Thursday, May 10, 2007

Debate grows on suitability of biofuels


5:00AM Thursday May 10, 2007
By Tim Webb

Arnold Schwarzenegger, the Governor of California, uses it in one of his
Hummers. Sir Richard Branson, the Virgin boss, wants to fuel his planes
with it. American President George Bush hopes it can wean his country
off oil imports from the Middle East.

And next year, if tough new targets are met, it will be in every other
litre of petrol sold at the pumps in Britain.

Biofuel is the latest green craze. It is made from crops such as wheat,
rapeseed, corn and sugar; and less commonly from waste products such as
used cooking oil and tallow (animal fat).

According to biofuel's many fans, blending conventional petrol and
diesel with these crops or waste reduces the amount of crude oil needed
and the overall amount of carbon released into the atmosphere.

In his State of the Union address in January, Mr Bush announced a 15 per
cent target for the replacement of petrol by biofuels in US vehicles.
The EU has set a less ambitious target of just under 6 per cent by the
end of the decade; this could rise to 10 per cent.

But questions are starting to be raised about just how green biofuels
really are. They encourage deforestation - causing around a quarter of
the world's carbon emissions - as land is cleared to grow the crops.

Biofuels have also driven up food prices, hitting the world's poor the
hardest. According to the International Grain Council, at the end of
this financial year the world's grain stocks (corn, wheat and barley)
will be the lowest since the 1970s, mainly because of soaring demand
from biofuels.

Some of these "green" energy sources also use up more energy during the
manufacturing and refining process than they save.

Politics - particularly the interests of big agricultural businesses -
is starting to dictate the biofuel market.

The US has imposed punitive import tariffs on Brazilian-made ethanol -
one of the world's most efficient biofuels - and subsidises the export
of its domestically made corn-based ethanol, which is one of the least

How much deforestation takes place is hard to measure, but if new demand
emerges - such as from biofuels - more land has to be found from somewhere.

Biofuel crops thrive best in tropical climates. For example, Brazil can
make 6000 litres of ethanol from a hectare of sugar cane (the staple
crop for Brazilian biofuels), which is five times the output of a
hectare of rape seed in the UK. It is also cheaper to produce biofuels
in countries such as Brazil.

Sugar cane production in Brazil rose by half between 1993 and 2003, from
2.8 million ha to 4.2 million ha, mainly to feed domestic demand. It is
expected to increase by half again by the end of the decade to meet
global demand.

The effect of sugar's advance is to displace other food production into
the cerrado - tropical savanna covering a quarter of Brazil which,
according to the World Wide Fund for Nature, is biologically the richest
grassland in the world.

Deforestation caused by growing palm oil - another cheap biofuel staple
- in Asia, principally Indonesia and Malaysia, is also causing concern.
The Friends of the Earth estimates that 87 per cent of deforestation in
Malaysia between 1985 and 2000 was to make way for palm oil plantations.

The British Government has admitted that a "significant proportion" of
UK biofuel demand will be met by imports. Indeed, analysts at Goldman
Sachs believe that to meet the 2010 target wholly from domestically
grown plants would take over a quarter of all available crop land in the UK.

This means buying biofuel crops from places such as Brazil and
Indonesia, with all the environmental consequences - direct and indirect
- of deforestation.

Chris Brodie, a partner at the Krom River commodity fund, argues that
agricultural prices will keep heading higher as more land is devoted to
biofuel-crop production.

When American biofuel demand doubles - and when the EU targets kick in -
grain prices will increase even further. "You really need to apply
common sense. The further we impact grain inventories, the impact on
grain prices will be multiplied."

Politicians and the industry are aware of the deforestation that can
result from biofuels and are taking steps to try to address this.
Earlier this month, the Dutch Government unveiled a framework to allow
companies to measure the sustainability of the biofuels they are buying.
Under World Trade Organisation rules, individual countries are not
allowed to ban imports for being unsustainable, which is why these
standards are voluntary only.

Industry executives believe that as public awareness of biofuels and how
they are made grows, consumers will increasingly choose to buy petrol
labelled as sustainably sourced.

Andy Hunter, the director of Argent Energy, which makes biodiesel with
tallow and used cooking oil rather than crops, says this will gradually
discourage the production of non-sustainable biofuels as they will have
a lower value. "As companies look at [the issue], it will put pressure
on some crops. In the future, biofuels which can be branded as
sustainable will command a premium."

But it is debatable how effective such standards will be in practice.
Even if the EU managed to source all its biofuels sustainably, the
effect would be to displace other forms of food production or biofuels
destined for less ethical markets, which could be grown on cleared
rainforest instead.

Lord Oxburgh, the chairman of AIM-listed D1 Oils, says one of the
reasons he took up his post was a desire to make biofuels using
jatropha, a non-edible crop, which he says will only be grown on
marginal land.

He, like the green lobby, holds out most hope for the second generation
of cellulose-based biofuels, which use household waste and sewage,
rather than crops, as feedstock, and promise to be much more efficient.

A spokesman for the World Wildlife Fund, which encourages greater
investment in second-generation biofuels, argues: "It's dangerous to
create the industry and then try to make it sustainable."



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