1. China’s Bioenergy Industry U.S. International Trade Commission November 16, 2011 Elizabeth R. Nesbitt International Trade Analyst for Biotechnology and Nanotechnology U.S. International Trade Commission Elizabeth.Nesbitt@USITC.gov

2. The U.S. International Trade Commission An independent, quasijudicial Federal agency with broad investigative responsibilities on matters of trade that: ( 1) administers U.S. trade remedy laws within its mandate in a fair and objective manner; (2) provides the President, USTR, and Congress with independent analysis, information, and support on matters of tariffs, international trade, and U.S. competitiveness; and (3) maintains the Harmonized Tariff Schedule of the United States. The views presented are solely those of the author(s) and do not represent the opinions of the Commission or any of its Commissioners. 2

3. The U.S. International Trade Commission Industrial biotechnology uses genetically enhanced microbes to produce chemical intermediates, enzymes and other consumer products from renewable feedstocks (BIO) Bioplastics Chemical intermediates Downstream products Examples: polymers and fibers (performance outerwear) Biocatalysis— the use of enzymes in addition to or in lieu of chemical conversion processes (e.g., to make pharmaceuticals) Biodiesel Co-products: biobased chemicals Downstream products from soy Example: polyols (used to make coatings, adhesives, and foams) Alcohols (e.g., biofuels) Co-products : biobased chemicals

4. The U.S. International Trade Commission Factors spurring industrial biotechnology use in China include: - longstanding use of fermentation - energy security concerns - increasing national energy consumption - volatility in fossil fuel prices - environmental concerns. 4

5. The U.S. International Trade Commission Bottom Line China is proactively promoting production/use of renewable energy –Demonstration-scale biofuels facilities are starting up rapidly –Biogas is being commercialized –Sources of bioenergy are being combined to optimize power generation Biofuels and chemicals tracks are converging More companies proactively develop integrated biorefineries Other production of bio-based chemicals is also being developed Expansion targets may be hindered –Grain use restrictions –Technical/economic difficulties: alternative feedstocks, technologies 5

6. The U.S. International Trade Commission Bottom Line –cont’d Significant investment in renewable energy and bio-based chemicals. Green power capacity, 2009 and 2020 Green power investment: Total 2009–20 (5.4 trillion RMB, about $800 billion) Source: Capacity and investment data, J. Zhang, “Green Energy: Development and Investment Opportunities in China.” USDA-WSU-CAU Workshop, 2010. See Nesbitt et al, “China's Vision for Renewable Energy: The Status of Bioenergy and Bioproduct Research and Commercialization” Journal of International Commerce and Economics, 2011. 6

7. The U.S. International Trade Commission Fuel Ethanol in China -- Highlights 2020 production projected at ~ 3.6 billion gallons (~ 6x 2009). Use of corn capped; emphasis on alternative feedstocks. Focus on integrated biorefineries. Higher 2 nd generation production costs –Chinese production costs for corn-stover ethanol are about 1.5-2 times the cost of corn ethanol production –Lower feedstock costs for 2 nd generation production – RMB 200-300 (or $29-44) per ton corn stover and wheat straw – are offset by pre-treatment and enzyme costs. 7

8. The U.S. International Trade Commission Outlook for biofuels? Fuel ethanol blends (mostly E10) mandated to replace pure gasoline. 2 nd generation ethanol commercial production not expected for 3-5 years. Increased use of alternative feedstocks raises questions about supplies. Financial promotion –Significant investment by state-owned entities –New laws expected to promote economic self-sufficiency of fuel ethanol industry –More investment planned –More emphasis on making venture capital available. Biobutanol considered too expensive for fuel use so currently produced for chemical applications. 8

9. The U.S. International Trade Commission Biobased chemicals in China -- Highlights IB product sales exceeded $60.5 billion in 2007 with projected annual increases of about 10 percent. Output largely exported. Use of enzymatic biocatalysis is also expanding, with input from foreign collaborators (e.g., NCPC SINOWIN is working with this technology) Substantial and growing levels of foreign investment Fewer government policies for chemicals than biofuels NCPC SINOWIN ceased biobutanol production – –Product less cost competitive given high cost of corn input, low cost of crude petroleum 9

10. The U.S. International Trade Commission Outlook for biobased chemicals? Higher costs and prices because of changing market conditions –Manufacturing costs, export prices pushing closer to those of United States –Profit margins narrowing Bulk Chinese chemical exports (HS 29) to major world partners: –Average unit values increased during 2005-10 10

11. The U.S. International Trade Commission Financial considerations in China for bioproducts and clean energy Chinese investment in clean energy will continue –11 th 5-Year Plan: RMB 5-10 billion (~ $700 million-$1.4 billion) –2009-20: RMB 5.4 trillion (~ $800 billion) One-third to go to the smart grid the largest shares thereafter to hydro, wind, and nuclear power, respectively. Funding sources vary –Lack of domestic venture capital –Combinations of internal and external company funding –Stimulus funding for infrastructure projects during the economic downturn. –Government funding available for research and commercialization. 11

12. The U.S. International Trade Commission Financial considerations in China for bioproducts and clean energy Monetary incentives are still important –Tianguan’s break-even point for E10 is ~ RMB 9,000 per ton –In August 2010 the company was at ~ RMB 7,000 (about $1,029)). Other funding sources for clean energy projects –Carbon credits and carbon tax –Investment Association of China’s Energy Research and Development Center 12

13. The U.S. International Trade Commission Domestic and International Collaborations At the industry level, at universities, and many combinations thereof. International collaboration is strongly promoted in China. Foreign entities are active in Chinese bioenergy and biobased chemicals technology exchange and strategic alliances. Although China's recent indigenous innovation policies may impact innovations in bioenergy, the Chinese experts stated that China's international intellectual property collaboration will not be held up by such policies. 13

14. The U.S. International Trade Commission References “Industrial Biotechnology in China Amidst Changing Market Conditions” www.usitc.gov/publications/332/journals/biotechnology_china.pdf (published February 2009 in the Journal of International Commerce and Economics) “China's Vision for Renewable Energy: The Status of Bioenergy and Bioproduct Research and Commercialization” http://www.usitc.gov/journals/Nesbitt_etal_ChinaBioenergy.pdf (published August 2011 in the Journal of International Commerce and Economics) www.usitc.gov/publications/332/journals/biotechnology_china.pdf http://www.usitc.gov/journals/Nesbitt_etal_ChinaBioenergy.pdf 14

15. The U.S. International Trade Commission Thank you! Any questions? 15