The population of the world continues to grow, as does the average
standard of living, increasing demand for food, water and energy and placing
increasing pressure on the environment. The population of the world doubled
from 3.2 billion in 1962 to 6.4 billion in 2005 and is forecast to grow to 9.2
billion in 2050.
Supplies of oil, gas, coal and uranium are forecast to peak as reserves
are depleted. At the same time, fear of climate change is putting pressure on
the energy sector to move away from carbon burning to nuclear, solar and other
environmentally friendly energy sources.
Biofuels are most usually made from sugar cane, maize, soya, rapeseed
oil, palm oil or other plant material and then blended with gasoline and diesel
for use in motor vehicles, engines and generators. The main drivers behind the
development of the biofuels industry are high crude oil prices, energy security
and concern about the environment. The major drawbacks to biofuels are cost,
energy consumed in the manufacture of biofuels, the impact on food prices and
questions about the environmental benefits.
High crude prices are causing balance of payments problems for importing
countries. A local biofuels industry cuts down on imports of crude oil and
refined products, increases employment and stimulates the local economy. For
instance, from 1976 to 2004, Brazil's ethanol production substituted for oil
imports worth $US 60.7 billion or as much as $US 121.3 billion including the
avoided interest that would have been paid on foreign debt (based on debt
previously incurred importing oil).
The World Bank reported that biofuel industries require about 100 times
more workers per unit of energy produced than the fossil fuel industry. The
ethanol industry is credited with providing more than 200,000 jobs in the USA
and half a million direct jobs in Brazil.
For the USA, the key issue was security of fuel supply as the world
relied increasingly on countries that were politically unstable or potentially
hostile for crude oil and gas supplies. The USA is aiming for 10% ethanol in
gasoline. Ethanol is also increasingly being used in reformulated gasoline as
MBTE is phased out. The prospect of peak oil does not seem to have been a
contributor to the decision.
In the European Union, a combination of energy security and
environmental concerns has driven the move towards biofuels. The EU has
legislated targets for minimum amounts of biofuels blended with gasoline and
diesel. That said, some of the countries supplying vegetable oils for biodiesel
have similar political make-up to the crude suppliers and are even OPEC
members.
Initially biofuels were seen as being environmentally positive. The
plants grown for biofuels absorb more carbon dioxide from the atmosphere than
are released when the biomass was combusted as a fuel. This should be much
better for the environment than burning oil or coal. Studies have shown that in
some, but not all, circumstances when the full cost and energy consumption of
the total cycle of building the production facilities, making the fertiliser,
ploughing and planting, irrigation, harvesting, conversion and distribution is
taken into account, then there is a net loss.
Add to this the slash and burn activities taking place in Indonesia and
other countries as tropical forest is replaced by oil palms and the
environmental benefits become extremely questionable. A UK government / World
Bank study shows Indonesia and Brazil as the third and fourth largest emitters
of greenhouse gases after the USA and China as a result of burning of the
tropical forests, in many cases to make way for biofuel agriculture.
Finally rising food prices around the world are causing governments to
have second thoughts about using arable land for growing biomass rather than
food and the incentives provided to farmers. And a litre of biofuel requires
roughly 1,000 litres of water to produce at a time when the world is facing a
water supply shortage.
On the assumption that biofuels were beneficial, most OECD countries
have mandated that biofuels are blended with petroleum products for use in
motor vehicles and have introduced systems of subsidies, tariffs and levies as
needed to ensure this takes place. Motor manufacturers are redesigning engines
so they can both use blended fuels and also reduce overall emissions. As
governments have second thoughts about the benefits of biofuels, changes in
policy are proving difficult and potentially expensive.
Much of the future of biofuels relies on the development of cellulosic
technology. In June 2007, the Seawater Foundation announced plans to use sea
water to grow algae for biofuels.
To add fuel to the biofuel fire, in June 2007 OPEC ministers warned that
if biofuels growth continues, they would not invest in new crude oil production
capacity.
The main biofuels are ethanol, currently made from corn (maize), sugar
cane, sorghum and jatropha, and biodiesel, made from soya, palm oil and
rapeseed oil. These are then blended with gasoline and diesel respectively for
use in motor vehicles, engines and generators.
