|ASPO-SA: Response to the Draft Biofuels Strategy|
|Written by Jeremy Wakeford|
|Tuesday, 13 March 2007|
The following paper was submitted to the committee investigating the implementation of a biofuel strategy in South Africa on 10 March 2007.
Response to the ‘Draft Biofuels Industrial Strategy'
9 March 2007
ASPO-SA appreciates the opportunity to provide commentary on the Draft Biofuels Industrial Strategy (hereinafter the ‘Draft Strategy').
We applaud the efforts that the Department of Minerals and Energy (DME) and the South African Government are making to invest in renewable energy sources and to look for alternatives to petroleum fuels. We further support the broad socio-economic objectives as outlined in the Draft Strategy, including job creation, empowerment and sustainable development. On the face of it, biofuels present an attractive alternative to fossil fuels as far as they can reduce greenhouse gas emissions and help to promote local and national development goals such as employment generation. However, these benefits are not automatic and there are several critical costs associated with biofuel production.
We have several major concerns which we think need to be considered in much greater detail than is contained in the current Draft Strategy. (Some, but not all, of the issues were addressed by the Biofuels Task Team's Feasibility Study, which we acknowledge. However, not all of the concerns raised in the Feasibility Study appear to have been captured in the Draft Strategy.) Our concerns include contextual issues (discussed in section 2) as well as specific limitations of the Draft Strategy (section 3). We offer some recommendations on how the biofuels strategy may be modified in order to enhance its benefits and attenuate its costs. We believe this will be essential if the strategy is to maximise achievement of its stated aims without imposing harmful, unintended consequences.
It is vital to consider the potential domestic biofuels industry within its broader global context. The important factors we wish to raise include: (1) the impending peak in global oil production; (2) climate change; and (3) the global biofuels industry, especially its effect on agricultural commodity prices.
ASPO-SA's primary concern is the global depletion of fossil energy sources, especially oil, and the impact of this depletion on South African society. Oil production in any region, including the world, follows a roughly bell-shaped curve with output rising to a peak - when approximately half the reserves have been extracted - and then declining. There is much evidence to suggest that world oil production may reach its peak within the next few years, or may already be at its peak (see Attachment). The peaking of world oil production is likely to have serious global and national economic and social consequences, including:
As a result of these impacts, some of which are arguably already being felt (e.g. oil price rises and conflict), a global rush is underway to find alternative sources of energy, particularly liquid fuels. This brings us to the next issue.
As mentioned in the Draft Strategy, the global biofuels industry has been growing rapidly over the past few years, driven by twin concerns about high oil prices and global warming as a result of carbon dioxide emissions. This boom includes large and growing ethanol industries, especially in Brazil (from sugar cane) and the United States (from corn), as well as biodiesel (whose major market is Europe).
The biofuels boom has two major implications for South Africa. First, it is contributing to rising world prices for biofuel feedstocks (e.g. maize, sugar and soya). This is particularly acute in the case of maize, on account of some 20 per cent of US production now being converted into fuel ethanol. The second implication is that there are growing incentives for South African farmers to produce for export to overseas biofuel markets rather than for the domestic food market.
Both of these factors pose a potentially severe threat to food security amongst the world's poor, including South Africa's poor. Lester Brown, President of the Earth Policy Institute based in Washington, D.C., has warned (in an article in the Washington Post) that "The competition for grain between the world's 800 million motorists who want to maintain their mobility and its two billion poorest people who are simply trying to stay alive is emerging as an epic issue." He further cites estimates that the grain required to fill the tank of a 4x4 vehicle with ethanol once would be sufficient to feed a person for a whole year.
Climate change has been identified by the Intergovernmental Panel on Climate Change (IPPC, 2001, 2007) as a very serious threat to human society. One of the expected effects of climate change is a decline in agricultural productivity in many areas of the world. In the face of a growing world population (which is currently increasingly by some 80 million people per annum), this declining yield will contribute to rising food prices.
Climate models indicate that in coming years and decades South Africa will experience significant warming (especially in the interior) as well as general drying in the western parts of the country and an increased prevalence of alternating droughts and floods in the eastern parts. Water shortages are expected to become even more acute over time. As stated in the Biofuels Task Team's Feasibility Study, climate change is expected to decrease agricultural output in South Africa.
