The Viability of an Ethanol Industry in Australia
Blending ethanol and petrol in various proportions has been put forward as a means of reducing greenhouse gas emissions and alleviating adverse economic conditions being experienced in the sugar industry. Sugar is one of many potential sources of ethanol however currently in Australia around 90% of ethanol is produced from wheat and in the United States over 90% of ethanol is sourced from corn.
While not disagreeing with the use of small amounts of ethanol as a fuel extender, there are a number of issues which need to be taken into account before Australia proceeds too far down this path.
In the United States, where ethanol is widely used and in some areas, mandated at a 10 per cent, a great deal of controversy revolves around the ethanol industry. California is an interesting example. Ethanol as a 10 per cent blend was mandated in 1999 as a replacement for MTBE which causes environmental problems in water.
Since mandating, the Californian Governor has attempted, unsuccessfully, to reverse the decision, even taking the Federal Government to court. His stated concerns are the lack of infrastructure in California and the cost of developing that infrastructure, the cost of ethanol production and the likely impact on petrol prices, and doubts over the environmental benefits of ethanol use.
The California Energy Commission estimates that the introduction of a mandated 10 per cent ethanol bland would add $450 million to consumer's petrol bills every year. And, in the short-term, could add an additional $650 million per month to pay for the infrastructure needed to handle ethanol. The Commission has warned of petrol price spikes of up to $US0.50 cents per gallon. As the California Government has been unable to reverse the mandating decision, it has been delaying the introducing of ethanol for 12 months at a time. The ethanol mandate will now not commence until December 2003.
The Brazilian experience is not much better than that in the United States. According to the Economist Newspaper, (5 September 2002), the push to ethanol powered vehicles in Brazil saw 75% of new vehicles sold in the mid 1980s, powered by ethanol or ethanol blends. By 1990, consumers had moved back to petrol vehicles with only 15% of vehicles sold, powered by ethanol. By 1996 that had fallen to 1% and has been static ever since. According to the Economist this dramatic collapse came about because Ð
"A surge in the world price of sugar meant growers could get more money by exporting sugar than selling it to local (ethanol) distilleries. As a result, many distilleries shut, leading to a shortage of ethanol just as motorists were anyway tiring of the reluctance of ethanol-fuelled cars to start on cold mornings."
At the recent Johannesburg summit on sustainable development, Brazil announced it would try to re-start its ethanol industry by providing direct subsidies to consumers to purchase ethanol powered vehicles. These subsidies will be in addition to already substantial subsidies to ethanol producers.
Australia needs to show caution in turning to ethanol as there are many issues still to be resolved. The Commonwealth has provided $5 million for a study of the marketability of ethanol. The study will not be completed before the latter part of 2003 and it would seem sensible to delay any commitment until then. The other concerns that need to be resolved are explained below.
Ethanol Production
Ethanol costs more to produce then petrol. According to a report from the Bureau of Transport Economics production costs of ethanol from corn, cereal or sugar are mainly in the range 40 to 70 cents per litre (58 cents to $1.02 per litre of gasoline equivalent).
The Oregon Office of Energy in the United States has also costs ethanol production with a view to using it to generating electricity. Their report, Biomass Energy: Cost of Production, was released in August this year. It found Ð
"Because a gallon of ethanol contains less energy than a gallon of gasoline (petrol), the production cost of ethanol must be multiplied by a factor of 1.5 to make an energy-cost comparison with gasoline. This means that if ethanol costs $1.10 per gallon to produce, then the effective cost per gallon to equal the energy contained in a gallon of gasoline is $1.65. In contrast, the current wholesale price of gasoline is about 90 cents per gallon."
This report can be found at http://www.energy.state.or.us/biomass/Tech.htm.
Recent concerns have also arisen about the environment impact of ethanol production. According to a report from the Minnesota Pollution Control Agency in May 2002 -
'most if not all of the ethanol plants in Minnesota have been emitting carbon monoxide (CO) and a category of pollutant called volatile organic compounds (VOCs) in greater amounts than stated by plant officials in their original permit applications......it became apparent that most, if not all, the plants may have violated NSR ( a federal regulation under the Clean Air Act)'
(Full report available at http://www.pca.state.mn.us/publications/aq1-21.pdf )
Storage & Distribution
Ethanol storage and distribution costs are high. Existing petrol tankers, pipelines and storage tanks cannot be used for ethanol and so duplicate infrastructure would need to be developed. This is one of the factors likely to force fuel prices up in California and is highlighted in a report from the New England Interstate Water Pollution Control Commission Ð Page 5 - Infrastructure (http://64.2.134.196/ethanol/Ethanol1.pdf ).
Distribution costs for ethanol are also higher than petrol because the lower energy content of ethanol requires a large increase in the amount of fuel transported and stored for a given energy supply - one litre of ethanol has an energy content of 23 megajoules, petrol has 34 megajoules.
