The Use of Biofuels in the Asian and European Transport Sectorsesi.nus.edu.sg/docs/event/thomsonbiofuelsforesiwebsite.pdf · Source: APERC 2009, Energy Demand and Supply Outlook (4th

1

The Use of Biofuels in the Asian and European Transport Sectors

Presentation by Elspeth Thomson, Senior Fellow, ESI

forTransitioning from Fossil Fuels?: Europe and Asian Perspectives

Inaugural Conference of the Asia-Europe Energy Policy Research Network

24 May 2012Singapore

2

i. Introduction

ii. Asian Biofuel Production- What and Where- Motivations- Targets- Impacts

iii. European Biofuel Production- What and Where- Motivations- Targets- Impacts

iv. Where the Twain Meet:The Global Economics

vi. Concluding Remarks

Outline

3

Continued burgeoning rise in the demand for cars.Many cities are sprawling, notably in Asia.

Construction of public transport is not keeping up.

Introduction

Motor Vehicles per 1,000 Population,1990-2030

4

Economy 1990 2000 2005 2015 20302005‐2015

(%)  2005‐2030 

(%)

Australia 572 654 662 657 849 ‐0.10% 1.00%

Brunei 467 537 710 571 549 ‐2.20% ‐1.00%Canada 595 571 585 629 666 0.70% 0.50%China 5 13 24 51 154 7.70% 7.70%

Hong Kong 66 74 104 117 134 1.10% 1.00%

Indonesia 16 25 31 39 46 2.20% 1.60%Japan 465 573 581 598 629 0.30% 0.30%Korea 79 237 319 380 340 1.80% 0.30%

Malaysia 134 225 301 399 701 2.90% 3.40%

Philippines 20 31 34 39 57 1.50% 2.10%Russia 59 171 216 433 657 7.20% 4.50%

Singapore 140 148 148 157 173 0.60% 0.60%Taiwan 138 251 294 401 421 3.10% 1.40%Thailand 52 101 127 197 382 4.50% 4.50%USA 755 784 819 842 973 0.30% 0.70%

Vietnam 1 3 7 15 38 6.90% 6.70%APEC 139 167 188 226 321 1.90% 2.20%

Source: APERC 2009, Energy Demand and Supply Outlook (4th Ed.)

5

• According to the International Energy Agency’s (IEA), New Policies Scenario, biofuels* accounted for 2% of the global transport sector’s total energy consumption in 2009, and this could rise to 6% by 2035.

• Hart Energy’s World Refining and Fuel Service, likewise believe that biofuels will not account for a large share by 2020.

• Output is still growing. Between 2000 and 2010, worldwide production of bioethanol increased by 5x and of biodiesel, by 22x.

• Brazil and the US together account for 89% of the world’s ethanol production, while the Europe accounts for 55% of the world’s biodiesel production.

Introduction

*Definition of 1st, 2nd , 3rd, etc biofuels

6

BiodieselNorth America = 6.8%,

of which US = 6.0%

Central and South America = 25.4%, of which Brazil = 12.3%

Europe = 54.5%, of which Germany = 14.6%, France = 11%, Italy = 4.3%

Middle East, Africa, Australia and New Zealand all less than 1%

Asia = 11.8%, of which Thailand = 3.2%, China = 1.2%, Korea = 1.9%

Global Distribution of Biofuel Production(2010)

BioethanolNorth America = 58.7%

of which US = 57.1%

Central and South America = 33.1%of which Brazil = 32.0%

Europe = 4.3%of which France = 1.2%, Germany = 0.9%

Middle East, Africa, Australia and New Zealand all less than 1%

Asia = 3.4%of which China = 2.43, Thailand = 0.49%, India = 0.3%

7

Asian Biofuel Production

8

Started around year 2000.

Asia’s largest biofuel producers now are: China, Indonesia, India, South Korea, Malaysia, Thailand, the Philippines

The main biodiesel crops are palm oil, coconut oil, jatropha. Also animal fat, waste veg oils.

The main ethanol crops are sugarcane, molasses, cassava, sweet sorghum, corn, wheat.

Experimentation with many other plantsis ingoing…

Asian Biofuels: Where and What

9

Energy Security seems to be the key driver

• increasing dependence on imported oil

• most comes from the Middle East and Africa.

