Instead, the biofuels industry won a last minute reprieve with ethanol and biodiesel being made exempt from the new federal excise on alternative fuels, introduced in 2011. While this exemption has paved the way toward increased industry certainty, from a policy viewpoint at least, stable financing needs to be secured to ensure that, if and when mandates are introduced, the biofuels infrastructure and supply exists to be able to meet demand.
Biofuel mandates on hold
NSW was the first state in Australia to introduce an ethanol mandate in October 2007.
The original mandate started at 2 per cent of all petrol, increasing to 4 per cent in 2010, then to 6 per cent from January 2011.
Furthermore, from July 2011, primary fuel wholesalers in NSW were to replace regular unleaded petrol (RULP) supplies with E10 (a 10 per cent ethanol and 90 per cent petrol blend). APAC Biofuel Consultants (APAC) estimated that between 300 megalitres (ML) and 360 ML of ethanol was required to meet mandated demand.
In late 2010 however, the NSW Government decided to defer the implementation of the 6 per cent tranche and the July 2011 E10 replacement, primarily due to supply shortages and uncertainty regarding ongoing policy developments at the federal level.
Queensland had also planned to introduce a 5 per cent ethanol mandate from January 2011. But in October 2010, its implementation was suspended for 12 months.
APAC estimated that between 136 ML and 170 ML of ethanol was required to meet the Queensland mandate. Interestingly, ethanol already formed 2.8 per cent of total RULP supply in Queensland in 2009–10.
At least 436 ML of ethanol was therefore required to effectively meet mandated demand in 2011 and 2012, had these mandates proceeded. With limited plant capacity and high excise on imports, it was clear that ethanol would be in short supply during this period, hence, both the Queensland and NSW mandates were suspended in late 2010. Furthermore, production restrictions due to natural disasters would have exacerbated the issue.
Ethanol production and use in Australia
Ethanol is blended with petrol, the most common blend being E10, and is widely available in east coast states.
In 2009–10, E10 sales in Australia made up approximately 15 per cent of Australia’s total petrol mix – an increase from 10.9 per cent in 2008–09.
The largest markets for E10 in Australia are NSW and Queensland. In 2009–10, E10 sales made up 29 per cent of the total petrol market in NSW (up from 7 per cent in 2007–08) and 25 per cent in Queensland (up from 6 per cent in 2007–08).
Rapid E10 demand growth in NSW has been primarily due to the implementation of the NSW ethanol mandate in 2007, the lower price of E10 at the pump, and expansion of retail outlets.
Queensland’s ethanol demand has increased, albeit at a slower rate than NSW, which has been due to regional support and without the aid of a mandate.
Victoria was a late comer and E10 sales made up approximately 3.5 per cent of the state’s petrol sales in 2009–10. Other states showed minor to zero uptake of ethanol.
Ethanol production in 2010 amounted to 307 ML, up from 245 ML in 2009. The production capacity of existing ethanol plants in 2010 was estimated by APAC to be approximately 350 ML.
The two states with the largest ethanol consumption are those with the only three ethanol production plants in Australia:
- Manildra’s plant at Bomaderry,
- NSW – the largest producer in Australia
- Sucrogen’s sugar refinery at Sarina, Queensland
- The Dalby Bio-refinery in Dalby, Queensland – the first stand-alone ethanol plant in Australia.
Biodiesel production and use in Australia
In Australia, biodiesel capacity grew from 50 ML in 2005 to 550 ML by 2009, according to APAC’s estimates. However, from 2007, the industry was hit with the high cost of feedstocks (tallow, canola oil, palm oil, soy) relative to the price of crude oil/diesel and subsequently saw plant closures or plants remaining put on standby. This was a worldwide phenomenon.
APAC estimates that total biodiesel production in Australia over the two years 2008–09 and 2009–10 amounted to approximately 160 ML.
The NSW Government mandated 2 per cent biodiesel from January 2010 and 5 per cent from January 2012. Overall, there is ample capacity in Australia to meet mandated demand, subject to economics of the industry.
Furthermore, the introduction of a carbon pricing mechanism may assist demand for biodiesel in those industries that would not otherwise escape paying for their carbon emissions.
The way forward
The Australian ethanol and biodiesel industries were beneficiaries of the recent biofuel legislation. In addition, the Federal Government is directing more support towards the development of second generation feedstocks in Australia, and is developing a road map for the introduction of aviation biofuels. Algae is seen as the most promising next generation feedstock for biodiesel, which is great news for Australia given that the country is amongst the leading algae research countries in the world.
Now that government support mechanisms have been legislated, APAC expects to see expansion of existing plants to meet the demand shortfall.
There are a number of new plants on the drawing board, but APAC expects it will be two to three years before Australia sees the commissioning of any new production.
As the biofuel industry enters a period of more certainty, investors are now in a better position of planning entry or further development of Australia’s biofuels. The next big challenge for the industry is sustainability – developing next generation feedstocks so that biofuels soon become a viable and cleaner alternative to fossil fuels.