So as climate change begins to threaten some of the agricultural land we have available, the biofuels strategy will increase this pressure by converting existing arable land to fuel production. The overall impact, therefore, is likely to be negative for our food security.
Peak oil, the global biofuels industry and climate change are inextricably linked. All three are likely to put increasing upward pressure on food prices, especially for staple grains. This means that the South African Government should be especially concerned about using our scarce and valuable agricultural land for the production of fuels for road transport rather than for food. We will expand on this issue below.
The Draft Strategy identifies sustainability as its key underlying principle, which we fully support. We further support the aims of the industry as delineated in the Strategy. The Draft Strategy identifies the "multiple objectives of contributing to the country's development goals, renewable energy target, generating employment and reducing the negative impact of energy consumption on the environment" (p. 7). It further states: "Given that biofuels are an element of Governments Accelerated and Shared Growth Initiative (AsgiSA) programme, it should focus on job creation and economic contribution, as well as transformation. However, it would not be prudent to drive this without consideration of holistic sustainability benefits" (p. 7).
Below we consider the likelihood that the Draft Strategy will achieve these stated objectives. This evaluation is hampered somewhat by the fact that the Draft Strategy does not make explicit all the required or planned tactics or vehicles for implementation. Thus in some cases the best we can do is raise questions.
The job creation potential of a biofuels industry can be divided into two categories, namely production and processing.
To the extent that existing farmers will switch to biofuel feedstock production from food production, the production side will not contribute much if anything to job creation. Feedstock production would have to be met by a net addition of cultivated land. In addition, more labour-intensive (e.g. less mechanised) forms of agriculture would generate a larger number of jobs.
The employment creation potential of the processing side depends on its labour-intensity. In general, ethanol production can be considered capital-intensive relative to biodiesel production.
At face value, production of biofuels will certainly contribute to the attainment of Government's renewable energy target. However, to the extent that fossil fuels are used in the production of feedstock for ethanol (e.g. maize), then effectively that petroleum and/or coal is being exchanged for ethanol energy. In this case, only the net ethanol energy gained should be considered as renewable, not the gross amount of ethanol energy produced.
An additional question is what types of biofuels would be best to contribute to the renewable energy target, e.g. ethanol or biodiesel (or from what feedstocks). This would require a thorough cost-benefit comparison of various biofuel feedstocks.
There is also a broader question of which types of renewable energy should make up the target, e.g. solar and wind power versus biofuels. Although this may appear at first glance to be beyond the scope of the Biofuels Strategy, it is important to consider biofuels from a holistic perspective. If biofuels were to contribute the majority share of the renewable energy target, it could have an adverse impact on the development of alternative renewable energy industries. In other words, the costs and benefits of alternative sources of renewable energy need to be considered, relative to the costs and benefits of ethanol and biodiesel.
The greenhouse gas savings figure of R100 million per annum is not justified. The amount saved will depend strongly on crop selection and industrial conversion strategies (e.g. co-location with existing industry to utilise currently wasted low grade heat). The net carbon emissions also depend critically on the extent to which fossil fuels are consumed in the growing and processing of biofuel feedstock. This brings us to the issue of net energy.
The Draft Strategy makes no mention of a crucial variable for evaluating the economic feasibility and sustainability of biofuel production, namely the net energy return, or energy return on energy invested (EROEI). The production of biofuel feedstock usually requires various forms of energy as inputs, including petroleum to fuel machinery (e.g. tractors and harvesters) and to manufacture pesticides, together with natural gas to manufacture fertilizers. If the energy input is greater than the energy output, the process has a negative net energy or an EROEI ratio of less than one. Farrel et al (2006) find an EROEI of slightly over one for maize-ethanol, as does the Biofuels Task Team's Feasibility Study. Ethanol made from sugar in tropical areas yields a much higher EROEI (approximately 8:1 in Brazil). Biodiesel typically has an energy ratio of more than 3:1. The net energy of maize-ethanol is therefore very low compared to other biofuels. This has several important implications:
The crucial point is that with an EROEI ratio close to one, ethanol makes little energetic or economic sense. An ethanol industry depending on fuel levy rebates thus amounts to an inefficient form of farming subsidy. Perhaps more importantly, maize-ethanol has a very important opportunity cost, namely as a staple source of food (we return to this issue later).