• finiteness of fossil fuels

• expected exponential rise in vehicle numbers on the roads

Motivations

Vehicle Population(Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam)

0

10

20

30

40

50

60

70

80

90

1990 2000 2005 2015 2030

Mot

or V

ehic

les

(mill

ions

)

Year

Vehicle population for these ASEAN countries is expected to grow from 10 million in 1990 to 79 million in 2030.

Source, Asia Pacific Energy Research Centre, APEC Energy Demand and Supply Outlook 4th Edition, 2009

Vehicle Population Per Capita

• On average, this translates to a 492% increase from 26 vehicles per 1,000 persons in 1990 to 127 vehicles per 1,000 persons in 2030.

0

100

200

300

400

500

600

700

800

1990 2000 2005 2015 2030

Mot

or V

ehic

les

per 1

,000

per

sons

ASEAN Countries

VietnamIndonesiaPhilippinesSingaporeThailandMalaysiaAverage

Source: APERC, APEC Energy Demand and Supply Outlook, 4th ed.

Energy Use in the Transport Sector, 2009

• Transport accounted for 16.4% of total energy consumption in Asia excluding China, and 46.9% of total oil products consumption

Country

Transport Sector  Energy Consumption (% of total oil product 

consumption)

Malaysia 62.4

Philippines 69.3

Thailand 51.4

Indonesia 56.4

Singapore 26.4

Vietnam 63.2

China 46.1

Japan 43.4

Korea 35.1

Source: International Energy Agency (IEA), (2011) 12

Projected Transport Sector Consumption(Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam)

• Transport consumption is projected to increase from 87 Mtoe in 2007 to 176 Mtoe in 2020 and 299 Mtoe to 2030.

• The share of transport is projected to increase from 24.6% in 2007 to 29.2% in 2020 and 31.0% in 2030.

13

0

5

10

15

20

25

30

35

0

50

100

150

200

250

300

350

2007 2020 2030

Tran

spor

t Sha

re (%

)

Ener

gy C

onsu

mpt

ion

(Mto

e)

Year

Energy Consumption Transport Share

Source: Institute of Energy Economics, 3rd ASEAN Energy Outlook, Japan 2011

14

Energy Security (con’t)

• IEA: “At current levels of production, Southeast Asia’s proven reserves of natural gas would sustain production for another 33 years…The surplus of supply over demand is expected to narrow from 63 bcm in 2008 to just 10 bcm by 2030.”

• Malaysia’s power plants experiencing gas shortages right now

• Role of unconventional gas??

Motivations (con’t)

15

Energy Security (con’t)

• Indonesia switched from being a net exporter of oil to a net importer in 2006. Reserves could be exhausted in 18 years.

• Vulnerability (from security point of view) of the Straits of Malacca, Sunda and Lombok, through to the South China Sea. – Tanker traffic set to become heavier and

heavier.

Motivations (con’t)

16

Trade Balances/Foreign Exchange

• Huge imports of oil result in negative trade balances and an outflow of foreign exchange

• Also subsidisation of oil price places great strain on government finances (e.g. Indonesia, Malaysia)

Motivations (con’t)

17

New Markets for Main Agricultural Products

• Most of the countries developing biofuel industries have been growing vast quantities of the required crops for some time

• Growing more of these crops is seen as a means to provide farmers another market in which to sell

Motivations (con’t)

18

Wider Employment in the Agricultural Sector

• There is widespread unemployment and underemployment in all of these countries.

• It is hoped that this new industry can pull thousands of rural residents out of poverty

Motivations (con’t)

Motivations (con’t)

Climate Change

They ARE interested in improving local air quality, but using the biofuel industry to combat CC is not generally stated in the government reports as the top motive.

19

Some Asian Targets

Indonesia- By 2025, ethanol is to replace 15% of the gasoline consumed, biodiesel is to replace 20% of the diesel consumed.

Malaysia- Working towards universal use of B5 (5% processed palm oil and 95% diesel)

Thailand – By 2012, all petrol consumed will be Gasohol 95 (90% petrol, 10% ethanol, octane level of 95)

20

Asian Targets (con’t)

Philippines – E5 (5% ethanol) accounts for all the gasoline sold in the Philippines. Will be increased to 10% this year. 1% biodiesel to be blended with all biodiesel sold.

