08 October 2007 00:00 [Source: ICB]
Biofuels will have to overcome several hurdles before they deliver genuinely sustainable energy
CONTRARY TO popular sentiment, biofuel will not be the silver bullet that gives the world cheap renewable fuel and independence from oil producers anytime soon. It might even engender dependence on parts of the developing world where the climate is particularly conducive to the production of biofuel.
This new state of affairs could be a positive development, though - one that ties the developing world, through fair trade agreements, to the opportunities offered by access to large, developed economies.
Most of the growth in biofuel over the past two years has been politically driven. In the US, the agenda has been energy security and agricultural supports. In Europe, rural policy has also motivated the promotion of biofuel by the European Commission, European Parliament and the EU. This political momentum, fed by powerful farming lobbies on both sides of the Atlantic, has fueled growth in biofuel production, and will likely continue to do so in the future.
Put baldly, the policies look like this: the EU wants to replace 10% of its transport fuel with biofuels by 2020. China is aiming for 15%. The US is on track to beat Congress' goal, set in 2005, of doubling the volume of ethanol used in motor fuel to 7.5bn gallons (28.4bn liters) by 2012.
In his January State of the Union speech, US President Bush inflated the biofuel bubble by setting a new goal of 35bn gallons of biofuels by 2017. In June, the Senate, not to be left out, expanded the target to 36bn gallons by 2022. Of that, Congress said that 15bn gallons should come from corn, and 21bn from second-generation biofuels that are somewhere off commercial production.
So, with backing from the European Commission, the White House, senators and congressmen from the corn-belt states of the US, the future looks fair for biofuel.
Well, almost. Confronting this optimism are the realities of process economics, as well as the environmental and, in some parts of the world, social burdens of biofuels.
Political decisions often have unintended consequences, and the case of biofuel is no exception. The most important such consequence has been the increased price of many foodstuffs derived from the grains predominantly used to produce ethanol in the Northern Hemisphere.
In 2007, there were riots in Mexico over the price of tortillas, which rose with the price of corn riots in Yemen over increases in the price of wheat and disquiet in Italy as the rising price of durum wheat drove up the price of pasta.
There have been warnings that diverting corn or wheat into ethanol production would, almost paradoxically, force up the price of beer. Cattle, poultry and other livestock are often fed low-cost grain, with the result that products such as beef, milk, chicken and eggs may become more expensive. As production and consumption of these grains becomes more closely balanced in areas like the US, where there has been oversupply, these foodstuffs will become more expensive.
It looks as if the drive for energy security may be matched by an increasing level of food insecurity for the poorest members of the global community. Those at the bottom of the pile, who rely on food aid from organizations such as the UN, will be particularly disadvantaged. Using food crops for fuel looks like a payday loan until second-generation biofuels come onstream.
The price of food grains is rising markedly. At the Chicago Board of Trade, there was a 37.7% rise in the price of near-month corn futures from January 2005 to the second week in September 2007, from $2.60 (€1.83) to $3.58/bushel (about 25.4kg). The price peaked at around $4.20/bushel.
From early 2006, near-month wheat prices doubled, from $4.25/bushel (27.2kg) to $8.45/bushel and soy bean prices rose by 62% from $6.00/bushel (27.2kg) to $9.71/bushel.
The price of soybeans, which is widely used as a cheaper component in many processed foods, but also as a potential biodiesel feedstock, is projected to rise by up to 30% in the coming year, according to the New York Times, because farmers are moving out of soy and into more profitable corn.
Eventually, farmers will start planting fallow or more marginal land to meet the demand for more grain. As farmers move into more marginal land or increase the crop areas, demand for water for irrigation will rise, which could compete with municipal requirements.
In Europe, about 15% of agricultural land is left fallow under a farming price support mechanism. Called a set-aside, this land could be used to grow nonfood crops, but there is debate about whether it will be sufficient to produce enoughbiofuels to meet targets.
In its report entitled Biofuels: Is the Cure Worse Than the Disease?, the Organisation for Economic Co-operation and Development says "Global production of biofuels amounted to 0.8 EJ [quintillion joules] in 2005, or roughly 1% of total road transport fuel consumption. Technically, up to 20 EJ from conventional ethanol and biodiesel, or 11% of total demand for liquid fuels in the transport sector, has been judged possible by 2050."
The organization adds: "An expansion on this scale could not be achieved, however, without significant impacts on the wider global economy. In theory, there might be enough land available around the globe to feed an ever-increasing world population and produce sufficient biomass feedstock simultaneously, but it is more likely that land-use constraints will limit the amount of new land that can be brought into production, leading to a 'food-versus-fuel' debate."
