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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-

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Presentation on theme: "Why are biofuels attractive? Energy security: locally produced, wider availability, “grow your own oil” Climate change mitigation: one of the few low-"— Presentation transcript:

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2 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

3 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 residues—maize stover, sugarcane trash –Energy crops—switch grass, hybrid poplar, willow Biodiesel –Rapeseed (EU) –Soybeans (US) –Palm oil (Malaysia) –Coconut oil (Philippines) –Plants growing on marginal land—Jatropha, Karanja (India)

4 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

5 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

6 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  Biofuel’s 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

7 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

8 Brazil’s production cost in mid-2005 of US cents per liter is equivalent to $35-50 per barrel of oil, depending on vehicle fuel economy Sugarcane accounts for 58-65% of the cost of ethanol production in Brazil International price of sugar in February 2006 was US$415/ton

9 World raw sugar vs. gasoline price Rotterdam unleaded regular gasoline 4Q 2005 US dollars

10 Price comparisons in 2006 India ethanol –Asking price: Rs per liter ($0.52/liter) –Fixed price: Rs (Rs 24.7–28.2 per liter of gasoline equivalent) –Gasoline price city gate: Rs Thailand ethanol –Asking price: 22–23 baht ($0.56–0.59/liter) –Fixed price: baht (24.2–27.9 baht per liter of gasoline equivalent) –95 RON gasoline price: 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

11 Price structure in Thailand 95 RONE10 Ex-refinery (baht/liter) Excise tax Municipal tax Oil fund Conservation fund Marketing margin VAT Retail Difference in taxes and levies = $0.50 per liter of ethanol 13 February 2006

12 Brazil: world’s 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 , 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

13 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 Brazil’s ethanol experience should assess the factors necessary for success over the long term

14 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?

15 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

16 Global carbon market and biofuels Assume 100% GHG offset (20-80% likely) $5-10/t CO 2 -eq in short to medium term equivalent to $ per liter of biofuel $15-20/t CO 2 -eq over the coming decade equivalent to $ per liter of biofuel For comparison: range of government support: $0.00 – $0.79 (Germany) per liter for ethanol

17 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

18 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 technologies—research programs should be promoted in OECD countries and a handful of the largest developing countries


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