India – 2003 mandated blending 5% ethanol into gasoline in 9/29 states and 6/14 union territories; 2006 mandated blending 5% ethanol into gasoline in 20/29 states and 8/14 union territories

21

Impacts of Biofuels Production in Asia

22

Deforestation

23

• Claimed that 18 million hectares of rainforests have been cleared for the purpose of palm oil plantations in Indonesia and 10.6 million hectares of peatland have been cleared in SE Asia

• Deforestation leads to erosion, loss of wildlife habitat and loss of biodiversity

Deforestation (con’t)

The biofuel industry has been the main source of deforestation in recent years

Not only the plantations, but also roads carving up the forests. This impedes animals’ migration, reduces their home ranges and population viability

Deforestation also results in the loss of carbon sinks.• The clearing of rainforest and peatland results in the

sudden release of large amounts of carbon dioxide +loss of sequestration = net increase in emissions

• The clearance of rainforest and peatlands in SE Asia is believed to account for 8% of global CO2 emissions

24

Large Tracts of Land Are Required

25

Biofuels are of very low energy density compared to fossil fuels

To make a large dent in gasoline and diesel consumption, huge amounts of agricultural land are required. Much more land would need to be sewn

with these crops.

- According to Indonesia’s Ministry of Agriculture, Indonesia’s oil palm plantation area rose from 290,000 hectares in 1980 to 6.78 million in 2007

- Land grabs

- indigenous people’s livelihoods are affected

26Source: Michael Quah, NUS Deputy President’s Office

Land Required (con’t)

Water Security

The production of ethanol is very water intensive

e.g. ethanol from corn – about 785 litres of water are required for every litre of ethanol (solely for the irrigation of corn)

e.g. ethanol from molasses – 36.5 litres of water is required per litre of ethanol

Many parts of Asia already have water shortages.

27

Dangers of Monoculture

28

• Since some biofuel crops often do not return many nutrients to the soil, there is a need for extensive use of chemical-based fertilisers resulting in the release of nitrous oxide which is about 300x more harmful than CO2 (Jatropha is an exception)

• Eutrophication, i.e., the increase in chemical nutrients in an ecosystem can lead to a lack of oxygen in water making it impossible, a) for fish in the water to survive and b) land animals to drink the water

• Could also damage the livelihood of local fishing industries

Haze

• Very serious in SE Asia in1997-98 and 2006

• Causes and exacerbates health problems such as asthma, upper respiratory infections, decreased lung function and skin and eye irritations

• According to a Greenpeace study that used NASA satellite images, there were some 2,437 forest fire hotspots in 2006 and 440 in 2007 on the major palm oil concessions in Indonesia.

29

Food Prices

• First generation biofuels rely on food crops such as grains and palm oil which are in direct competition with food, thus putting pressure on food prices

• In Asia, food typically accounts for 30-50% of a household’s income compared to 15% in the US

30

Indonesia

• By 2025, biofuels are to account for 5% of Indonesia’s total energy mix.

• Hoped biofuels industry would create 4 million new jobs by 2010, and 7 million by 2025

• Hoped that share of oil consumption in total energy mix would fall from 52% in 2006 to 20% in 2025

• By 2025, it is envisaged that ethanol will replace 15% of the gasoline consumed and that biodiesel will replace 20% of the diesel consumed.

• Indonesia accounts for 45% of the world’s production of palm oil and 45% of global exports.

31

Indonesia (con’t)

• There are currently 25 biodiesel plants and 13 ethanol

• Jatropha production is expanding

• Much smaller production of ethanol using sugarcane and cassava. Production is planned to grow considerably

• Alcohol is strictly prohibited in Indonesia for religious reasons

32

Malaysia

• Oilseeds account for about 73% of total agricultural output

• Malaysia is world’s 2nd largest producer of palm oil (42%) and world’s largest exporter (48%)

• Has had biodiesel programme since 1982

• 12 biodiesel plants in operation

• Very little ethanol production

33

Thailand• government is working on both biodiesel

and ethanol but focus now is on ethanol because the country grows vast amounts of sugarcane and cassava.

