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S2004/03 - The need for an ethanol industry in Australia

Senator BOSWELL (Queensland—Leader of The Nationals in the Senate) (11.54 a.m.) —There is no doubt that the future of Australia's transport industry, the future of many of Australia's agricultural industries and, indeed, the future of Australia's sugar industry are closely linked to the future of a strong ethanol industry in Australia. A successful ethanol industry in Australia can be based on wheat, barley, sorghum and sugar cane. A successful ethanol manufacturing industry that delivers a 10 per cent blend of fuel ethanol into the engines of Australian motors will have a huge impact on our economy and on the health of this nation. It will effect a massive reduction in greenhouse gas emissions and significant reductions in vehicle exhaust emissions that cause air pollution and pose a threat to public health. It will also have a major impact on the viability of rural and regional Australia. The debate should not be whether Australia should have an ethanol industry. We should be asking, `How soon can we have a significant industry up and running, providing health benefits for us, additional financial security for regional Australia and the future energy security of our nation?'
An ethanol industry should not be viewed as a saviour for the cane farmers. It is not a magic wand that can be cast over sugar seats and miraculously provide substantial returns to farmers. Ethanol is part of the answer for the sugar industry. So is industry restructuring, increased farm efficiency, immediate temporary income support and exit packages for those who can no longer go on. A vital ethanol industry will result in increased fuel self-sufficiency, an improved balance of trade, a reduction in vehicle regulated exhaust emissions, massive reductions in greenhouse gas emissions and the reinvigoration of rural and regional Australia. Future technology which some say is only five years away will also enable viable ethanol production from the walls of plant cells, making productive use of forest plantation waste, crop stubble, bagasse and other waste products from cropping.
Future generations will thank this government for taking the steps to ensure a cleaner environment, free from the various toxic milkshakes that make up engine emissions and smog. Globally, Australia is a long way behind in the production of clean fuel—essentially, ethanol. Many other nations have embraced with both hands the opportunity to have resource security and they have committed millions of dollars to support the development of this alternative fuel source. With the world in such a state of insecurity, any measures that increase Australia's self-sufficiency in fuel and reduce the need to be dependent on the stability and reliability of supply from the major oil exporters must be seen as a plus. Some people question the cost to government of supporting the development of this new industry. I ask: can we afford not to do it?
It is not surprising that ethanol production and its inclusion in transport fuels has been fought by the petroleum industry. Scare campaigns based on fuel consumption and as yet unsubstantiated claims of engine damage have been doing the rounds of current affairs shows and petrol station noticeboards. This is not new. Exactly the same thing happened in the USA over 20 years ago. In no country in the world have the major oil companies voluntarily facilitated access for competitors or for competition fuels such as ethanol to the transport fuel market that they dominate worldwide. Mandates or regulated use of biofuels based on clean air and health have been necessary to provide free and open access to transport fuel markets. In America the oil industry fought like wounded bulls to keep control of their cosy existence and market domination. The oil companies questioned the environmental and health values of ethanol, they questioned the risk to engine function and warranties, and they questioned the economic viability of ethanol production.
Years later, after US government production assistance and clean air legislation, ethanol production has grown to over 10 billion litres per year and is expected to exceed 20 billion litres by the year 2012. In the US, there are currently 70 ethanol production plants on line with a further 13 plants, each with a capacity of over 110 million litres, under construction. Oil companies were forced to remove MTBE from their fuel supply as it was found to be contaminating freshwater supplies. The oil companies replaced MTBE with ethanol as an oxygenate in reformulated fuel. Numerous studies in the States have reported massive increases in air quality as well as major health benefits to their citizens.
The introduction of ethanol into the American fuel supply has had no impact at all on the price of fuel. Ethanol is blended into 30 per cent of America's gasoline. Ethanol blended fuels, either E10 or E85, are priced on a par with all other fuel options. Replacing MTBE with ethanol in California reduced the average price for reformulated gasoline in 2003 by 8c a gallon. Brazil is currently the largest ethanol producer in the world and regulates the use of ethanol in all transport fuels. In Brazil the petrol ethanol blend ranges from 22 per cent to 26 per cent. Brazil produces ethanol from dedicated sugarcane crops and produces between 12 and 15 billion litres of ethanol per year, depending on the sugar season. Canada is aiming for a 10 per cent ethanol blend in 35 per cent of all petrol sold by 2010. India has mandated a five per cent ethanol blend in a number of its states. Japan has announced its intention starting with the mandatory introduction of a blend of 3.5 per cent ethanol in petrol. Europe is setting an alternative fuel target. Thailand is constructing ethanol plants. China is the third largest producer of ethanol, with a production of around three billion litres a year.
Currently in Australia we have two major producers of ethanol: the Manildra group, which produces ethanol from wheat starch, and CSR Sugar, which produces the product from C-grade molasses in Mackay. Of the 135 million litres produced in Australia, 75 million litres are used in industry and 60 million litres are used for fuel. Already the volume of ethanol being produced by Manildra displaces the need to import over one million barrels of crude oil. In Australia, a mandated 10 per cent of ethanol blended petrol would have a massive impact on our economy.
