Biofuels, Energy and Agriculture

Oil is likely to remain the dominant source for transport fuels for decades to come. However, there are increasing concerns about the reliability of its supply and its costs. In Australia’s case, domestic oil reserves are declining and imports are adding to Australia’s current account deficit. Worldwide, oil demand is expected to have increased by about 40 per cent by the year 2030. In addition, there are mounting concerns worldwide over climate change and its association with burning fossil fuels. In light of these concerns, it is timely to consider the role of biofuels—ethanol and biodiesel—as partial replacements for oil and its derivatives.

The most common biofuel in use is what is termed E10 (a blend of 10 per cent ethanol with petrol). The world’s leading biofuel (ethanol) producers are Brazil and the United States. Brazil developed its ethanol industry in the 1970s in response to the first oil crisis, and last year produced 17.6 billion litres of ethanol. The United States’s output was slightly less than this. Brazil—which produces its ethanol from sugar cane—has the most efficient ethanol industry in the world, due in large part to its soil fertility and its low cost of production. The United States produces its ethanol from corn.

Biofuels are only a fledgling industry in Australia, but aim to produce 350 million litres by 2010. Even if met, that target would amount to only about 1 per cent of Australia’s fuel transportation needs by that date. Ethanol is currently produced in Australia from by-products such as wheat waste and the sugar refinery by-product C molasses. Present production is estimated to be relatively modest, probably around 130 million litres, with 50 million litres available for fuel blending. There are currently three producers—CSR distilleries, Manildra Group and Heck Group.

High oil prices, increased reliance on imported oil, and environmental concerns have led to calls for mandating the blending of domestically produced ethanol with petrol (fuel ethanol). Advocates argue that a mandate will improve fuel security, lead to a smaller trade deficit, aid regional development and result in environmental benefits. Those against the idea express concerns about the impact of large-scale agriculture for biofuels on food production capability, the lower energy content by volume of biofuels compared to petroleum, possible effects on engine components, CO₂ emissions mainly associated with fertiliser use and cultivation, and the dependence on government funding to achieve substantial growth in biofuel production.

New South Wales is the only state to date to introduce an ethanol mandate. The mandate requires a minimum 2 per cent ethanol blend on the total volume of petrol sold in the state.

Documentation
CSIRO, BTRE and ABARE, Appropriateness of a 350 ML Biofuels Target, Report to the Department of Industry, Tourism and Resources, Canberra, December 2003.

Rural Industries and Development Corporation and CSIRO, Biofuels in Australia—an overview of issues and prospects, Canberra, June 2007.