Biofuels: China – The Next Major Producer

By Martijn Hoogerwerf 12 April, 2012

Martijn Hoogerwerf of China Europe BioEnergy Consortium explains why China could leap frog ahead, Martijn Hoogerwerf of China Europe BioEnergy Consortium explains why China could leap frog ahead, Martijn Hoogerwerf of China Europe BioEnergy Consortium explains why China could leap frog ahead

China's food security priority meant biofuel development took a back seat
2nd-Gen biofuels based on waste organic/biomass material are more sustainable
Commendable initiatives in place for used cooking oil, waste-residue in biogas generation

Limited availability of land and water in China has so far constrained biofuel development. With the advent of Second Generation Biofuels, this may radically change.

When Rudolph Diesel, the inventor of the diesel engine, first started up his engine in 1893, he famously fueled it using peanut oil, a biofuel.

Over the past century, the cheap and abundant availability of fossil fuels quickly made oil and its derivative products the predominant transport fuels. However in recent years, increasing and volatile oil prices, concerns surrounding energy security and increasing environmental concerns, have meant increasing research , development and use of biofuels to power transport.

Part of the reason that biofuels are attractive is their development require minimum investment to adapt existing fossil fuel infrastructure.  Biofuels bio-ethanol and biodiesel can be used in pure form or as a drop-in fuel in the car that you drive, the truck that delivers groceries to your supermarket, the gas station where you fill up your tank and in the oil storage facilities.

Despite efforts to develop First Generation Biofuels , China lags behind the US, EU and Brazil by a wide margin Two major hurdles to sizeable biofuel production in China are i) the scarcity of land and ii) the drive for food security. In addition, one of the leading drivers of biofuels, environmental concerns, often take a backseat to economic growth, and in China this has certainly been the norm over the past decades.

With the advent of Second Generation Biofuels however, the feedstock of which is agricultural and municipal waste material, this looks set to change. Add to this the policies and goals laid out in the most recent/12th Five Year Plan (‘FYP’), and one can envisage China  transforming the biofuel industry in a similar vein to the way it has transformed other global industries.

A Vicious Cycle

Food, water and energy are all basic human needs. Needs that are fundamentally interconnected: water is needed for energy production; energy is needed for water production; and both energy and water are needed for food production. Biofuels are energy, and biofuel crops compete with food and need water to grow.

With an ever-increasing world population and an increasingly affluent middle-class, this so-called Energy-Water-Food Nexus is of key importance in China, with 1.3 billion mouths to feed and impressive economic growth targets to meet.

 

 

Today, the feedstock that is used for the production of biofuels is mostly food staples such as grains. The biofuels made from these food staples are termed First Generation Biofuels.

Not surprisingly, the global food versus biofuels debate has gained momentum in recent years. Food prices have increased globally as a result of multiple and often competing pressures, including concerns over sufficient supply of agricultural land and the rising price of energy for production based on fossil fuels.

Meanwhile, against a background of rising oil prices fueling the search for cheaper and more sustainable energy sources, efforts to combat climate change have meant that production of biofuels has been further driven by a global movement to replace or at the very least supplement fossil fuels with sources of energy that are renewable and typically cleaner burning.

The food versus biofuels debate came under close scrutiny, when during the period 2005-2008 prices of staple items such as maize, wheat and rice increased significantly, whereas in the previous 20-30 year period, real food prices fell. At the same time, biofuel support policies were put into place in several countries, highlighting the apparent paradox of food versus biofuels.

A number of reports from the OECD and The World Bank amongst others stated a direct relationship between the rising food prices and the increasing biofuel-crop production.

Today, the two largest biofuel producing countries in the world are the US and Brazil. In July 2011, the Financial Times reported that ethanol producers in the US consumed ~40% of 2010’s domestic corn harvest, thereby surpassing the livestock and poultry farmers for the first time1.

It is worth noting that water is an equally important part of crop production. With increasing water scarcity, depleted aquifers, falling water tables and rising demand for fresh water, it is likely that the price of water will increase in the coming decade, putting further upward pressure on food prices.

Water is a constraint to both energy and food production; two basic human needs pitted against each other. Clearly, this is not a sustainable situation.

China: Behind The Curve On Biofuels

Whereas the food versus biofuels issue is global in nature, most countries and regions have implemented their own policies to research, develop and manage biofuels. In China, the picture is notably different and biofuel production is virtually non-existent.

