Parratt & Associates Scoping Biorefineries: Temperate Biomass Value Chains

Chapter 6. Policy and Legislative Framework

6.1 Overview

The Australian Government has recently undertaken a number of reviews that could impact on the development of industrial biotechnology and biomass conversion to fuels, biofuels and biobased products.

The Federal and State Governments have committed substantial for funding renewable energy, energy efficiency and climate change prevention that will provide opportunities to develop the industry. However the recent decisions to delay the introduction of a Carbon Pollution Reduction Scheme (CPRS) and changes to the Renewable Energy Target (RET) program has caused some confusion and also concern particularly for investors and legislators. The withdrawal of the Department for Resources, Energy and Tourism (DRET) White Paper on energy has also caused unease as legislators and investors grapple with the impact of changes that could be rolled out in response to the Henry Tax Review. The delays in the release of the energy White Paper also have been linked to the delays in the introduction of the CPRS.

Application of technologies to enable the conversion of temperate biomass to energy and other bioproducts has an important role to play in ameliorating climate change. However, there is certainly an emerging consensus that private sector investment in appropriate technologies is below the ‘socially-optimal level’.²¹¹ The application of public policy to address market failures require government(s) to correct externalities (i.e. with taxes or a subsidy) and support and protect the returns of innovation.

The pricing of energy is the cornerstone of an emissions reduction policy. The current support programs at the Commonwealth and State levels are focussed almost entirely on producing renewable energy. Though the nexus between energy and co-products from biomass may be self-evident and that policy relating to climate change and renewable energy are inextricably linked, there remain legislative and policy gaps that work against the development of biorefineries and bioproducts in favour of power to the grid.

Governments face two challenges; firstly how to address not only the energy issues; and secondly, how to reduce the utilisation of non-renewably sources carbon in the chemical industries. The government needs to develop or put in place policies that reflect this nexus.

6.2 Bio-Energy Regulatory Assessment Systems and Sustainability Framework

In a recent and detailed analysis of the legislative and policy frameworks O’Connell²¹² and provided a case study of the Victorian regime. The authors considered a range of legislative instruments currently in place in Australia. These instruments enact a range of policies, regulations, targets, incentives, tax rules and standards that impact on biofuels, bioenergy and hence bioproducts.

Some instruments of specific relevance considered by O’Connell were;

• 
  Kyoto Protocol obligations;
  
• 
  the Clean Energy Initiative;
  
• 
  the Renewable Energy (Electricity) Act 2000 and the Renewable Energy (Electricity) Regulations 2001. These also set the rules as to which biomass can be eligible for Renewable Energy Certificates;
  
• 
  fuel quality standards are enacted through the Fuel Quality Act 2000
  
• 
  in 2009 the Renewable Energy Target stated that 20% of electricity generation in Australia should be from renewable sources;
  
• 
  the Fuel Tax Act 2006 and the Fuel Tax (Consequential and Transitional Provisions) Act 2006 provide the legislative basis for the taxation transition arrangements for the excise on biofuels.
  

The report provides a detailed picture of the complexity and breadth of regulatory frameworks currently in place as they relate to bioenergy. Given the biomass for bioproducts, inclusive of bioenergy is essentially identical we have not repeated their study nor do we have the scope to do so herein. In addition, to this work it is necessary to overlay the current regulatory and legislative frameworks appropriate for the chemicals and plastics industry. In 2009 the Council for Australian Governments (COAG) initiated a harmonization process of the legislation and regulations relating to the chemicals industry. This process has a five-year time frame.

As the States have both constitutional and legislative responsibilities for areas such as land management consideration needs to be given to various State-based legislative instruments and policies. The O’Connell report identified twenty pieces of legislation and a range of forest management and policy documents were considered just in relation to Victorian forests. There is also a range of environmental planning and assessment policies, transport and planning policies and instruments that would need to be considered in relation to the development of biomass supply chains in Victoria.

The Rural Industries Research and Development Corporation (O’Connell et al 2009)²¹³ report focused on biofuels only, however it is equally applicable to all biobased products derived from temperate biomass. The authors provided a series of key messages and conclusions that are worth repeating;

1. 
   The bioenergy value chain crosses from biomass production through conversion to distribution (potentially including export and import markets) and therefore a broad range of other policies are relevant along the value chain. These include policies for water, biodiversity, climate change, agriculture, forestry, waste management, transport and regional development.
   
2. 
   Emerging bioelectricity and biofuel value chains require reference to and compliance with this array of policies, legislation and regulations from Australia’s three levels of government, often with ioenergy sustainability framework, if they could be systematically aligned and synthesised.
   
