Why are biofuels attractive

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Why are biofuels attractive?

• Energy security locally produced, wider
  availability, grow your own oil
• Climate change mitigation one of the few
  low-carbon options for the transport sector
• Lower emissions of harmful pollutants
• Liquid fuels conducive to existing
  infrastructure, storage
• Bioethanol cars, light trucks, motorcycles
• Biodiesel commercial vehicles, buses, pumps,
  isolated electricity generation sets

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Biofuel production pathways

• Ethanol
• Sugarcane (Australia, Brazil, China, Colombia,
  Ethiopia, India, Thailand), sugar beets (EU)
• Maize (US, China)
• Wheat (Canada, EU)
• Cassava (Thailand)
• Biomass wastes forest products (Canada), wood
  wastes, agricultural residuesmaize stover,
  sugarcane trash
• Energy cropsswitch grass, hybrid poplar, willow
• Biodiesel
• Rapeseed (EU)
• Soybeans (US)
• Palm oil (Malaysia)
• Coconut oil (Philippines)
• Plants growing on marginal landJatropha, Karanja
  (India)

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Prospects for biofuels

• Near term
• Ethanol from sugarcane best overall chance of
  commercial viability
• Biofuel trade liberalization beneficial to all
  consumers
• Biodiesel remains expensive relative to world oil
  prices
• Medium term
• Fall in production costs
• New feedstocks
• Growing trade
• Long term
• Commercialization of cellulosic ethanol
  widespread availability, abundance, and
  significant lifecycle GHG emission reduction
  potential
• Higher oil prices favoring biofuel economics

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Biofuels for domestic consumption in developing
countries

• China 20 of gasoline consumed contained ethanol
  in 2005
• Colombia 10 ethanol in gasoline targeted
• India 5 ethanol in certain states if ethanol is
  not more expensive, biodiesel purchase policy
• Indonesia 3 of energy from plant-based fuels by
  2025
• Malaysia biodiesel from palm oil, trial underway
• Philippines coco-biodiesel, ethanol planned
• Thailand explosive growth of E10

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Economics of biofuels

• Largest cost component feedstock
• 58-65 of ethanol production cost in Brazil
• At least 70 of cost of biodiesel from Jatropha
  in India in one preliminary study
• ? Biofuels economics stand or fall with
  agriculture
• Liberalization of global agricultural trade could
  increase world feedstock prices
• 30-40 increase for sugar
• Slight increase for maize
• Virtually no effect on soybeans

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Biodiesel comparison with vegetable oil prices

• Soybean oil
• 500/ton 0.46 per liter
• Palm oil
• 400/ton 0.37 per liter
• Coconut oil
• 560/ton 0.52 per liter
• Add 0.10-0.15 per liter for converting
  vegetable oil into biodiesel

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Brazils production cost in mid-2005 of 23-29 US
cents per liter is equivalent to 35-50 per
barrel of oil, depending on vehicle fuel economy
International price of sugar in February 2006 was
US415/ton
Sugarcane accounts for 58-65 of the cost of
ethanol production in Brazil
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World raw sugar vs. gasoline price
Rotterdam unleaded regular gasoline 4Q 2005 US
dollars
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Price comparisons in 2006

• India ethanol
• Asking price Rs 22.50 per liter (0.52/liter)
• Fixed price Rs 19.75 (Rs 24.728.2 per liter of
  gasoline equivalent)
• Gasoline price city gate Rs 20-21
• Thailand ethanol
• Asking price 2223 baht (0.560.59/liter)
• Fixed price 19.50 baht (24.227.9 baht per liter
  of gasoline equivalent)
• 95 RON gasoline price 16.20 baht in February
  2006
• In January 2006, one ethanol plant ceased
  production
• Landlocked Uganda
• Gasoline price 0.62, diesel 0.65, net of tax at
  retail in Jan-Feb 2006

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Price structure in Thailand

• 95 RON E10
• Ex-refinery (baht/liter) 16.1956 16.71
• Excise tax 3.685 3.3165
• Municipal tax 0.3685 0.3317
• Oil fund 2.5 0.94
• Conservation fund 0.04 0.036
• Marketing margin 1.9212 1.9742
• VAT 1.7297 1.6316
• Retail 26.44 24.94
• Difference in
• taxes and levies 1.9693 0.50 per liter of
  ethanol

13 February 2006
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Brazil worlds lowest-cost sugar producer

• Favorable climate, plentiful land, good soil, and
  plentiful rainfall in Center-South (cane
  cultivation water intensive)
• Use of bagasse for plant energy use and surplus
  electricity sales
• Between 1975-2000, sugarcane yield per hectare
  increased by 33, sugar content of cane 8,
  ethanol yield from sugar 14, fermentation
  productivity 150
• Modern sugar production and processing and high
  level of managerial skills
• More than 500 commercial varieties of cane (each
  plant processes around 15 varieties)
• Hybrid sugar mill/distillery complexes
• Planting, harvesting, and plant operations
  computerized

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Lessons for other countries

• Agricultural research, extension, and application
  by farmers Critical for lowering production
  costs
• Cooperation between cane growers and
  mill/distillery owners
• Comprehensive utilization making use of surplus
  bagasse, cogeneration
• Waste reduction significant reduction in
  negative environmental impacts associated with
  cane production (field burning) and ethanol
  production (stillage disposal)
• ? Countries looking to replicate Brazils ethanol
  experience should assess the factors necessary
  for success over the long term

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Check list of questions

• Do climatic conditions favor sugarcane
  production?
• Is there good road and communications
  infrastructure?
• Is there good agricultural research and
  extension, or a high probability of strengthening
  it?
• Are farmers provided with adequate primary
  education?
• Is there a functioning credit market?
• Is there a cadre of managers that can be called
  upon to manage the industry?
• Is the sugar industry organized to foster
  cooperation across the supply chain for ethanol
  production?
• Is there a mechanism for capturing poorly priced
  externalities?

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Consideration for tax reductions

• Fuels are an important source of government
  revenue in developing countries
• 24 of all customs duty collection, 43 of excise
  taxes, and 34 of state taxes in India
• Gasoline tax is progressive
• Diesel is taxed much less, and hence less room
  for maneuver
• It is much better to make fiscal support explicit
  and subject government support to public debate
  than to give tax waivers or reductions

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Global carbon market and biofuels

• Assume 100 GHG offset (20-80 likely)
• 5-10/t CO2-eq in short to medium term equivalent
  to 0.01-0.035 per liter of biofuel
• 15-20/t CO2-eq over the coming decade equivalent
  to 0.03-0.07 per liter of biofuel
• For comparison range of government support
  0.00 0.79 (Germany) per liter for ethanol

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Conclusions

• Assess the costs and benefits of biofuel programs
  in a systematic manner and make use of Brazil and
  other countries experiences
• Where crops are the feedstock, consider
  implications for the agricultural sector
  (including small farmers) and spillover effects
• Recognize fluctuations in world crop prices and
  risks involved (recent experience in Brazil and
  Thailand)
• Consideration may be given to regulatory reserves
  for biofuels
• Biofuel trade liberalization would benefit
  efficient biofuel producers and consumers alike

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Conclusions

• Be transparent and realistic about the subsidies
  required for biofuels and how long support may be
  required
• Developing country case studies of biofuels
  programs are needed
• There is significant long-term potential for
  bioenergy using new feedstocks and
  technologiesresearch programs should be promoted
  in OECD countries and a handful of the largest
  developing countries