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Biofuels: Diesel, petrol…or me?news
21 August 2006

Even as rising fuel consumption and uncertain energy prices lead to unprecedented interest in biofuels as an alternative, questions are also being posed about its sustainability as a resource. By Rajiv Singh.

Advances in bio-fuels production and end-use technologies, coupled with accelerating global economic growth and uncertain energy prices, have now brought the fast rising biofuels industry into increasing focus around the world.

Early on in the month, (2 August, 2006) the Bush administration said it would invest $250 million in a five-year programme that will seek to develop microbes and plants for producing bio-fuels as replacement for oil. With the announcement Washington joined a lengthening list of capitals around the world, which are hoping that bio-fuels would ultimately liberate them from oil imports.

According to US Energy Secretary, Samuel Bodman, new bio-energy research centres to be set up under the programme, by 2030, "may lead us to an America in which we are actually able to grow and harvest up to a third of the fuel we use." As of last year, congressional legislation already requires that the country should consume about 7.5 billion gallons in ethanol and bio-diesel by 2012, which effectively doubles the consumption of ethanol over the next seven years.

On the other side of the Atlantic, the European Commission wants to increase the proportion of bio-fuels used in transport fuel supply from current levels of 0.8 per cent to at least 5.75 per cent by 2010. Europe expects to achieve this through a huge increase in the use of vegetable oils, such as rapeseed and palm oil, in the manufacture of transport fuels. The European Commission has said it is willing to consider more reforms to the 1993 Common Agricultural Policy (CAP) that determines such production. Current regulations have already resulted in enhanced production of rapeseed for biodiesel.

In the southern hemisphere, South Africa, the third largest polluter in the world, if we go by per-capita production of greenhouse-gas emissions, is hoping that the local biofuels industry will produce 10 per cent of the country's petrol and diesel needs by 2010. Last month, Ethanol Africa Holdings launched South Africa's first large-scale bioethanol production plant, the first of eight the company intends to build. At full capacity, the company's eight plants could supply up to 12.5 per cent of South Africa's fuel requirements by 2015.

Moving to the East, the Indonesian government said Aug 16, that it will set aside one trillion Rupiah ($110 million) to help farmers pay interest on loans they take to plant more crops that can be used to produce biofuels. The Indonesian government hopes that increased investments in industries that produce energy from palm oil, sugar cane and jatropha will help create five million new jobs and cut government fuel subsidies. Indonesia is one of the leading producers of palm oil.

It's immediate neighbour to the north, Singapore, will see Peter Cremer, Singapore, the Asian arm of Germany's Cremer Gruppe, set up a $20-million biodiesel plant in the city State by May 2007, with an annual capacity of 200,000 tonnes. Singapore hopes to easily access palm oil, a key biodiesel ingredient, from its neighbours to the north and the south, Malaysia and Indonesia, who together produce about 80 per cent of the world's palm oil supply.

Changing economic patterns
According to an August 10, 2006, Associated Press report, "Ethanol production (in the United States) is growing so quickly that for the first time, farmers expect to sell as much corn to ethanol plants as they do overseas." In fact, according to statistics released by the US Department of Agriculture, the amount of corn used for ethanol in the country this year will utilise about 20 per cent of the nation's entire corn crop.

Ethanol Africa CEO Johan Hoffman argues that the production of biofuels in South Africa will remain profitable, even at an oil price below $50 per barrel. Every Ethanol Africa plant, according to Hoffman, will also create 10,000 jobs directly or indirectly.

Besides acting as a hedge against the effects of the oil price on the economy, large-scale production of biofuels in South Africa will also provide several other benefits. Amongst the most notable, job creation at a lower cost than in most other industries. At Rand 12,000, the biofuels industry would create 100 times more jobs than oil refining, and at such a cost it would also do much better than the motor industry, which needs to invest Rand 250,000 for every job opportunity that it creates.

Also accruing shall be other economic benefits such as the sale of carbon credits under the Kyoto Protocol. One litre of bioethanol produces half the greenhouse-gas emission of a litre of conventional petrol and so will turn out to be a valuable source for carbon credits for South Africa and the company.

In the case of Indonesia, the palm oil industry currently employs about 1.5 million people. Export prices for crude palm oil have been increasing on demand for its use in biofuels, going up in the second week (August 06) by 26 per cent to $474 a ton. This is the highest since 2004.