• 18 ethanol plants now, 4 under construction

• Beginning in 2004, all government vehicles were required to use Gasohol 95 which is equivalent to E10 (10% ethanol blended with 90% gasoline)

34

Thailand (con’t)

• By 2012, by law, all petrol consumed in Thailand will be Gasohol 95. It is priced lower than regular and premium gasoline

• By 2007, B5 was introduced in Bangkok and elsewhere

• By 2011, B5 was to be available throughout the country

• By 2012, B10 is to be available throughout the country

• Huge increases planned for biodiesel production within the country and also neighbouring Malaysia

35

Philippines

• Due to the availability of sugarcane and coconut oil (world’s largest producer), the Philippines is able to produce both ethanol and biodiesel

• Also have a unique form of biodiesel, known as coconut methyl ester (CME)

36

Philippines (con’t)

• Goal initially is to blend 2% CME

• By 2008, E5 (5% ethanol) was to account for all the gasoline sold, and by 2011 all gasoline fuel was to be E10 (delayed)

• Research underway into use of jatropha, cassava and sweet sorghum

37

China• China is the world’s largest consumer of biofuels

• Fuel-grade production of ethanol is largely controlled by the government

• 80% of ethanol has been made from (inferior) corn, the rest from wheat. Now also using corn stalks and perennial grasses

• Experimenting with cassava (need to import from Thailand and Vietnam) and sweet sorghum

• No targets for biofuels set in 12th Five Year Plan

• Country already faces severe water shortages

38

China

• Biofuel production is minimal by comparison and almost entirely based on animal fat or waste veg oils, resulting in poor quality (China is one of the world’s largest importers of veg oils)

• Insufficient land for new crops

• Biodiesel market is 2x that of the gasoline market

• Potential inputs include rapeseed, jatropha nuts, switchgrass, sunflower seeds, Chinese pistachio, peanuts, sesame seeds, barbados nuts, fufang vines, yousha bean and Chinese dogwood nuts

39

India

• The ‘National Biofuel Policy” (Sept 2008) aimed to meet 20% of diesel demand in India with biodiesel

• Huge food worries already

• Cannot use grains as must import grains

• Cannot use sugarcane juice due to water crisis

• Cannot use veg oil: India’s is world’s largest importer

• They make ethanol from molasses

40

India (con’t)

• Biodiesel from jatropha just starting but set to expand considerably

• Blending of bioethanol is mandated in much of the country

41

Japan

• Aims to increase bioethanol production from 50,000 kilolitres in 2011 to 6 million in 2030, equivalent to 10% of annual gasoline use

• Tokyo metro area sells 7% ETBE-blended and 3% bioethanol-blended

• Petroleum industry and the Environment Industry disagreed over how bioethanol should be mixed with gasoline

42

European Biofuel Production

43

Recent and Projected Vehicle Sales Mix in Europe2005 2035

Today No Change Diesels DominateAlternative Technologies

France

Diesel 69 69 75 35NA Gasoline 28 28 22 10

Gasoline Turbo 3 3 3 30Gasoline Hybrid 0 0 0 15Diesel Hybrid 0 0 0 5

CNG 0 0 0 5

Germany

Diesel 43 43 75 30NA Gasoline 51 51 19 15

Gasoline Turbo 6 6 6 30Gasoline Hybrid 0 0 0 15Diesel Hybrid 0 0 0 5

CNG 0 0 0 5

Italy

Diesel 59 59 75 35NA  Gasoline 37 37 21 10Gasoline Turbo 4 4 4 30

Gasoline 0 0 0 15Diesel 0 0 0 5CNG 0 0 0 5

UK

Diesel 38 38 75 25NA Gasoline 56 56 19 20

Gasoline Turbo 6 6 6 30Gasoline Hybrid 0 0 0 15Diesel Hybrid 0 0 0 5

CNG 0 0 0 5

44

Source: Bodek, K. & Heywood, J. 2008. Europe's Evolving Passenger Vehicle Fleet: Fuel Use and GHG Emissions Scenarios through 2035. MIT laboratory for energy and the environment. Pub. No. LFEE 2008‐03 RP. Note: NA Gasoline stands for naturally aspirated gasoline.