A recent report found that 10 per cent volume ethanol petrol, or E10 blend, offered significant benefits in terms of reducing exhaust and greenhouse gas emissions, with no apparent detrimental effect on other aspects of engine or vehicle performance. Based on the 1999 Australian passenger fleet figures, the report's results show that using E10 decreases the carbon monoxide exhaust emissions by around 32 per cent, decreases the total hydrocarbon—THC—exhaust emissions by 12 per cent and decreases the net carbon dioxide emissions by up to seven per cent on a fuel carbon cycle basis. There was also a massive decline in cancer causing elements such as benzine by 27 per cent and toluene by 30 per cent. Other increases and decreases of less than two or three per cent have been noted in the myriad of chemicals that make up the exhaust emissions that we currently breathe in every day. Surely the health benefits of E10 can best be summarised by an astonishing 24 per cent decrease in the carcinogenic risk when E10 is used instead of our current fuel source.
Other results of the Commonwealth funded E10 trials on the 60 vehicles from the Australian car fleet in 1997-98 are worth noting: fuel consumption rises by two per cent on both a city and highway cycle and there is a reduced tendency for engine knock under hot and cold conditions, no discernible impact on any plastic or elastomer materials, no discernible corrosion of fuel wetted parts and no additional or unusual engine wear. E10 requires no modification to vehicles in service now and in the foreseeable future and, with minor adjustments, is totally compatible with the existing fuel distribution infrastructure.
More recent scientific evidence confirms that, if ethanol were to be used in the refining process of petrol, as little as 2.5 per cent of ethanol can completely strip the benzine content in petrol to one per cent as required by the Commonwealth fuel quality standards in 2006. This process would enable fuel refiners to meet the clean fuels standards for 2006, without significant capital expenditure or structural change. Any use of ethanol in this capacity would be considered as part of the composition of the petrol and not be considered in any E10 calculations.
Australia uses 19 billion litres of petrol and 14 billion litres of diesel annually. If this fuel were to be replaced by a 10 per cent alternative fuel blend, Australia would be looking at a potential market of over three billion litres of biofuels per year. If each ethanol plant produced an average of 100 million litres of ethanol per year, that would require 30 new bio-refineries operating in rural Australia. The current government support program is aimed at a modest 350 million litres of biofuels—ethanol and biodiesel—production by 2010. Realistically, this 350 million target will be met over the next three to five years. The ethanol will be produced from a variety of agricultural sources.
We already have the operating technology to produce ethanol from grain and sugar. Distilleries are currently operating in Mackay, near Nowra in New South Wales, Bundaberg and Rocky Point. In the Commonwealth capital grants scheme, applications have been received for assistance from ethanol distillers at a broad range of locations, including Millmerran, Mackay, Bundaberg, Dalby, Gunnedah, Quirindi, Swan Hill and Coleambally. Some of these are for ethanol from grains; some are for ethanol from cane.
There is no doubt that ethanol is a viable by-product from the processing of cane. The key to its long-term viability is capital support for infrastructure, technological improvements aimed at maximising the number of by-products from the process, the efficient use of cogeneration of energy from the mill to the distillery and the development of a retail market which is confident in the use of ethanol. A tonne of C-grade molasses yields between 170 and 290 litres of ethanol, depending on the sugar content. In 1999, 1.2 million tonnes of molasses was produced in Australia, of which 0.6 million tonnes was used domestically and the remainder exported as stockfeed or used in ethanol production. If exported molasses was also converted to ethanol, it would yield an additional 166 to 174 million litres of ethanol, less than the 360 million litres required to supply ethanol for an E10 blend in Queensland alone. Ethanol from grain production in Queensland could nevertheless supply another 150 million litres.
A cane grower will benefit from an ethanol distillery operated conjointly with the mill to which he supplies. If it is a cooperative mill, any increase in the value of the molasses via the production of ethanol will be returned to growers as the profitability of the mill increases. In the USA, 40 per cent of operating ethanol plants are farmer owned and are delivering substantial value added returns to farmer-owners. Methods of payments to suppliers of cane to non-cooperative mills will need to be negotiated to ensure that the suppliers of the cane see direct benefits on the increased value of their molasses via ethanol production and sale. As a product, ethanol is three times more valuable than molasses. While creating ethanol in rural and regional areas will boost returns to cane growers, its real benefits are in the regional impact of a vital new industry and the added employment and income growth that the construction and operation of the industry will provide.
On average, a 50 million litres per year distillery employs about 36 people directly. Using the CSR distillery at Sarina as a real indicator of the indirect jobs specifically generated by the plant, a multiplier of 5.5 indirect to direct jobs is valid. This means that more than 200 local jobs are created as a direct result of the Sarina plant. This would be a significant boost to any area, especially when you take into account the increase in economic activity that the jobs stimulate, the skilled and unskilled jobs created, the increase in taxes to local, state and Commonwealth treasuries, and decrease in welfare expenditure as a result of job creation.
