Wednesday, 2 January 2013

The Biofuel Challenge: Being Green is not Enough!!

Concerns about Biofuels are rising with inflated food prices, fiscal sustainability and greenhouse gas emissions emerging as the biggest challengers.

Regarded as one of the major solutions for reducing carbon footprints across the world and helping economies grow in a more, ecologically-compatible manner, Biofuels have been gladly adopted by many nations. However, the rise in food prices in recent years has fueled the argument that feedstock production for biofuels might be the culprit behind daily food items are getting expensive. Concerns have been expressed that the world’s farmers might not be capable of feeding the masses and fueling vehicles, considering the rate at which the global population is prospering. 

Reports have emerged that emission level of Greenhouse Gas (GHG) from commonly-used biofuels might exceed that of fossil fuels, i.e. when the entire lifecycle of a fuel is taken into account. This includes growing, manufacturing, shipping and burning.

This increasing pessimism about biofuels has pressurized governments and global investors to question various dynamics of biofuels such as mandates, subsidies and investments. More importantly, this is making environmentalists and policy-makers rethink utility of biofuels as a part of the solution for establishing a sustainable, greener way of living and halting alarming trends like global warming.

Tracing Emergence of Biofuels 
Biofuels engaged attention as an effective alternative to fossil fuels from many governments across the world. This was particularly true for major, food-producing nations like Brazil and the US. These countries enjoyed surplus of agricultural production during the 1980s and 1990s.

When combined with reasons like getting an opportunity to clean the environment and decrease dependency on imported fossil fuels without harming the farmer’s interest, these countries enthusiastically jumped on the biofuel bandwagon.

In the US, corn- and soy-based ethanol production leapfrogged to 6.5 billion gallons in 2007 from just 175 million gallons in 1980. Ethanol production nearly quadrupled between 2000 and 2007 in the US while Brazil’s government invested heavily in ensuring that more vehicles ran on biofuels. Brazil also invested in creating an export market for its sugarcane-based ethanol and biodiesel products. As a result, biofuel production in Brazil reached 5 billion gallons in 2007, i.e. doubling since 2000.

Understanding the Biofuel Challenge
Most problems are attributed to First-Generation Biofuels that have forced investors and policymakers to reconsider their options. Yes, the promise of biofuels for diversifying conventional fuel sources and creating a growth industry for agricultural producers still stands. However, investors are recognizing the urgent need to develop second-generation biofuels where fuel production doesn't compete with food production.

Equally important is the need for biofuels where the GHG emissions throughout the product’s lifecycle are significantly below that of fossil fuels. While, first-generation biofuels continue to engage controversies, second-generation biofuels are yet to achieve economic viability.

Corn and other starch-based ethanols have been criticized for their high GHG emissions produced. Concerns over these first-generation biofuels have intensified in the last few years. 

Biofuel Mandates: Other Half of the Biofuel Paradox
The other part of the biofuel problem is the need to create a new set of standards or edit the existing ones according to which GHG emissions and true index of sustainability of biofuels is measured.

The EU introduced biofuel mandates in 2003, requiring member countries to increase biodiesel as a particular percentage of all fuel produced. This support for biofuels boosted biodiesel production growth in the EU by 54% in 2006.

However, there are specific markets, like the US, that are more concerned about diversifying fuel production than carbon emissions. Thus, creating uniform policies or benchmarks as a part of biofuel mandates is challenging.

Biofuels & Environment: The Argument Grows
In 2007, Nobel-prize winning economist Paul Crutzen claimed that current production of biofuels had a net warming effect on the environment. More recently, two US researchers concluded that most biofuels increase GHG, since carbon dioxide levels rise because of the clearing of lands required to plant biofuel feed-stocks.

Concern over biofuels’ negative effect on GHG emissions began to emerge at the same time that food prices worldwide were exploding. This led to a flood of cautionary reports from global institutions, including the International Monetary Fund, the World Bank and the UN. These warnings were about biofuel feedstock production competing with food crop production.

The Gallagher Review, published by the UK’s Renewable Fuels Agency (RFA), also questioned its own country’s rush toward adopting aggressive biofuel mandates. The Gallagher Review suggested that that the induction of biofuels should be much slower than the current practices.

Along with the published studies questioning biofuel production as an answer to climate change, purely economic concerns such as the rise in feedstock prices have caused biofuels to become less attractive as an alternative to fossil fuels.

The “Splash & Dash” Fuel Mixes
A wide range of critics, including environmentalists and fiscally-conservative politicians, are piling on the pressure for changing the existing biofuels mandates. In Europe, the backlash against biofuels mandates has been aggravated by a loophole in US tax laws where tax credits for biofuel blends are provided.

According to industry experts, this has led to the emergence of “splash and dash” trading. Here, low-cost producers, primarily from Southeast Asia, have been shipping biodiesel to the US where small amounts of petroleum (the “splash”) is being added, making the fuel blend qualified for US tax credits.

The blended fuel is then shipped to Europe, where it is sold below local biodiesel prices. This kind of “splash & dash” trading is being blamed for the ongoing struggles of biodiesel producers in Europe where biodiesel production growth plummeted to 10% in 2007 from a high of 54% in 2006.

Overview of Biofuels Mandates Courting Opposition
Most of these doubts have emerged after many countries had enthusiastically embraced biofuels. Dealing with surplus crop production for decades and the promise of biofuels creating new markets for domestic agricultural produce, governments eagerly supported the biofuels industry. For instance:

Canada’s Senate passed Bill C-33, in the first quarter of 2008, requiring fuel mixes of 5% ethanol (E-5) or 2% Biodiesel (B-2) by 2012. This led to more-than-doubling of current production of ethanol and biodiesel fuel in the nation.
In the US, President Bush signed the Energy Independence & Security Act into law in 2007. The law increased the Renewable Fuels Standard (RFS) set by Congress in 2005 for production of renewable fuel sources at 7.5 billion gallons to 15.2 billion gallons for 2012 and to 36 billion gallons by 2022. 

Some nations have passed laws, mandating use of biofuels as a percentage of all transportation fuels. For instance:

The EU published introduced the Biofuels Directive in 2003. This set targets for biofuels as a percentage of all transport fuels at 5.75% by 2010 and at 10% by 2020. Despite Europe’s rising concerns about the first-generation biofuels, the EU has reiterated its dedication to the 10% target for renewable energy usage in transport fuel by 2020. 
The UK created the Renewable Transport Fuel Obligation (RTFO). This mandate required 2.5% of total fuel sales by suppliers to be from renewable energy sources by 2008 and rise to 5% by 2010. 

Germany: Evidence of Fast-Paced Nosedive in Biodiesel’s Fortunes  
Germany, the EU’s largest biodiesel market, has been hit the hardest. Apart from the “splash and dash” problem, the German government has hiked taxes on biodiesel. The biofuel outlook in Germany was dealt a blow in April this year when the government withdrew its plans to introduce a blend of 90% petroleum and 10% ethanol in 2009. Referred to as E-10, this widely-anticipated fuel-mix was eventually shelved owing to serious concerns expressed by environmentalists. The German car industry lobby too insisted that many of the current vehicles would not be able to process the E-10 mix.

Possible Solutions on the Horizon
UK, which is not a major biofuel-producing nation, has been at the forefront of developing sustainability standards. Its efforts may lead the way to creating a global system that would allow biofuels to be differentiated on the basis of GHG emissions across their total lifecycle and the overall sustainability of their feedstock production methods.

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