The Australian Government is committed to the development of alternative liquid fuel sources, including biofuels. This will assist in minimising Australia's reliance on imported oil and contribute to the reduction of greenhouse gas emissions in the transport sector.

Alternative fuels are expected to play a small but important role in supplementing Australia's fuel supply. Currently, biofuels rank as the second most widely available alternative fuel in Australia after Liquefied Petroleum Gas. In developing the Government's policy for biofuels the Prime Minister requested that the Ministers for Resources, Energy and Tourism and Agriculture, Fisheries and Forestry conduct a review of existing Australian biofuels policies. The review will assess the current state of play in the Australian and global biofuels industry, examine the existing support mechanisms and outlook for the Australian biofuels industry and will be used to inform future policy decisions. The Government is currently considering the outcomes of this review.

The key component of the Government's support for non-fossil fuels is the concessionary excise regime. To encourage their wider uptake, alternative fuels including biodiesel, Liquefied Natural Gas (LNG), Compressed Natural Gas (CNG) and Liquefied Petroleum Gas (LPG) are effectively excise free until 1 July 2011. From 1 July 2011, effective excise will be phased in progressively until 2015 after which time these alternative fuels will have an ongoing 50 per cent excise discount compared to fuels with the same energy content. A table outlining the excise arrangements can be found at: http://www.ret.gov.au/resources/Documents/Alternative%20Fuels%20Programs/
Excise%20rates%20for%20transport%20fuels%20 (cents%20per%20litre).pdf

Further information on current rate of excise on fuels can be found at:
http://www.ato.gov.au/businesses/content.asp?doc=/content/81745.htm&pc=001/003/019/001/003&mnu=&mfp=&st=&cy=1

Ethanol Production Grant (EPG)
The EPG was introduced in September 2002 to encourage the use of fuel grade ethanol in Australia over time. The EPG is a demand driven, entitlement based program which makes domestically produced fuel ethanol effectively excise free by compensating fuel ethanol producers for excise paid. Excise is paid on ethanol at the rate of 38.143 cents per litre (cpl) through the fuel excise system and the EPG reimburses this excise until 1 July 2011. The EPG will cease on 30 June 2011 after which excise subsidies for ethanol will be delivered under the Energy Grants (Cleaner Fuels) Scheme.

Energy Grants (Cleaner Fuels) Scheme (EGCFS)
The EGCFS provides a 38.143cpl subsidy for the production or importation of biodiesel until 30 June 2011. The grant offsets the excise or customs duty payable on biodiesel meaning the net effective excise for biodiesel is zero. From 1 July 2011, the fuel tax rate on biodiesel will progressively increase to 50 per cent of the initial subsidy in 2015.

Under current legislative arrangements the EGCFS will replace the lapsing EPG, and expand its coverage to include ethanol from 1 July 2011.

Ethanol Distribution Program EDP
The EDP assists the ethanol industry by providing grants up to $20,000 to reduce the cost to retailers of installing new pumps, converting existing pumps to accommodate E10 (10 per cent ethanol) blends and to encourage sales of E10. As a result of the program, the number of ethanol refuelling stations across Australia has significantly increased from 4 per cent in 2006 to around 20 per cent currently. The EDP closed on 30 April 2009.

Biofuels Capital Grants Program
The Biofuels Capital Grants program offered competitive grants from $800,000 to $10 million to fund one-off capital projects that provided new or expanded biofuels production capacity. The grants provided assistance for the construction of new or additional plants at a rate of 16 cents per litre of installed capacity. Three ethanol and four biodiesel plants were initially offered funding under the program. While the program closed in 2004, the Government still has contractual commitments with recipients.

Energy Grants Credit Scheme (EGCS)
Non-fossil fuels used on road in heavy vehicles are eligible for grants under the EGCS, subject to certain restrictions. The grants are being phased out between 1 July 2006 and 30 June 2010.

Second Generation Biofuels Research and Development Program
In recognition of the need to develop a sustainable biofuels industry and to move away from any impacts on food supply and prices, the Australian Government has established the $15 million Second Generation Biofuels Research and Development Program (Gen 2) which supports the research, development and demonstration of new biofuel technologies. Gen 2 will provide matching grants, ranging from $1 million to $5 million, for eligible projects. Applications under the Program are currently being assessed. Guidelines for the program are available on the Australian Government's Department of Resources, Energy and Tourism website (www.ret.gov.au).

The Australian Development Assistance Program, administered by the Australian Agency for International Development, currently supports energy sector activities through infrastructure and climate change programs, recognising that the goals of these programs are complementary in the energy sector. This includes bilateral support to improve energy access through rural electrification programs in Cambodia and Laos. Australia also works in partnership with the multilateral development banks and other donors to improve energy access. This includes support to the Clean Energy Financing Partnership Facility, managed by the Asian Development Bank, and the Energy Sector Management Assistance Program, managed by the World Bank.

Biofuels mandates
The Australian Government does not support the mandating of the use of particular levels of biofuels in the fuel mix. Instead it believes in allowing individual consumers to make a choice regarding the fuel mix which best meets their individual preferences and needs.

The New South Wales (NSW) Government currently has a 2 per cent state ethanol mandate. This mandate will increase to 4 per cent from 1 January 2010, 6 per cent from 1 January 2011 and from 1 July 2011 wholesalers must not sell regular unleaded petrol unless the petrol is E10. Further, the NSW Government has introduced a 2 per cent biodiesel mandate which will increase to 5 per cent from 1 January 2012. Based on the consumption of regular unleaded petrol in NSW in 2008 the 2 per cent mandate creates a demand for 98 ML of ethanol, 197 ML from the start of 2010, 295 ML from the start of 2011 and that all regular unleaded petrol must be E10 from 1 July 2011. Based on the consumption of diesel in NSW in 2008 the 2 per cent mandate creates a demand for 76 ML of biodiesel and 191ML from 2012.

