Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

I want to talk about ethanol but, before I do, I have to comment that that was one of the most biased, left-wing and anti-Israel speeches that have been heard in this house. At an appropriate time, I will go through that speech—

Bob Brown (Tasmania, Australian Greens) Share this | Link to this | Hansard source

It is appropriate now.

Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

It is not appropriate now, because I want to examine it in detail and make my response. I will do that at the appropriate time, but at the moment I want to address the problems of ethanol.

On Monday, the Prime Minister, John Howard, announced an energy package designed to assist Australian families with coping with the burden of high fuel prices at the bowser. The package consists of a number of initiatives which I commend, but we must acknowledge that petrol products come from a finite resource and that Australia needs alternatives. In Australia we are moving ahead, but nowhere near fast enough. Our current target, which is to be using 350 million litres of biofuels per year by 2010, is outdated and should be increased to at least the volumes committed to by the major oil companies. Australia is currently spending the equivalent of 72 per cent of its current account deficit, some $12 billion, on importing petroleum products. That figure has blown out by a staggering 58 per cent in the two years since 2003-04. A major contributor to that has been the continuing decline in the production of Australia’s oil—from 31 billion litres in 2001 to just over 16.4 billion litres last year. We are now producing less, importing more and paying more for the imports.

What I am saying is not new. We have seen the price of petrol soaring at the pump. We have heard the anguish of families as they try to absorb the extra cost into their family budgets. We have put in place policies to help, but there is still more to do. In Australia, we are dependent on the four major oil companies to refine and distribute transport fuels. This is not a free market; it is controlled by four international companies. The independent fuel suppliers and retailers are doing their bit. They supply only about eight per cent of the transport fuel market, yet distribute three-quarters of the ethanol used—some 30 million litres.

The key to making an impact on Australia’s fuel consumption lies in the big markets of Sydney and Melbourne, and with the major distributors, Shell, Caltex, BP and Mobil. The ethanol fuel sales to the four oil majors for the first six months of this year represent less than 0.1 per cent of one per cent of total petrol sales of 20 billion litres. The reality is that the oil companies, with the exception, perhaps, of BP, are stalling the advancement of alternative fuels, with one exception—that is, LPG. And why is that? It is because they control the production and distribution of LPG.

Of the $1.5 billion package announced yesterday by the Prime Minister, $17.2 million was allocated to further development of a market for ethanol. Ethanol, as the E10 blend, is available. It can be produced at a cheaper price than petrol currently can. It can be blended into fuel to replace existing petrol, and pumped into vehicles with no modification. Australia has the capacity to produce 110 million litres of ethanol this year, yet, according to the government’s figures, just 25.1 million litres of ethanol has been sold in the last six months to June, along with a small amount of biodiesel.

Ethanol blended fuel can provide immediate price relief to motorists, yet E10 is only available at around 260 outlets of the nation’s approximately 6,300 service stations, which is less than two per cent. BP affiliated outlets account for 1,300 service stations but only 50 are selling E10. Caltex and its affiliates account for 1,790 outlets but only 41 currently sell E10. Shell offer E5 at 25 of their 1,110 associated outlets, and Mobil have virtually told the government that they are not even interested in talking to them. They say they have no pumps.

Only two per cent of the service stations affiliated with the four major oil companies sell ethanol blended fuel. It is only reasonable to ask: who are we afraid of if we will not insist that everything that can be done should be done? In the $1.576 billion energy package, which I applaud, $1.3 billion is for the LPG industry for conversions and forgone revenue. As a by-product of petroleum LPG is controlled by fuel majors and is already available at 2,300 service stations. An additional $76.4 million has been allocated to finding more oil.

The big winners in the package are the four major oil companies. They have not had to make one extra commitment to distributing alternative fuels to benefit from this package, but $1.37 billion will directly benefit their industry and expand the market for their products. The ethanol initiatives in this package provide for up to $20,000 for the cost of converting retail petrol stations to supply E10. Again I commend the government on taking on a program already successfully operating in Queensland and providing the funding for it to go nationwide. This initiative, unfortunately, will not break the stranglehold the big oil companies have over supply and distribution into the major markets of Sydney and Melbourne. Franchised service stations can have the cleanest E10 tanks they like, but if the majors do not blend and distribute E10 then money is going to be wasted. This initiative is tinkering around the edges of the ethanol issue. The main game is compelling the major oil companies to blend and distribute E10.

