Production of Biofuels Predicted to Surge

Ethanol and biodiesel production is expected to surge in the next few years as government officials in Europe and the United States set higher targets for consumption and maintain subsidies for producers, a panel of experts predicted at a forum on biofuel policies and trade organized by the German Marshall Fund of the United States.

“The market for bioenergy is political,” said Klaus Schumacher, chief economist for the global commodity trading firm Alfred C. Toepfer International in Hamburg, Germany.

Given the current widespread political support for alternative fuels, Schumacher said global ethanol production is expected to grow to 534.6 million barrels in 2012 from 345.9 million barrels in 2005.

U.S. production is expected to increase to 195 million barrels from 94.3 million barrels over the same period. Global biodiesel production was 5.5 million tons in 2005, and it is expected to increase fourfold by 2010, Schumacher said. U.S. biodiesel output is projected to increase to 2.98 million tons from 688,900 tons in the same period.

Meanwhile, environmental groups warned that converting an increasing portion of the world’s food and fiber crops to fuel use could accelerate the destruction of tropical rain forests and, thus, contribute to global climate change.

“The pushback is already beginning,” said Barbara Bramble, senior program adviser for the National Wildlife Federation. “If we don’t resolve these issues, controversy will stymie the growth [of biofuels],” she said.

Despite the rise in crude oil prices in recent years, the cost of producing and distributing biofuels means that public subsidies and government mandates are necessary to encourage adoption by commercial transport and large industrial fuel users, several conference participants said.

“There are no exceptions. All biofuels must be subsidized,” said Sergio Trindade, science director for International Fuel Technology, a St. Louis-based firm that develops and markets fuel additives. “That doesn’t mean it has to go on forever.

We are in a learning curve, and production costs can come down.” Right now, Trindade said, the cost of biofuels varies widely, based on the feedstock used to produce them. In Europe, for instance, ethanol from wheat may cost the equivalent of $90 a barrel, and biodiesel from rapeseed costs $65 a barrel. For Brazilian sugar cane ethanol, the threshold is $35 a barrel, and Malaysian palm oil biodiesel is around $55 a barrel, he said.

“Trade is small in biofuels now, but that could change,” Trindade said. President Bush said the United States would cooperate with Brazil to share technology and expand the two countries’ production of ethanol. Brazil and the United States are the world’s biggest ethanol producers.

Bush also has urged Congress to pass legislation that would increase production of ethanol from cellulose sources, to reduce reliance on corn. U.S. fuel suppliers get a $1-a-gallon tax credit for every gallon of biodiesel blended with conventional diesel fuel, and ethanol producers get higher prices, in part, because of a 54-cent-a- gallon tariff on most ethanol imports.

Both the tax credit and tariff are set to expire in 2008. Andreas Kraemer of Ecologic, an environmental policy advisory firm in Berlin, said the European Union heads-of-state meeting in Brussels, March 8-9, set a new goal of increasing consumption of renewable fuels to 10% of total gasoline and diesel use by 2020.

The previous goal of 5.75% biofuel use by 2010 is unlikely to be met, Kraemer said. While it is incumbent upon individual countries in the EU to take concrete steps to meet the new goal, Kraemer said there also is increasing talk of setting up programs to certify that biofuel stocks are from countries or suppliers with agricultural policies that protect the environment. In Indonesia, for example, former rubber plantations are being converted to produce palm oil instead of plowing up rain forests.

In Brazil, officials note that sugar cane used to make ethanol does not grow well in the Amazon, so it is no threat to global climate change. “It’s a myth that rain forests are being destroyed by ethanol production,” Trindade said. Bramble said the wildlife federation would encourage development of second-generation biofuels that don’t require as much energy and water to produce and safeguard the environment in countries where production of biofuel feedstock is expected to increase.

“We need to moderate expectations,” she said. “Biofuels can’t do all things at the same time, and none of the benefits happen automatically. We need to moderate our expectations and not contribute to biofuel growth for growth’s sake.”

Ethanol made from cellulose material, such as wood waste and certain kinds of perennial grasses, potentially generate the most energy from the least amount of source material, according to estimates by the Worldwatch Institute, Bramble said.

This story appears in the March 26 print edition of Transport Topics. Click here to subscribe today.