The beauty of ethanol production is that it is at its most viable when produced locally in regional areas. The product is then transported to local fuel depots where it is blended with 90 per cent petrol to create an E10 blend. This distribution method works successfully in the United States and already operates in Australia where trials of E10 fuel have been completed. Ethanol is a `drop-in' fuel. It does not need to be added in at the refinery. It blends successfully at the depot, minimising transportation costs for ethanol producers while maintaining the distribution methods already utilised by fuel consumption tax. The use of ethanol as a drop-in fuel keeps the focus on the regional area where it is produced and ensures that the economic benefits stay in that region. Motorists are using locally produced ethanol. They can see the advantages in the economy, breathe the advantages in decreased toxic emissions and feel the advantages in the performance of their vehicles.
In the United States, economic analysis has determined that the real income and expenditure benefit of ethanol plants are contained within a 200 kilometre radius of the plant—in the order of 80 per cent of the income derived from the mill will be spent in the region. The impact on the economy of the industry operating at the government's 2010 target of 350 million litres, which is less than the capacity required to supply 10 per cent ethanol to all fuel sold in Queensland, will be five new ethanol and biodiesel plants; 1,000 new permanent jobs in rural areas; 2,300 new construction jobs during the five-year development period; $49.4 million in direct public benefit in the form of personal and company tax; reduction in unemployment benefits; and $9.4 million additional tax payable from indirect employment. This could all be possible as a result of the production of Queensland's ethanol requirements alone. The production of 350 million litres of E10 can directly result in a $14 million per year saving in expenditure on greenhouse abatement measures; $59 million per annum in savings through reduced air pollution costs; savings of more than $1 billion in health related costs, due to the higher oxygenated fuel improving the combustion process and reducing the cancer causing particles and emission of carginogenics such as benzene. E10 will contribute to a major decrease in illness—cancer and asthma—related to pollution from transport.
Ethanol will impact on all our lives by increasing national security and fuel self-sufficiency, by developing vital new industries in regional communities and improving the quality of life for our children and grandchildren through the very air they breathe. That is why the government has chosen to support the development of an ethanol industry. As a result of this government's cleaner fuels legislation and fuel quality standards, oil producers will be required to increase the oxygenate levels of their transport fuel from 91 to 95 for standard grade unleaded fuel from 2006. This will need to be achieved without the current oxygenate MTBE being used.
Oil producers will be able to achieve this clean fuel measure both by using ethanol in the refining process and by producing an E10 blend of fuel at the retail level. Without the support of the government for a home grown ethanol industry, the ethanol required to fulfil this standard will need to be imported, once again lessening Australia's fuel self-sufficiency. The coalition government is providing $37 million to fund capital subsidies for projects that provide new or expanded biofuels capacity.
The ACTING DEPUTY PRESIDENT (Senator McLucas)—Senator Boswell, your time has expired.
Senator BOSWELL —I seek leave to incorporate the remainder of my speech in Hansard.
Leave granted.
The speech read as follows—
The federal government will also work with the industry to develop a campaign to restore consumer confidence in ethanol after it was so badly damaged by a campaign orchestrated by the Labor party, with the support of the oil industry.
Unfortunately the current label developed to restore public confidence is having the opposite effect, and should be amended as soon as possible.
The development of an ethanol industry is a positive step for this country.
Through this government's support for the ethanol industry, via the measures I have described here today, an industry will develop.
Whether that industry is based solely on grain or whether this new opportunity is embraced by the sugar industry is yet to be seen.
I believe there is a massive benefit for sugar communities to support this industry. The returns to growers are not as good as sugar, but as an `add on' industry, and one that is a constant, providing new employment and economic growth, and prosperity to the region it is all good news.
I call on the industry to grab this opportunity. The government will do everything possible to assist the industry's development.
As I said earlier, ethanol production is not the magic wand, returning massive income to growers and make fields of cane return a positive cash flow. It is however part of a solution. It is an integral part of a regional approach to the reinvigoration of rural and regional communities.
On the face of it sugar today is valued at approximately $200/tonne and molasses at $55/tonne. Ethanol is valued at approximately 3 times molasses or about 55c/l.
I am convinced that, through proper management of the distilling process, the efficient use of co-generated power and the efficient management of the by products, like bio-fertilizers
That become an integral part of the manufacturing process, ethanol production from cane is the next step in the future viability of Australia's sugar industry.
It is a perfect example of value adding at a regional level.
Ethanol will enable the sugar industry to broaden its revenue base and ensure continued financial viability.
Ethanol is the fuel of the future,
The technology and know-how is available, the benefits are proven and the method of production and distribution is already in existence.
There is no time left to debate whether Australia should be developing an ethanol industry. We are. It is happening and this government is right behind it.
My recommendation to all in rural and regional Australia is act now to be a part of the future.
Embrace ethanol production and ensure regional Australians lead the way to providing cleaner air, healthier people, more efficient vehicles and revitalised rural communities.