This bad news for the ethanol lobby compounds the development that the federal government will not force Big Oil to blend ethanol with their petrol at the pumps.

Prime Minister John Howard was reported on Sydney radio as saying he was not in favour of mandating the blending of ethanol into petrol at this stage.

The $37 million subsidy pledge involves the 15 ethanol and 16 biodiesel proposals across Australia, but to qualify for a subsidy, a project must be viable by 2013 and must provide firm evidence of projected domestic sales.