Projected New Vehicle Sales Growth in Europe

UN Population and New Vehicle Sales Growth Rate (%)

Average 2005‐2010 2010‐2015 2015‐2020 2020‐2025 2025‐2030 2030‐2035

FrancePop. ‐0.08 0 0 ‐0.1 ‐0.1 ‐0.1 ‐0.2

Sales 0.33 1.5 1 0.5 0 ‐0.5 ‐0.5

GermanyPop. 0.17 0.3 0.3 0.2 0.1 0.1 0

Sales 0.83 2.5 1.5 0.5 0.5 0 0

ItalyPop. ‐0.2 0 ‐0.1 ‐0.2 ‐0.3 ‐0.3 ‐0.3

Sales 0.5 1.5 1 1 0 0 ‐0.5

UKPop. 0.3 0.3 0.3 0.3 0.4 0.3 0.2

Sales 1.08 1.5 1.5 1 1 1 0.5

45Source: United Nations. 2005. Population, Resources, Environment and Development: The 2005 Revision. Available at: http://unstats.un.org/pop/dVariables/DRetrieval.aspx

46

European Biofuels: Where and What

Largest producers (2010) of biodiesel are Germany (rapeseed) and France (rapeseed).

[Unit is ‘000 tonnes]

Germany 2,861 Slovakia 88

France 1,910 Lithuania 85

Spain 925 Romania 70

Italy 706 Latvia 43

Belgium 435 Greece 33

Poland 370 Bulgaria 30

Netherlands 368 Ireland* 28

Austria 289 Solvenia 22

Portugal 289 Cyprus 6

Finland* 288 Estonia 3

Denmark/Sweden 246 Malta 0

Czech Rep 181 Luxemburg 0

Hungary 149

UK 145 Total 9,570Source: European Biodiesel Board* Includes hydro-diesel production

47

Motivations

• Europe’s own energy security- would like to reduce dependence on oil and gas imports

(Transport accounts for about 28% of the EU-27’s total energy consumption and 60% of oil products consumption)

• Climate change concerns

48

Motivations (con’t)

• An opportunity for new technologies

• An opportunity for job creation

49

Targets

Mar. 2007: EU Summit set target of 10% of transport fuel in each member state to be provided by biofuels by 2020.

Dec. 2010: Greenhouse gas savings from biofuels to reach minimum 35%.

2017: Greenhouse gas savings from biofuels to reach minimum 50%.

2018: Greenhouse gas savings from biofuels to reach minimum 60%.

50

Targets (con’t)

2020: EU leaders have committed to setting a binding minimum target of 10% of biofuel use in transport by 2020, on the condition that 2nd -Gen biofuels become commercially viable and the production is environmentally sustainable.

Many petrol stations are required by law to sell renewable fuels such as E85 (a blend of up to 85% ethanol and gasoline)

In most of Europe, incentives are given to those who buy green cars and there is tax relief on renewable fuels.

51

Issues

Production tends to be fossil fuel energy-intensive

(Much research has been done examining the net energy balance, meaning the difference between energy output and energy input during production)

- Do not see major reductions in GHG emissions in production

- Not the environmental problems as in Asia

- Not so much influence on food crop prices

52

Issues, con’t

-Complications with infrastructure needed for use of higher biofuel blends

- Compatibility of engines

- Where to procure the biofuels? Not any more land available. Should Europe increase its food imports instead?

-Fossil fuel subsidies (in the OECD) cost around 5% of the consumer price, while biofuel subsidies can be as much as 50% of the total cost of production.

53

Issues, con’t

Can Europe import all the biofuels it needs to reach its green energy targets?

The EU decided to restrict imports of Asian palm oil grown in unsustainable ways. Tried to trace where

the palm oil was coming from and to certify it. Found it very difficult.

54

Where the Twain Meet: Global Economics of the Industry

Both Asia and Europe in quandary in terms of net energy balances, relative costs of production and distribution… and besides the quality and serious environmental issues, the economics do not make sense:

The international oil/chemical/refining companies are working together on the 2nd, 3rd, etc-Gen biofuels.

Perhaps a game-changing discovery will transform the biofuel industry from largely national or regional efforts,

into global enterprises which necessitate some standardisation and policy harmonisation??

55

Where the Twain Meet: Global Economics of the Industry (con’t)

- Brazil seems to be the only place in the world where biofuels are viable. However, the industry there is not without government support. According to an OECD report, in 2006, subsidies totalled USD 1 billion.

Right now, it makes little sense to import/export biofuels over long distances. Why?

