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BIOFUELS, TRADE AND SUSTAINABLE DEVELOPMENT: Issues, Challenges and Strategy Components

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Title: BIOFUELS, TRADE AND SUSTAINABLE DEVELOPMENT: Issues, Challenges and Strategy Components


1
BIOFUELS, TRADE ANDSUSTAINABLE DEVELOPMENT
Issues, Challenges and Strategy Components
  • HAMDOU RABY WANE
  • Food Security and Sustainable Development
    Division
  • UN ECONOMIC COMMISSION FOR AFRICA
  • Workshop on Trade and Environment in Africa
  • Lusaka, Zambia
  • 27-29 May 2009

2
OUTLINE
  • Bioenergy in the Global Energy Context
  • Global Market Overview and Industry Trends
  • A Dynamic Policy Landscape
  • Some Key Policy Challenges and Trade Issues
    relevant for Africa

3
Bioenergy in the Global Energy Context/1
  • Bioenergy is one of the most dynamic and rapidly
    growing sectors of the global energy economy.
    Accelerated growth in the production and use of
    bioenergy in the past few years is attracting
    interest from policy makers and investors around
    the globe
  • Focus of much of the recent interest in modern
    biotechnologies is on liquid biofuels, in
    particular ethanol and biodiesel
  • Dominant players the US and Brazil. But many
    other governments are actively considering the
    appropriate role for biofuels in their future
    energy portfolios

4
Bioenergy in the Global Energy Context/2
  • What are Liquid Biofuels?
  • Biofuels produced from biomass for uses such as
    transport, heating, electricity and cooking
  • First Generation
  • Bioethanol - alcohol produced from starchy crops
    (sugarcane, maize, sugarbeet, cassava, wheat,
    barley, sweet sorghum...)
  • Biodiesel - produced from oily crops and trees
    (rapeseed, oil palm, soy, coconut, jatropha) and
    animal fats, waste oil
  • Second Generation not yet comercially available
  • E.g cellulosic bioethanol/ biodiesel based on
    biomass gasification produced from forestry
    products, grass, organic waste

5
Bioenergy in the Global Energy Context /3
  • The gradual move away from oil has begun. Over
    the next 15 to 20 years we may see biofuels
    providing a full 25 percent of the worlds energy
    needs Alexander Muller, Assistant D-G for the
    Sustainable Development Department, FAO
  • Between 2003 and 2007, global production of
    biofuels has doubled and was expected to double
    again in the four coming years. New pro-biofuels
    policies enacted in Latin America (Argentina,
    Colombia, Ecuador, Mexico), Canada,
  • Asia (China, India, Indonesia, Malaysia, the
    Philip-pines, Thailand), and in Africa (Malawi,
    Mozambique,
  • Senegal, South Africa, Zambia)

6
Bioenergy in the Global Energy Context /4
  • Bioenergy is an opportunity
  • To add to the global supply of energy to meet the
    enormous growing demand
  • To mitigate some of the price surge effects
    depletion of foreign exchange earnings and
    budgetary imbalances, increased volatility of oil
    prices and complicated economic planning, etc.
  • For an environmentally friendly , carbon-neutral
    way for energy supply
  • To provide income and employment to the people

7
Bioenergy in the Global Energy Context /5
  • For supply diversification for countries that are
    highly dependent on the world oil market for
    their modern energy, many of which are in the
    tropics with relatively low-cost biofuel crops,
    such as sugar cane and oil palm, already grown
  • To substitute to traditional biomass fuels and
    improve peoples access to electricity
  • Locally produced, bioenergy can provide energy
    for local agricultural, industrial and household
    needs at less than the costs of fossil fuels

8
Bioenergy in the Global Energy Context /6
  • Trade-offs and risks - Economic,
    environmental, and social impacts will depend
    largely on local conditions and on policy
    frameworks implemented to support bioenergy
    development
  • At the national level, agricultural policy,
    including the availability of rural
    infrastructure, credit, and land tenure, will
    determine the scale and distribution of economic
    benefits
  • At the international level, reducing agricultural
    subsidies in rich countries and allowing free
    trade in agricultural commodities will spur the
    development of first-generation liquid biofuels
    the fastest growing segment of the world
    agricultural market
  • Trade reform efforts have powerful effects on/to
    be subject to sizable impacts from biofuels
    expansion

9
Bioenergy in the Global Energy Context /7
  • Trade-offs and risks ../2
  • Rapid growth in 1st-generation liquid biofuels
    production ? raise in agricultural commodities
    prices negative economic and social effects,
    particularly on the poor. Imperative of more
    equitably shared ownership
  • Thus, the economic, environmental, and social
    impacts of bioenergy development must be assessed
    carefully before deciding if and how rapidly to
    develop the industry and what technologies,
    policies and investment strategies to pursue
  • Decision-makers need to address chronic
    structural problems in agriculture, forestry, and
    the economy so that the economic benefits to the
    poor outweigh the losses.
  • Brazil, the EU and the US experiences ?
    governments regulations and tax incentives are
    essential to the development of modern bioenergy.
    It is a Policy-driven Market
  • ./.

