Biofuels – At what cost? - Government support for ethanol and biodiesel in Australia

Apr 2008

The prospect of turning agricultural products into fuels has also generated ferment within the farming sector — both among crop farmers, who would benefit from higher prices, and livestock farmers, who are worried about the effects of higher feed products on their own operations. Higher prices would be particularly welcomed by the Australian sugar industry, which has undergone significant difficulties in recent years due to low world sugar prices, the exclusion of sugar from the Australia-U.S. Free Trade Agreement and adverse weather conditions. Many policy makers have been attracted to biofuel production as a means to boost agricultural demand by providing a new domestic market.
For the moment, the biofuel industry remains small compared with that of the leading producers—Brazil, the United States, China, Germany and France. But it could grow rapidly, particularly if feedstock prices were to fall. The total annual production capacity of existing and planned new plants could approach two billion litres by the end of FY 2010–11, distributed between the two biofuels roughly evenly.
Nonetheless, the long-term viability of the industry remains in question. For the moment, the industry remains dependent on subsidies. As explored in this study, these have helped both underwrite the costs of building biofuel-production capacity and enabled them to compete with petrol and diesel at the bowser.
The second section of this report provides a chronological overview of the liquid biofuels industry in Australia. The governmental legislation, programmes, and support measures which gave birth to the industry are highlighted in Chapter 2, as are industry milestones and major recent announcements. Chapter 3 follows with an overview of Australia’s biofuel industry, along with production costs and revenues from by-products. This chapter is intended to familiarize the reader with the business of biofuels in Australia and to provide business cost figures to compare against government support figures listed in other sections. Current forms of support are expanded upon in Chapter 4 (Ethanol) and Chapter 5 (Biodiesel), including output-linked support, market price support, renewable fuels standards, tariffs, and all subsidies related to consumption and production.
Chapter 6 contains estimates of the aggregate levels of support for each biofuel, key indicators such as subsidy intensity and per-unit of fossil fuel displaced. Chapter 7 concludes with discussion and recommendations.

By: D. Quirke, R. Steenblik, B. Warner (GSI)

 
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