ENERGY: News Weekly
US Pushes for energy self-reliance
, October 22, 2005
Australia can learn much from the United States' experience in how mandating ethanol content in fuel can enhance a country's energy self-reliance, deliver cheaper fuel prices, create jobs, increase tax revenue and be good for the environment.In the USA, the ethanol industry soars with oil prices, while in Australia, the fledgling industry struggles along under the confusion woven by the vested interests that oppose an Australian biofuels industry.
The US biofuels industry started in earnest after President George Bush Snr passed the Clean Air Act 1991.
More recently, the US joint senate/house committee passed an energy bill with a renewable fuels standard (RFS) requiring a national minimum usage of 4 billion gallons of renewable fuels in 2006, increasing to 7.5 billion in 2012. The US Energy Policy Act 2005 also provides for loan guarantees of up to US$50 million per project plus extras under its Sugar Ethanol Loan Guarantee Program.Mandated ethanol
The US states of Minnesota, Montana and Hawaii have mandated for ethanol-blended fuels of 10 per cent. Minnesota is moving towards a 20 per cent mandate by 2012 and leads the campaign for E85 (85 per cent ethanol blend) to be used in flex-fuel vehicles. Missouri is also progressing towards an E10 mandate.
In January 2005, US ethanol capacity was calculated at 3.6 billion gallons per annum from 87 plants, with 16 plants totalling another 681 million gallons under construction. That makes a total of 103 plants with a production capacity of 4.2 billion gallons. Eighteen of these are farmer-owned.
All this while Australian ethanol capacity production is stagnating at less than 140 million litres! With Australian oil set to run out in just a few years' time, Australians should be acutely conscious that energy production is a "produce or perish'" imperative.
Not only is ethanol a renewable fuel, it has significant economic benefits. A US study, conducted by AUS Consultants and SJH & Co. in 2002, identified major positive impacts from a base case, 40-million-gallon-per-year ethanol plant, including:
- With an approximate cost of US$60 million and one year of construction, the facility will expand the economic base for the local economy by US$110 million;
- Ethanol production will generate an additional $US19.6 million in household income;
- Tax revenue for the state and local governments will increase by a minimum of US$1.2 million;
- Nearly 700 permanent jobs will be created.
In the US, some banks are debt-financing 60 per cent of the capital for a distillery and further lending 90 per cent of the remaining 40 per cent of equity finance. Farmers initially put up 10 per cent of the cost of their shares.
These plants have been so successful that many have paid themselves off in just a few years.
A report recently presented to the Queensland Government's International Ethanol Conference said: "At current world oil prices, ethanol production in Queensland should be profitable. World oil prices would have to fall to below A$20 per barrel (US$15.40 per barrel) for this advantage to disappear."
Oil prices at an all time high have more than demonstrated that biofuels are cheaper. In Minnesota in early July 2005, E10 blends at a petrol station near Minneapolis were US$2.059, US$2.139, and US$2.219 per gallon for octanes 87, 90, 93, respectively; while E85 sold for US$1.609. The wholesale price for ethanol was around US$1.17-1.20 per gallon.
Since then, ethanol prices have risen, but are still well below the price of petrol.
Conversion of conventional crops to energy will play an expanded role; but if Australia seriously intends to rely on biofuels for a large source of global energy, cellulosic ethanol from biomass must come into play.
The US Department of Energy and the US Department of Agriculture have stated in a joint report that they support biomass fuels and products.
Biomass, such as crop residues, plantation timers and forest waste, are being evaluated. Switch grass, a relative of Guinea grass, as well as hybrid poplars and other fast-growing perennials, are among the leading contenders to be a major feedstock for cellulosic ethanol. This is in addition to increased grain-based ethanol and soy-based biodiesel production due to genetic, agronomic and distillation efficiency gains.
What does this mean for corn, sorghum and sugarcane farmers? Under a cellulosic ethanol economy, the unit cost of production will decrease because of a massive increase in productivity. That is, the amount of ethanol produced per hectare of crop will probably more than double for some crops.Resistance from oil companies
In Australia, legislation to mandate ethanol is needed. The oil companies - with a few notable exceptions - have stridently resisted attempts to implement mandated, and even voluntarily, blended biofuel products. Since they largely control distribution channels, an Australian biofuels industry really needs the "conscripted" participation of the "oil majors".
The Australian Medical Association and the Australian Lung Foundation now support biofuels, for medical reasons. It argued, in its submission to the Federal Government's Biofuels Taskforce, that "there is incontrovertible evidence that the addition of ethanol to petrol and biodiesel to diesel will reduce the deaths and ill-health associated with the emissions produced by burning those fuels."
The lesson to learn from the US is that positive steps toward energy self-reliance and environmental stewardship can be taken on a grand scale.
- Edited from The Australian Cane Farmer (August 2005).