Power to the people

The growing enthusiasm for biofuels touches many of the world’s high-profile issues: energy, the environment, food supply, trade and a large dose of international politics. Vic Wyman reports

Another day, another intriguing bioenergy announcement; perhaps the promise of yet another obscure plant as a biofuel feedstock, a new enzyme that is claimed to turn biomass into fuel faster than those already in use, or the allure of dried milk as a power station fuel.

It is surely only a matter of time before toenail clippings are proposed as the answer to the world’s need for cleaner and cheaper energy. It seems that the world is stuffed with potential sources of non-fossil fuel energy that the developed world has largely ignored.

Now, however, electricity generators are replacing coal that normally fuels their power stations with crops, waste wood and other biomass. US motorists are increasingly putting fuel made from maize into their gas-guzzlers, and companies are processing waste, including manure, to produce gas for electricity generation or conversion into a liquid fuel.

The reasons include rising prices of conventional energy sources such as crude oil, concerns about the security of energy supplies and about greenhouse gas emissions (GHG) from the use of fossil fuels and a belief that growing and processing biofuel crops could provide many jobs.

"Some African countries could eventually move from importing oil to exporting biofuels"

The potential of biofuels, supported by mandatory targets for their use and by government subsidies, has led to large investments. Oil giant BP,Associated British Foods and materials group DuPont plan to spend $400 million on biofuel projects, for example. Ethanol producer Verasun Energy of the US is raising $725 million to buy more ethanol plants and US investment bank Goldman Sachs has just invested $195 million in a Brazilian sugar and ethanol company.

Meanwhile, in July, the New York Mercantile Exchange launched two ethanol swap futures contracts, following the launch in April by the Brazilian futures exchange Bolsa de Mercadorias & Futuros of an ethanol futures contract quoted in US dollars.

However, biofuels face trade issues, environmental concerns and worries that food crops are being diverted to fuel vehicles.

The attraction of biofuels also varies around the world (see table 1). In the US, for example, energy security and the political power of the farming lobby to demand subsidies, rather than global warming, are driving the growth in ethanol production.

In the EU, support for biofuels is mainly a result of environmental concerns, leading to a mandatory target of 10% of transportation fuels to be biofuels by 2020, as part of an overall renewables target of 20% of total energy consumption. However, José Manuel Barroso, president of the EU’s executive arm, the European Commission, also cites energy security, as the proportion of EU energy that is imported is likely to rise to 70% by 2030 from the present 50% unless action is taken.

In Brazil, a biofuels programme launched in 1975, in response to the effects of oil price shocks on its balance of payments and level of foreign debt, saved an estimated $60 billion between 1976 and 2004 by cutting oil imports, says the government. Brazil’s National Supply Company estimates that about 50% of the growing production of sugar cane is used for sugar and about 40% for ethanol. Biofuels account for 40% of non-diesel fuel use in Brazil, which is the world’s second-largest ethanol producer after the US. It produced 17.8 billion litres of ethanol in 2006, with 3.3 billion litres of that exported.

"Some critics claim that US ethanol from maize consumes more energy than is contained in the final fuel"

However, Brazil also sees biofuels as a generator of employment and rural development, slowing the movement of people to the cities. The government claims that, taking into account the whole supply chain, ethanol production supports nearly 22 more jobs than petrol production would.

President Luis Inácio Lula da Silva, or Lula as he is known, also sees biofuels as a way of raising people in developing countries out of poverty, by giving them access to energy and terms of profit.You have to look at it in terms of solidarity,” Lula told a biofuels conference in July organised by the European Commission. He claimed that some African countries could eventually move from importing oil to exporting biofuels.

Sugar cane is likely to be one of the main biofuels feedstocks in such countries, but could be rivalled in some areas by palm oil, which is already an important food industry raw material. Dutch bank Rabobank forecasts that palm oil production worldwide will increase by 25% from 37.2 million tonnes in 2006 to 46.3 million tonnes in 2010, as demand for all vegetable oils rises1. Demand for vegetable oils for biodiesel could rise from 3–4% of total demand in 2005 to at least 15% by 2010, it adds.

Malaysia and Indonesia, which today produce 86% of the world’s palm oil, according to Rabobank, are keen to boost production.Yusof Basiron, chief executive of the Malaysia Palm Oil Council (MPOC), says: “For a country like Malaysia, the oil palm industry has become an important component of the national economy. It provides direct employment to at least 800,000 people and has emerged as a significant foreign exchange earner with an average of RM30 billion [$8.6 billion] for the past three years.”

But some dispute the degree of GHG emission reductions associated with the production and use of biofuels. The complex analysis needs to take account of factors such as the amount of energy used in producing and applying fertilisers and pesticides to crops, in harvesting crops and in transporting the fuel produced. Different crops also yield different amounts of oil for biodiesel production (see table 2).

