Biofuel Subsidies in Australia

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Biofuels - At What Cost? Government support for ethanol and biodiesel in Australia

GENEVA, Switzerland, April 2008: This GSI report finds that the Australian government spent A$ 95 million on supporting biofuel production and consumption in 2006-07. That cost could grow to several hundred million dollars a year by the end of the decade if planned new ethanol and biodiesel capacity comes on-line over the next two years. Currently, biofuels contribute less than 0.5 per cent of Australia’s transport-fuel needs.

Biofuels – At what cost? Government support for ethanol and biodiesel in Australia, is the latest in a series of country studies on subsidies for biofuels by the Global Subsidies Initiative (GSI), a Geneva-based programme of the International Institute for Sustainable Development (IISD).

Without the benefit of high-levels of government assistance, many biofuel producers in Australia would not be profitable. The effective rates of assistance (ERAs) for most biofuels were found to be over 100 per cent, far more than any other industry in Australia. By comparison, the next-highest ERA in Australia is for dairy cattle farming, which was 15 per cent in 2006-07, according to the Australian Productivity Commission.

Nonetheless, total government expenditure on biofuels is lower in Australia than many other OECD countries examined by the GSI (for example, US$ 6 billion in the United States and US$ 4.2 billion in the European Union in 2006). At around A$ 0.42 per litre, however, the assistance to biofuels in Australia roughly the same as that provided in the United States.

The production of biofuels is expanding rapidly around the world, as governments strive to lower CO2 emissions and bolster their energy security. But in each OECD country examined by the GSI, subsidies to biofuels have proved a hugely inefficient way to achieve these goals.

Under even the most optimistic scenario for Australian biofuels, the amount of funding required to achieve a one-tonne reduction of CO2 through biofuel subsidies could have purchased between 5 and 30 tonnes of CO2-equivalent offsets on the U.S. or European carbon markets. Biofuel subsidies are also an expensive way to reduce fossil fuel use, costing between A$ 0.50 and A$ 2.00 for every litre of petroleum-equivalent displaced.