Title: BIOFUELS, TRADE AND SUSTAINABLE DEVELOPMENT: Issues, Challenges and Strategy Components
1BIOFUELS, 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
2OUTLINE
- 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
3Bioenergy 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
4Bioenergy 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
5Bioenergy 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)
6Bioenergy 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
11CDDCs 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.
14Biofuel 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 -
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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