Biofuels and Its Implications on Food Security, Climate Change, and Energy Security:
A Case Study of Nepal
By Shailee Pradhan
Master of Arts in Law and Diplomacy Candidate at The Fletcher School
Master of Science in Food Policy and Applied Nutrition Candidate at Friedman School of Nutrition Science and Policy
TUFTS UNIVERSITY
October 2009
Thesis Advisor:
Professor Steve Block, The Fletcher School
Table of Contents
Acknowledgments ...........................................................................................................................i Executive Summary...................................................................................................................... ii 1. Nepal: Country Background ....................................................................................................1
1. A. The Nepalese Economy ................................................................................................................... 1 1. B. Food Security in Nepal..................................................................................................................... 4 1. C. Climate Change in Nepal ................................................................................................................. 5
2. Renewable Energy Technologies (RETs) in Nepal .................................................................7 2. A. Main Sources of Alternative Energy in Nepal ................................................................................. 7 2. B. Alternative Fuels for Vehicles.......................................................................................................... 8
3. Biofuels......................................................................................................................................10 3. A. Biofuels and its Impact on Food Prices ......................................................................................... 11 3. B. Biofuels and the Environment........................................................................................................ 12 3. C. Jatropha Cultivation in Nepal......................................................................................................... 13 3. D. Biofuels in India............................................................................................................................. 14
4. The Trade-Offs Associated with Biofuels in Nepal...............................................................16 4. A. Large-Scale versus Small-Scale Production .................................................................................. 16 4. B. Biofuels and Food Security ............................................................................................................ 17 4. C. Biofuels and Climate Change......................................................................................................... 20 4. D. Biofuels and Energy Security ........................................................................................................ 22 4. E. Biofuels and Employment Generation ........................................................................................... 23 4. F. Biofuels and Health ........................................................................................................................ 24
5. Viability of Biofuel Production in Nepal ...............................................................................28 5. A. Potential of Jatropha Cultivation in Nepal..................................................................................... 28 5. B. Financial Viability of Jatropha Plantation...................................................................................... 28 5. C. Financing Biofuels Projects ........................................................................................................... 30 5. D. Case Study of Biofuel Projects in Nepal........................................................................................ 30
6. The Way Forward: Recommendations and Challenges ......................................................33 6. A. Nepal’s Biofuel Policy at Present .................................................................................................. 33 6. B. Recommendations .......................................................................................................................... 35 6. C. Looking Forward............................................................................................................................ 38
Works Cited..................................................................................................................................40
Tables
Table 1: Annual Growth Rate of GDP, 2000 - 05 (%) ................................................................... 2
Table 2: Summary Table of Trade-Offs Associated with Biofuels .............................................. 26
Table 3: The Sales Report of Petrol, Diesel, and Kerosene and Requirement of Biofuels in
Kiloliters ............................................................................................................................... 34
Table 4: Mitigating the Negative Impacts and Enhancing the Positive Impacts of Biofuels ....... 37
Figures
Figure 1: Map of Nepal................................................................................................................... 1
Figure 2: Trade-Offs among Biofuels, Food Security, Climate Change, and Energy Security.... 27
Exchange rate
1 USD = 78 NRS [June – July 2009]
Acronyms and Abbreviations
ADB Asian Development Bank ADB-UNCTAD Asian Development Bank – United Nations Conference on Trade and
Development AEPC Alternative Energy Promotion Center CBS Central Bureau of Statistics CDM Clean Development Mechanism ESAP Energy Sector Assistance Programme FAO Food and Agriculture Organisation GHG Greenhouse Gas GoN Government of Nepal ICIMOD International Centre for Integrated Mountain Development IFPRI International Food Policy Research Institute IPCC Intergovernmental Panel on Climate Change IRIN Integrated Regional Information Networks LPG Liquefied Petroleum Gas MDGs Millennium Development Goals MoEST Ministry of Environment, Science and Technology NGO Non-Governmental Organization NOC Nepal Oil Corporation NRS Nepalese Rupees OECD Organisation of Economic Co-operation and Development PAF Poverty Alleviation Fund RECAST Research Center for Applied Science and Technology RET Renewable Energy Technologies UNDP United Nations Development Programme UN-Energy United Nations – Energy USAID United States Agency for International Development USD United States Dollar WFP World Food Programme
Acknowledgments
This thesis is a culmination of three years of graduate work at The Fletcher School and the
Friedman School of Nutrition Science and Policy. I am deeply thankful to Professor Steve Block
at The Fletcher School and Professor Beatrice Rogers at the Friedman School for their guidance
and encouragement through out graduate school.