10
Global Market Overview /1
  • Production
  • 2004-2008 biodiesel increased six-fold to 12
    billion liters per year and ethanol doubled to 67
    billion liters per year.
  • In 2008, ethanol and biodiesel production both
    grew by 34 percent.
  • 2005 2006 2007 2008
  •  
  • Ethanol 33 39 50
    67
  • Biodiesel 3.9 6 9
    12

Countries with policy targets
66 73
States/provinces/ Countries with biofuels
mandates 38
53
11
CDDCs mainly limited to traditional sugarcane
producers in the Caribbean and Africa
12

Global Market Overview /2
  • The U.S. has become the dominant ethanol
    (corn-based) producer (34 billion liters produced
    in 2008), although Brazil had started an
    ambitious program to increase production by 50
    by 2009 (sugar-based).
  • Ethanol provided gt 40 percent of all (non-diesel)
    motor vehicle fuel in Brazil in 2005.
  • Other countries producing fuel ethanol include
    Australia, Canada, China, Colombia, Costa Rica,
    Cuba, the Dominican Republic, France, Germany,
    India, Spain, Sweden,
  • Thailand, Jamaica, Poland, Malawi, South
    Africa,, and Zambia

13

Global Market Overview /3
  • Biodiesel growth rates have been even more
    dramatic than ethanol, although absolute
    production is still much less than ethanol.
    Biodiesel production increased sixfold from 2
    billion liters in 2004 to at least 12 billion
    liters in 2008.
  • The EU is responsible for about two-thirds of
    world biodiesel production. Production has
    increased at 20-100 annual rates in recent
    years, particularly in Germany (1/2 of the
    worlds total in 2008), France, Italy, Spain,
    Poland,
  • Outside of Europe, top biodiesel producers
    include the United States, Argentina, Brazil, and
    Thailand.

14
Biofuel Trade Trends
  • Exports 10 of global production mainly
    bioethanol
  • Bioethanol
  • Exports Brazil - 50 of exports, but also from
    Guatemala and other Caribbean countries, Peru,
    Pakistan, Zimbabwe, Swaziland
  • Imports US - 31 imports from Brazil, China
    and the Caribbean. EU mainly intra-EU plus
    imports from Brazil, Guatemala, Ukraine. Other
    importers - India, China, Japan, Korea
  • Biodiesel most trade is in feedstocks
  • Palm oil (Malaysia/Indonesia) ? EU, China and
    other Asian countries.
  • Soya (Brazil, Argentina , US) ? EU
  • Coconut oil Philippines ? Japan

15

Global Market Investment Flows /4
  • Investment in new biofuels production capacity
    worldwide has been growing rapidly, and was
    expected to exceed 4 billion in 2007.
  • The value of biofuels production plants under
    construction and announced construction plans
    through 2009 exceeded 4 billion in the United
    States, 4 billion in Brazil, and 2 billion in
    France
  • Venture capital investment in the US 800
    million reported for biofuels alone spec. for
    developing and commercializing technologies for
    converting cellulose to ethanol

16

Global Market Industry Trends /5
  • Ethanol 2006-2008
  • USA 130 operating ethanol plants production
    capacity of 26 billion liters/year by 2007, a 60
    percent increase over 2005. During 2008, 31 new
    ethanol refineries came online in the United
    States, bringing total production capacity to 40
    billion liters per year, with additional capacity
    of 8 billion liters per year under construction.
  • There were also about 1,900 E85 ethanol refueling
    stations in the United States, mostly in the
    Midwest.
  • Brazil continued its ethanol expansion plans,
    begun in 2005, to more than doubling production
    by adding 22 billion liters/year of new sugar
    plantations and ethanol production capacity by
    2012. Total investment required in Brazil during
    20062012 gt 15 billion.