The painful truth
The environmental benefits of using grain grown in northern latitudes to produce biofuels are modest, however. A study on corn ethanol published last year by scientists at the University of California, Berkeley, US, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, greenhouse gas emissions were lowered by 13%.
There are many studies showing better environmental performance for ethanol, but these often neglect the energy or carbon consumed in producing and transporting fertilizer, for example. Fertilizer use is likely to increase in the medium term, as farmers try to keep the yield of their land up.
"Even without taking into account carbon emissions through land-use change, among current technologies only sugarcane-to-ethanol in Brazil, ethanol produced as a by-product of cellulose production (as in Sweden and Switzerland), and manufacture of biodiesel from animal fats and used cooking oil can substantially reduce Green House Gases [GHG] compared with gasoline and mineral diesel," says the OECD report.
"The other conventional biofuel technologies typically deliver GHG reductions of less than 40% compared with their fossil-fuel alternatives," it continues. "When such impacts as soil acidification, fertilizer use, biodiversity loss and toxicity of agricultural pesticides are taken into account, the overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel."
The OECD says that the US is supporting ethanol production with $7bn in subsidies, so that each tonne of carbon dioxide (CO2) avoided costs around $500. The cost of the EU's efforts could be about 10 times that.
"As long as environmental values are not adequately priced in the market, there will be powerful incentives to replace natural ecosystems such as forests, wetlands and pasture with dedicated bio-energy crops," adds the OECD.
Instead of subsidizing biofuels, governments should tax carbon, says the OECD. The money saved from subsidies should then be earmarked for research in second-generation biofuels.
The economics of biofuel production in the US is explicitly centered on subsidies from the government.
Typically, firms that are planning to build a biofuel plant will gain a tax holiday or significant reductions in the amount of tax they must pay to the locality where the plant will be situated. They will often qualify for state grants and further tax breaks to build the plant, and if they produce over a threshold, they also qualify for a further subsidy from the federal government.
Additionally, they operate in a market that is sealed against the region's most efficient ethanol producer by a 54 cent/gal import duty on ethanol from Brazil. The policy is helping other countries, notably Japan, which has a number of agreements with Brazilian companies to supply cheap ethanol. The tariff is due to be reviewed in 2008.
Barriers to competition are one of the defining characteristics of the global biofuels industry. Policy at the European and US level has only recently been associated with security of supply and environmental benefits. Historically, it has been driven by the need to improve the rural economies in both trading blocs, so it is inward-looking, seeking inefficient local solutions to global problems.
No one seems to be publicly debating the question: is it better to produce biofuel in the equatorial countries where crops such as sugar grow quickly and import biofuel, or is it better to support farmers in regions where there is greatest demand for biofuel, to grow less efficient crops, nearer to the markets?
A complex web of politics entangles sugar. Not just a sweetener, it is an ideal starting material for ethanol fermentation. Like the barriers to Brazilian ethanol, similar barriers limit the volume of sugar that can be imported into both the US and the EU. The EU operates a sugar regimen meant to support prices for producers, including European farmers who produce sugar beet, against competition from countries with more cost-effective sugarcane production. The US sugar regimen is similarly designed.
In November 2005, the EU decided, after much debate, to reduce sugar prices by 36% over four years, alongside a voluntary restructuring plan aimed at reducing production by around 6m tonnes/year.
"This will enable the EU to comply with a WTO (World Trade Organization) ruling limiting subsidized exports, and fulfill its existing commitments on preferential imports from parts of the developing world," the UK presidency observed.
In the US, the government has outlined its plans for the 2008 sugar regimen. In June, this year, an alliance of 30 manufacturers, including the American Beverage Association, Kraft, Kellogg, ConAgra, Cadbury Schweppes, Coca-Cola, General Mills, PepsiCo, GMA, the Consumer Federation of America, the Sweetener Users Association and US Chamber of Commerce, responded by asserting that government price floors, marketing quotas and import restrictions increased domestic sugar prices.
The group also warned that a proposal to divert surplus sugar to ethanol production would force the government to buy even more sugar from American producers and then sell it at a loss to ethanol plants, with taxpayers picking up the difference.
That would be good news for firms operating in the sugarcane-to-ethanol sector, but it is of doubtful value to anyone else. The sugar, already subsidized, would be turned into ethanol, which is further subsidized by tax breaks.
Agriculture and rural development agencies, such as the UK's Oxfam and Christian Aid, say domestic agricultural subsidies and trade barriers imposed by rich countries far outweigh overseas development aid, wreaking havoc on commodity prices like sugar, a crop that is vital to developing countries.