In the US, the discussion is mostly centered around corn and ethanol; the US Government encouraging the production of ethanol from corn through grants and subsidies. Corn has historically been produced in surplus in the US, largely being used to feed livestock and poultry. As mentioned previously, 2011 was the first year that US ethanol refiners consumed more domestic corn than livestock and poultry farmers2. As a result, the ethanol industry’s hunger for corn is being blamed for increasing food prices across the US.

In Europe, the focus is biodiesel, which has received support from EU policies in the form of mandatory blend-in margins. Mostly produced from rapeseed, biodiesel in Europe is grown on land otherwise used to grow grains, such as maize and corn. Today, its production uses around 3 million hectares of arable land in the EU3 (out of a total of 110 million hectares of arable land4) which again creates an upward pressure on food prices.

In China, the picture is notably different. China needs large amounts of energy to power its rapidly expanding economy. It’s the second largest energy consuming country in the world (behind the US), and most of this energy comes from the fossil fuels coal and oil. According to the ‘BP Statistical Review of World Energy 20115’, China is the largest producer of coal with ~48% of world production. It is also the world’s largest consumer of coal with ~48% of world consumption. It is the world’s second largest oil importing country after the US, with total imports of ~429 million tonnes, or about twice as much as the total oil imports of Japan, the world’s third largest economy.

By comparison, and despite its obvious thirst for fuel, China’s biofuel production amounted to just ~1.4 million tonnes of oil equivalent in 2010, while consuming ~12.1 million tonnes of oil equivalent from other renewable energy sources such as wind and solar power.

It is clear that China has a long way to go to address its fossil fuel dependency. If China is serious about energy security and a cleaner environment in the short term, it simply has no other choice but to rapidly develop its biofuel and renewable energy production.

Food Wins Over Biofuels

Since the mid-80’s, China has initiated several research and development efforts in the biofuels industry. These initiatives have mostly been focused on First Generation Biofuels.

China’s five major bio-ethanol production facilities use grains such as corn and wheat as feedstock; China’s biodiesel production facilities on the other hand use edible vegetable oils, of which China is the world’s largest importer. Producing biodiesel from edible vegetable oils on a large scale would make China less dependent on the major oil producing countries, but would shift dependency to the major edible vegetable oil producing countries.

As mentioned in the ‘article Agriculture: A Prosperous Ever After’, featured on this website a few weeks ago, China only has 1.1km2 of arable land per capita, which dwarfs in comparison to the USA and Canada’s 5.6km2 and 14.0km2 per capita respectively. Furthermore, in 2008, China had to make this 1.1km2 per person work to produce agricultural produce which contributed 10.7% to its GDP whereas agriculture only accounts for 1.2% of USA’s GDP and 1.6% of Canada’s GDP, making China much more sensitive to shifts in agriculture than the US or Canada.

These numbers portray a clear picture: pursuing energy security and a cleaner environment by growing energy crops for biofuel production cannot be done without jeopardizing food production.

As a result, the Government stopped approving new bio-ethanol plants and fell short of reaching its production target in the 11th FYP (2005-2010) (more on this here). Biodiesel production has also faced significant challenges to secure sustainable and scalable sources of feedstock.

Not surprisingly, food production has prevailed and will likely continue to be prioritised over First Generation Biofuel production. Whereas it is clear China needs to develop its biofuel production capacity, it cannot do so by jeopardizing its own food production and it is unlikely that China will dedicate large plots of arable land to biofuel production.

The good news is that the leadership in China understands the food-energy-water nexus. The FYP identifies ‘Energy and Environment’ as one of its three themes (the others being ‘Economic Restructuring’ and ‘Social Equality’), and three out of a total of nine Strategic Priorities relate to fighting environmental pollution: energy savings, environmental clean-up and renewable energy production.

The FYP targets the mix of China’s non-fossil fuels out of its total energy mix to grow from 8.3% to 11.4%. In addition, coal’s portion of the energy-mix is to reduce from 70% to 63% by 2015. Given the economy’s expansion, this means an actual increase of annual coal consumption from 3.2 to 3.8 billion tonnes.

However, no specific production targets for bio-ethanol or biodiesel production are included in the FYP6.

Are the arable land and water constraints serious enough that biofuel production is unlikely to take off in China at all?

The Future Of Biofuels

This is where Second Generation Biofuels come in. Second Generation Biofuels are biofuels based on waste organic/biomass material, thereby making the production process of biofuels more sustainable as well as putting less of a strain on food prices.

