THE Federal Government will move to set a 10pc limit for the blend of ethanol in petrol while tests on the impacts of higher mixes on vehicles continue.
The decision, announced by Environment Minister Dr David Kemp, follows initial test results on vehicle engines that suggest blends of 20pc are unsuitable for a portion of Australia's fleet.
Ethanol, a renewable energy source made from fermented agricultural products such as sugar and grain, may be added to petrol as an octane enhancer.
According to Dr Kemp, it has some air quality benefits which have been confirmed by the Government's testing.
Dr Kemp said the 10pc limit, combined with mandatory Commonwealth labelling of ethanol blends, would restore confidence in its use among consumers and industry.
"The ethanol industry can now proceed with certainty, while motorists will be fully informed of the content of their petrol," he said.
The Government's moves drew support from the Australian Automobile Association (AAA) with some reservations - including that of cost.
Association executive director Lauchlan McIntosh said Treasury had estimated that without the current 0.38 cents a litre subsidy being paid to ethanol producers, retail prices would rise by 0.75c for every one per cent of ethanol in the fuel.
"In other words two per cent ethanol content would increase retail petrol prices by 1.5 cents per litre and three per cent by 2.25 cents per litre," he said.
But Queensland Federal National Party MP De-Anne Kelly said the association was "talking through their muffler" with the figures about increased costs if ethanol was blended with petrol.
"The AAA, like the other oil companies, will not admit that new innovative distillery processes such as ZeaChem, if the research proves to be successful, will make ethanol directly competitive with petrol even with a full fuel excise applied," she said.
The Government last year provided the Sugar Research Institute with a grant of up to $400,000 to conduct laboratory tests on the ZeaChem process, which has the potential to produce 60-70pc more ethanol from any given quantity of feedstock. It could reduce the cost of producing ethanol by up to 50pc.
Labor consumer protection spokesman Alan Griffin said the Government should have announced the 10pc cap six months ago.