The net energy balances for production are considered by some as dubious at best. Then, send 1st or 2nd-Gen biofuels around the world on a fossil-fuelled ship??

56

Where theTwain Meet: Global Economics (con’t)

In recent years, compared to conventional gasoline and diesel, biofuels have cost up to 3x as much.

Oil crop prices are also volatile.

In 2008, a major increase in palm oil prices wiped out several mainly palm oil based biodiesel makers.

Palm Oil Price (USD/metric ton), 2000-2012

57

Source: World Bank

0

200

400

600

800

1000

1200

1400

Jan-

00A

ug-0

0M

ar-0

1O

ct-0

1M

ay-0

2D

ec-0

2Ju

l-03

Feb-

04S

ep-0

4A

pr-0

5N

ov-0

5Ju

n-06

Jan-

07A

ug-0

7M

ar-0

8O

ct-0

8M

ay-0

9D

ec-0

9Ju

l-10

Feb-

11S

ep-1

1A

pr-1

2

Source: World Bank. (n.d.) Global Economic Monitor Commodities, at http://data.worldbank.org/data-catalog/commodity-price-data

Rapeseed Oil Price (USD/metric ton), 2000-2012

58

Source: IMF

0200400600800

100012001400160018002000

Jan-

00Ju

l-00

Jan-

01Ju

l-01

Jan-

02Ju

l-02

Jan-

03Ju

l-03

Jan-

04Ju

l-04

Jan-

05Ju

l-05

Jan-

06Ju

l-06

Jan-

07Ju

l-07

Jan-

08Ju

l-08

Jan-

09Ju

l-09

Jan-

10Ju

l-10

Jan-

11Ju

l-11

Jan-

12

International Monetary Fund. (n.d.) IMF Primary Commodities Prices Database, at http://www.imf.org/external/np/res/commod/index.aspx

59

Where the Twain Meet: Global Economics (con’t)

Subsidies, tax concessions, aid, credits…

In OECD countries, fossil fuel subsidies cost around 5% of the consumer price, while biofuel subsidies can be asmuch as 50% of the total cost of production.

In Italy in 2007, the govt guaranteed the purchase of biofuel crops at 22 EUR (SGD 45) fro 100 kg – nearly twice the 11 to 12 euros for 100 kg of wheat on the open market in 2006.

The problem is that the support given to the industry is uneven across borders. There are non-uniform regulatory environments, and there is a lack of

standardised financial architecture.

60

Where the Twain Meet: Global Economics (con’t)

In March 2006, emission rights for a ton of CO2 under the European Trading Scheme peaked at around EUR 30 per ton whereas CO2 abatement through biofuels cost around EUR 350 per ton abated in 2007 (OECD Policy Brief, Nov.

At the same time, in Indonesia: The subsidised oil price makes it difficult for biofuels to compete. Biofuel production cost exceeds the prices of fossil fuels.

In order for the “new energy solutions”, including biofuels to take off, it is imperative for governments to untangle the webs of subsidies. No government can subsidise

anything indefinitely.

61

Concluding Remarks

a) There is lack of clarity in terms of measuring the net energy balances;

b) Cross-border transactions (international trade) are difficult due to different quality standards, different regulations and several layers of non-uniform financial support. The investment profiles are unclear.

62

Concluding Remarks (con’t)

Perhaps it would be better to use more biomass to generate electricity??

In the meantime:

To enhance energy security and reduce emissions, we can:

1. Use smaller cars, hybrids, electric vehicles 2. Improve the design of cities 3. Improve driving techniques to reduce consumption

of whatever fuel used…

63

Some Sources

For a complete listing of sources, pls refer to the final edition of the full paper

http://biofuelstp.ue/biofuelsmarkets.html

Energy Information Agency

EU Directives

Hart Energy reportsInternational Energy Agency

Joni Jupesta

OECD, “Biofuels for Transport: Policies and Possibilities”, Policy Brief, Nov. 2007

Zhou, Adrian and Elspeth Thomson, “The Development of Biofuels in Asia”, Applied Energy, vol. 86, Supplement 1, Nov. 2009, pp. S11-S20.

64

THANK YOU

I gratefully acknowledge the assistance of ESI energy analysts, Augustin Boey and Chua Wen Hao in data collection.