The contribution of a biofuels industry to transformation will depend on the way that the industry is set up and supported by Government. This is not made clear in the draft strategy. In particular, to what extent will emergent black farmers benefit from the industry and Government support?
The Draft Strategy states that the "Biofuels industry, being agri-based, is low technology and job intensive, which suits participation by the 2nd economy" (p. 9). However, to the extent that maize and other feedstock is produced by commercial farms, this cannot be considered truly low technology and job intensive or as part of the so-called second economy (relative, say, to small-scale farming). Therefore, for effective ‘sectoral integration', there would need to be an explicit policy with supportive mechanisms to provide support for small-scale farmers, rather than relying on (large-scale) commercial farmers to provide biofuel feedstock. However, this would raise the overall costs of the biofuels strategy and therefore influence the overall cost-benefit analysis of its feasibility and desirability.
The Draft Strategy describes three tactics or vehicles that will be used to implement the biofuels strategy.
The Draft Strategy proposes the use of the petroleum licensing system to guarantee market off-take. This is likely to be effective.
Fuel levy rebates for biofuels will be effective in promoting ethanol and biodiesel as long as the costs of production are lower than the Basic Fuel Price (BFP). This seems likely to be the case for ethanol. However, for biodiesel this is not the case as the international market prices for vegetable oils are higher than the BFP. This implies that the fuel levy rebate will not be sufficient to stimulate the desired biodiesel industry.
The Draft Strategy proposes that the Equalisation Fund be used to underwrite the downside risks to biofuel producers in times of low international oil prices. This will no doubt be welcomed in principle by the fuel processing industry, but we question the likelihood of this support being realised in practice. In the context of the imminent peak in world oil production, we consider the price band of between $45 and $65 per barrel of oil to be unrealistic for the medium to long term. The oil price has trended steadily upward since 2000, when it was approximately $20 per barrel, partly reflecting the increasing tightness in the oil market as demand growth has outstripped new supply. The price of oil can be expected to vastly exceed $65 per barrel after the peak of global oil production is reached. In this case, biofuel producers will be prejudiced as they would have to pay money into the equalisation fund. This raises the question of how and when the price band would be revised.
Another serious issue is that as the prices of oil and natural gas rise, so do the costs of producing crops for ethanol and biodiesel (unless the feedstock crops are produced organically with no fossil fuel inputs). This will make it doubly difficult for biofuel producers to remain profitable if oil prices rise beyond the upper limit of the target band. In essence, this issue again reflects the partial reliance of the bio-fuel production system on fossil fuel inputs.
As mentioned above, specific tactics for the attainment of many of the underlying development goals of the strategy (e.g. job creation and transformation) are not given.
The prime indicator of success of the strategy is suggested to be the achievement of a 4.5% target contribution of biofuels to the liquid fuels consumption by 2013. This should be easy to verify. A second indicator of success that should be easy to verify is that this contribution should come from domestic production (both agriculturally and for fuel processing). However, neither of these indicators addresses the underlying objectives of the Strategy. For a proper evaluation, measures will need to be developed to determine, inter alia:
The initial target, namely that biofuels achieve a 4.5% share of liquid road transport fuels by 2013, is relatively small. This will limit the scale of any unintended consequences and is therefore a prudent approach. Nevertheless, we have two primary concerns, namely that the food security and environmental impacts may have been underestimated. This is particularly of concern considering the greater weighting of ethanol relative to biodiesel.
The Draft Strategy states that "For expected scenarios, this target is realisable without negatively effecting (sic) food security" (p. 10). This is apparently based on the assumption that only surplus food crops would be used as biofuel feedstock. But how can the Government ensure that only surplus maize output is converted into fuel ethanol? If it is left to the market, then those with the greatest income will determine whether maize is used for food or to produce ethanol to fuel road vehicles. Globally and nationally, vehicle owners have much greater purchasing power than the poor consumers of food staples. This is the dilemma raised by Lester Brown (see section 2.2).
