Barry O’Farrell & Ethanol Policy

Andrew Clennell, State Political Editor
The Daily Telegraph
January 24, 2012

PREMIER Barry O’Farrell ignored the advice of his energy minister and two independent reports when deciding to stick with an ethanol policy that will force 800,000 motorists to pay an extra 15c a litre – $500 a year – in petrol costs.

The policy – which will ban standard unleaded petrol from July 1 – means 20 per cent of cars on NSW roads, which cannot use E10, will be forced to use more expensive premium unleaded.

Cabinet documents showing Mr O’Farrell ignored advice from his Energy Minister, senior bureaucrats, the Crown Solicitor and the ACCC, was revealed in a damaging leak to Seven News last night.

The Premier’s actions fly in the face of his stance on the carbon tax and the cost of living, which he used as a potent weapon during last year’s state election campaign.

THE price of ethanol fuel will keep rising as a record number of Sydneysiders take-up petrol alternatives.
The leaked documents show Energy Minister Chris Hartcher was trying to dump a mandate that 6 per cent of petrol in the state be made from ethanol-blended petrol amid fears it would cause rising fuel costs.
Mr Hartcher and his department were trying to stop the policy, cabinet minutes reveal, on the grounds that the ACCC had found “adverse pricing consequences for motorists and advises that if the NSW 6 per cent mandate proceeds as planned for 2012, ethanol shortages could occur in the medium to long term”.

The documents reveal the Crown Solicitor also advised that there was a “reasonable prospect the Act could be struck down” because it “breached the constitution”.

But National Party ministers, led by Deputy Premier Andrew Stoner, won their way with Mr O’Farrell.

The cabinet submission showed RTA advice to the Energy Department was that there were a large number of newer (post-1986) unleaded petrol vehicles (746,000 cars and 92,000 motorcycles) not recommended for use with E10 by their manufacturers. Cabinet was warned these motorists would “need to change to premium, resulting in additional costs to them”.

The documents said: “All three major petroleum companies will not meet the 6 per cent ethanol mandate even from July 1, 2012, when ULP (unleaded petrol) is eliminated from the NSW market and will require exemptions. To avoid companies being in breach of the Act … it is recommended that the 6 per cent mandate be removed from legislation.”

Cabinet decided on December 19 to “defer considering that to avoid companies being in breach of the Act upon the elimination of ULP from the market on July 1, 2012, that the 6 per cent mandate is removed via legislation”. Cabinet also elected to go against a recommendation from Mr Hartcher that “fuel retailers and relevant associations … actively convey and advertise to customers that ULP will not be available from July 1, 2012”.

A senior government source said last night the only producer of ethanol in NSW, Manildra, “gives a lot of money to political parties and has bought (itself) a monopoly”.

“Customers don’t want it and we have a mandate to make people take it. If you (were to) dump the mandate, then you don’t have to abolish unleaded petrol,” the source said.

BP’s government relations director Richard Wise told Seven News that Mr O’Farrell’s decision was “bad policy” that benefitted only Manildra.

“While E10 has traditionally sold at a discount, we know that as demand for ethanol exceeds the ability of the domestic producers to supply, prices will inevitably increase,” he said.

Cabinet was also told companies would be forced to add ethanol to premium petrol: “The mandate increase to 6 per cent of all petrol sales will mean BP will have no choice but to introduce ethanol into premium fuels.”

Petrol companies unable to meet the ethanol targets will face prosecution and fines of up to $110,000, but Caltex said Manildra could not produce enough ethanol to meet the criteria.

The documents said independent advice by consultant Cloon Economics and a review by government consultancy AECOM also pointed to “looming shortages” when recommending “the removal of the mandates”.

Mr O’Farrell’s spokesman last night said the policy was a “win for regional NSW, good for jobs, backed by the NRMA, and it will mean lower petrol prices for the majority of motorists”.