Testing times for biofuels

Are biofuels still considered a viable and ecofriendly alternative to oil or has media criticism blighted their once bright future? Katie Holliday talks to industry experts about the future for both first- and second-generation biofuels

Petrol pump

In a State of the Union address in February 2006, former US President George Bush pledged to end the nation's "addiction to oil", through increasing spending on renewable technologies. One such technology was ethanol, a fuel produced from agricultural feedstocks such as sugar cane, wheat and corn, and blended in small amounts with gasoline to power motor vehicles. Government incentives have caused this market to flourish over the past five years, particularly in the US, which is now the world's largest market for bioethanol. Global production totalled 75 billion litres (20 billion US gallons) in 2009, according to the Renewable Fuels Association, the national trade association for the US ethanol industry. But ethanol's credibility as an ecofriendly alternative to gasoline has suffered a great deal of criticism from environmentalists, who claim that ethanol production competes with food production and pushes up food prices as a result. Some industry experts dismiss this argument as ‘propaganda' and say that bioethanol demand will continue to thrive in the future. As new, advanced biofuel technologies near commercialisation, the emergence of a new landscape for biofuels is becoming more apparent.

The primary incentive for developing biofuels is that they are, in theory, a more ecofriendly alternative to burning fossil fuels, and they have become more and more visible as climate change becomes more prominent on the global political agenda. Now that other solutions, such as carbon trading, are receiving more criticism in the media, some experts say this is strengthening the case for biofuels.

According to Hamish Curran, chief executive officer at UK-based biofuel generation company TMO Renewables, biofuels present a simpler and more tangible solution to reducing emissions. "The problem people have both politically and publicly with carbon trading is: how does it impact the world's production of carbon dioxide just because a bunch of traders sell bits of paper? It's difficult to understand and it's interpreted by many as a possible means by which developed economies will hamstring themselves, relative to developing economies," he says.

However, biofuels have not gone without their share of environmental criticism. Biofuel production is seen by many as competing with valuable food production resources, prompting the 'food versus fuel' debate widely covered in the media (especially in the case of first generation biofuels, which are made from sugar, startch and vegetable oil). Even though several World Bank analyses show that biofuels were only one driver for food price increases in 2008, and speculation on various stock markets had a significant influence on commodity prices, it is clear that other alternatives are needed if biofuels are to make an important contribution to a low-carbon transport fuel supply. Another question mark surrounding biofuels involves their limited ability to reduce greenhouse gas emissions. Scientists have highlighted that the energy used to fuel the production process and transport it (for example, biofuels are not suitable for pipeline transportation when blended with fossil fuels) reduces the overall impact of biofuels' emission reduction potential.

The impact of the criticism has been most strongly felt in Europe. The European Union's sustainability criteria for biofuels has been adapted in recent years to exclude certain types of first-generation biofuel that do not meet its criteria. In the UK, for example, the government dropped its biofuels' incentive policy in direct response to the 'food versus fuel' debate.

TMO Renewables' Curran cites the UK as a prime example on how not to create policy to stimulate industry. "The UK policy was sufficient to encourage investment and the beginnings of a biofuels industry. Then along came the food versus fuel hysteria, a brilliantly masterminded propaganda campaign against biofuels not founded on fact but vested interest in people who didn't' want to see biofuels. On the back of that campaign, the government dropped its [support] so that ended biofuels in the UK for the meantime," he says.

Big picture

Despite this criticism, the market for first-generation biofuels is still going strong in some regions of the world. While the US is the largest market for ethanol, Brazil follows closely behind, and together the two regions surmise 75% of the global ethanol market. Many industry experts agree that Brazil is a perfect example of how biofuels policy can revolutionise a country's fuel mix. The Brazilan government launched fiscal policies to develop Brazil's huge sugar cane market into bioethanol production in the late 1970s in an effort to reduce the nation's dependency on imported petrol. Yearly production totals around 25 billion litres of ethanol and 2 billion litres of biodiesel. Today 20% of Brazilian road transport fuel is bioethanol, according to the International Energy Agency's Medium-term oil and gas markets analysis.

Energy security is also a driver of the ethanol markets across developing Asia as well, primarily in China. Both China's rapidly advancing vehicle fleet and the government's reluctance to avoid the mistakes of more fossil-fuel intensive Western transport systems, have proven strong drivers for China's appetite for bioethanol.

Anselm Eisentraut, bioenergy analyst at the IEA, says it is still unclear whether Asia's ethanol market will boom in the next few years. "In developing Asia, especially China, Thailand and India, the development of the ethanol markets has been more recent. But support policies are not as strong as they are in the Organisation for Economic Co-operation and Development (OECD) where there is more financial power," he adds.

China is now the world's third largest ethanol producer with production totalling roughly 2 billion litres per year – but this is still dwarfed by the US or Brazil.

"In the IEA's medium-term analysis, Chinese ethanol production is not going to grow much over the next five years, only by 300 to 400 million litres in total. This is due to restrictions on the use of grain feedstocks that compete with food demand. For China it will be important to commercialise cellulosic ethanol [a form of second-generation biofuel]," adds Eisentraut.

