Brazil and the United States are leaders in global ethanol production, accounting together for 70% of the world's production and nearly 90% of ethanol used for fuel. In the United States, more than half of the country's fuel is blended with ethanol and Washington has passed a new law mandating a staggering 36 billion gallons of renewable fuel annually by 2022.
On the domestic front, the New South Wales Government re-affirmed its decision to mandate 10% ethanol in all regular unleaded petrol sold in the State by 2011. Back in 2007, NSW was the first state to mandate the use of ethanol in petrol. The ethanol mandate will costs taxpayers nationally $200 million per year. The NSW ethanol mandate will increase food prices nationally as more quantities of grain will be diverted to ethanol production. It is understood that the E10 mandate is strongly opposed by many inside the NSW bureaucracy.
Earlier this month, the NSW Government was set to approve a $400 million expansion plan for ethanol production at flour-processing facility at Nowra owned by the Manildra Group. It is interesting to note that Manildra is one of the biggest corporate donor to the NSW ALP, donating more than $200,000 to the party in 2006-07. According to the NSW Department of Environment records, the company has failed to comply with environmental requirements in recent years.
Lands Minister, Tony Kelly, denied that grain would be diverted to ethanol production. He stated: "Ethanol produced in NSW is predominantly a waste-by product of the flour making process. This innovative use of a waste product does not increase demand for grain. The price of fuel is an ongoing problem and there is clearly a need to provide a cheaper alternative to fossil fuels. The move towards biofuels is a key means of overcoming our reliance on petroleum."
However, with the State currently in drought and experiencing a hotter and dryer climate, the E10 mandate will have a major impact on water usage. The 2.5 million tonnes of grain required each year to produce ethanol necessitated by the E10 mandate will see up to 10 ethanol plants across NSW, all trying to source grain from reliable suppliers and places huge implications on the Murray Darling Basin.
According to the supporters of ethanol, the benefits include:
Reduced Oil Imports. Some 70% of petrol in Australia is derived from imported oil. A thriving ethanol industry in Australia will replace imported oil and improve our Balance of Payments.
Economic Stimulation. Experience in the USA demonstrates that new ethanol plants provide substantial economic stimulation to the nation's economy. This excludes jobs and economic benefits to the wider community.
Kyoto Protocol commitment. Increased use of ethanol will help Australia to achieve a reduction in Greenhouse gases required by international agreements such as the Kyoto Protocol.
Regional Stimulation. Ethanol plants are usually sited in regional area adjacent farm areas. The ethanol industry would assist in employment, creating added income and value to farm products and reduce the boom / bust cycle.
National Security. The increased use of an Australian made fuel will reduce our dependence on oil from the Middle East and Indonesia. Australia imports oil for some 70% of our petrol needs and this figure is increasing rapidly.
Benefits to regional Australia include:
Employment. Each ethanol plant will provide some 300 jobs in regions which lack skilled, stable employment. In the US the production of over 7 billion litres of ethanol per year has created over 190,000 jobs in rural communities.
Spin off Industries. The ethanol plant will produce business opportunities in ancillary industries from co-products such as cattle feed, fertilizers and transport.
Added Income and Added Value. Ethanol plants will add value to farmers production. US reports and agricultural figures show that ethanol plants have substantially increased farmers income.
On the other hand, the increased demand for corn and grain is both driving up the price of food and reducing its availability in poorer countries. According to the World Bank, food prices worldwide had risen 83% over the past three years, triggering food riots in Haiti, Egypt, the Philippines and even Italy. The International Monetary Fund has warned that the increased use of biofuels, such as ethanol, is compounding the problem.
Demand for fuel in rich countries is now competing against demand for food in poor countries. Cars, not people, used most of the increase in world grain consumption in 2006. The grain required to fill a 25-gallon SUV gas tank with ethanol will feed one person for a year. Several factors have contributed to the recent increase of grain and oilseed prices that have detrimental consequences on poorer nations:
First, while consumers in advanced industrialised countries buy processed and packaged foods like Wheaties, where prices do not change much if wheat prices go up, whereas poor people buy more grains like wheat and feel the full impact of grain price changes.
Second, people in developing nations spend a higher portion of their income on food, so higher food prices hurt them more, unless they are farmers. If a poor person spends 60% of their money on food and then the food prices double, they will experience immediate hardship. Therefore, higher grain and oilseed prices will affect poorer countries more.
Third, aid organisations that buy food and send it to poor countries are only able to send half as much food on the same budget if prices double. But the higher prices mean there are more people in need of aid.
The impact is not all negative. The Food and Agriculture Organization (FAO) recognises the potential opportunities that the growing biofuel market offers to small farmers and aquaculturers around the world. However, there is the fear of the destruction of natural habitats being converted into farmland. Interviews with local peasants in southern Ecuador provide strong anecdotal evidence that the high price of corn is encouraging the burning of tropical forests.
A 2008 World Bank research report found that from 2002 to 2008 "large increases in biofuels production in the United States and Europe are the main reason behind the steep rise in global food prices." Furthermore, at the 30th Regional Conference of the FAO, Robert Zoellick President of the World Bank stated, "While many worry about filling their gas tanks, many others around the world are struggling to fill their stomachs. And it's getting more and more difficult every day."
The recent high price of oil, the security advantages of increased domestic production, the environmental benefits through reduced greenhouse gas emissions, and the potential for economic development have all contributed to a greatly increased interest in biofuels. There is no doubt that the food for fuel debate will continue to be a major issue in the future.
However, ethanol is not the silver bullet to the world's problem of energy security. Ethanol, along with other forms of renewable energy such as solar and wind, are part of the solution. Recent scientific studies have proven that the development of biomass or "second-generation bio-fuels" produces more environmental and economic benefits without diverting resources from food production for millions of people living in poor developing nations. We will discuss this in another edition of CVIP. So stay tuned!