Many countries around the world have biofuel production projects
underway including:
| Sugar cane |
Brazil, India,
Pakistan |
| Corn / maize |
USA, China |
| Wheat |
Germany, France, Spain, UK |
| Soya |
USA, Brazil, Argentina |
| Canola / rapeseed
|
EU, Russia, Ukraine |
| Sunflower |
EU, Russia, Ukraine |
| Palm |
Indonesia, Malaysia, Thailand |
| Callow |
USA, Brazil, Australia |
| Jatropha |
Being tried in India, Burma, South Africa, Mozambique, East
Africa, parts of Asia |
| Waste oil |
China, USA |
| Pongamia |
Being tried in India |
| Others |
China, Africa, Thailand |
Biofuels are less efficient than power generation at converting biomass
to useable energy and reducing carbon dioxide production. They have limited
compatibility with conventional vehicle engine systems, limiting the
concentration in liquid fuels to 15%. They also have a lower energy content
than other hydrocarbon fuels.
Crude oil comes out of the ground ready for refining. Before one can
make biofuels, ground has to be cleared, fields ploughed, fertilizer and
herbicide manufactured and spread, water pumped into the irrigation system and
the crop harvested and moved to the factory. All these steps take energy, the
more so when the land undulates or the climate is moderate, which is why Brazil
with its flat plains and wet, semi-tropical climate is better for growing sugar
cane for ethanol than most other places in the world.
The cost of producing biofuels includes the feedstock, fertilizers, and
energy consumed in harvesting, transport and manufacture. Biofuels are becoming
increasingly economically viable as petroleum prices rise and technological
advances decrease biofuel production costs and energy consumption. Ethanol from
corn in the United States and from sugar cane in Brazil is probably
cost-competitive with petroleum products even if subsidies are removed and
petroleum prices fall considerably.
There is some disagreement about whether the amount of energy required
to produce biofuels, particularly ethanol from corn, is more than the energy
content of the resulting biofuel. One result of the debate has been the
promotion of the use of biofuels waste as an energy source in the manufacture
process rather than coal.
Because they cost more to produce both per litre, and per unit of
energy, than hydrocarbon fuels, usage has to be subsidised. According to the
Global Subsidies Initiative, the biofuels industry will receive more than US$
92 billion in subsidies between 2006 and 2012.
Distribution and delivery of biofuels are difficult because of hydration
and miscibility, particularly of ethanol.
Total world biofuel production in 2004 was 130 million barrels, 95% of
which was ethanol. The 2005 world market for biofuels was US$ 15.7 billion, up
15% from 2004. World production of biofuels in 2007 was 54 billion litres, 20%
higher than 2006. Other sources claim world biofuel production increased 60%
from 2004 to 2005, reaching 31 million tonnes. In 2004, ethanol made up 44% of
the total fuel consumption in all non-diesel motor vehicles in Brazil while it
was being blended with 30 percent of total gasoline sold in US.
The US Department of Energy aims to increase the use of renewables in
the US transportation sector to the equivalent of 135 billion litres of ethanol
by 2017. The U.S. Energy Independence and Security Act of 2007 expanded the
U.S. Renewable Fuels Standard, calling for the use of 136 billion litres of
biofuels in 2022, with 60 billion litres mandated for cellulosic ethanol. The
US already provides a tax credit of 51 cents per gallon of biofuel to fuel
blenders and retailers, while at the same time imposing an import duty of 54
cents a gallon on imported biofuels.
The EU has a target of biofuels comprising 5.75% of transport fuels by
2010 and 10% by 2020, equivalent to 14% of current EU cereal production. From
March 2008, all UK fuel suppliers are required to ensure 2.5% of fuel is
derived from biomass, increasing to 5% in 2010 and 33% in 2050. Japan aims to
produce 6 billion litres per year by 2030 and China 13 billion litres of
ethanol and 2.3 billion litres of biodiesel by 2020. As the adverse effect of
biofuels becomes better known, these targets could well be revised downwards.
Demand for biofuels is forecast to expand almost 20% per year through
2011 to 92 million metric tons, despite recent concerns about the impact of
biofuels on the environment and world food supplies. The global market for
ethanol is expected to increase 100%, with the biodiesel market achieving even
more rapid growth. Other biofuels will also achieve double digit gains, though
from a much smaller base.
