A new independent study into the development of alternative fuels in Australia has found the nation’s capacity to produce ethanol and biodiesel should easily reach the Federal Government’s target of 350 million litres by 2010.

However, the 200-page report, Biofuels in Australia; A Growing Sector, identifies that future production and uptake of biofuels by consumers will be determined by key elements including cost of production, continuing community acceptance and government subsidies.

The study - the first comprehensive review of the industry since the federal government’s Biofuel Taskforce reported in August 2005 – revealed Australia’s biofuel production capacity is likely to exceed 640 million litres a year by the end of 2007, and could reach nearly 2,400 million litres by 2010 if current plans are realised.

This capacity is sufficient to meet around 10% of petrol consumption and 5% of diesel consumption. “The growth in capacity should easily be able to achieve the Australian Government target of 350 million litres by 2010”, said Graeme Bethune, joint study author and Chief Executive Officer of EnergyQuest.

“This would be equivalent to about 7.5% of the country’s petrol and diesel consumption, and about one-third of Australian petrol and diesel imports. But the race is on. With high oil prices, there is a clear market opportunity for transport fuel alternative – biofuels, LPG, compressed natural gas, gas to liquids, coal to liquids, LNG and shale to liquids.”

“Most have higher costs than conventional sources, and none provides a perfect replacement. It is likely a number of fuel alternatives will emerge. Our study aimed to assess to what extent biofuels can be part of that mix.” The study also found that consumer acceptability, and the necessary distribution networks are also increasing at a rapid rate.

Ecco Consulting Chief Executive Officer, Mike Cochran, the other study author, said the biggest challenge for the industry in Australia is the rising cost and limited supplies of major feedstocks like sorghum to produce ethanol and tallow to produce biodiesel.

“While oil prices are still high, the cost of some key feedstocks has also risen considerably over recent months”, he said. “Furthermore, if production continues to grow to over two billion litres a year, Australia will need to revert to other grains otherwise destined for exports, such as wheat, for ethanol production, and to importing feedstocks such as additional palm oil for biodiesel. This will be the case in normal years, let alone in drought years.”

Bethune said that without government support, the cost of producing biofuels was higher than more conventional fuels, even with the high oil prices experienced earlier this year. He also said that mandating biofuels – which the Queensland, NSW and Victorian governments are considering - could lead to biofuels being more expensive than conventional fuels, and would require feedstock to be imported.

“However, there is good potential in the longer term to reduce feedstock costs and increase availability through new technologies, many of which are being researched in Australia”, he said. “These include production of ethanol from biomass and biodiesel from microalgae. These feedstocks are plentiful and, unlike current feedstocks, are not part of the food supply chain.”

Cochran said the current optimism and fast growth of the biofuel industry in the USA and Europe are definitely influencing developments in Australia. “The global and national energy environment is also placing pressure on governments to support energy alternatives for economic, security and environmental reasons, and this has been reflected in assistance to biofuels”, he said.

Biofuels in Australia: A Growing Sector is an independent, non-partisan study of the Australian biofuels industry, and is the first comprehensive review of the industry since the Australian Government’s Biofuel Taskforce in August 2005. It was carried out jointly by energy consultancies EnergyQuest and Ecco Consulting.

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Australia’s biofuel production capacity is likely to exceed 640 million litres a year by the end of 2007, and could reach nearly 2,400 million litres by 2010 if current plans are realised.

Biofuels Background

Biofuels are renewable fuels made from plant or animal matter that can be used to run cars, trucks or any other internal combustion engine.

There are two types of biofuel:

• Ethanol (alcohol), made from sugar or grain, and blended with petrol for petrol engines. The best-known example is Brazil where cars may run on blends of 85% ethanol/15% petrol or higher. The maximum allowable blend in Australia is 10% ethanol/90% petrol (called E10).

• Biodiesel, made from vegetable or animal fats and blended with diesel. B5 indicates 5% biodiesel in a blend with conventional diesel.

There has been growing production of biofuels around the world in response to high oil prices, concerns about energy security and for environmental reasons.

Australian biofuel production in 2005-05 was about 30 million litres, approximately 0.1% of total consumption of petrol and diesel. The Australian Government has a target for this to reach 350 million litres by 2010.

Biofuels are free of excise in Australia until 2011, after which excise will be introduced but only up to half that applying to conventional fuels of equivalent energy.

There have been a number of Australian Government inquires into the viability of biofuels and measures necessary to achieve the 350 million litre target, most recently the Biofuels Taskforce in 2005. The Taskforce identified a number of impediments to growth, particularly lack of consumer confidence and the absence of incentives for major oil companies to retail biofuels.

Since then there has been considerable progress, as detailed in Biofuels in Australia. The federal government has also introduced incentives for converting service stations so that biofuels can
be provided.