12/11/2007 (Couriermail.com.au) - COMPLACENT government attitudes toward biodiesel are costing Queensland jobs and denying the population one of the greenest energy forms.

They are also bringing the local industry to its knees.

In Europe and the US – where the renewable fuels industry is strong – government mandates are driving growth.

EU initiatives have included tax exemptions on biodiesel and a requirement that a minimum of 5.75 per cent biofuel be blended in petroleum transport products by 2010.

The German Government requires compulsory blending of 5 per cent biodiesel in all petroleum-based diesel, with steep fines for non-compliance. In 1991, Sweden introduced the world's first carbon tax and it now leads the world in biofuels and is close to phasing out the use of imported heating oil.

Some biofuels have drawn severe criticism, especially ones that use palm oil and risk causing carbon dioxide release from massive deforestation needed to clear the way for palm oil fields. As have those that divert crops for fuel rather than food supply.

But the Narangba plant of listed Sydney-based company Australian Biodiesel Group – the nation's largest-capacity biodiesel plant – is what Environment Business Australia views as just the type needed to help cut greenhouse gas without creating other environmental or social problems.

It recycles tallow, or animal fat, from cattle abattoirs to produce a diesel substitute.

Deriving energy products by using up waste matter from the food chain exemplifies environmentally sustainable business practices, EBA chief executive Fiona Wain says. She says its technological advancement should be supported, along with governments leading the way by using the technology in their own vehicles.

ABG says tallow oil prices – which at the time of its April prospectus release were about $580 a tonne – had unexpectedly rocketed in the past months to $950 a tonne and could soon reach $975. This had made production unprofitable.

This week it halted production at its Narangba plant and says it won't resume until it makes financial sense to do so. The Narangba plant will be kept on standby but eight jobs there have been cut immediately.

It is the second Australian biofuel producer to reduce output in a week amid the surge in feedstock prices. Last week, Australian Renewable Fuels halted production at its two plants because of losses.

Babcock & Brown Environmental Investments – which has invested in a biodiesel plant in Darwin – is holding its annual general meeting today and declined to comment ahead of that meeting.

In September, an OECD discussion paper said only a few biofuel processors in the world could substantially reduce greenhouse gas emissions compared with gasoline and mineral diesel. ABG's method is one of them. The OECD said other conventional biofuel technologies delivered greenhouse gas emission cuts of less than 40 per cent compared with fossil fuel alternatives, when factors such as fertiliser use in crops was included.

It said many countries have regulations and fuel tax preferences to stimulate production but which don't distinguish between biofuel methods which could have wide differences in environmental costs and benefits.

Australian governments provided support for ethanol biofuel production – including federal import tax protection until 2011 – as well as marketing campaigns and government use of ethanol-powered vehicles. But no such backing has been given to the biodiesel industry, says Biofuels Association chief executive Bruce Harrison.

"We think there's a good case to be made for some government support just during our early phase. Right now, being at the fledging stage, we've got very high feedstock prices because of high global demand for tallow oil, including from China for its own manufacturing purposes, and it's difficult to ride it out given we're not a mature industry," Mr Harrison said.

The Australian Government last year revised fuel tax laws that stop heavy users of diesel from claiming a rebate on fuel excises if the producer had already claimed a rebate. Analysts said the change in the biofuels tax legislation – while not withdrawing government support for the biofuels industry – fell short of being conducive to substantial growth. According to ABG, wIth a non-mandatory target of 350 million litres of biofuel by 2010, the Federal Government would not meet its target and had not provided any meaningful startup support to the biodiesel industry.

"We suggest a state or federal mandate," ABG chairman John Keniry said.

"For example, mineral diesel to on average contain 2 per cent of biodiesel. The Federal Government is too laid-back. It claims it's got renewable energy targets and encourages business growth but then doesn't put policy settings in place to provide at least initial support."

Mr Keniry said the Federal Government had ruled out issuing mandates. The NSW Government requires 2 per cent of all oil and petrol distributors' volume to come from ethanol.

Mr Keniry said a similar Queensland government mandate for biodiesel could provide a commercial basis for the Narangba plants to grow.

A Queensland Tourism, Regional Development and Industry Department spokesman said the State Government had done more to support biofuels than any other state, was providing funding for research to develop alternative feedstock supplies and was also working on a "biodiesel action plan".