The four oil majors have committed to the Prime Minister that they will distribute the annual equivalent of 89 megalitres at a minimum, and 124 megalitres of biofuels at the top end, by December this year. That is in three months time. So far there is little evidence that this promise will be kept. There has been a slight increase in the volumes of E10 sold since this time last year; however, the bulk of that increase can be attributed to independent operators selling E10 and passing on the discount to the consumers, and I am pleased to see that BP and Caltex are doing that now. The reality is that at the moment the major oil companies are still accounting only for about 10 million litres of biofuels in the transport fuel mix. That is a long way from the promised 89 million to 124 million litres. It is absolutely imperative that these targets are met. Until this happens the government will continue to question the commitment of the oil companies.

After the announcement last December, The Nationals reserved the right to take stronger action if the oil companies did not enter into agreements with Australian biofuel suppliers to provide fuel. I welcome the statement in Monday’s announcement by the Prime Minister that ‘the government will continue to explore practical measures that effectively mandate the availability of cheaper ethanol blended fuel for Australian motorists’. The oil companies have committed to 532 million litres of biofuel by 2010. If they do not achieve the first milestone in the process then there needs to be a more effective way of legislating this biofuel uptake obligation.

Over the past two years I have been advocating a volumetric biofuel obligation system similar to that which currently exists for renewable energy. The scheme, the MRET, the mandatory renewable energy target, is the mechanism by which the government compels the major electricity suppliers to purchase a percentage of ‘green’ electricity to sell to their customers. I believe this existing scheme should be expanded to include renewable transport fuel. It would be an enforceable mechanism to compel the oil majors to purchase an increasing percentage of their fuel supplies from renewable sources. It could start immediately and include targets that they have already nominated to the Prime Minister. Next year it could be 0.25 per cent of their total sales, which equates to about 125 megalitres, well within the fuel companies’ targets, and increase by 0.5 per cent each year until the companies are purchasing 10 per cent of their total sales as biofuels. The distribution and marketing arrangements would be their choice.

Within the last month, investors in biofuel projects have announced their intention to pull out of Australia and invest overseas, as they see the level of government support in other countries as more conducive to biofuel production than in Australia. The share price of the listed biofuel companies is also falling. Biofuel producers are ready to go with new production facilities but have not yet been able to sign up the oil majors to serious off-take agreements. New biofuel production facilities are being designed to produce the volumes necessary to make a dent in Australia’s fossil fuel dependency. The economies of scale mean that to be viable a new plant will need to be producing between 80 million and 100 million litres a year. Compare that figure to the current consumption by the oil majors of about 10 million litres a year. One proposed plan will produce 400,000 litres of ethanol a day. That is the current annual ethanol purchase by Shell for the Sydney market. In America three plants of this size are coming online every week. Unless the oil majors come to an agreement with new producers, and soon, there will be very few new ethanol plants—or none—getting off the ground.

When the government first announced its biofuel target, there were three suppliers of ethanol in Australia. Five years later, there are still three suppliers of ethanol in Australia. Not a sod of dirt has been turned to start new ethanol plants. In 2002-03 more than 56 million litres of ethanol was blended into transport fuel in Australia. Now it is about 40 million litres, and 30 million of that is sold by the independents. The oil companies have been backsliding. There is plenty of talk about new business, new producers and new investment, but as yet none have come online.

Ethanol producers and their financiers need security. They need to know that there is a dependable need for the fuel. They need off-take agreements for their fuel from oil companies. So far, not one has been forthcoming to any new, prospective ethanol producer. They need to know that oil majors are serious in their commitment to the government and that the government is serious in its expectation that the commitment will be met.

Support for biofuels as part of Australia’s solution to the crippling oil crisis is essential from government and business alike. Market forces alone will be too slow to provide the response to address this crisis. The government must be strong and unambiguous, and acknowledge that changes must be made to the way Australians view the availability of fossil fuels and embrace the home-grown alternatives. Consumers must be given the chance at more than a handful of retail outlets.