As the price of oil rises (and concerns over global warming mount), global demand for ethanol will rise further, providing an incentive for farmers to supply their maize as an ethanol feedstock. Such responses to market forces will restrict the available quantity of maize for food and push up food prices. This means that there is a dual threat to consumers' food security: a price threat and a quantity threat. The price threat is what is ultimately of concern since so many poor South Africans do not grow their own food.
Food security is already emerging as a big concern internationally, as evidenced by the social unrest in Mexico over rising Tortilla prices (which have been driven up mainly by growing consumption of corn-ethanol in the US). In South Africa, with our highly unequal distribution of income and wealth, there is a serious danger that a rising price of maize will put it beyond the reach of millions who depend on it as a staple food source.
Diminishing food security will undermine the most important rationale for the biofuels industry, namely its contribution to development goals such as improving South Africans' welfare.
A number of vital questions arise for Government as a consequence of the above:
As mentioned earlier, the Draft Strategy identifies sustainable development as its underlying principle. This means that the methods used to produce biofuel feedstocks and their environmental impacts need to be taken into consideration. The main areas of impact include water usage, soil fertility, pollution and biodiversity.
The first question is whether the crops used to produce ethanol and biodiesel are truly cultivated in a sustainable manner. This would require organic-style farming methods that preserve soil fertility. The use of petrochemical fertilizers, herbicides and pesticides has a degrading effect on soil and also pollutes water sources.
The over-use of irrigation degrades soil quality by leaching vital nutrients. Furthermore, water must be utilized at sustainable rates, especially in view of the scarcity of water resources in South Africa.
Where the DME or Department of Agriculture may be considering Genetically Modified Organisms (GMOs), we strongly urge the relevant authorities to research fully the health and environmental implications of GMOs and associated fertilizers, herbicides and pesticides. South Africa, with its dearth of arable land, cannot afford for any of its productive farming land to be contaminated by toxic chemicals. The reliance on patented GM seeds also poses a possible threat to food security, if the price or availability of that seed rises sharply in the future (e.g. in response to global market forces). Experience suggests that GM crops are usually, if not always, predicated on un-sustainable farming methods, such as mono-culture, fossil-fuel intensive, highly irrigated plantations.
We request that further details be provided on what is meant by the following statement: "The licensing and environmental impact assessments (EIAs) requirements need to be streamlined as far as possible" (p. 9). This is to avoid the impression some might gain that environmental standards will be relaxed for expediency.
Given the aforementioned concerns surrounding ethanol, we would like to see greater attention given in the Draft Strategy to biodiesel, which has a number of advantages relative to ethanol:
In particular, we urge the DME and its partners in Government to investigate the potential for algae to be used as a feedstock for biodiesel. According to De Beers Fuels Limited, which has begun importing biodiesel reactors designed by US firm GreenFuel Technologies Corporation and manufactured by Green Star Products (also of the US), algae-based biodiesel has significant advantages:
These claims deserve further evaluation.
The main approach of the Draft Strategy appears to be one of Government preparing the playing field by setting certain incentives and regulations, and then leaving it to the private sector (including farmers and investors) to make the biofuels industry happen. By and large, this would probably mean that most biofuel feedstock production would be carried out by existing commercial farmers. This is especially the case given that the main emphasis is on ethanol rather than on biodiesel. This strategy may be the most expedient approach for the achievement of some objectives (e.g. attainment of the renewable energy target), but not necessarily for the underlying aims.
An alternative (or complementary) approach would be for Government to be more actively involved in public-private partnerships or the facilitation of cooperative ventures. The latter, if explicitly designed according to a labour-intensive, small-scale farming model (and twinned with the land reform programme) would have a greater propensity to meet some of the key objectives, namely job creation and transformation. It could also better promote sustainable farming practices, if supported by appropriate information and training for emergent farmers.
The Feasibility Strategy states that a separate small-scale agriculture strategy is needed. However, we argue that the biofuels and small-scale agriculture strategies should be integrated in order to yield the maximum benefits (and avoid some of the costs) of biofuel production.
Biofuels will almost certainly be an important component of a sustainable, post-fossil fuel energy regime (along with other renewable energy sources such as solar and wind power). Biofuels have several potential advantages, including the reduction of greenhouse gas emissions and a contribution to job creation and social upliftment.
