Biofuels become a global option Trial BP tests ethanol acceptance

Photo of Paul Higgins

[Photo by Brad Collis: Paul Higgins, ethanol advocate, addressing Grains Week in April]

An emerging industry that has the potential to lift demand for crops such as corn, barley and wheat is at Australia"s doorstep.

Biofuels - fuels made from dry organic matter or combustible plant oils - offer the grains industry a potentially valuable new market.

Elsewhere, biofuels are already taking a share of the energy market, but in Australia the industry has been stuck on the starting blocks. Rising oil prices, however, may be changing this.

Rebecca Thyer looks at moves to push-start an Australian biofuels industry.

The fuel of the future has a past, and in some countries a long history. Biofuels such as ethanol have been used to power vehicles for more than 30 years.

Brazil has used ethanol blends since the 1970s, when it introduced sugarfuelled vehicles to use its extensive sugar crop. And 10 per cent of corn grown in the US is used to produce ethanol.

The market in Australia has been slower to move. While Manildra, the nation"s largest user of wheat for industrial purposes, has produced and sold ethanol to independent service stations for about 10 years, other players in the market are still finding their feet.

However, Australia is on the cusp of a vibrant ethanol industry, according to Bob Gordon, executive director of Renewable Fuels Australia, and it will prove valuable for the grains industry.

An ethanol outlet is effectively "valueadding" to grains, he says, providing another important market. "The experience in US agriculture has been uniformly positive and has increased returns to farmers. Some in the US grains industry would wonder what our concern is all about."

A number of factors have hampered Australia"s ethanol uptake, including a lack of positive government intervention, a local supply of fossil fuels, and "bad press" surrounding ethanol"s use.

While the government does not look likely to set mandatory ethanol targets, fossil fuel supplies are dwindling and imported oil costs are rising. Also, some of the larger energy companies, like BP, have initiated marketing campaigns to inform people about the potential benefits of new fuels like ethanol.

Ethanol, the most widely used biofuel, is produced by converting the starch in grains to sugar and then fermenting the sugar to produce ethanol. It can be blended with petrol as an additive, used as an octane enhancer or oxygenate or used in higher concentrations in alternative-fuel vehicles.

In Australia it can be used in a 10 per cent blend with petrol, a limit imposed by the Federal Government in 2003, although it is investigating higher percentage blends. In the US, blends of 85 per cent ethanol are available for newer model cars.

In Canada, research is being undertaken to produce ethanol from a new plant source, the cell walls of wheat or corn stalks. Canadian-based biotechnology company Iogen is working with Shell to develop commercial fuel technology that produces ethanol derived from cellulose instead of from the starch contained in grain.

The cellulose-derived ethanol is not only made from the non-food portion of renewable feedstocks, it has low life-cycle greenhouse gas emissions and a high level of sustainability.

Mr Gordon says this type of technology will add substantially to the value of crops because "it won"t just be the grains that are used". Additionally, new vehicle technology will allow the use of LPG, ethanol or petrol.

Paul Higgins, consultant for think-tank Emergent Futures, says new technologies, such as an enzyme-based ethanol production and gasification technology - a process that produces gas from biomass - could offer significant improvements in biofuel production. "The key difference between these technologies and starch-based ethanol production is that large cost reductions are possible due to modern technology."

Using figures from a Rocky Mountain Institute study, partly funded by the Pentagon, and converting them to Australian dollars, he believes that biomass ethanol can be produced significantly cheaper than grain-based ethanol.

"If these models are correct then biomass ethanol is highly cost-competitive with oil while having other advantages. The use of flex-fuel vehicles that can run on up to 85 per cent ethanol will also be viable and change the market demand significantly."

He says that once this type of technology is commercialised it could reach Australia within two to five years. "The great difficulty is that people have to invest money for 10 to 15 years and they need to know the cost of international oil and the exchange rate before they can make those decisions, unless ethanol or renewable fuel targets are mandated by government."

To be viable, one or more of the following has to occur: oil has to be significantly more than $US21 a barrel over the long haul; there is legislation mandating the use of ethanol or at least levels of renewable fuel; and the cost of ethanol has to be competitive at $US21 a barrel. "If either of the first two occur, then ethanol is viable in this country. If the third occurs then that will happen through biomass ethanol production and grain-based ethanol will struggle."

For most countries, government intervention seems to feature strongly in the uptake of ethanol. Brazil is the world"s largest ethanol producer, making it from sugar cane at a cheaper rate than petrol. It was high petrol prices, due to import costs, that originally pushed the country to invest in ethanol, while subsidies and mandatoryuse legislation ensured its viability.

In the US, it was California"s decision to phase out the fuel additive methyl tertiary butyl ether (MTBE) which boosted the ethanol industry. Now 19 states have banned MTBE and the US energy bill, which was approved in late April, could also lift biofuel use.

A number of US states are also considering requiring a 10 per cent ethanol blend in petrol, which would further increase demand. Last year US ethanol requirements almost hit nine billion litres - but there are producer and consumer subsidies underpinning this.

Canada imports 100 million litres a year from the US while its own five plants annually produce 235 million litres of ethanol from grain. It intends to blend ethanol in petrol as a way of implementing its commitments under the Kyoto Protocol. As part of this commitment, Canada plans to have 35 per cent of petrol contain 10 per cent of ethanol by 2010. Japan is also trialling a 10 per cent ethanol blend in petrol and plans to introduce a mandatory 10 per cent mix in petrol and a 15 per cent blend in diesel by 2008. The market consumes between 55 and 60 billion litres of petrol annually.

China, the world"s third largest ethanol producer with annual production of three billion litres, is keen to use ethanol to address pollution problems; there are 14 million cars on China"s roads and the number is increasing by almost 10 per cent annually. It is running a number of pilot projects using a 10 per cent ethanol blend with corn the preferred feedstock.

The European Union has also set a target to increase biofuel used in transport from 0.3 per cent to two per cent by the end of this year and 5.75 per cent by 2012. But there are concerns that there is not enough land to support this ambitious target.

For more information: Paul Higgins, 03 5443 7550, paul@emergentfutures.com;
Bob Gordon, 02 6295 2399, ablinks@ozemail.com.au

Major Australian petrol retailers have started assessing consumer acceptance and confidence in ethanol-blended fuel, called E10. BP Australia launched a marketing drive in February this year to promote its sugar-based ethanol blend to its Queensland trial area of Mackay in the heart of the sugar belt, an area to which BP has supplied E10 since late 2003. Its latest advertising drive tells local buyers that the fuel is reliable, environmentally sound, good for the region, and has BP"s guarantee. "In the original trials, we sold 10 million litres of E10 and we received no complaints," a BP spokesman says.

The impact of the new marketing drive still needs to be assessed before BP decides whether to extend the trial. BP also supplies E10 fuel to the Queensland Government"s fleet.

Region North