17

Global Market Industry Trends /6
  • Ethanol 2006-2008 (contd)
  • In Brazil, over 400 ethanol mills and 60
    biodiesel mills were operating by the end of
    2008. About 15 percent of Brazils ethanol
    production was exported in 2008. Most of the
    sugarcane plantation and ethanol plant expansion
    being carried out with national public financing
    and a growing share from foreign investors.
  • In Europe, additional ethanol production capacity
    of over 3 billion liters per year was under
    construction in 2008.
  • Spain 16 biofuels production facilities
    operating by the end of 2006, although most
    production was exported

18

Global Market Industry Trends /7
  • Biodiesel 2006-2008
  • Many new biodiesel capacity throughout Europe
    putting total European biodiesel production
    capacity increased to almost 7 billion
    liters/year at the end of 2006, from 4.5 billion
    liters/year in 2005
  • Argentina 8 firms with 0.7 billion liters
    production capacity in 2007 shipping almost 400
    million liters abroad. Added 10 new commercial
    plants in 2008, all producing for export. Another
    16 plants were expected during 2009 to bring
    capacity to 1.8 billion liters per year.
  • In Europe, more than 200 biodiesel production
    facilities were operating in 2008

19

Global Market Industry Trends /8
  • Biodiesel 2006-2008 (contd)
  • Brazil surge of investment in 2007 to cope with
    a B2 (2) blending requirement starting in 2008.
  • South Africa 1st first commercial biodiesel
    plant began operation in 2007, using sunflower
    oil as feedstock.
  • Many plans for new biodiesel plants and/or
    increased palm oil and jatropha plantations
    announced in several countries, including Brazil,
    Bulgaria, India, Indonesia, Malaysia, the
    Philippines, and Singapore,

20

Global Market Industry Trends /9
  • 2nd Generation Biofuels 2006-2008
  • Kick-off of commercial investment beyond
    pilot-scale plants. Government support tied to
    private investment was an important factor. Large
    institutional investors got into the picture
    too, as illustrated by Goldman Sachs 30 million
    investment in Iogen Corporation of Canada.
  • Canada created a CAD 500 million (US500
    million) fund to invest in private companies
    developing large-scale facilities for producing
    both ethanol and biodiesel from cellulose.
  • Japan allocated 15 billion yen (130 million) in
    2006 for RD, pilot projects, and market support

21

Global Market Industry Trends /10
  • 2nd Generation Biofuels 2006-2008 (contd)
  • Globally, additional capacity of at least 1.5
    billion liters per year was planned. Industry
    pioneers include Royal Nedalco (the Netherlands),
    Econcern (the Netherlands), Iogen (Canada),
    Diversa/Celunol (USA), Abengoa (Spain), and the
    Broin DuPont consortium (USA).
  • USA announcement in early 2007 of an investment
    of up to 390 million in six cellulosic ethanol
    production plants over the coming four years,
    with total capacity of 500 million liters/year.
    Plants totaling 12 million liters per year were
    operational in 2008, and additional capacity of
    80 million liters per year was under
    construction.

22

Global Market Industry Trends /11
  • 2nd Generation Biofuels 2006-2008 (contd)
  • In Canada, capacity of 6 million liters per year
    was operational.
  • In Europe, a handful of plants were operational
    in Germany, Spain, and Sweden, and capacity of 10
    million liters per year was under construction.
  • The largest 2nd-generation biofuels plant in the
    world (200 million) will come online in
    Delfzijl, the Netherlands, in 2009, to produce
    200 million liters per year of bio-methanol from
    wheat chaff and other wastes.

23

Global Market Industry Trends /12
  • 2nd Generation Biofuels 2006-2008 (contd)
  • The worlds first commercial wood-to-ethanol
    plant began operation in Japan in 2007, with a
    capacity of 1.4 million liters/year.
  • The first wood-to-ethanol plant in the United
    States was planned to be completed by 2008 with
    an initial output of 75 million liters/year. A
    200 million plant in Iowa, designed to digest
    corn fiber and stover (stalks and leaves), was
    set to begin construction in 2007 and be
    completed in 2009.

