for key pollutants, 2000–2020 101 Figure 6 Sensitivity of ethanol threshold price to changes in the oil price and exchange rate 113 Figure 7 Sensitivity of biodiesel threshold price to changes in the oil price and exchange rate 113 Figure 8 Australia’s forecast demand and changing level of self-sufficiency 122 Figure 9 Attitudes to buying petrol containing ethanol, 2003 127 Figure 10 The mandatory label in its current form 134 Figure 11 Attitudes to buying petrol containing ethanol, 2005 135 Figure 12 Attitudes to buying ethanol in petrol, 2003 versus 2005 136 Boxes Box 1 World oil prices 107 Box 2 Regional job creation case study—the Commonwealth Dairy Regional Assistance Programme 118 vi Biofuels Taskforce Overview of key issues Can a target of 350 ML by 2010 for biofuels be met? If there were an operating mainstream market for biofuels (ethanol and biodiesel), which there is not, current government policy settings should be sufficient to meet a target of 350 megalitres (350 ML) by 2010. • The Taskforce asked ABARE to assess the effect of ethanol and biodiesel production costs, the price of oil, exchange rates and the government’s excise assistance on the viability of the biofuels industry. • ABARE estimates that, on its assumptions, fuel ethanol and biodiesel producers should be commercially viable at least until biofuels’ effective excise advantage is reduced towards 2015. This does not include any judgement by ABARE regarding domestic fuel ethanol’s competitiveness from 2011 when import protection ends. • Between 2010 and 2015 biodiesel is likely to become commercially unviable. Fuel ethanol would remain commercially viable beyond 2015, but at lower levels of return, again subject to being able to compete with imports. • ABARE’s modelling uses long-term assumptions of an oil price (West Texas Intermediate) at US$32/bbl and a US$/A$ exchange rate of 0.65. Should the long-term oil price be higher, all other things being equal, the commercial viability prospects of biofuels would improve. What is stopping progress? There are interrelated commercial risks that are impeding the 350 ML target by preventing an operating mainstream market for fuel ethanol blends. • Oil companies in a highly competitive market, with no forcing regulation or long-term economic incentive, have no commercial reason to surrender market share to others – whether to other oil or biofuels suppliers. • There is almost no consumer demand for ethanol blends, other than in minor market segments supplied by independents and small market trials by the oil majors. • Consumer confidence remains poor following the events of 2002–03. Automobile associations and vehicle manufacturers generally have been cautious about giving unequivocal messages of confidence in a 10% ethanol blend (E10). • The Taskforce considers that this low level of consumer confidence is not justified by the facts. Almost all post-1986 vehicles on Australian roads can use E10 quite satisfactorily. • Under current market conditions, and with no consumer demand, oil majors have little commercial incentive to promote ethanol blends as a bulk fuel.