The Queensland Government has also announced that it intends to introduce a 5 per cent ethanol mandate by the end of 2010, which would equate to 180 ML per annum.

The Australian biofuels industry
The Australian biofuels industry is, by international standards, a relatively small and immature sector, accounting for just 0.5 per cent of combined petrol and diesel use in Australia. The industry currently uses existing and proven technologies to produce first generation ethanol and biodiesel. Australia’s ethanol is currently produced from wheat, sorghum and C grade molasses. Australia’s biodiesel is mainly produced from processed waste (primarily used cooking oil) and tallow. There are a number of government programs to support the production and distribution of biofuels.
Biofuels can be purchased at about 20 per cent of Australia’s retail fuel distribution network outlets, but the installed supply capacity is not fully used. The production of biofuels in 2007/08 reached 200 megalitres (ML) which included around 150ML of ethanol and 50ML of biodiesel.

Table 1: Ethanol facilities, capacity status (as of 29 April 2009)

Table 2: Biodiesel facilities, capacity status (as of 29 April 2009)

Biofuels standards
In 2003, an amendment to the Fuel Standard (Petrol) Determination 2001 allowed the ethanol content of petrol to be capped at 10 per cent, but no fuel standard was set for ethanol. In July 2005, the Australian Government released a position paper on setting a standard for fuel grade ethanol that can be blended up to a maximum level of 10 per cent. Following extensive consultation the Australia Government set a national fuel quality standard for ethanol that can be blended with petrol up to a maximum level of 10 per cent ethanol.

A fuel quality standard for biodiesel has been in place since 2003 under the Fuel Quality Standards Act 2003. The standard applies to biodiesel for use as a neat fuel (i.e. 100 per cent biodiesel) or as a blend stock with diesel. Following extensive stakeholder consultation amendments have been made to the Fuel Standard (Automotive Diesel) Determination 2001 (the diesel standard) to allow up to five per cent biodiesel in diesel fuel without a labelling requirement from 1 March 2009. Minor technical amendments have also been made to update the Fuel Standard (Biodiesel) Determination 2003 (the biodiesel standard). More information to these amendments can be found at:
http://www.environment.gov.au/atmosphere/fuelquality/diesel-biodiesel-amendments.html

Feedstocks for biofuels production in Australia are largely sourced domestically. Australia is a large producer and exporter of many conventional biofuels feedstocks, including wheat, sorghum and other coarse grains, canola seed and sugar. In 2007-08, Australia exported 73 per cent of its sugar production, 44 per cent of its canola seed production and 41 per cent of its coarse grains production.

More information on Australian production and exports of biofuels feedstocks can be found at:
http://www.abare.gov.au/publications_html/ac/ac_09/ac_09.html

Biofuels Research and Development
The current Australian supply base of forest-based lignocellulosic biomass for bioenergy production comes from farm forestry crops (such as oil mallee and short-rotation coppicing trees), wood harvested from native forests and plantations (approved wood waste including thinnings), and industry and urban wood waste. In the future, supply could be expanded by increasing the area planted to oil-bearing trees and dedicated bioenergy forest and farm forestry plantations. Potentially, lignocellulosic biomass could substitute for a large part of the country’s fossil fuel requirements. Genetically modified trees might help boost production, but would require regulatory approval, including a science based risk assessment. The availability of sufficient forest-based feedstock for current and future biofuels production will be constrained by the cost and viability of sustainably producing biomass from forest crops.

There are numerous biofuels research and development activities occurring in Australia. In particular, two major agencies in Australia are focusing on second-generation biofuels development: the Queensland University of Technology (QUT) is collaborating with the Australian sugar industry on the feasibility of using the Australian sugar industry's waste biomass (bagasse); and the South Australian Research and Development Institute (SARDI) is building micro-algae pilot production facilities in Adelaide and Waikerie Island, South Australia. They have received funding through the Government's National Collaborative Research Infrastructure Strategy (NCRIS). Through NCRIS, the Government is providing $542 million over 2005-2011 to provide researchers with major research facilities, supporting infrastructure and networks necessary for world-class research.

There are also a number of privately-funded algae initiatives, such as the recently announced Queensland Government partnership with James Cook University and MBD Biodiesel to build an algae-biodiesel demonstration pilot plant in Townsville, as well as work being undertaken at the Biomax (owned by the Victor Smorgon Group) facility in Laverton, Victoria on the production of biodiesel form algae.

The University of Queensland's ARC Centre of Excellence for Integrative Legume Research (CILR) is investigating the suitability of the Pongamia pinnata tree in Queensland as a biofuel feedstock through a $1 million research contract with Pacific Renewable Energy (PRE). PRE is set to partner CILR and invest another $1 million as part of a Queensland Government SmartState fund.

CSIRO is undertaking a set of projects investigating algae to biodiesel, and enzymatic and thermochemical conversion of lignocellulose. It is also studying Australia's existing and future biomass resources as the basis for assessing the prospects for second-generation biofuels.

The Rural Industries Research and Development Corporation (RIRDC) is one of a number of Research and Development Corporations established by the Government to work closely with Australian agricultural and rural industries to support their R&D needs. RIRDC manages and funds R&D for established rural industries, key generic issues confronting the rural sector and on new and emerging industries as a means of diversification of rural enterprises in Australia.

The Primary Industries Ministerial Council is developing a National Primary Industries Research, Development and Extension Framework. Biofuels and Bioenergy research and development has been identified as one of the 14 industry sector and seven cross-sector industry strategies. RIRDC and the NSW Department Primary Industries are the lead agencies developing the biofuels strategy to implement a collaborative national approach to ensure research and resources achieve the best outcome for primary industries.