Special thanks to the Tufts Institute of Environment for their support through the Graduate
Student Fellowship, the Tufts Institute of Global Leadership for making me part of their
Empower Program for Social Entrepreneurship, and the International Center for Integrated
Mountain Development for their research support.
I would also like to thank my family for their love and support and Paribesh for always being
there.
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Executive Summary
Some of the biggest challenges the world is facing today are climate change and energy insecurity. The situation of a warming planet, further exacerbated by the use of fossil fuels, and the fluctuating prices of fuel have led us to search for alternative sources of fuel. The production of biofuels raised hopes around the world as a solution to mitigate climate change and ensure energy security. The debate on whether biofuels fulfill such promises is both active and evolving; with links being drawn between the global food crisis of 2008 and biofuel production, the discourse has taken a different turn. The global food crisis is said to have pushed back developing countries further towards poverty. While advanced economies like the United States and the European Union countries are investing heavily in biofuel production, international research institutes are still ringing words of caution against biofuel production. This has left many, particularly in developing countries, unsure about pursuing biofuels as an alternative source of energy. Hence, it is important to examine trade-offs associated with biofuels before making any recommendations on biofuels. Biofuels can potentially contribute to mitigating climate change, increasing employment opportunities, providing access to energy, and improving indoor pollution associated with firewood use, thereby improving population health in rural areas. At the same time, food security and water security may be negatively affected by biofuel production. The trade-offs among environment, energy access, employment creation, health, food security, and water security present complex and challenging questions. Adding to this complexity is the fact that biofuels are not the sole cause of the global food crisis. The rising food prices were also a result of 1) reduction of production capacity in developing countries, 2) population and income growth in emerging economies and associated dietary changes, 3) the surge in oil prices in 2008, which drove up prices of fertilizers and fuels, and 4) unfavorable weather in key producing countries, among others (ADB, 2008; South Center, 2008; Timmer, 2008). The fact is without access to energy, production capacity in developing countries is bound to remain stagnant, if not fall even further, as the availability of agricultural land is not increasing. Secondly, population growth in emerging economies will put further pressure on energy security and energy demand will increase. Thirdly, as oil prices rise, food prices will rise. Fourthly, the current pace of emissions could multiply destructive climate events, negatively affecting crop yields and thus increasing food prices further. Hence, if energy security, environment, and employment generation are sacrificed at the cost of saving food security, we may not be helping food security in the long run. The trade-offs are also country-specific. For a country that has a large segment of its population living in extreme poverty, food security may be the top priority. However, if that country is also seriously energy insecure, especially vulnerable to the impacts of climate change, has stagnant agricultural productivity, and has extremely high unemployment rate, then the question of trade-offs becomes even more difficult to answer. This is the case of Nepal, a developing country in South Asia, a region particularly vulnerable to climate change.
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The solution to the problem of energy scarcity is to become more efficient in our use of energy. The efficiency in energy use can be achieved in advanced economies through mass transit systems and energy-efficient appliances. In developing countries, the need still remains in providing affordable, reliable, and accessible energy through diverse sources. To ensure energy security and sustainability, it is critical for developing countries to diversify their fuel options such as kerosene, biogas, solar, and electricity for household sector and liquid biofuels such as ethanol and biodiesel in the transport sector. Diversifying fuel sources puts less pressure on each fuel source and lessens the risks involved as well. Biofuels can play an important role in supplying energy in rural transport sector without negatively affecting food security and the environment. The key is to distinguish between large-scale biofuel production that diverts water, labor, land, and food crops like maize and sugarcane away from food to fuel and small to medium-scale local biofuel production for local energy needs using non-food crops, marginalized land, and labor where there is minimal employment opportunities. Biofuel production carried out in small-scale in rural areas is financially viable, which is very important since the Government of Nepal is not in a position to subsidize biofuel production. Jatropha oil expellers are simple, affordable, and portable, making it suitable to meet the energy needs of a small rural community. Where national electric lines cannot reach due to the difficult mountain terrain and lack of proper infrastructures, local biofuel production provides some hope in reaching these communities. Biofuels should not be taken as a solution to energy insecurity and global warming; it is that given proper policy space and coordinated policies biofuel production can contribute to meeting some of these challenges. Recommendations In Nepal, the Alternative Energy Promotion Center under the Ministry of Environment, Science and Technology (MoEST) is responsible for biofuel policies. The recommendations are specifically directed towards them: 1. Formation of a Biodiesel Board Given the lack of coordination among the different government bodies regarding biofuel policies, a Biodiesel Board should be formed. Instead of closed-door policy formulation, AEPC should promote transparency and public debate by publishing its reports and policy drafts. Large-scale production proposals should be evaluated and approved by the Biodiesel Board. 2. Pro- Food Security Approach Assigning Wasteland for Growing Energy Crops AEPC should work with the Ministry of Agriculture in identifying wasteland for biofuel production and seek support from district- and village level government entities in collecting information regarding land use. Army and police barracks can be involved as well, as they have manpower, technical expertise, and land needed for biofuel programs.