Fuel Costs
As already mentioned, the mandatory use of ethanol in petrol is likely to increase the price of fuel at service stations which is a politically sensitive issue with motorists. In addition, ethanol reduces fuel economy. Lower energy content means more has to be used to produce the same output Ð increasing fuel consumption by between 3 per cent & 4 per cent for a 10 per cent blend, which translates into using more fuel to travel the same distance. This largely negates any greenhouse gas reduction per journey.
Energy Levels
There is a substantial debate in the United States about the energy cost of producing ethanol. It has been triggered by a report by Professor David Pimentel of Cornell University who claims ethanol consumes more energy to produce that it yields.
Professor Pimentel is professor of ecology and agricultural sciences at Cornell. He has published more than 475 scientific papers and 20 books, and has served on the National Academy of Sciences and the President's Science Advisory Council. He has also worked as science adviser to numerous government departments including Agriculture, Energy, Health, Technological Assessment and the U.S. State Department.
His findings are that producing a gallon of ethanol requires 131,000 Btu of energy, while it yields only 77,000 Btu of fuel energy. This has been disputed but the debate continues. (http://hubbert.mines.edu/news/v98n2/mkh-new7.html)
Vehicle operability
The affinity of ethanol for water can cause corrosion, and hence problems with fuel and distribution systems. Vehicle manufacturers and marine and other engine suppliers have stated that they consider new engine warranties void if a blend in excess of 10 per cent ethanol is used.
Since ethanol has a lower density (hence lower energy content) it increases fuel consumption by 3-4 per cent for a 10 per cent ethanol blend; AAA strong believes that blends should contain no more than 10 percent ethanol because of vehicle operability, effects on engines, safety, health and warranty issues.
Another factor that appears to rule out adopting a 10 percent ethanol blend in Australia is our commitment to go to Euro III and Euro IV fuel standards, which will greatly improve greenhouse outcomes. According to a paper by Environment Australia, "Setting National Fuel Quality Standards", Euro fuel specifications allow a maximum of 5% ethanol by volume. This is confirmed by European Commission Euro III standards which also limit ethanol content to 5%.
Tax & Revenue Issues
In the United States, ethanol receives a substantial
cut in excise duty. According to the US General Auditing Office (GAO),
from the introduction of this tax break for ethanol in 1979 until 2000,
the US Treasury had forgone US$11 billion in revenue. Currently this excise
subsidy costs the US Government US$800 million per annum. On top of this
Federal subsidy, U.S. State Governments also provide on-going and quite
substantial financial assistance to ethanol plants.
(GAO report http://www.ethanol.org/pdf/oil_incentive_study.pdf)
In Australia the government recently decided to tax ethanol at the same rate as petrol Ð $0.38 cents/litre. At the same time the Government is paying local ethanol producers a $0.38 cent per litre subsidy. Unless producers pass the full $0.38 cent subsidy onto consumers in the form of reduced wholesale ethanol prices, petrol containing ethanol will be dearer. And in 12 months when the subsidy ends and the excise continues, a 10 per cent blend will be 3.8 cents per litre dearer.
By committing to a 10 per cent ethanol blend, and the national infrastructure required, Australia may well be locking itself into years of taxpayer funded subsidies as is the case in the United States and Brazil.
These revenue issues raise the very serious question of how viable an ethanol industry would be in a market economy. Clearly in the United States after 23 years of operating with massive tax breaks, the industry shows no signs of standing on its own feet.
Life-cycle emissions
Tailpipe emissions of CO2 from ethanol can be estimated fairly accurately from the carbon content of the fuel and the amount of fuel used per kilometre. Comparisons based solely on tailpipe emissions, however, can provide a distorted picture.
The variation in full fuel cycle emissions due to different production, distribution and refining processes, and different vehicle and test conditions, results in different estimates of the reduction in greenhouse emissions arising from the use of ethanol
On a life-cycle basis, if ethanol from wood is used as a 10 per cent blend with petrol, a greenhouse gas emission reduction of about 4-5 per cent could be expected based on a 60 per cent lower emission rate than from petrol Ð for ethanol from corn, estimates of the emission rate range from 12 per cent above those from petrol to the equivalence of petrol emissions. This however, is countered somewhat by the 3 Ð 4 per cent increase in fuel consumption.
Conclusion
The jury is still out on ethanol as an environmentally friendly alternative fuel. It is also out on the viability of ethanol production except when heavily subsidised. Australia would be wise to hasten slowly to allow time for the debate in the United States to develop, and in particular in California.
From an environmental perspective, other alternatives exist such as hybrid vehicles, electric vehicles, CNG and LPG gas vehicles and hydrogen powered vehicles. Australia has an opportunity to learn from mistakes made overseas and ensure we adopt the most appropriate technology. We also have to ensure we aren't locked into what may turn out to be a '2nd best' technology when much better energy and environmental options become available.