In Europe, ethanol is produced on a smaller scale. Diesel is the main fuel used for transport, so there is greater demand for biodiesel rather than bioethanol. Germany and France have been the most proactive countries within Europe and have introduced subsidies to encourage the use of biofuels, but the volatile price of vegetable oil in recent years has put a dampener on biodiesel production.Key drivers

Legislation is the biggest driver of the biofuels market worldwide. Without government support, it is difficult for biofuels to compete with cheaper fossil fuel sources.

"Government policy is the most important driver behind biofuels. When you have a vision at a government level for the development of ethanol, you'll see fiscal policies to encourage that," says Curran.

The US ethanol market owes its success in recent years to the lucrative tax breaks offered by government, making US ethanol much more competitive with European ethanol, for example. The US Environmental Protection Agency (EPA) recently mandated 49 billion litres (13 billion US gallons) of ethanol production in 2011. At the end of last year it allowed E15 (gasoline blended with 15% of ethanol) for vehicles made after 2007, up from 10% previously. And in January this year the Environmental Protection Agency approved the use of a 50% higher concentration of corn-based ethanol in gasoline for vehicles made after 2001.

The European Union has set a mandatory target of 10% of road transport fuel to be provided by renewable energy by 2020. IEA's Eisentraut says these targets will boost demand for Brazilian ethanol. "The US and European Union biofuel mandates are now rather ambitious, and as a result they will be looking at Brazilian sugar-cane derived ethanol as a cheap option," says Eisentraut.

New generation

But other industry experts say that new technologies, known as second-generation biofuels, are likely to take the place of first generation biofuels.

This is because second generation biofuels are derived from lingocellulosic biomass feedstock using advanced technical processes, rather than food crops such as corn, wheat or corn. Lignocellulosic sources include woody, carbonous materials that do not compete with food production, such as leaves, tree bark, straw or woodchips.

"Food scarcity is becoming more of an issue, especially against a backdrop of rising global food prices. In the future there will be more pressure not to use first-generation biofuels for this reason," says Karin Johnson, analyst for energy and sustainability at UK-based business intelligence unit DataMonitor.

The emergence of second-generation biofuels potentially holds the answer to scepticism met by the first generation variety. In 2006, a European Commission biofuels progress report found that second-generation biofuels were more promising than their first-generation counterparts for a number of reasons. First, most experts agree that they do not compete with food production. Though if you grow willow for second-generation biofuel production on a field that was previously used for wheat, you run into the same ‘food versus fuel' debate. Second, they have a more favourable ability to reduce greenhouse gas emissions - by 75-100% compared to normal petrol - whereas corn or sugar beet ethanol can provide no more than 60% greenhouse gas savings, according to a report by the Organisation for Economic Co-operation and Development (OECD), Biofuels support policies: an economic assessment. As for diesel, biomass-to-liquid (BtL) technology could slash carbon dioxide emissions by 90%, compared with 75% for currently available biodiesel methods. In addition, less land is used for BtL and it often offers better fuel quality than first-generation products.

According to the IEA's Eisentraut, second-generation biofuels can be more competitive than their first-generation counterparts, though on face value they appear to have relatively high production costs preventing them from being produces on a large scale. "The problem first-generation ethanol faces is the volatility of commodity prices. At the moment, wheat and corn prices are skyrocketing due to speculations and rising oil prices – this also has an impact on margins and the profit of ethanol producers. This volatility should be less severe for biomass and cellulosic derived biofuels," he says.

However, some industry analysts argue that second-generation biofuels are not able to replace first-generation biofuels entirely. "To say it will replace first-generation would be a blunt assumption. However, the costs of second-generation are coming down so in the future they could become a cheaper alternative to conventional ethanol in some places. But for sugar cane ethanol it is unlikely that it will be replaced with cellulosic technologies – the type of advanced technology required will be able to be implemented on a large scale," adds Eisenteraut.

DataMonitor's Johnson says second-generation biofuels do face some specific challenges. "The problem is economies of scale - if you look at second-generation biofuel production in just one plant, it is not economically viable. But if you use joined-up thinking and look at it on a regional basis then it becomes much more cost-effective," she says.

Infrastructure is another key challenge. Once biofuels are produced, vehicle manufacturers have to adapt their engine designs to accommodate the fuel. Gas pump stations have to install the facilities to dispense biofuels into vehicles. E85, for example (a blend of 85% ethanol and 15% petrol, widely used in Brazil) cannot be dispensed in Europe.

According to DataMonitor's Johnson, the balance between the blending mandates and infrastructure limitations needs to be carefully managed. "In the US, for example, a ‘blending wall' has emerged, because the [US] EPA has allowed up to a 15% blend to be produced, but domestic infrastructure only allows a 10% blend to be dispensed, creating a surplus of ethanol supply in the market," she adds.
The biofuels market has endured its fair share of challenges over the past decade, and their image as a squeaky clean alternative to dirtier fossil fuel-derived energy sources has no doubt been tarnished. However, industry analysts seem certain that biofuels will remain an integral part of the world's energy future as legislative drivers and technological breakthroughs make the case for biofuels increasingly convincing.

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