According to Clean Edge, the global biofuels market could grow from US$
20 billion in 2007 to US$ 80 billion in 2016.
The IEA forecasts MTOE biofuels consumption with no new government
measures as follows:
| |
2010 |
2015 |
2030 |
| Europe
|
14.8 |
18.0 |
26.6 |
| USA
|
14.9 |
19.8 |
22.8 |
| Brazil
|
8.3 |
10.4 |
20.3 |
| China
|
0.7 |
1.5 |
7.9 |
| India
|
0.1 |
0.2 |
2.4 |
| Total
|
41.5 |
54.4 |
92.4 |
With additional government measures, consumption could be up to 60%
higher.
The value of biofuel production plants announced or under construction
exceeds $US 4 billion in the United States, $US 4 billion in Brazil and $US 2
billion in France. However 2007 investment in biofuels was lower than 2006 due
to increasing feedstock prices and socio-environmental concerns.
In 2007, biofuel companies raised $US 1 billion in equity,
approximately $2 billion less than in 2006. Shares in the sector lost 19% of
their value in 2007. Some one third of the profits of Archer Daniels Midland,
leading producer of ethanol from corn in the USA and biodiesel from seeds in
Europe, now come from biofuels. In November 2006, the company announced plans
to further boost biofuel production from biomass, sugar and palm oil.
Ethanol is made from sugar cane (50%), corn / maize (36%), wheat (9%)
and other vegetation (5%). Ethanol is likely to continue to be made
predominantly from sugar cane in tropical countries and corn in moderate
climates. There are around 600 ethanol plants in operation around the world, of
which more than 100 are in the USA, where a further 75 are under construction.
Ethanol is blended with crude oil derived gasoline. Ethanol is corrosive and
soluble in water, making handling difficult.
Global ethanol production more than doubled between 2000 and 2005. In
2005, ethanol comprised about 1.2% of the world's gasoline supply by volume and
about 0.8% percent by transport distance traveled (due to its lower energy
content).
In 2005, Brazil produced 16.5 billion liters of fuel ethanol, 45.2%
percent of the world's total and mostly from sugar cane. Ethanol provides
roughly 40% of Brazil's non-diesel fuel. Brazil increased its ethanol
production by 21% in 2007 to 19 billion litres.
In 2005, the USA produced 16.2 billion liters of ethanol, 44.5% of the
world's total and mostly from corn (maize). Ethanol provides 2 to 3% of US
non-diesel fuel. The USA increased output 33% to 24.5 billion litres in 2007.
2007 / 2008 US corn demand for ethanol production was expected to be one
billion bushels higher than a year before at 2.15 billion.
The European Union, with a production of about 0.5 million tons per
annum, is estimated to account for about 10% of the total world ethanol.
From 1976 to 2004, Brazil's ethanol production substituted for oil
imports worth $US 60.7 billion or as much as $US 121.3 billion including the
avoided interest that would have been paid on foreign debt (based on debt
previously incurred importing oil).
The global ethanol market is expected to exceed 120 billion litres by
the end of 2020, with a growth rate of above 6.5% from 2006.
A study in the USA has shown that the process of creating ethanol from
maize can consume 27% more energy than is contained in the resulting ethanol.
Next-generation cellulosic technologies will become commercially
significant in the longer term.
Methyl ester, the core ingredient of biodiesel, is derived from soya oil
(43%), canola / rapeseed oil (34%), sunflower oil (9%), palm oil (7%), callow
(4%) and waste oil (4%). There are about 400 biodiesel plants around the world,
with the USA accounting for more than 100 of these and with another 80 under
construction there. Biodiesel is blended with crude oil derived diesel fuel.
Overall worldwide production of biodiesel was 5.4 million tonnes in
2007, up 80% from 3 million tonnes in 2006. Global production of biodiesel,
starting from a much smaller base than ethanol, expanded nearly fourfold
between 2000 and 2005 and rose sharply in 2006 but slowed in 2007 as new German
taxes cut demand. Growing at the rate of more than 30% from the year 2006,
world biodiesel production is likely to 12 billion litres by the end of 2010.
