Transcript Managing Urban Air Quality:

Biofuels: Considerations for
Developing Countries
Todd M. Johnson
World Bank
May 7, 2008
Guadalajara, Jalisco
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Biofuels
• Liquid biomass fuels, such as
ethanol from sugar, corn and
biodiesel from soy, palm, and
other vegetable oils
• Hot topic
 Record oil prices
 Record agricultural and food prices
 UN Monday called for freeze on
biofuels investments
• Is there are relation between
biofuels and the prices of
agricultural products?
Bioenergy
Liquid
biofuels
Solid biomass for
power and heat
generation
Biogas
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Presentation will discuss….
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Factors behind the increase in biofuels production
Government policy
The economics of biofuels
Biofuels and energy security
Biofuels and rural development
GHG impacts of biofuels
Risks of biofuels development
Road ahead
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Factors Driving Biofuels
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Biofuel production pathways
• Ethanol
 Sugarcane (Australia, Brazil, China, Colombia, Ethiopia, India,
Mexico, 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
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Rapeseed (EU)
Soybeans (US, Brazil)
Palm oil (Colombia, Indonesia, Malaysia)
Coconut oil (Philippines)
Plants growing on marginal land—Jatropha, Karanja (India)
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Government Policy
• More than 20 developed and developing countries have
announced some type of biofuel incentive program.
• Two types of policies
 i) mandates (binding) or targets (non-binding) on biofuels
consumption. Brazil, Canada, and the United States have
mandated future biofuels consumption levels, and China, India
and the EU have set targets on biofuels consumption.
 ii) subsidies to producers often combined with tariffs to limit
imports.
 U.S. tax credit of $0.51 per gallon available to ethanol blenders and
an import tariff of $0.54 per gallon of ethanol, as well as a biodiesel
blenders tax credit of $1.00 per gallon.
 EU has a specific tariff of €0.192/liter on ethanol (€0.727 or $1.09 per
gallon) and other incentives such as a subsidy of €45 per hectare on
biofuel feedstocks produced.
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Economics of ethanol production
from sugar
0.9
0.8
NWE
premium
gasoline
US$ per liter
0.7
0.6
0.5
0.4
Gasoline
equivalent
cost of
ethanol
(ISO)
0.3
0.2
0.1
Jan-08
Jan-07
Jan-06
Jan-04
Jan-05
Jan-03
Jan-01
Jan-02
Jan-00
Jan-98
Jan-99
Jan-96
Jan-97
Jan-95
0
*83% sugar and 17% molasses, and molasses priced at 25% of sugar;
20% fuel economy penalty for ethanol
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Vegetable oil vs. fossil diesel
price
1.2
Coconut
US$ per liter
1
Soybean
0.8
Palm
0.6
Rapeseed
0.4
NWE
diesel
0.2
Price data from USDA FAS, World Bank and Energy Intelligence
Jan-08
Jan-07
Jan-06
Jan-04
Jan-05
Jan-03
Jan-01
Jan-02
Jan-00
Jan-98
Jan-99
Jan-96
Jan-97
Jan-95
0
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Energy Security and Prices
 Diversify sources of fuel
 Increase number of suppliers, including from
domestic sources
• Can biofuels help countries save money?
• Biofuel production a small fraction of
petroleum fuel production for the foreseeable
future  biofuels will be price takers
• Marginal demand and marginal supply set
prices  1–2% net global displacement (min
3–5% of transportation fuels) might moderate
oil price increases
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Rural Development
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GHG Reduction Potential for Ethanol
from Different Feedstocks
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Potential risks of biofuels
programs
(June 1, 2005 presentation)
• Distortions of agricultural markets (international
impacts if production large)
 Reduce OECD agricultural subsidies
• Requirement of large current and future
government budgetary support and loss of tax
revenue
• Capture of biofuel subsidies by large
landowners and industry
• Environmental degradation of land and water
• Volatility of crop prices and limited risk reduction
from oil price volatility
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Grain Prices
(nominal $/ton)
600
500
400
300
200
100
0
2002
2003
2004
Wheat
2005
Rice
2006
Maize
2007
2008
Impact on corn
supplies and prices
which in turn effects
those commodities that
use corn as an input,
such as meat
production.
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Indirect Effect: Expansion of Sugarcane, Pasture
and Crops Compared (2002 to 2006)
Sao Paulo
Minas Gerais
Parana
Mato Grosso Sul
Goias
Mato Grosso
Tocantins
Bahia
Maranhao
Piaui
2006-2002 Absolute Variation of Planted Area (1,000 ha)
Sugarcane
Pasture
Crops
623,061
-1,392,954
97,731
153,361
793,512
400,607
73,941
-616,296
575,485
40,647
-131,694
867,413
33,862
376,822
546,349
25,432
902,913
2,350,852
971
51,966
240,842
26,023
n.a.
317,762
16,192
n.a.
296,919
2,513
n.a.
200,012
Source: IBGE; ICONE. Elaboration: ICONE.
Notes:
1. Calculated in State level.
2. Crops: temporary crops area without including sugarcane area.
3. N.a.: data not available.
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Planted Area of Selected Crops: Absolute
Variation from 2000-02 to 2006-08
(million hectares)
BRAZIL
U.S.
EU-27
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Source: IBGE; CONAB; USDA. Elaboration: ICONE.
Figure 7. U.S. Maize and Soybean Area
40
(million hectares planted)
Maize
Soybeans
35
30
25
20
2000
2002
Source: ERS/USDA
2004
2006
2008est
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Linkage of petroleum and sugar markets
Source: FAO,
Food Outlook,
June 2006
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Potential Environmental Impacts
• Replanting of
degraded lands with
biofuel feedstocks
• Conversion of
forests or other
lands for biofuels
• Water and soil
degradation
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The Road Ahead –
Technology Development
 Productivity increases
in the production of
crops
 Lots of new biofuel
technologies and more
to come with oil at
$120/bbl
 Non-crop pathways for
liquid biofuels -wastes, grasses,
algae, …
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The Road Ahead -- Biofuel/Bioenergy
Policies for Developing Countries
• Farmers
• Governments
 Sustainable policies for landuse
 Limit subsidies, protectionist
policies, and fuel tax
exemptions
 Infrastructure and extension
for rural development
 R&D
 Need clear rules of the game
 Flexibility – maintain options
for sale of primary products
 Profit (or loss) is typically in
agricultural production
• Investors
 Need clear rules of the game
 Have needed support
policies (tax reductions,
mandates, ….)
 Flexibility of feedstocks –
changing support policies
 Upsteam linkage
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Concluding Observations
• Land is not the issue – plenty of land available
globally to grow food and fuel
• But there are direct and indirect pressures on
forests and other lands to be converted
• Main problem for liquid biofuels today is the use
of raw materials with alternative uses, including
for food – will create both real and perceived
problems for biofuels
• The opportunity cost for farmers for raw
materials will be equivalent to the higher-valued
market (food or fuel) – thus the linkage of food
and fuel markets
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