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A Community-based Biofuel Production Biofuel program should be inclusive of landless and unemployed. District and village-level government entities should be involved in the monitoring process. Growing Non-edible Energy Crops The scope of crop use should be limited to non-food crops until more research is done in the food versus fuel debate. AEPC should propose banning the use of food crops for biofuel production to the Ministry of Agriculture. It is also crucial to connect with national and international research institutes to continue researching other non-edible crops. 3. Private Investments The scope of land use and crop use policy should be limited to wasteland and non-edible crops. Large-scale production proposals should go through the Biodiesel Board. If the Board cannot act in such a capacity immediately, the government should place a restriction on private investments until such an evaluation mechanism can be created. 4. Investing in Research and Development Some biofuel production experiments had been conducted by scientists at RECAST in the early 1980s but very little has happened since then. AEPC should partner with universities at home and abroad and building public-private partnerships that would allow shared investments. 5. Awareness Programs and Trainings Many even in the biofuel sector are unaware of successes and failures of biofuel programs in Nepal and in other parts of the world. By compiling project updates and creating either newsletters or putting it on the AEPC website, knowledge can be shared and best practices learned. Looking Forward The following are some immediate challenges to implementing biofuel programs in Nepal: 1. Identifying Wasteland Because the last land use survey in Nepal is about thirty years old, there is not enough data for identifying wasteland through GIS mapping yet. Presently wasteland can be identified through consulting district and village level government entities. 2. Availability of Technology for Biofuel Production Technology transfer is still a big part of even a small-scale project. This can be met through agricultural extension workers who can disseminate best practices and respond to farmers’ needs and requests for technical advice. 3. Land Tenure Biofuel production could drive away small farmers from their land in the absence of clear land ownership, further marginalizing the poor. Land tenure is a very sensitive issue in Nepal, but it needs to be tackled at some point if the country is to move ahead without another civil war breaking out again.
1. Nepal: Country Background
Nepal is characterized by rampant poverty, slow and declining GDP growth, heavy dependence
on slow growing agriculture, high unemployment rates, minimal energy security, and high
vulnerability to climate change given its geographical location. These conditions are inter-linked,
and to achieve improvement in any one sector, each of these conditions have to be addressed.
1. A. The Nepalese Economy
Nepal is a small landlocked country lying between China to the north and India on the other
three sides. Nepal has a population of 25 million (PAF 2007). 82.5% of the population is below
the international poverty line of USD 2 per day (World Bank 2003).
Figure 1: Map of Nepal
Source: www.sanog.org/sanog4/country.htm
Nutritional indicators are also among the lowest in the world. Almost half of the children are
either under weight or stunted, and 75 percent of pregnant women and 50 percent of women aged
15-59 are anemic (FAO 2003).
Responding to the liberalizing reforms of the 1990s, the Nepalese economy grew at an annual
rate of 4.93 percent between 1990 and 1998, although growth varied widely between years (FAO
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2003). However, the growth of agricultural sector remained at 2.5%, less than the population
growth (ADB-UNCTAD 2008). Therefore, the income level of rural households where the
incidence of poverty is the highest did not improve even when the economy was growing
positively.
