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LIQUID FUEL SUPPLY AMENDMENT BILL 2002
EXPLANATORY NOTES
GENERAL OUTLINE
Short Title
The short title of the Bill is the Liquid Fuel Supply Amendment Bill 2002.
Policy Objectives of the Bill
The primary policy objectives of the Bill are to:
· Amend the Liquid Fuel Supply Act 1984, specifically to require all petrol sold in
Queensland to contain a minimum 10 percent ethanol blend by volume;
· Stimulate the orderly development of, and investment in, a fuel ethanol industry in
Queensland based on sugarcane and grain produced in Queensland;
· Stimulate regional and rural development through the creation of an alternative and
stable market for sugarcane and grain produced in Queensland and the creation of
new jobs in the fuel ethanol industry;
· Improve the quality of unleaded petrol and reduce greenhouse gas emissions from
motor vehicles in Queensland by blending a minimum quantity of the oxygenate,
ethanol, with unleaded petrol used in Queensland; and
· Reduce Queensland s reliance on foreign oil imports and Queensland motorists
exposure to the vagaries of the global oil market.
Reasons why the Legislation is necessary
The legislation is necessary to achieve the policy objectives outlined above.
Ethanol is a renewable fuel grown and refined from plant materials or waste. The product is
widely used in the United States of America (US), Brazil and Europe as a supplement to
conventional petrol and is currently being produced in limited quantities in Australia from
sugarcane and grain.
Being an oxygenate, the addition of ethanol to conventional petrol promotes cleaner burning
and the subsequent reduction of toxic and greenhouse gas emissions from car exhausts.
Ethanol produces up to 30 percent less carbon monoxide than petroleum-based fuels and the
addition of ethanol to conventional petrol increases its octane rating. The most common
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petrol ethanol blend is known as E10, which comprises a blend by volume of 90 percent
conventional unleaded petrol and 10 percent ethanol.
Countries which have adopted the use of petrol ethanol blends have harnessed considerable
economic and environmental benefits including regional and rural development, industry and
job creation, substantial reductions in air pollution and import replacement.
Part 5A -- Ethanol Substitution, sections 35A to 25B of the Liquid Fuel Supply Act 1984
provides that the State Government can require oil refineries in Queensland to purchase and
blend a prescribed quantity of ethanol, manufactured in Queensland, into motor fuel for
supply and sale.
The provisions were introduced into the Act in 1988 by then Minister for Mines and Energy,
the Hon. Martin Tenni. The amendment replaced outdated legislation (the Motor Spirits
Vendors Acts 1933 to 1934) and allowed for the possibility that ethanol production could
become economically viable at some point in the future.
As it currently stands, the provision is activated by the Governor in Council making an order
in council. However the provision has not been activated to date due to the underlying failure
to establish a demand for ethanol use by the relatively few major oil companies which supply
the Queensland market.
Experience in the USA and Europe, supported by the recent comments of some oil industry
representatives and ethanol proponents, has shown that a statutory mandate is necessary to
develop a viable ethanol industry. Effectively, the mandate acts to convey a message to the
market and provide investors and financiers with the confidence to invest in the fuel ethanol
industry. The mandate also circumvents the dominance of the major oil companies by
requiring them to use ethanol, thereby creating a demand for the product which will stimulate
the development of a viable ethanol industry.
This Bill proposes to amend the Liquid Fuel Supply Act 1984 to introduce a mandated
minimum 10 percent ethanol content in petrol sold in Queensland. The amendments proposed
in the Bill will replace the provision for Governor in Council to make an ethanol mandate
order by introducing a statutory mandate requiring that all petrol sold in Queensland should
be a blend containing a minimum ten (10) percent ethanol by volume.
There are currently approximately 3.8 billion litres of petrol used in Queensland each year,
meaning that a 10 percent ethanol mandate would require 380 million litres of ethanol.
Queensland is well equipped to meet this demand from its existing sugarcane and grain
industries. For example, in 2001, a difficult year for most cane growing regions, Queensland
produced 28.8 million tonnes of sugarcane. In 1997, the state produced 38.1 million tonnes of
sugarcane. Approximately 4.8 million tonnes of sugarcane would be required to supply
sufficient ethanol to meet a state-wide 10 percent mandate. Of course, this requirement would
be reduced when grain is also used to produce fuel ethanol.
The reason for the statutory mandate is to clearly enunciate the government s intent with
regard to the use of the fuel-ethanol blend known as E10. It is accepted that there is currently
an insufficient supply of domestically-produced ethanol, however the introduction of a
mandate at this level will provide the confidence that investors and financiers require to
support the development of the fledgling industry. The provision of tightly controlled
exemptions and pricing regulation will assist the development of an ethanol industry in
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Queensland by discouraging ethanol imports and protecting motorists from petrol price
increases.
The way in which the policy objectives will be achieved by the Bill
The Bill will achieve the following policy objectives:
· Introduce a statutory mandate requiring that all motor spirit (petrol) sold in
Queensland should be a blend containing a minimum ten (10) percent ethanol by
volume;
· Introduce a provision for the Minister to grant an exemption if the Minister is satisfied
that a person engaging in producing, refining or selling motor spirit in Queensland ( a
prescribed person ) cannot obtain, at a prescribed price, a sufficient quantity of ethanol
to enable the person to comply with the mandate;
· Introduce a provision for a regulation to made prescribing a price, or a method for
deciding a price, for ethanol sold to motor spirit producers, refiners and sellers.
