Last month the NSW state cabinet voted to triple the first legislated mandate for ethanol in petrol in Australia: oil companies will be required to sell petrol with 6pc ethanol by 2010, and 10pc by July 1, 2011.

According to The Australian Financial Review, the decision - taken without consultation with the Rudd Government - has caused anger in Canberra as it is estimated the mandate will add $200 million to the federal budget forecasts because biofuel producers receive a federal rebate on the 38.14¢ a litre fuel excise.

Queensland is also flagging introduction of a mandate and, like NSW, can do so at no cost to its own budget. The AFR reports that the federal government is concerned it could face a major erosion of its tax base as ethanol usage increases.