3. 
   The biomass production segments of the value chain are very heterogeneous and often very contentious. The biomass can come from native forests, plantation forests, agricultural systems (food or residues), changed land uses (which may be complementary or competitivadditional industry specific codes of practice, agreements and requirements. This makes for a complex policy environment. However, the large number of policies, regulations etc. through the value chain indicates that there are many building blocks in place for a be with agriculture), and waste streams. There are important differences in the complexity and restrictiveness of the policy and regulatory environments from these different production systems.
   
4. 
   There are robust national and state policies and regulations pertaining to the development of a processing facility for bioelectricity or biofuels.
   
5. 
   There is no specific implementable sustainability assessment system in place in Australia for bioenergy ...the State Environment Report, or other criteria and indicators currently used are not sufficient for bioenergy, because they do not deal with life cycle impacts through the value chain and indirect land-use effects.
   

The report also highlights some of the potential impacts of the complex and sometimes inadequate policy framework. These include;

1. 
   Australian biomass, bioelectricity and biofuel producers might not have access to international markets if they not able to certify product according to an internationally recognised scheme based on a detailed life cycle analysis;
   

6. 
   Australia risks being the recipient of biomass or biofuel products that do not meet the sustainability requirements of other nations;
   
7. 
   Biomass exporters may have different sustainability reporting requirements for exporting the same product depending on the market into which they are selling;
   
8. 
   Bioelectricity and biofuel producers may struggle to obtain sustainability certification of biomass coming from heterogeneous sources; and
   
9. 
   Australian and State Governments may encounter issues with the FTA and GATT over definitions of’ sustainable production’.
   

The expanded Commonwealth renewable energy legislation²¹⁴, passed in August 2009 mandates that 20 percent of electricity will be provided from renewable energy sources by 2020. Access Economics reported that it expects this will generate more than $20B investment in renewable energy technologies and create 28,000 new jobs when combined with the energy efficiency strategy. (Access Economics: The net employment impact of climate change policies, June 2009).²¹⁵

With the passage of the Renewable Energy (Electricity) Amendment 2010 due to take place in 2011 the Renewable Energy Target (RET) will be separated into two parts, the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES)²¹⁶. The SRES will provide a fixed price of $40 per Renewable Energy Certificate (REC). The price for LRET REC will be determined by the market trades, based on the existing REC scheme. The establishment of LRET and the associated RECs provides a stimulus for renewable energy production from solar, geothermal and co-generation in existing power stations. However, it also creates a disincentive to use the ‘non fuel’ component of biomass, e.g. lignin for bioproducts. Lignin can be burnt to produce energy and hence produce RECs. The advantage of the proposed CPRS would be to create a value on the use of the carbon for non-power products. However, the proposed CPRS does not deal with emissions benefits from using biofuels.²¹⁷

DRET is currently working with an industry, research organisations consortium to evaluate aviation biofuels. This is a similar approach taken by the USA Department of Defence and the US aviation industry. This project is primarily be driven by industry needs and has the backing of QANTAS, Boeing and Airbus.²¹⁸ However, until there is clarity around the energy policy investment in biorefineries and the associated value chain in Australia, we may lag behind other participating countries.

The extent to which these benefits relate to the utilisation of temperate biomass is unclear as no specific industry-based analyses were undertaken. The recent report from the Paper and Pulp Industry Strategy Group (March 2010)²¹⁹ made a range of recommendations that would impact the development of the biobased product value chains.

1. 
   Recommendation 2: Establishment of a Pulp and Paper Innovation Council tasked with the implementation of the recommendations and the development of terms of reference for an appropriately funded Biorefinery Research Institute.
   
2. 
   Recommendation 4: Forecasts potential that would enhance the development of on-site energy usage at pulp and paper facilities, impacting GHG emissions, energy demands on base loads.
   
3. 
   Recommendation 11a and 11b to alter the RET scheme would encourage investment in co-generation and greater utilisation of wood waste.
   
4. 
   Recommendation 18 to improve industry-focused training and education could encompass skills bases necessary for the development of biorefineries.
   

The establishment of a Pulp and Paper Innovation Council and the current scoping of the responses to the strategy document by the Department of Innovation, Industry, Science and Research suggests serious consideration is being given to these recommendations. The challenge could be to broaden the scope of muted the biorefinery institute to beyond just a forest pulp-based model.

The policy and regulatory environment for biomass transformation and the value chain is complex and challenging. With the further development of renewable energy targets, the introduction of LRET, SRES and the ongoing debate on access to forests (plantation and native), and the uncertainty surrounding the introduction of the CPRS there are currently serious challenges to the development of biomass supply chains. Discussions with industry through the process of developing this report stressed that the current degree of uncertainty is a barrier to investment. Though the regulatory and policy framework has strong foundations at various points along the supply and value chain there are gaps, as O’Connell points out.