Report

The ethanol production grants program

28 Jan 2015
Description

This audit examined the effectiveness of the administration of the Ethanol Production Grants Program (EPGP).

Objective, criteria and scope

The objective of the audit was to examine the effectiveness of Industry’s administration of the EPGP, including relevant advice on policy development.

To form a conclusion against the objective, the following high level audit criteria were used:

  • the grant application process was accessible and attracted high quality applications;
  • the assessment process adopted was consistent, transparent and cost effective;
  • advice to the delegate was complete and robust and funding decisions were sound;
  • funding distribution is consistent with the program’s objectives and appropriate arrangements are in place to manage successful projects;
  • appropriate monitoring and reporting arrangements are in place; and
  • relevant government entities provided sound advice to assist with policy development and government decision making.

The ANAO examined program administration since 2007–08, given the difficulty in identifying and locating detailed records relating to the program’s early administration. However, the ANAO’s examination of the policy development process and decisions by government covers the period from the EPGP’s establishment in 2002. The ANAO does not have a role in commenting on the merits of government policy.

This audit does not involve an assessment of the administration of other (non-EPGP) government initiatives to support the Australian ethanol industry, except to the extent necessary for an understanding of the history of the EPGP.

Methodology

In conducting the audit, the ANAO reviewed: documents of the departments of Industry and Science, the Prime Minister and Cabinet, the Treasury and Finance, including policy documents, ministerial correspondence, reports, guidelines and operational documents; examined relevant Cabinet submissions, memoranda and decisions; interviewed departmental staff; and examined the grants administration process. The ANAO also invited EPGP recipients to provide representations about their experience as grant recipients and, in particular, Industry’s administration of the program; however, no submissions were received.

Overall conclusion

Originally introduced in 2002-03 as a short term (12 month) subsidy payable to eligible domestic ethanol producers, the Ethanol Production Grants Program (EPGP) was extended by successive Australian Governments and will end on 30 June 2015 at a cost to the Commonwealth of some $895 million over the program’s life. The key program objective was to support the production and deployment of ethanol produced from locally derived feedstocks as a sustainable transport fuel in Australia. Intended outcomes were to: improve the long term viability of the ethanol industry in Australia; increase the capacity of the ethanol industry to supply the transport fuel market; and encourage the use of environmentally sustainable fuel ethanol as an alternative transport fuel in Australia. Five program participants have received financial assistance under the EPGP, which is a grants program currently administered by Industry.

Overall, Industry's administration of the EPGP since 2007-08, the period examined in this performance audit, has been generally effective. EPGP program arrangements were generally fit for purpose and largely consistent with the Australian Government's grants administration framework. The department also implemented a sound arrangement for monitoring grant recipients' compliance with key program requirements. Had the program continued beyond its planned closure in 2014-15, there would have been opportunities for the department to improve its public performance reporting on achievement against the program’s objectives and outcomes, which is currently limited to reporting on the number of companies that receive payments under the program.

The Australian Government's recent decision to close the EPGP was informed by a consistent body of analysis and advice—provided to successive governments since the program's earliest days—drawing attention to shortcomings in the overall policy approach and the likelihood that program costs would exceed benefits. Prior to the EPGP's establishment and at key decision points, the administering department and central co-ordinating agencies offered candid advice on value for money, drawing on past Australian and international experience and the findings of two key reviews (in 2008 and 2014) which had concluded that the benefits of the program were modest and had come at a high cost. These assessments of value for money are underlined by the program's limited success in achieving key objectives and outcomes. After 12 years of operation and some $895 million in government support directed towards improving the long-term viability of the domestic ethanol industry, in 2014 only three domestic producers (up from two in 2002) were operating, and an expanded Australian ethanol industry based on market priced feedstock was considered unlikely to be commercially viable in the absence of the EPG rebate.

The ANAO has not made recommendations in this audit, as the EPGP is scheduled to close from 30 June 2015. While there was scope for the administering departments to develop a more effective performance reporting framework as a basis for assessing outcomes, Industry and the central agencies did provide candid advice to government on the modest performance of the program against its objectives, drawing on Australian and international experience and two reviews of the program; with decisions to continue the program until 2014–15 made by successive governments.

Publication Details
Published year only: 
2015
46
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