First Generation Biofuels are made from the sugars and vegetable oils found in arable crops, i.e. the actual food ingredient; conventional technology makes it relatively easy to extract these substances. In comparison, Second Generation Biofuels are made from lignocellulosic biomass or woody crops, agricultural residues or waste, which makes it harder to extract the required fuel. These residual non-food parts of crops include stems, stalks, husks and leaves, and also the food waste part of municipal solid waste.

In short, Second Generation Biofuels do not rely on food crops and make use of agricultural and farming waste products. Another benefit of Second Generation Biofuels is that they emit less Greenhouse Gases than First Generation Biofuels, and are said to reduce Greenhouse Gas emissions by around 90% in comparison to fossil petroleum7.

Globally, significant funds are being channeled into the research and development of Second Generation Biofuels and several Second Generation ethanol production facilities are currently under development. The International Energy Agency estimates that in 2050, Second Generation Biofuels will constitute ~16% of total biofuels produced and that all biofuels will constitute ~27% of all transport fuels consumed.

In China, this message is being realized. Given its constraints, it may have no other choice but to develop Second Generation Biofuels.

Limited Options

In China, the Government promotes and supports the production of bio-ethanol and biodiesel based on non-grain feedstocks, such as sweet sorghum, agricultural   residues   such   as   crop   straw/stalk   and   forestry residues.

Furthermore, it promotes the use of used cooking oil or the waste-residue from vegetable oil crushers as feedstock for biodiesel production. Unfortunately, competition from the animal feed, chemical processing and food & beverage sectors has driven up the price of used cooking oil, making it too expensive for use as raw material for biodiesel production. Regulations are however being put into place to ensure the used cooking oil does not return into the food value chain.

Finally, a nationwide feed-in tariff for electricity produced by biogas has been implemented. Biogas can be produced through anaerobic digestion of food waste, which clearly is a process that does not compete with the food industry.

Although these initiatives are commendable, there are still in the medium term, a number of barriers to the rapid roll out of Second Generation Biofuel production, namely: i) access to technology; ii) experience in biofuel production; and iii) demand.

Whilst technology can be imported and experience in biofuel production can also partly be imported, creating demand for Second Generation Biofuels is critical in creating the right incentives for the industry to construct large scale and capital intensive production facilities. Even if it means being dependent on biofuel imports in the near future.

 

A Unique Opportunity

Whilst many challenges remain with regards to the development of biofuels around the world and in China in particular, a number of impressive and important developments are happening as we speak, and these developments are not in conflict with food production. In many cases, they complement food production.

In China, the development of biofuels has taken a slower path for a variety of reasons, out of which the limited supply of arable land and water are often overlooked. For the foreseeable future food production will prevail over biofuel production in securing arable land and having access to valuable water resources.

The dawn of Second Generation Biofuels poses a unique opportunity for China to diminish its dependency on fossil fuel imports and to fight climate change. China needs to think carefully about implementing further measures to create the right incentives for biofuel production and consumption. In case it succeeds in doing so, China may find itself amongst the leaders in biofuel production in the near future.

Further Sources:

  1. ‘Sustainable Ethanol: Biofuels, Biorefineries, Cellulosic Biomass, Flex-Fuel Vehicles, and Sustainable Farming for Energy Independence’ by Goettemoeller, Jeffrey; Adrian Goettemoeller (2007)
  2. Annual Biofuels Report 2011, PRC China – Global Agricultural Information Network;
  3. ‘Biofuels in China: Development Dynamics, Policy Imperatives, and Future Growth’ by Caleb O’Kray and Kang Wu

Further reading:


1US ethanol refiners use more corn than farmers FT.com , July 2011
2US ethanol refiners use more corn than farmers FT.com , July 2011
3European Biodiesel Board http://www.ebb-eu.org/biodiesel.php, accessed march 2012
4World Bank Data: http://data.worldbank.org
5BP Statistical Review of World Energy 2011
6Annual Biofuels Report 2011, PRC China – Global Agricultural Information Network
7Institute for Environment and Sustainability of the European Commission

Martijn Hoogerwerf
Author: Martijn Hoogerwerf
Martijn Hoogerwerf is Chief Strategy Officer of China Europe Bio-Energy Consortium, a Hong Kong and Beijing based project developer, manager and owner of large-scale waste-to-biofuel projects in China. Having been based in Hong Kong since 2006, Martijn brings a decade of banking experience to his role at China Europe Bio-Energy Consortium, having held positions previously in The Netherlands, New York and Athens, Greece. Martijn holds an MSc in Chemical Engineering from the Dutch State University of Groningen, The Netherlands and an MBA from IESE Business School in Barcelona, Spain.
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