June 4th 2005

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Articles from this issue:

COVER STORY: Schapelle Corby and Australia's drugs problem

CANBERRA OBSERVED: Alexander Downer - a field-marshal's baton in his knapsack?

ENERGY AND PRIMARY INDUSTRY: Day of biofuels has arrived

SCHOOLS: Teaching values and building character

AUSTRALIAN LABOR PARTY: Behind the branch-stacking allegations

IN VITRO FERTILISATION: The games bureaucrats play (at our expense)

SOCIETY: Too many abortions, according to survey

CIVILIZATION: Christian foundations of the rule of law

DEVELOPMENT: Micro-credit - an antidote to poverty and political extremism

CHINA-TAIWAN: China double-crosses Taiwan over WHO

STRAWS IN THE WIND: Fools rush in / Shonky lending practices / Pinning the tail on the donkey / Vietnam: decadence now / Mother, I never knew you

Ho Chi Minh: the man and the myth (letter)

Electronic referenda (letter)

Bali and the Indonesian tsunami victims (letter)

Brisbane-Melbourne trunk rail route (letter)

Second thoughts on Labor Split conference (letter)

CINEMA: Finale in the bunker - The Downfall

Malice In Media Land, by David Flint

Books promotion page

Day of biofuels has arrived

by Patrick J. Byrne

News Weekly, June 4, 2005
The prestigious Economist magazine has identified major new high value-added industries which are developing from ethanol as demand increases for renewable fuels that reduce air pollution, writes Pat Byrne.

A "startling change to energy markets" from biofuels has been predicted by The Economist magazine. But Australia's federal and state governments are yet to bite the bullet and establish the industry in this country.

Ethanol can be very efficiently produced from sugar cane, but as governments dither, the deregulated sugar-cane industry has been losing farmers fast - some 16 per cent of them since 2002.

Yet, according to The Economist (May 12, 2005)- the English-speaking world's leading economics magazine - around the world, major new high value-added industries are developing from ethanol (made from sugar, grain, maize/corn and even straw) which can be added to petrol and diesel, and biodiesel which is made from oil seeds.

Big expansion

In surveying the developing biofuels industry, the magazine said, "American output of maize-based ethanol is rising by 30 per cent a year.

"Brazil, long the world leader, is pushing ahead as fast as the sugar crop, from which its ethanol is made, will allow. China, though late to start, has already built the world's biggest ethanol plant, and plans another as big.

"Germany, the big producer of biodiesel, is raising output 40-50 per cent a year. France aims to triple output of the two fuels together by 2007.

"Even in backward Britain, a smallish biodiesel plant has just come on stream, and another as big as Europe's biggest is being built.

"And after long research a Canadian firm has plans for a full-scale ethanol plant that will replace today's grain or sugar feedstock with straw.

"Output is still tiny compared with that of mineral fuels. But the day of the biofuel has arrived."

The soaring price of mineral fuel last year has made US locally-produced, corn-based ethanol possibly cheaper than petrol, even without a subsidy. Brazilian ethanol imported into the US would have been so long ago, if not for a hefty US tariff.

The world's leader has been Brazil, which is expanding sugar-cane production for ethanol by the equivalent of one Australian sugar-cane industry per year. In 2003, Brazil introduced flex-fuel cars that run on a 25-75 per cent ethanol mix with petrol. Now, one-third of all new car sales are for flex-fuel cars. The US has four million such cars "and they are multiplying," says The Economist.

While US oil companies have resisted losing fuel market share to ethanol, pressure is growing for a much larger ethanol market. Anti-smog laws mean vehicles need to burn cleaner fuel, and ethanol reduces fine-particulate exhaust-fumes that are dangerous to human health.

Many environmentalists back ethanol, because it is a renewable fuel that reduces air pollution.

US corn-farmers are eagerly backing ethanol. About 30 million tonnes of the 225 million tonne corn crop are currently going into ethanol. According to US delegates to a recent Queensland government-sponsored ethanol conference in Brisbane, ethanol is so profitable to farmers that corn-belt towns are rebuilding their hospitals, their schools and other infrastructure. It has transformed the economies of those communities that, like many rural communities in Australia, were in the doldrums.

US ethanol production is about to overtake Brazil's. This is still only 2.3 per cent of the total US motor fuel use. But some states have bills before their legislatures to make ethanol fuel widely available to consumers. A Federal bill, still being debated, proposes doubling US ethanol production by 2012.

Whatever its benefits to community health, the environment and farmers, the ultimate determinant will be ethanol's cost-effectiveness.

The Economist says that locally-produced US ethanol figures are conclusive. At today's prices, in the corn state of Minnesota, "the wise driver buys E85 ethanol if he can; and it is only [US] 10 cents [per gallon] or so from being cheaper than standard gasoline, even where there are no subsidies at all."

However, while The Economist in its comparison considers the value of subsides to ethanol, it does not account for the substantial support the US government also provides to the mineral oil industry.

US corn-ethanol costs about US 30¢/litre to produce. In the European Union (EU) it costs US 50¢/litre, but in Brazil it costs only US 20¢/litre.

The Economist points out that biofuel technology is rapidly advancing. Even in Europe, the Spanish company Abengoa reckons its ethanol could compete with mineral fuels within 10 years. And a new technology, aided by some biotech, may both cut costs and ease raw-material constraints. Under an EU contract since 2003, Abengoa has been studying how to make ethanol not from grain but straw.

"It is not alone - nor indeed first. A Canadian firm, Iogen, backed with capital not just from the government (which freed ethanol from federal tax in 1992) and ex-state-owned Petro-Canada, but from Shell, opened a pilot plant for such 'cellulosic' ethanol a year ago.

"It now plans a full-scale one in the Canadian prairies or Idaho. Another firm has begun studying a plant proposed for British Columbia, using wood. America's Department of Energy heavily finances similar research, and enthusiasts there say that within 20 years the result could cost only [US] 80 cents a gallon, well below today's gasoline cost."

By the end of the year, US ethanol production will have increased to 4.4 billion gallons, up one billion in a year.

Farmer co-ops

Currently, there are 84 ethanol plants, 16 under construction and "new projects galore". About 40 per cent are farmer-owned co-operatives.

In Europe, the leader has been biodiesel. Use has been small owing to oil company hostility, but is increasing off a small base. Germany, France and Britain have expansion programs.

The push into ethanol is coming in Italy (from grain, sugar and grapes); in France (from wheat and sugar beet); and in Germany (from rye).

European farmers are resisting EU moves to import 800,000 litres of ethanol duty-free from Brazil.

In Australia, unless federal and/or state governments move on the issue, domestic ethanol production will go nowhere.

Either ethanol needs to be mandated in fuel; or service stations required to offer motorists both current fuels and ethanol blends; or exhaust vehicle emission rules should be tightened.

As Bob Gordon from Renewable Fuels Australia recently commented, "Without [biofuels] buyers, we are simply dead in the water, not going anywhere."

  • Pat Byrne

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