The Indonesian government also says that it will be able to reduce its subsidy costs for power next year as such plants switch to biofuels. By 2009, it says, all power plants on the island of Java will be using "non-fossil fuel." The Indonesian government has also announced that Korean major Samsung plans to invest $1 billion to develop biofuel projects in Indonesia.

The sustainability factor
With scarce energy resources beginning to change economic patterns around the world, the stock markets too have begun to respond, pushing the prices of ethanol producing companies to all time highs. Even as some of these companies have seen their prices more than double in the last year, some, like Pacific Ethanol, have seen their price rise more than six times to a peak in May of 2006. Ethanol Africa, not unexpectedly, has also said that it plans to list on the Alternative Investment Market of the London Stock Exchange by the end of the year.

This newfound interest in the biofuels industry, however, has also sparked off a lively debate about its sustainability as a fuel resource.

Biofuel is a liquid fuel made out of recently living organisms, predominantly plants. The primary biofuels are ethanol, cellulosic ethanol and biodiesel. While the most common source plants for ethanol are sugarcane, sugar beets and corn, cellulosic ethanol is derived from wood and fast-growing plants like grass (especially switchgrass). Depending on the geography, biodiesel is commonly produced from soybeans or palm oil.

Given the global acceptance of biofuels as a likely resource for the replacement of fossil fuels, the question that some sceptics pose is whether biofuels can replace all, or at least an appreciable part, of the 85 million gallons of petroleum that the world consumes on a daily basis?

In the US, analysts contend that biofuels will fail to have a meaningful impact on energy supply. As per their estimates, the country will never grow enough corn to account for more than 10-12 per cent of the country's fuel supply. The situation is different, however, in Brazil, a country with a long history of ethanol development, where it accounts for almost 40 per cent of the fuel supply.

The private, Basel-based Bank Sarasin recently conducted a study to assess the actual sustainability of biofuels, identifying both their strengths and their potential. Report author, Dr Matthias Fawer, identified six countervailing risks associated with biofuels. According to Fawer, these include environmental impacts of monocultures, increased rainforest clearance in developing countries for growing biofuel stock, negative impacts on food prices, higher costs than other forms of carbon reductions, harsh agricultural labour conditions, and increased use of genetically engineered crops.

"Because of the risks described, biofuels cannot automatically be classed as sustainable, despite their 'bio' label," states Dr. Fawer. "We therefore think there are certain criteria and developments that are essential if biofuels are still to be classed as renewable energies in future, and ones that stand up to thorough sustainability analysis."

Dr Fawer also examines the market for biofuels, and remains somewhat lukewarm in his investment recommendations. "We advise a more cautious approach, as growth could quickly come up against natural barriers in the short term at least," states Dr Fawer. "This is mainly due to the limited availability of raw materials…It is actually unclear how much land is available for growing energy crops without having a negative impact on the needs of the food industry, animal feed industry, fallow land, soil quality and biodiversity."

Diesel, petrol …or me?
Sceptics point out that biofuels have a relatively low return on the energy that must be invested to produce them. This is particularly true for corn-based ethanol, which offers no energy return after five months of growing, and gives final returns of only 1.3:1 - that is, yielding just 30 per cent more energy than was invested in growing and processing the corn. The best current biofuel energy returns are from sugarcane in Brazil and palm oil in Malaysia, both of which reportedly return eight times the energy invested (8:1).

Such a ratio, however, disguises the degradation of fragile tropical soils from intensive yearly cropping. Further, once petroleum-based fertilizers, pesticides and herbicides become unavailable, the question arises as to how high production will be maintained. Intensive cropping also brings up the question of the loss of farmed land to commercial uses.

According to sceptics, the production of large quantities of biofuels is certain to rapidly accelerate habitat destruction with attendant consequences. The best cropland on the planet is already under cultivation for food production and large-scale diversion of crops for fuel will inevitably compete with food production. As pointed out earlier, 20 per cent of this year's US corn crop will be diverted for ethanol production rather than provide food for humans or feed for livestock.

The human population also continues to grow at a rate of about 1 per cent a year, and all factors considered, humans are expected to grow in numbers to 9 billion by 2050. This, coupled with the fact that energy usage in the developed world alone is growing by about 2 per cent a year, should see the planet double its current annual consumption of 85 million barrels of oil, to 170 million barrels by 2076.

On the face of it, biofuel production stands to be completely overwhelmed by growth in human numbers and energy use. With governments around the world racing to adopt large-scale biofuel production, people may shortly have reason to wonder - will they have to opt between feeding their cars or themselves?

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Biofuels: Diesel, petrol…or me?