However, biofuels are neither a panacea, nor without their disadvantages and risks. The major drawbacks relate to bio-ethanol: converting food crops like maize to fuel will almost certainly compromise food security (especially within the global market context); and ethanol's poor net energy return means it will not make substantial contributions to greenhouse gas emission reductions.
We think that very careful consideration needs to go into developing a strategy where the consequences have far reaching implications and to a large extent can be anticipated in advance. Many of these issues were raised in the Feasibility Study, but are not reflected in the Draft Strategy itself.
In our view the Strategy needs a much clearer delineation of the tactics for implementation that will be geared towards maximising the achievement of the objectives, especially economic feasibility, job creation, transformation and environmental sustainability.
ASPO-SA would like to recommend that the DME consider in more detail the following aspects and implications of a national biofuels industry:
Selecting the most appropriate biofuel feedstocks and the most efficient and equitable means of production will be critical to the success of the Biofuels Strategy in terms of meeting its objectives. Charting the best course now will maximise the benefits and minimize the costs in the long run.
Finally, we note that energy supply security does not currently feature as a motivation for the biofuels industry since the target (4.5% of liquid fuels) is so small. However, given the imminence of Peak Oil we strongly urge that the DME develop an overarching energy and liquid fuel security strategy. This may include a biofuels component, although it would have to consider all the potential costs and disadvantages of biofuels, especially the potential threat to food security.
ASPO-SA is a Section 21 Company comprising a group of citizens concerned about the impact of the imminent peak of world oil production on South African society, in the context of other pressing concerns such as poverty and climate change. We have direct or indirect access to key information likely to have a bearing on our society as a result of the global depletion of oil.
Members and contributors include:
Jeremy Wakeford (Senior Lecturer, School of Economics, UCT)
Dr. Harro von Blottnitz (Senior Lecturer, Department of Chemical TYPEering, UCT)
Simon Ratcliffe (Independent Energy Consultant)
Rodger Duffett (B.Sc. (Physics), M.Sc. (Radiation Oncology); IT Professional)
Michael de Wit (Organic Farmer)
Pramod Daya (Information Technology Entrepreneur)
Dr. Yaj Chetty (Medical Practitioner and Renewable Energy Entrepreneur)
De Beers Fuels Limited, http://www.infinitibiodiesel.com/
GreenFuels Technology Corporation, http://www.greenfuelonline.com/technology.htm
Green Star Products, Inc., http://www.greenstarusa.com/
Farrell, Alexander E., Plevin, Richard J., Turner, Brian T., Jones, Andrew D., O'Hare, Michael, Kammen, Daniel M. 2006. "Ethanol Can Contribute to Energy and Environmental Goals." Science, 1/27/2006, Vol. 311 Issue 5760, pp. 506-508.
Intergovernmental Panel on Climate Change (IPCC). 2001. Climate Change 2001: Synthesis Report. Available online: http://www.ipcc.ch.
Intergovernmental Panel on Climate Change (IPCC). 2007. Climate Change 2007: The Physical Science Basis - Summary for Policymakers. Available online: http://www.ipcc.ch.
Patzek, T. 2004. "Thermodynamics of the Corn-Ethanol Biofuel Cycle." Critical Reviews in Plant Sciences, 23(6), pp. 519-567.
Pimentel, D. and Patzek, T. 2005. "Ethanol Production Using Corn, Switchgrass, and Wood; Biodiesel Production Using Soybean and Sunflower." Natural Resources Research, Vol. 14, No. 1, March 2005, pp. 65-76.
Wakeford, J.J. 2007. "Peak Oil and South Africa: Impacts and Mitigation. " Position Paper of the Association for the Study of Peak Oil & Gas - South Africa (ASPO-SA), 8 March 2007.
 The Feasibility Study mentions peak oil only once, very briefly: "Globally, earlier investments in biofuels delays and lessens the impact of peak oil" (p. 28).
 Net energy is mentioned very briefly in the Feasibility Study but its implications are not fully drawn out.
 Pimentel and Patzek (2005) and Patzek (2004) calculate that ethanol's EROEI is less than one, but their calculations have been criticised by Farrel et al (2006) for omitting the energy contained in byproducts.
 See Mail and Guardian, "SA company to produce biodiesel from algae", 28 November 2006; see also the company websites listed under References.
|Last Updated ( Wednesday, 14 March 2007 )|