24

A Dynamic Policy Landscape
  • The development policies combine mandates for
    blending biofuels in vehicle fuels targets and
    plans for future levels of biofuels use fuel tax
    exemptions, tax benefits and production
    subsidies sustainability criteria
  • Mandates for blending biofuels into vehicle
    fuels enacted, in 2007, in at least 36
    states/provinces and 17 countries at the national
    level. Most mandates require blending 1015
    percent ethanol with gasoline or blending 25
    percent biodiesel with diesel fuel. Most mandates
    are fairly recent, enacted over 2004-2005.
  • Mandates can be found in at least 13 Indian
    states/territories, 9 Chinese provinces, 9 U.S.
    states, 3 Canadian provinces, 2 Australian
    states, and at least 9 developing countries at
    the national level.

25

Policy Landscape /2
  • Biofuels targets and plans defining future
    levels of biofuels use
  • A new U.S. renewable fuels standard requires fuel
    distributors to increase the annual volume of
    biofuels blended to 36 billion gallons (136
    billion liters) by 2022, extending a previous
    standard of 7.5 billion gallons (28 billion
    liters) by 2012. The new standard implies that 20
    percent of gasoline for road transport would be
    biofuels by 2022.

26

Policy Landscape/4
  • The European Commission established a new EU-wide
    target of 10 percent of transport energy by 2020,
    extending the previous EU-wide target of 5.75
    percent by 2010 adopted in early 2007. Special
    provisions for biofuels sustainability were also
    adopted, including double crediting of second-
    generation (i.e., cellulosic) biofuels and
    excluding from credit any biofuels that do not
    save at least 35 percent of greenhouse gas
    emissions compared to the equivalent fossil fuel
    use.
  • All EU countries now have a biofuels target, most
    for 5.75 percent of transport fuels by 2010. Some
    of the targets are in the range of 13 percent,
    and a few are just indicative. Portugal and
    France both adopted a target of 10 percent of
    transport energy, by 2010 and 2015 respectively.
    Belgium and Croatia adopted a target 5.75
    percent by 2010.

27

Policy Landscape /3
  • Biofuels targets and plans defining future
    levels of biofuels use
  • The United Kingdom has a similar renewable fuels
    obligation, targeting 5 percent by 2010.
  • Japans new strategy for long-term ethanol
    production targets 6 billion liters/year by 2030,
    representing 5 percent of transport energy.
  • In 2007, China finalized targets for the
    equivalent of 13 billion liters of ethanol and
    2.3 billion liters of biodiesel per year by 2020.
  • South Africas new biofuels strategy targets 4.5
    percent biofuels.

28

Policy Landscape/5
  • Many jurisdictions are also starting to mandate
    biofuels use in government vehicles, including
    several U.S. states.
  • Compared to the frenzy of the years 2006/2007,
    the year 2008 was relatively quiet for biofuels
    policy (with the exception of the sustainability
    and other provisions adopted in the EU as part of
    its transportation energy target). In most of the
    cases, adjustments were made to the tools.
  • For example, Germany lowered the mandatory
    biofuels blend rate for all transport fuels from
    6.25 percent to 5.25 percent for 2009. The rate
    will again increase to 6.25 percent for 201014.
  • Several blending mandates were enacted or
    modified in 2008, including in Brazil, India,
    Jamaica, Korea, and Thailand.

29

Policy Landscape /6
  • India new target of 20 percent biofuels blending
    in both gasoline and diesel over 10 years, along
    with tax incentives for growers of biofuels
    crops. The initial mandate was for E5 blending in
    2008 but ethanol supply issues may have delayed
    that mandate.
  • Countries with new biofuels targets identified in
    2008 include Australia (350 million liters by
    2010), Indonesia (3 percent by 2015 and 5 percent
    by 2015), Japan (500 million liters by 2012),
    Madagascar (5 percent by 2020), and Vietnam (300
    million liters by 2020).

30

Policy Landscape /7
  • Brazil has been the world leader in mandated
    blending of biofuels for 30 years under its
    ProAlcool program
  • The blending shares are adjusted occasionally,
    but have remained in the range of 2025 percent.
  • All gas stations are required to sell both
    gasohol (E25) and pure ethanol (E100).
  • The blending mandate has also been accompanied by
    a host of supporting policies, including retail
    distribution requirements, production subsidies,
    and tax preferences for vehicles (both
    flex-fuel vehicles and those that run on pure
    ethanol).

31

Policy Landscape /8
  • Fuel tax exemptions, tax benefits and production
    subsidies
  • The largest production subsidies exist in the
    United States
  • totalled US5 billion in 2006, about ½ of this
    in the form of
  • fuel tax credits and reductions
  • the federal government provides a 51 cents/gallon
  • (14 cents/liter) tax credit for ethanol
    blending through 2010,
  • and a 43 cents/gallon (12 cents/liter) tax
    credit for biodiesel
  • through 2008
  • the subsidy amounted to more than 40 percent of
    the market
  • price
  • A number of U.S. states also offer production
    incentives and
  • sales tax reductions or exemptions.

