28 October 2003

Ethanol-blended Fuel policies: when will the cheap tricks end?

So, who is really benefiting from the Howard government's policy? None other than the generous Liberal Party donour and close friend to the Prime Minister, Dick Honan. Honan owns Manildra. Manildra is the dominant market producer of ethanol in Australia, accounting for 90 per cent of market share. Manildra produces ethanol from the by-products of its wheat production. It is in the position to gain the most benefits from the industry subsidies, unlike the smaller sugarcane and wheat farmers do not have the expertise or the resources to establish an ethanol plant and compete against Manildra.

The cost of these industry subsidies is considerable. It costs about 70 cents to produce one litre of ethanol-blended fuel, compared to 35 cents for petrol. The government currently subsidises 16 cents per litre of ethanol until June 2007, or until production capacity reaches 310 million litres. Current total ethanol output is around 135 million litres of which around 50 million litres are used for fuel blending. The Department of Treasury estimates the cost of the subsidy to be $62 million in 2006-07. In addition, the one-year domestic production subsidy, which expired in September this year, has been extended to 2008. This domestic production subsidy imposed an excise of 38.143 cents on imported and domestic ethanol fuel. At the same time, the government introduced a production subsidy of the same amount for domestic producers. The Fuel Taxation Inquiry estimates that the total value of the excise exemptions for petroleum product substitutes over the period 1994-95 to 2004-05 was about $8.7 billion (in 2000-01 prices).

Not only is the cost of subsidising ethanol production from sugarcane and wheat is enormous, the touted environmental benefits are minimal. While there are reduced tailpipe exhaust emissions, for example, carbon monoxide, there is little or no benefit in reduced tailpipe emissions of carbon dioxide compared with unleaded petrol. Further, ethanol produced from wheat and sugarcane does not produce significant full fuel cycle greenhouse gas savings over conventionally produced gasoline. Full fuel cycle emissions take account of all emissions including aspects such as production, refining, distribution and tailpipe emissions.

The Howard government is getting classic at making policy, not to achieve anything, but to retain power.

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