Instead of the present exemption from fuel excise, which gives ethanol a 38 cent a litre price break on petrol, the government is expected to remove the excise exemption and instead offer a system of producer credit.
The benefit of this to the sugar and ethanol industries is that ethanol imports - particularly from Brazil - will not attract the excise exemption and will be rendered uncompetitive with the nascent local industry.
While the move will no doubt win support from canegrowers, it is expected to draw an angry response from independent fuel suppliers who have been importing tax-free ethanol to mix with petrol as a way of undercutting prices charged by big oil companies.
As for the decision to make compulsory the use of ethanol in petrol, Federal Cabinet on Tuesday decided to defer the decision until November pending further research and advice.
National Party MPs are pushing hard for ethanol to become an additive in Australian petrol while the Treasurer, Peter Costello, and Finance Minister, Nick Minchin, have expressed reservations about the policy.
