September 1st 2007

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Articles from this issue:

EDITORIAL: Stock market turmoil: consequences for Australia

2007 FEDERAL ELECTION: A green energy, green car policy

INTERNATIONAL ECONOMY: US debt crisis threatens world financial system

CANBERRA OBSERVED: How Kevin Rudd confounds his critics

NATIONAL AFFAIRS: Rudd and Howard woo the Christian vote

LABOR PARTY: Emily's List - who and what are they?

WATER: A three-year moratorium on irrigation water-trading

QUEENSLAND: Revolt grows over forced council amalgamations

STRAWS IN THE WIND: The rat race in our region / India's shame / India's political limitations / Brumby's curse

DEFENCE: Australia in biggest Indian Ocean exercise

AMNESTY INTERNATIONAL: Amnesty International ditches its pro-life allies

UNITED STATES: US presidential hopeful, Mitt Romney



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2007 FEDERAL ELECTION: A green energy, green car policy

by Patrick J. Byrne

News Weekly, September 1, 2007
Australia is uniquely positioned to be able to cut carbon emissions, slash its burgeoning current account deficit and reduce its dependence on imported oil and cars - and all without reducing our living standards, writes Patrick J. Byrne.

International pressure is driving the Australian government towards a carbon-trading system that will impose heavy costs on businesses and consumers. A far better alternative would be to establish a major green renewable fuels industry, combined with an expanded domestic motor vehicle industry producing green flex-fuel cars capable of running on an ethanol mix of up to 100 per cent in fuel.

At US$50 a barrel, Australia's net imports of crude and refined fuel are likely to increase to $27 billion a year by 2015, which is two-to-three times the 2005-06 deficit, according to Belinda Robinson, chief executive of Australian Petroleum Production and Exploration Association. This is unsustainable for Australia with its ever-growing foreign debt. This is at a time when ongoing turmoil in the Middle East and growing demand for energy are likely to force up the price of oil.

However, farmers will only be prepared to produce the sugar cane needed for an efficient ethanol industry if the Federal Government also amends the Trade Practices Act to allow farmers to bargain collectively and achieve final-offer arbitration for their cane.


A biofuels industry

Australia is one of the few nations with the land, water and sunshine needed to create a major biofuels industry. Three renewable fuels substantially cut carbon emissions. In the case of ethanol, it can be most efficiently produced from sugar cane, supplemented in the off-season with corn and/or grains.

As a McKinsey Consulting report has noted, "Whether through subsidies, import tariffs, or research grants, government regulation has helped drive both the demand and profitability in the industry." (W.K. Caesar et al., "Betting on biofuels", The McKinsey Quarterly, No 2, 2007).

The first key step towards establishing a fuel ethanol industry is for:

(a) the Federal government to mandate a minimum 5 per cent ethanol in all petrol plus a flex-fuel vehicle "variable mix" hose on every pump (5-100 per cent ethanol); or

(b) simply require a flex-fuel vehicle "variable mix" hose on every pump (zero-to-100 per cent ethanol), and give consumers a choice that they currently lack.

Frequently-asked questions:

Will producing crops for ethanol push up the price of food?

This problem has not arisen in Brazil, the world's largest ethanol producer.

Locally, short-sighted reports have made this claim, based on using grains to produce ethanol rather than sugar-cane. These reports do not include the possibility of expanded use of arable land and water for cane, corn and other biofuel crops. Australia has the capacity to expand production of such crops in the Ord River region and eventually on the huge black-soil plains of western Queensland.

The latter would require the tapping of some of the north's water, where huge annual flows are over 9.7 times the Murray-Darling average flow. A federal parliamentary committee is already examining water and agricultural development in northern Australia, in part to investigate shifting some food and fibre production from the southern part of the continent.

Does the energy input required justify an ethanol industry?

Yes. It is generally accepted that in Brazil, the world's leading fuel ethanol producer, one unit of energy input can be used to produce 1.7 units of energy from sugar cane. Brazil went into ethanol because it could not afford fossil fuels. In the US, one unit of energy produces 1.2-1.3 units from corn-based ethanol.

In terms of fossil-fuel inputs to create ethanol, sugar-cane ethanol is miles ahead. It can be produced and refined using renewable energy. For example, its waste bagasse - a fibrous residue left over from sugar-cane processing - fires an electricity co-generation plant to produce ethanol, with excess power sold into the electricity grid, replacing fossil fuels. Further, ethanol can be used in the transport and farming process, also replacing fossil fuels. As a result, in Brazil the ethanol energy output/fossil fuel input is 8.3. This compares to a gasoline-from-crude-oil ratio of a mere 0.8.

Comparable energy output/fossil fuel figures for corn (1.2 to 1.8) and wheat (1.2) make them also feasible supplements to a sugar-cane-based ethanol industry. (Sergio Trindade, president of the independent consulting firm, SE2T International Ltd., "Fuel ethanol globalisation: Brazil and Latin America", Queensland Ethanol Conference, 2006).

Can the price of ethanol be comparable to fossil-fuel petrol?

Although the biofuels industry is still in its infancy, huge strides are being made, bringing down costs. In Brazil, between 1975 and 2000, sugar-cane yield per hectare increased 33 per cent, cane sugar content rose 8 per cent, ethanol yield from sugar rose 14 per cent, and fermentation yields rose 150 per cent. (see Sergio Trindade, above).

Now the US has invested US$385 million in six projects to develop the enzymes and technologies to produce cellulose ethanol. The cellulose can come from switch grass, wood or, say, corn-cobs and other farm waste. The aim is to produce cellulose ethanol from biomass other than crops for human consumption and stock feed. (See W.K. Caesar et al., The McKinsey Quarterly, No 2, 2007, above).