32

Policy Landscape /9
  • Fuel tax exemptions, tax benefits and production
    subsidies
  • Brazil also provides large tax reductions. In
    June 2005, the tax difference between pure
    ethanol and the gasoline/ethanol blend in the
    state of Sao Paolo amounted to US0.30 per litre
    of ethanol
  • Biofuels tax exemptions exist in at least 10 EU
    countries. Other countries with tax incentives
    for production include Canada, Argentina,
    Bolivia, Colombia, Paraguay South Africa
  • These subsidies are much larger than the
    benefits of potentially
  • Lower GHG emissions that arise from switching to
    liquid biofuels a CO2-equivlent price range of
    US 8 to US20 per tonne will generally provide
    0.01-0.04 per litre of biofuel (upper end of
    the range for biodiesel).

33

Policy Challenges
  • The diversity of potential liquid biofuel
    feedstock is both an advantage and a disadvantage
  • It enhances the security of supply and I
    certifincreases the resilience and ecological
    benefits of biomass production systems compared
    with monocultures
  • On the other hand, a range of potential
    feedstock with differing physical and chemical
    characteristics creates challenges for handling
    and processing. It can result in differing
    characteristics of the final biofuel prooduct ?
    Need for internationally agreed-upon fuel
    specifications/labelling systems
  • Work to be done to determine which crops and
    crop species are more suitable for different
    liquid biofuel applications, soil types, farming
    systems, and cultivation contexts.

34

Policy Challenges
  • Key factors to be considered when selecting
    feedstock include economic viability,
    suitability for different biofuel applications,
    yield per hectare, input requirements, yield
    increase potential,crop versatility, drought and
    pest resistance potential, competing uses, price
    volatility, and opportunity costs
  • Some feedstock is better suited for large-scale
    production while others are more appropriate for
    small scale applications
  • For instance, the inedible oilseed Jatropha must
    be harvested by hand. Thus, it is a labour-
    intensive crop, suitable for areas with
    underemployment problems

35
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36

Trade Issues
  • Subsidies very high e.g in the US and EU
    concerns about impacts on developing countries
    competitiveness
  • Standards
  • Technical and Sustainability Standards different
    initiatives under development UK, Holland, EC,
    Biofuels Round Table (RSB) - proliferation
  • Important for effective market development but
    imply extra burden (economic and institutional
    capacities)
  • At the WTO no unique forum to address trade
    liberalisation
  • Bioethanol and feedstocks agricultural goods
  • Biodiesel - industrial goods
  • or are biofuels environmental goods?
  • Trade opportunties not only North-South. Need to
    explore South-South/ regional trade, capitalising
    on proximity to large Southern/regional markets

37

Trade Issues/2
  • Trade in biofuels is built on much more than good
    climate, cheap land and labour. Trade strongly
    affected by
  • Tariffs
  • Higher on bioethanol
  • Trade agreements
  • EU Cotonou EPA (101 developing countries)
  • US Caribbean Basin Initiative/CAFTA NAFTA,
    Andean Countries

38

Trade Issues/3
  • The US and Europe have coupled subsidies with
    import tariffs so that these subsidies will
    benefit domestic farmers rather rather than those
    in other countries. This has led to the irony of
    virtually unimpeded trade in oil, while trade in
    biofuels is greatly restricted.
  • Opening international markets to biofuels would
    accelerate investment and ensure that production
    occurs in locations where the production costs
    are lowest.
  • If trade barriers are removed, some agricultural
    commodity prices would rise. But this effect
    would be moderated as producers responded to new
    incentives. Poor countries in Africa are among
    those likely to benefit. However, the resulting
    accelerated investment and production should be
    assessed closely at the national and
    international levels to avoid potentially
    irreversible sustainability impacts

39
  • Promoting Biofuels Trade require
  • long-term policy support

  • Policy coherence with existing national/
    international policies and goals, and
    coordination across ministries (e.g Agriculture,
    Environment, Energy,Trade)
  • Enabling environment for biofuels development to
    provide the fundamentals
  • Developing Regionally Integrated Value Chains
  • Realise synergies from different policy goals
  • Keep tracking developments in international oil,
    agricultural markets and 2nd generation of
    biofuels
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