Sugarcane, a higher proportion of which can be converted into ethanol than corn, wheat, barley, oats or any of the cereal crops, is grown predominantly in equatorial countries in the developing world.
If barriers protecting producers elsewhere could be lowered, farmers and farmworkers in those regions would have a chance to climb out of poverty, strong interdependence could develop between regions, and cost-effective biofuels might be delivered to populations that live predominantly in cities. For this to happen, civil society in the developing world would need to be robust. But first of all, politicians in the US and Europe would have to be prepared to stand up to the farming lobbies.
FOOD OR FUEL?
Question marks hang over food crop use: alternative technologies offer advantages
Simon Robinson assesses the various biofuel production processes that are available or under development, and asks if we are missing a trick or two
Food crops are not the answer to biofuel production. Their value as food is much too high, making them something of a payday loan against the day other technologies come onstream. There is a useful distinction made between first and second-generation biofuels, but it misses a key point - that there are many materials now wasted that could have use as fuel.
First-generation biofuels are predominantly ethanol, made from fermenting grains or sugary materials, followed by distillation and dehydration, and biodiesel, made by esterifying plant oils that are produced from crushed seeds and nuts. It is possible to run many larger, older diesel engines on unmodified vegetable oil.
Second-generation biofuels, which are still in development, aim to use the cellulose and lignin that form the structures in the stems of green and woody plants. They are several years from commercialization.
These technologies will allow the use of the entire plant - in the case of corn, for example, not just the kernel, but also the stalk and leaves. Novozymes and Brazil's Centro de Tecnologia Canavieira, the Sugar Cane Technical Center, have agreed to study a process to use enzymes to unlock the sugars in bagasse, sugarcane waste. Syngenta is also looking at ways that genetic modification can be used to open up the sugar resources of plants. It will be interesting to see what effect the removal of cellulose from fields that grow crops will have on soil structure. Nontraditional crops are also being developed, such as switchgrass in the US.
There are a number of intermediate technologies that are established, but which have not been fully exploited as ways of producing biofuels. These revolve around using biomass, the waste from sawmills and paper production, and municipal waste as the feedstock for processes such as gasification. The product syngas can either be burned or converted to liquid fuels by Fischer-Tropsch processes.
Another intermediate technology is being explored in a joint venture between DuPont and BP to produce bio-butanol. This has advantages over ethanol, the firms say, because it has higher energy for its mass than ethanol and because it is less hydroscopic, and can be incorporated at higher volumes in traditional gasoline than ethanol. The lower water absorption means that it can be more easily used in traditional liquid fuel distribution systems than ethanol, say BP and DuPont.
Algae versus oil: conservation groups protest
Biodiesel is made by esterifying the oil of a number of food crops, notably palm oil in equatorial latitudes and rape, or canola, in Europe. Oils from many sources, including catfish, algae and seaweed, have been used or are being studied around the world.
Palm oil is grown on plantations in tropical countries such as Malaysia, Indonesia and Colombia. The plantations have been heavily criticized by environmental groups such as Friends of the Earth and, in Malaysia and Indonesia, groups concerned both for the environment and in conserving the orangutan.
These groups say that clearing rain forest to plant palms is environmental vandalism. Groups such as Biofuelwatch are concerned about the way indigenous peoples are being forced from the land.
Algae can be grown in glass tubes through which carbon dioxide-rich gas from power plants is bubbled. The algae used is typically 30-40% fat when fully mature.
The key is to develop an algae that will grow fast enough and in great enough density to make extraction from the growing medium efficient.
The technology to make biodiesel from vegetable oil is straightforward many people do so in their own garages after securing a supply of used oil.
There are several vibrant online communities where individuals share tips and experience related to making biodiesel at home - including encounters with the tax man.
A nonfood crop that can offer biodiversity
Jatropha, the physic nut, is one of the hottest things in biodiesel at the moment. The nut, which is inedible, has the advantage that it is not a food crop and there is no alternative market for it. The plants grow well in poor equatorial and subtropical soils. Additionally, the plants do not grow densely like oil palm, and so a number of other crops can be grown alongside them, which helps the plantations diversify their production, giving an element of financial stability. It also increases the biodiversity of the plantation.
D1 oils, a joint venture with BP, has a number of contracts with plantations and owns some itself. D1 is unusual at this stage in the development of the biofuel market because it is aiming to be integrated from plantation to tank. Jatropha is also being tried out in Texas by Blue Sun Biodiesel and a number of other partners.
For some independent thinking on the world of biofuels, go to Simon Robinson's Big Biofuels Blog at www.icis.com/blogs/biofuels
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