European biodiesel production in 2006 was 3.96 million tonnes of fuel, a
50% increase jump from 2.63 million tonnes in 2005. For 2007, European
biodiesel production was 4.7 million tonnes, up 19% on 2006. The EU accounted
for nearly 90% of all biodiesel production worldwide in 2005. Biodiesel,
produced mainly from rapeseed or sunflower seed, comprises 80% of Europe's
total biofuel production.
Germany alone produced 1.9 billion litres, or more than half the world
total. Germany increased biodiesel production capacity by 60% in 2007. Several
large producers have since announced production cuts, and overall output is now
falling well short of available capacity.
The Americas, mostly the USA, produced 980,000 tonnes of biodiesel in
2006. FAPRI estimates that US biodiesel production could rise to 1.8 million
tonnes in 2007/08 from 1.3 million in 2006/07.
Malaysia plans to capture 10% of the global biodiesel market by 2010
through expansion of its palm oil plantations. Indonesia aims to expand its
palm oil plantations to 1.5 million hectares by 2008 and increase palm oil
production from 17 million tonnes in 2007 to 27 million tonnes in 2015, largely
by replacing tropical jungle with biofuels plantations. In September 2007,
Indonesia imposed a 10% surcharge on crude palm oil exports and plans to
further increase export taxes on palm oil.
Biodiesel production will continue to centre on soy oil in the Americas,
rapeseed oil in Europe and palm in the Asia/Pacific. Jatropha, a low cost, high
yield non edible plant that can be grown in marginal areas, is being pioneered
as a feedstock in Africa and Asia Pacific.
Palm oil prices increased by 60% in 2006 and by another 20% in 2007. In
March 2008, palm oil prices reached record levels.
In November 2006, Archer Daniels Midland, leading producer of ethanol
from corn in the USA and biodiesel from seeds in Europe, announced plans to
boost biofuel production from biomass, sugar and palm oil.
Next-generation algal biodiesel technologies will become commercially
significant in the longer term.
Transportation, including emissions from the production of transport
fuels, is responsible for about one-quarter of energy-related greenhouse gas
emissions, and that share is rising. Energy crops have the potential to reduce
greenhouse gas emissions by more than 100% (relative to petroleum fuels)
because such crops can also sequester carbon in the soil as they grow.
Estimated reductions for biofuel feedstock include: fibers (switchgrass,
poplar) 70-110%; wastes (waste oil, harvest residues, sewage) 65-100%; sugars
(sugar cane, sugar beet) 40-90%; vegetable oils (rapeseed, sunflower seed,
soybeans) 45-75%; and starches (corn, wheat) 15-40%.
The greenhouse gas balance of biofuels varies depending on such factors
as feedstock choice, associated land use changes, feedstock production system,
and the type of processing energy used. The greatest greenhouse gas benefits
will be achieved with cellulosic inputs, such as dedicated energy crops and
waste residues.
Recent studies conclude that clearing grass and forestlands to produce
ethanol and other biofuels could potentially double the output of greenhouse
gas emissions instead of reducing them.
The Netherlands has biodiesel refineries which use imported palm oil;
however environmentalists there now worry that the Indonesian tropical forests
being mown down to plant oil palms absorbed much more carbon dioxide from the
atmosphere than are saved by palm-oil derived ethanol.
In the last few years, the prices of food and of biofuel crops have
risen significantly as a result of a number of factors. The world population
continues to grow, living standards are rising in the developing world, the
cost of fuel and fertilisers has risen in tandem with oil prices and many food
growing areas have been stricken by drought or flood. The conversion of land
from growing food crops to biofuel feedstock production is just another factor.
Government policies on food and fuel, as well as taxes, tariffs and subsidies,
all play a role, as does investor speculation. No one factor is solely
responsible for the food price rises, though blame is frequently attributed to
biofuels. At the same time new crop strains, including genetic modifications,
improve yields and reduce requirements for fertilisers and pesticides.
As a result of high oil and gas prices, the price of urea, used in
fertilisers, tripled between 2003 and 2008. Fertiliser prices rose more than
50% during 2007 to their highest in a decade. The chairman and CEO of Nestle
reported that 70% of water was already being used by agriculture and that 1,000
litres of water are needed to produce one litre of biofuels.
