Ethanol mandate to be introduced despite lack of evidence on net benefits to Qld

Earlier this week, the Queensland Government introduced into Parliament a bill for a 2 per cent ethanol mandate (see this Brisbane Times report). This measure appears designed to placate Katter’s Australian Party, which is looking out for cane growers who would benefit from an ethanol mandate. As I’ve posted on before, it is unclear this measure would benefit the community and most likely would not (see Ethanol mandate should not proceed without cost-benefit analysis). Ethanol is much less efficient as a fuel than petrol and it is not clear it is better for the environment once you consider the land and other resources needed to grow the feed stock (e.g. sugar cane or sorghum).

Because E10 gets fewer kilometres per litre, and the price differential between E10 and regular unleaded is insufficient to make up for this, E10 effectively costs around an extra 2 cents per litre. So a typical motorist might end up paying an extra $30 over the course of a year because they need to purchase slightly more fuel to make up for the lower efficiency of E10. While it is not a huge amount of money, it is an extra cost on consumers and one that does not appear justified.

The best way to determine whether this policy is desirable would be to conduct a comprehensive cost-benefit analysis, which has not been done in this case. I note the Government has set up a new Queensland Productivity Commission and I’m sure it could have undertaken the rigorous study required. Instead, we had a glossy discussion paper lacking the detailed analysis required and a consultation process that was useless because it was not informed by a decent analysis of what this policy would mean for the Queensland community.

I made a submission to the consultation process pointing out the risks of this policy and the need for a cost-benefit analysis – which I thought was a pretty obvious point that reasonable people would agree on – but this point was not noted in the consultation report. It is regrettable this policy is being rushed through with so little analysis of its impacts on the Queensland community. It is also regrettable the RACQ is acquiescing in the introduction of the ethanol mandate and is not pushing the Government to provide convincing evidence that this policy will benefit the community and will not impose unnecessary costs on motorists.

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6 Responses to Ethanol mandate to be introduced despite lack of evidence on net benefits to Qld

  1. Glen says:

    Gene I think your numbers would be about right from a consumption point of view in regards to mileage, however the benefit for us up in North Qld would be substantial through the plants and refinery requirements for supply. This however is the big issue, there is nothing in the legislation that I am aware of that would require any supplier to source the ethanol locally, they could just simply import a blend that meets the requirement from Singapore, it would not create any jobs or investment so any nett benefit for the state will be completely lost, and motorists would end up with a less efficient fuel source. A bit more detail is required.

  2. Jim says:

    Gene

    Has a formal Regulatory Impact Statement been done for this? I suspect not.

    Given the fact that the DG of DEWS has a PhD in energy economics and has worked in the energy industry for years, I’m surprised this even made it onto his desk, let alone to Cabinet.

    I find it amazing that there has been no benefit-cost analysis; no consideration of where the ethanol will come from (probably from intestate growers that have a cost advantage); and no consideration of the externalities (particularly to the GBR). And with eight of the nine public forums being held in regions that would directly benefit from an implicit subsidy for ethanol, did anyone really expect a different outcome from the consultation?

    The upside of all of this is that we now have a brand new case study on how not to do public policy.

  3. Stephen says:

    For blokes have such strongly expressed opinions, perhaps researching the answers to the questions that you are posing might not be such an unreasonable expectation.

    I would suggest that your credibility would be enhanced by having factual answers to those questions rather than just casting doubts.

    • Jim says:

      Stephen

      Policies such as an ethanol mandate should always be subject to a robust and benefit-cost analysis because of the significant ramifications. The analysis should be public to inform consultation and the decision making process. This is public policy 101 stuff. Full stop. No arguments.

      And people on this blog (including myself) have previously undertaken detailed economic analysis of ethanol production in Queensland.

      That is why we have out serious doubts about this decision…..

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