How much can ethanol reduce carbon emissions?

Significantly, "lifecycle assessments, which take into account all the effects of the entire chain from fuel production to its use, show that a change from fossil fuels to biofuels could reduce CO2 emissions by a factor of five, provided a high proportion of renewable energy is used at all stages in the process." (Alfred Szwarc, of the Sao Paulo sugar-growers' association (UNICA), "Ethanol-Gasoline Blends and Atmospheric Emissions").

Further, in a carbon-trading system, carbon recycling will add value to ethanol made with the minimum consumption of fossil fuels.

Are there other high-value products from bio-fuels?

Already there is evidence that the biofuels industry will become something akin to the petroleum industry where fuel is just one of many profitable products ("Cooking up more uses for leftovers of biofuel production", Hillary Rosner, New York Times, August 8, 2007). Some include:

• Distillers grain, a high-protein by-product of corn-ethanol, is already a valuable stock feed, but it can also be used to produce hydrogen and PHA, a biodegradable product used for surgical gowns and gloves;

• Distillers grain also has 10 per cent oil, capable of yielding 30 gallons per ton of biodiesel;

• Lignin, which burns to co-generate electricity at US$40/ton, is also an attractive product for glues, sealants and detergents, potentially making it worth US$300/ton.

Are there health benefits from biofuels?

Associate Professor Ray Kearney, of Sydney University's department of infectious diseases and immunology, has been in charge of monitoring the emissions from Sydney's road tunnels. He likens fossil-fuel motor-vehicle emissions to "the new asbestos", because of its detrimental health effects. He estimates that vehicle pollution alone costs Sydney $2-3 billion annually.

He strongly argues for biofuels, and shows that primary car-emissions are reduced by a qualified 50 per cent using 10 per cent ethanol in fuel.


Fair collective-bargaining rights

National Competition Policy has been a disaster in the sugar-cane industry.

Deregulation has left cane-farmers, who are price-takers not price-makers, no bargaining power with proprietary mills. Unlike workers in a union who have the ultimate threat of withdrawing their labour, farmers cannot withhold supply. Withholding supply for a year would mean no income and farmers cutting their own throats. In the final instance, they are left to take or leave the final offer of a proprietary mill. Their only other option is to shift to producing some other product, which in turn requires expensive re-tooling of their farms.

Since full deregulation of the sugar industry last year, the price that farmers have received for their cane has been virtually fixed to the world price of raw sugar. Proprietary mills have refused to include in the price of cane any significant return for profitable by-products such as co-generation of electricity from waste bagasse, or ethanol. Farmers cannot achieve a fair return on investment.

As a result, high-value cane farms are being turned over to other products at a significant rate. In some cases, they are going over to low-value grazing, or worse, tree plantations run by managed investment schemes, where the driving incentive is not market forces but tax concessions for wealthy city investors.

This represents the destruction of high-value agriculture to be replaced by low-value agriculture!

For farmers to receive a fair price for their cane, the Trade Practices Act needs to be amended to allow farmers to:

(a) collectively bargain a price for their cane; and

(b) reinstate a mandatory final-offer arbitration system made up of a judge, one representative of farmers, one from the proprietary mills, and a technical advisor on issues relating to the setting of a fair price for a season's cane. This can be achieved by direct federal legislation, or by an industry mandatory code of conduct.

Such a system is also needed, and would greatly benefit other areas of agriculture, such as the dairy industry, which has been devastated by deregulation.

Deregulation of the sugar industry also saw the abolition of the single selling-desk for sugar on the world market. Since then, Australia's sugar mills have been bidding each other down in price on the world market, damaging returns to mills and farmers.

Hence, there is an urgent need to recreate the single selling-desk for the sale of raw sugar onto the domestic and export markets.


A green car industry

Even though Australian car exports rose above $5 billion in 2005, "that is almost insignificant compared with the automotive import bill," writes Ian Porter of the Melbourne Age.

"In 2005, Australia imported $23.5 billion worth of vehicles and parts. Since 2001, imports have grown at about $1.3 billion a year, but in 2005 they jumped by $2 billion …

"The proportion of the market taken by local cars has slumped from 40 per cent in 2001 to less than 30 per cent - the lowest share for any domestic automotive industry in the world." (Ian Porter, "Wheels in motion for car industry demise", The Age, June 13, 2006). In the 1980s, 80 per cent of our cars were produced domestically.

Every developed nation has either a high-tech chemical, aeronautical, electronics or motor-vehicle industry, or a combination of these. Australia has only a car industry, and we are at risk of losing it.

Craig Milne, of the Australian Productivity Council, a private consultancy, has proposed to the Federal Government that Australia needs a truly independent domestic firm that would give better prospects for aligning the national interests with the interests of the firm.

Australia has the high-level expertise to design and build world-class vehicles, but currently produces only large cars. A domestic company could produce small cars and substantially cut such imports.

Successful auto-making countries generally make at least the equivalent of its domestic market demands. In Australia, that would mean an industry producing three times more than its current production.

The aim should be to produce enough cars for the entire Australian market, with exports at least balancing imports.

Australia is already producing flex-fuel cars for export to Brazil. The car industry already has the capacity to produce future new cars as ethanol flex-fuel and biodiesel vehicles.

Australia has the ability to pursue a combined green fuel, green car and green energy policy, matched by only a few countries like Brazil.

- Patrick J. Byrne is national vice-president of the National Civic Council.

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