· Introduce a provision for a regulation to be made prescribing the person or class of
persons from which motor spirit producers, refiners and sellers must purchase ethanol;
and
· Introduce a provision for a regulation to be made directing any motor spirit producers,
refiners and sellers that seeks an exemption from the mandate requirement to provide
the Minister with information relevant to that application.
Estimated administrative cost to government
The Bill has minimal administrative cost implications for government.
Consistency with Fundamental Legislative Principles
The legislation has been prepared taking into consideration fundamental legislative principles.
Consultation
Consultation has been held with existing and planned ethanol manufacturers and users in
Australia, fuel companies, as well as government and industry bodies in the United States of
America. Consultation has also been held with the Federal Government and industry groups
including CANEGROWERS, the Australian Cane Farmers Association, Queensland Sugar
Limited, officers from AgForce, the RACQ and interested individuals.
The Office of Queensland Parliamentary Counsel has prepared the Bill.
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NOTES ON PROVISIONS
Short title
Clause 1 provides that the short title of the Act will be the Liquid Fuel Supply Amendment Act
2002 ( the Act ).
Act Amended
Clause 2 provides that this Bill amends the Liquid Fuel Supply Act 1984.
Amendment of s 5 (Interpretation)
Clause 3 inserts new references to Section 5, namely prescribed person , prescribed price
and sell for the purpose of interpreting the intent and application of the Act.
Replacement of part 5A, heading (Ethanol substitution)
Clause 4 omits the heading Part 5A Ethanol Substitution and inserts a new heading,
PART 5A ETHANOL IN MOTOR SPIRIT .
Replacement of s 35A (Requirement to purchase ethanol)
Clause 5 omits and replaces the existing Section 35A of the Liquid Fuel Supply Act 1984.
35A Purpose of pt 5A
35A Purpose of pt 5A provides that the purpose of the new part is to require the use, in
Queensland, of motor spirit containing a minimum quantity of ethanol (the mandate ). This
provision clearly enunciates the policy intent of the Act in requiring that ethanol should be
blended with motor spirit used in Queensland.
35AA Definitions for pt 5A
This part introduces new definitions to the Act for a prescribed person , prescribed price
and sell .
A prescribed person is someone who produces, refines or sells motor spirit in Queensland and
who will be required to comply with the minimum 10 percent ethanol mandate.
The prescribed price is that which will be used, via regulation, to determine the price at which
ethanol should be purchased in order to comply with the mandate.
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The definition for sell encapsulates all forms of trade including barter, exchange and supply
for profit.
35AB Offence to sell motor spirit without 10% ethanol content
Section 35AB(1) is the provision making it unlawful to sell, in Queensland, motor spirit that
does not contain an ethanol content less than 10 percent. In doing so, it allows for the
possible sale of motor spirit containing blends in excess of 10 percent, which may occur in the
future with the development of the ethanol industry and in certain applications.
Section 35AB(2) introduces part of the provision that allows motor spirit producers, refiners
and sellers not to comply with the mandate provided for in Section 35AB(1), only if they
cannot secure sufficient quantities of ethanol at a prescribed price.
35AC Exemptions from s 35AB
Section 35AC forms the remainder of the provision that allows motor spirit producers and
refiners not to comply with the mandate provided for in Section 35AB(1). Motor spirit
producers, refiners and sellers can only avoid complying if the Minister grants them an
exemption under section 52 and then only if the Minister is satisfied that an applicant for
exemption cannot secure sufficient quantities of ethanol, at a prescribed price, to satisfy the
minimum 10 percent requirement.
The exemption provision has been based on the Minnesota model, and accepts that there will
be shortages of ethanol while the industry is in its infancy. The exemption provision should
provide some protection against the import of ethanol, which may occur on a large scale
without the provision of an exemption and which may impede the development of a domestic
industry. It should also limit any opportunity for oil companies to increase fuel prices to
motorists; negating any argument that ethanol is more expensive to source than conventional
motor spirit.
35AD Regulations for pt 5A
Section 35AD(1) allows for a regulation to be made which prescribes a price, or a method for
deciding a price, for ethanol that is sold to motor spirit producers, refiners and sellers (a
prescribed person ).
The regulation should extend the existing regulation for pricing motor spirit to ethanol. This
would prevent unjustified discounting of the prices offered by motor spirit producers, refiners
and sellers for ethanol purchase as well as any inflation of the prices sought by ethanol
producers. The intent should be to protect ethanol producers from predatory pricing and
motorists from petrol price increases.
It is proposed that the pricing reference contained in the regulation should be based on the
maximum endorsed wholesale price , which is a figure prepared daily by the Australian
Competition and Consumer Commission (ACCC) and provided to oil companies. The oil
companies are allowed a maximum 0.5 cent/litre latitude on their wholesale prices before
being subject to possible ACCC action.
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Liquid Fuel Supply Amendment Bill 2002 Page 5
Section 35AD(2) allows for a regulation to be made which prescribes the person or class of
persons from whom motor spirit producers, refiners and sellers must purchase ethanol, or to
allow the Minister to direct motor spirit producers, refiners and sellers to provide any
information relevant to any exemption from the mandate requirement that they seek. This
provision would place the onus on the motor spirit producers, refiners and sellers to
demonstrate that they cannot secure sufficient quantities of ethanol at the prescribed price.
35AE Failure to comply with directions under s 35AD
This provision introduces a penalty regime for motor spirit producers, refiners and sellers that
do not comply with a direction made by the Minister under section 35AD(2)(b) to provide
relevant information when seeking an exemption from the minimum 10 percent ethanol
content mandate.
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