ACAPMA News
Biofuel bungle
David Leyonhjelm Published 12:40 PM, 2 Jul 2010
In a year’s time, ordinary unleaded petrol sold in New South Wales will have to contain 10 per cent ethanol. Some of this will be made from low-value starch, but increasingly it will come from wheat that, while perhaps not suitable for export or making bread, could be fed to pigs, poultry or cattle.
NSW Minister for Primary Industries Steve Whan defended the policy at forum for agricultural journalists last week, arguing that it reduced reliance on oil, was good for the environment and boosted the incomes of deserving grain farmers.Images of recent oilwell blowouts were probably on his mind as well.
What he didn’t say was that it was bad for the incomes of equally deserving pig, poultry and cattle farmers, and that it only slightly reduces reliance on oil and costs taxpayers a fortune. And he might be wrong about the environmental aspects.
Ethanol cannot be produced at the same price as petrol, so it has to be subsidised to make it acceptable. That obviously costs taxpayers. In addition, there is only one substantial ethanol producer in NSW, making it look like a stitch-up. So the government recently classified the construction of ethanol plants of at least 50 million litres per year as 'critical infrastructure' and declared it will take no more than three months to approve them. But cheaper ethanol from Brazil is not welcome, and neither is Queensland ethanol made from sugar.
This will obviously distort the fuel and stock-feed markets, with all sorts of unwanted outcomes. That is what happens when governments meddle. But sometimes these outcomes are not obvious. To really understand how this works, it can help to look at a bigger market.
A report recently issued by the US Department of Agriculture shows what it will take for the US to meet the government’s legislated target of 136 billion litres of biofuels by 2022. That amounts to around 20 per cent of total automotive fuel.
Achieving the target will require the use of about 11 million hectares or 6.5 percent of US crop land, not counting 27 billion litres of ethanol from non-crop sources such as the leaves and stalks of corn crops, straw or logging residues. About 527 new biorefineries will be required, each producing an average of 151 billion litres annually, at a cost of $US168 billion. Considerable investment in transport and storage is also needed.
The 27 billion litres from non-crop sources are known as cellulosic ethanol. The technology to produce it in sufficient quantities and at a price comparable to ethanol from grain is not yet available. Nobody can say for sure that it ever will be.
The target is obviously led by supply, not demand. Indeed, the report raises doubts about whether the market can even absorb that much ethanol. Most cars currently cannot run on much more than 10 per cent, while flex-fuel vehicles, which can handle more, account for only about 3 percent of the vehicles on the road. Expanding flex-fuel usage would require more investment in blender pumps and transport infrastructure.
Negative consequences are everywhere. For example, with the level of ethanol mandated rather than incentivised, the price of blended fuel is expected to fall. That will increase demand, obviously including oil, the opposite to what is intended. On the other hand the price of stock feed will rise, making pig and poultry producers less competitive in export markets.
There are major doubts about whether ethanol is actually more sustainable and better for the environment than petrol, taking into account all the factors involved. And ultimately it is not possible to replace all oil with ethanol – if all the cars in America ran on 100 per cent ethanol, then about 97 percent of US land area would be needed to grow the corn feed stock.
Many people are happy that ethanol just reduces oil dependence, but this is illogical. The farming area required to run a car for a year on grain-based ethanol is the same amount of crop land required to feed seven people. Reducing reliance on oil, any environmental benefits that biofuels bring, and concern for the living standards of grain farmers comes at the cost of reduced availability of food.
When the 10 per cent mandate comes into effect next year in NSW, most motorists will be concerned about whether the blended fuel is safe for their vehicle. They won’t relate it to increases in the price of chicken, beef and dairy products, or realise that it is contributing to more pork imports. Nor will they notice that more people in other countries are struggling to buy food that they could afford this year
NSW Minister for Primary Industries Steve Whan defended the policy at forum for agricultural journalists last week, arguing that it reduced reliance on oil, was good for the environment and boosted the incomes of deserving grain farmers.Images of recent oilwell blowouts were probably on his mind as well.
What he didn’t say was that it was bad for the incomes of equally deserving pig, poultry and cattle farmers, and that it only slightly reduces reliance on oil and costs taxpayers a fortune. And he might be wrong about the environmental aspects.
Ethanol cannot be produced at the same price as petrol, so it has to be subsidised to make it acceptable. That obviously costs taxpayers. In addition, there is only one substantial ethanol producer in NSW, making it look like a stitch-up. So the government recently classified the construction of ethanol plants of at least 50 million litres per year as 'critical infrastructure' and declared it will take no more than three months to approve them. But cheaper ethanol from Brazil is not welcome, and neither is Queensland ethanol made from sugar.
This will obviously distort the fuel and stock-feed markets, with all sorts of unwanted outcomes. That is what happens when governments meddle. But sometimes these outcomes are not obvious. To really understand how this works, it can help to look at a bigger market.
A report recently issued by the US Department of Agriculture shows what it will take for the US to meet the government’s legislated target of 136 billion litres of biofuels by 2022. That amounts to around 20 per cent of total automotive fuel.
Achieving the target will require the use of about 11 million hectares or 6.5 percent of US crop land, not counting 27 billion litres of ethanol from non-crop sources such as the leaves and stalks of corn crops, straw or logging residues. About 527 new biorefineries will be required, each producing an average of 151 billion litres annually, at a cost of $US168 billion. Considerable investment in transport and storage is also needed.
The 27 billion litres from non-crop sources are known as cellulosic ethanol. The technology to produce it in sufficient quantities and at a price comparable to ethanol from grain is not yet available. Nobody can say for sure that it ever will be.
The target is obviously led by supply, not demand. Indeed, the report raises doubts about whether the market can even absorb that much ethanol. Most cars currently cannot run on much more than 10 per cent, while flex-fuel vehicles, which can handle more, account for only about 3 percent of the vehicles on the road. Expanding flex-fuel usage would require more investment in blender pumps and transport infrastructure.
Negative consequences are everywhere. For example, with the level of ethanol mandated rather than incentivised, the price of blended fuel is expected to fall. That will increase demand, obviously including oil, the opposite to what is intended. On the other hand the price of stock feed will rise, making pig and poultry producers less competitive in export markets.
There are major doubts about whether ethanol is actually more sustainable and better for the environment than petrol, taking into account all the factors involved. And ultimately it is not possible to replace all oil with ethanol – if all the cars in America ran on 100 per cent ethanol, then about 97 percent of US land area would be needed to grow the corn feed stock.
Many people are happy that ethanol just reduces oil dependence, but this is illogical. The farming area required to run a car for a year on grain-based ethanol is the same amount of crop land required to feed seven people. Reducing reliance on oil, any environmental benefits that biofuels bring, and concern for the living standards of grain farmers comes at the cost of reduced availability of food.
When the 10 per cent mandate comes into effect next year in NSW, most motorists will be concerned about whether the blended fuel is safe for their vehicle. They won’t relate it to increases in the price of chicken, beef and dairy products, or realise that it is contributing to more pork imports. Nor will they notice that more people in other countries are struggling to buy food that they could afford this year
Extracted in full from: http://www.businessspectator.com.au/bs.nsf/Article/Biofeuls-Agribusiness-Ethanol-Oil-pd20100701-6X55F?OpenDocument
