The spark was a decision by the Prime Minister John Howard to remove an excise exemption for ethanol and replace it with a domestic production subsidy, knowing it would make imported ethanol uneconomical.

Australian Biofuels, which plans to list on ASX next month, said rather than helping the fledging industry, the decision would do more harm than good. "We need imports from Brazil to start up the industry while we build local plants," said the chief executive officer of Australia Biofuels, Trevor Bourne. "We cannot meet domestic demands of ethanol until we have established our own industry on our own turf.

"This is not encouraging a competitive industry in Australia, its ruining it."

Mr Bourne added the Federal Government's short-term 12-month strategy would benefit no more than two industry players - Manildra and CSR - both of whom cannot satisfy demand for ethanol.

The Manildra Group, which supplies fuel with the ethanol additive to petrol discounters, was the spark for another bitter row, this time between the Government and Opposition.

The Opposition accused the Government of not putting a 10 per cent cap on ethanol levels - despite advice that petrol sold with more than 10% ethanol could damage engines - just to appease businessman Don Honan, a Liberal Party backer, who also happens to own the Manildra Group and has been known to sell petrol with ethanol levels up to 20%.

Prime Minister John Howard rejected the accusations and said "nothing has been done by me or by the Government in this area to confer any benefit on a particular individual or a particular company."

While the major parties were engaged in a slanging match, a federal MP of the National Party, De-Anne Kelly, weighed into the debate by declaring that bio-ethanol is an idea whose time has come.

Ms Kelly said a 10% blend in petrol will require 1.8 billion litres of bio-ethanol, 20-25 new distilleries with an investment potential of $1 billion. "It would result in reduced carbon dioxide emissions of close to 950,000 tonnes a year," she said.

The federal MP for Dawson on the Queensland coast added the industry has the potential to secure the future of 6,500 cane-farming families, and underpin the social structure of a great number of coastal regional communities in Queensland which are reliant on the raw sugar industry. It is also capable of reducing Australia's dependence on imported oil to the tune of $4 billion a year.

"How could anyone protest that these identified benefits are not in the national interest," Ms Kelly concluded.