In January, the International Energy Agency estimated that the fossil fuel needed to make ethanol from sugar cane accounts for 10–12% of the final energy content, with the ethanol reducing carbon dioxide (CO2) emissions by up to 90% compared with petrol use2. Maizebased ethanol has a much higher energy input of 60–80% and only a 15–25% CO2 reduction effect, it said. Biodiesel typically requires a 30–40% energy input and reduces CO2 emissions by up to 60%.

Some critics claim that production of ethanol in the US from maize consumes more energy than is contained in the final fuel and that only government subsidies make ethanol competitive with petrol.

To minimise CO2 emissions, Americans could shun US ethanol in favour of Brazilian ethanol made more efficiently from sugar cane. Yet a $0.54/gallon ($0.14/litre) tariff on ethanol imports, coupled with support for US production, keeps out Brazilian ethanol.

However, EU trade commissioner Peter Mandelson says that, although the EU could in theory grow all the crops needed to meet its biofuels target, that could be bad news environmentally.“ We should certainly not contemplate favouring EU production of biofuels with a weak carbon performance if we can import cheaper, cleaner fuels,” he told the EU biofuels conference in July.

There is, therefore, a growing interest in the EU, Brazil and elsewhere in boosting trade in biofuels and their feedstocks. That will require environmental sustainability certification schemes, which are being developed around the world.

For large-scale biofuels production can threaten biodiversity, claims a new study3 by the US-based Worldwatch Institute, which says that palm oil plantations in Indonesia have been encroaching on forests and edging out the endangered orang-utan population, upsetting European consumers.

Some palm oil buyers have already stopped importing palm oil, says Rabobank: “According to industry sources, palm oil has lost approximately 500,000 tonnes of market share in the EU due to concerns over forest clearing.”

Worldwatch also claims that Brazil’s Cerrado, a vast biologically-rich area just south of the Amazon, is coming under pressure as sugar cane cultivation expands.However, Brazil insists that almost no sugar cane is being planted in the Amazon River region, which it says is unsuited for the crop. “Nobody is thinking about the Amazon forest for agricultural production,” claims development, industry and foreign trade minister Rita Milagres.

As live an issue is the diversion of biofuel crops from the food chain.The United Nations’ World Food Programme, which fights famine, says that competition from the biofuels sector is one of the main reasons for large recent increases in the prices of maize and other crops that it buys. Food and drink companies have similarly been complaining.

Also, the US government’s recent target of 35 billion gallons of alternative fuels to be used a year by 2017 would require the use of 40% of that year’s expected maize harvest if domestic maize-based ethanol were used to meet just half of the target, says a study4 by the McKinsey consultancy.

Investors now face the risk of limits on the use of crops for biofuels as a result of consumer anger at increased food prices, typified by riots in Mexico this year over price increases for maize-based tortillas, a staple food. Malaysia and Indonesia as palm oil prices have risen.

China has already banned the use of grains for biofuels in favour of crops that are not used widely as food, including sweet potatoes and sorghum. There are signs that it is having second thoughts about those too.

Biofuels investors are also wary about the volatility of prices and supplies of feedstocks, which typically account for 50–80% of biofuel production costs.“In the US, for example, every dollar increase in the price of a bushel of [maize] raises the production cost of bioethanol by $0.35 a gallon [$0.09/litre] and reduces the producer’s operating margin by 20%,” says McKinsey. Basiron at MPOC says that high palm oil prices have led to some new Malaysian biodiesel plants stopping production.

The profitability of biofuels projects also depends on the price of crude oil. Rabobank says that some southeast Asia biodiesel firms believe that they can be profitable as long as crude oil does not fall below $60 per barrel. When prices dropped below that level, some investors, which had previously announced biodiesel projects when crude oil topped $70, began turning their attention to investing in oil palm plantations to secure feedstock.

Investors’ views could, however, change greatly if promised ‘second-generation’ ethanol production processes are commercialised.

Ethanol is produced by fermenting sugars but present processes cannot use the sugars in the cellulose that makes up most of a plant. Second-generation processes would release more sugars, mainly by using enzymes to digest cellulosic material such as stalks, leaves, grasses and wood.

The abundance of non-food feedstocks could mean much cheaper ethanol, while easing pressure on food crop prices and thus improving the economics of first-generation biofuel projects. However, it is unclear when cellulosic ethanol will become economic, although many companies are claiming successes with pilot plants. The US Department of Energy is also pumping up to $585 million into the development of both small and large cellulosic biofuel plants.

However, McKinsey forecasts that cellulosic production will not be much cheaper than present ethanol production in the US and Brazil, but could lower costs in China to $0.60 a gallon, from about $1.80, making Chinese ethanol one of the world’s cheapest biofuels.

However, plenty of other biofuel developments are on the horizon, including biobutanol, a more attractive rival to ethanol, and biomassto- liquid gasification to produce synthetic diesel and petrol. Regardless of the current drawbacks of biofuel production, the momentum to source ever-greater volumes of energy from biomass seems unstoppable.