Demand for animal fodder is growing. Indians now each eat 40% more meat
than in 1990 and in China, which now eats one third of the world's meat
production, twice as much. In Brazil, the amount of meat eaten per person has
risen by a third in 15 years. By 2025 India's consumption of food and other
products is expected to quadruple to US$ 1,500 billion, creating the world's
5th largest consumer economy after the USA, Japan, China and the UK.
The UN Food and Agriculture Organisation and the US Department of
Agriculture estimated that the 2006 harvest wouldn't be enough to feed the
world's population for the sixth time in seven years. Food production dropped
from 2.6 billion tons in 1994 to under 2 billion tons in 2006, while food
stocks dropped from enough to feed the world for 116 days in 1999 to 57 days in
2006.
In December 2007, the US Agriculture Department warned that stocks of
corn, wheat and soya beans could drop sharply. In February 2008, US inventories
of wheat dropped to their lowest level in 60 years. In October 2007 the
Ukraine, with 41% of the world export market in sunflower oil, considered
banning exports to keep local prices down. In early 2008, Asian rapeseed crops
were hit by bad weather while Indonesia announced plans to increase export
taxes on palm oil. In March 2008, prices of palm oil, soyabean and soyaoil
reached record levels.
By February 2007, prices of malting barley, used in making beer, had
risen by 85% since May 2006. 2006 USA barley production was the lowest since
1936. The US Department of agriculture estimated global barley production in
2007 would be the same as 2006, 10% down on 2005. The main reason given was the
increased use of farm land for biofuel crops.
A July 2007 FAO / OECD report showed corn prices rose 60%, wheat prices
53% and soyabean prices 40% in the previous twelve months and predicted food
price increases of between 20% and 50% over the next ten years, due to reduced
subsidies, greater demand for protein, higher production costs and the demand
for biofuels. According to the UN FAO the price of dairy products rose 80% and
grain 42% during 2007. In February 2008, US prices for spring wheat reached
record levels. On February 25th 2008, the world price of wheat rose 22% as
Kazakhstan announced plans to curb exports.
In July 2007, the UN World Food Program reported that unit food costs
had risen by 50% in five years, with maize costs alone up 120% over the
previous year. In April 2008, the UN FAO forecast that the cost of African
cereal imports in 2008 would rise 49% to US$ 15.2 billion. In April 2008, the
UN FAO reported that poor countries will spend US$ 38.7 billion on cereal
imports in 2008, up 57% from 2007 and more than 100% from 2006.
In the USA net returns from corn in 2007 were expected to reach US$ 334
per acre versus US$ 125 in 2006 as farmers played off the food and biofuels
markets against each other. In February 2008, the US Department of Agriculture
forecast ethanol's share of US corn would increase from 25% in 2007 to 31% in
2008. The March 2008 USDA report Prospective Plantings shows US farmers
reducing land planted to corn by 8.1% and increasing land planted to soya beans
from 63.6 million acres to 74.8 million acres.
Demand for rice has exceeded supply in six of past eight years and rice
stocks are at their lowest level since 1976. Although the 2007 global rice crop
of 420 million tonnes is a record, consumption is 423 million tonnes. On one
day in March 2008, the price of rice in Asia rose 30% after Egypt, following
the examples of Vietnam and India, banned the export of rice and the
Philippines planned a large purchase on the open market. By April 2008, the
price had doubled since January 2008 and stocks had dropped to 50% of 2000
levels. Rice prices, up 75% in a year, are at a 20 year high and stocks at a 25
year low.
In Mexico there were riots in 2007 when the cost of maize for tacos
tripled. During January 2008, Pakistan experienced unrest after Egypt banned
rice exports and Indonesia saw protests against record soyabean prices
resulting from poor harvests in Brazil and Australia and US farmers moving to
biofuels production. In April 2008, Indonesia banned the export of rice.
ISAAA estimated that the area of land planted with GM crops increased
70 times between 1997 and 2007 and will double again by 2015 from the existing
114 million hectares. The USA and Argentina are the largest users of GM crops
out of the 23 countries that allow GM crops. Cropnosis estimates that the value
of GM crops, mostly soybean, cotton, canola and corn will be worth US$ 6.9
billion in 2008.
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