Since 2001, the Nepalese economy has been on a downward path because of loss of momentum
in exports (ADB-UNCTAD 2008). From a growth rate of 6% in 2000-01, for the first time since
the 1980s, Nepali economy suffered a negative growth rate of -0.5% in 2002-03. This was also
the lowest growth rate in South Asia. Domestic security problems further slowed down the
service sector growth, particularly the tourism sector.
Table 1: Annual Growth Rate of GDP, 2000 - 05 (%) Years 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06
Annual Growth Rate of GDP 6.0 4.6 (-0.5) 3.04 3.19 2.05
Source: ADB-UNCTAD 2008
An Agriculture-Driven Economy
Growth of the Nepalese economy is determined mainly by the growth of its agriculture. The
share of agriculture in GDP is declining about 1% annually since 1974-75 in favor of the non-
agricultural sector (ADB-UNCTAD 2008). Despite its declining relative importance, it is still the
single largest sector of the economy and the main source of livelihood for the bulk of the
population. Agriculture also provides a livelihood to 76% of the labor force (ibid). Heavy
dependence on an agricultural sector in which there is little technological progress is a major
factor contributing to persistent poverty and food insecurity, especially in rural areas.
Slow and Variable Growth in Agriculture and Low Productivity
The most important reason for the decline in competitiveness is the stagnation in agricultural
productivity. Sharma (2002) compares the yield trends of in Nepal to rest of South Asia. From
the 1960s till date, the average yield in Nepal has fallen from 157 to 61% of the South Asian
average. The crop yield in Nepal grew by about 1.25% per annum while growth rates in India,
Bangladesh, Pakistan and Sri Lanka were 5.28, 1.92, 5.5 and 2.7%, respectively (ibid). Nepal
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had the highest crop yields in South Asia during the early 1960s, but the situation in the late
1990s was the reverse of this (FAO 2003). Poor irrigation facilities and access is one of the
major reasons for low agricultural productivity in the country.
Net Importer of Food
The export of agricultural products was a major source of foreign exchange until 1979. In
1975/76 Nepal exported food grains, but with production failing to keep pace with population
growth, exports declined drastically in the 1980s (Koirala and Thapa 1997).
It is important to note that being a net importer of food is not an indicator of being food insecure.
It also does not mean that the country should be food self-sufficient. However, even with
importing food, Nepal is largely food insecure and rising food prices have severe negative
implications for the country’s budget. The lack of complementary exports that could finance
food imports has led to budgetary imbalances.
Labor Force
The Nepalese economy is characterized by rampant unemployment at 42% (2004 estimate)
(CIA 2009). Two third of Nepalese people are involved in farming business exploiting only 21%
of cultivable land for their livelihood (Ghimire 2008). An increase in population by 2.2%
annually is producing additional labor force in the national labor market (ibid).
Energy
At present, 48.5% of the total population is electrified (Adhikari 2008). While 90% of Nepal’s
urban population is connected to a power grid, only some 27% of rural households have access
to electricity (World Bank 2007). Biomass is a vital energy source in Nepal, comprising about
92% of the share of the total primary energy consumption in 1994-95 (ibid).
Nepal depends on fuel imports from India and sells petrol, diesel and kerosene at highly
subsidized rates, at huge financial cost to the government's Nepal Oil Corporation (NOC). In
September 2009, the NOC ran on a monthly loss of more than USD 2.4 million, a trend since the
past few years (Republica 2009). Transportation costs increased by more than 25 percent in the
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first six months of 2008 alone, because of the global oil price rise, in turn feeding into food
prices (IRIN 2008).
Nepal is becoming more dependent on imports of petroleum products for meeting daily energy
requirements. While the country’s total merchandise export value was NRS 6.2 billion (USD
7.94 million) in 2005/06, its petroleum imports alone were 53 percent of the total export value.
Petroleum import was just 27 percent of the merchandise export in 2000/01 (Ministry of Finance
2006).
As a landlocked developing country, Nepal is especially vulnerable to rise in fossil fuel prices. It
is crucial to diversify its fuel options such as kerosene, Liquefied Petroleum Gas (LPG), biogas,
solar, and electricity for household sector and liquid biofuels such as ethanol and bio-diesel in
the transport sector.
1. B. Food Security in Nepal
As in many developing countries, food accounts for a major share in total consumption for most
Nepalese families. According to Nepal’s National Living Standard Survey 2003/04, the share of
food stands at 73 percent in the lowest quintile in contrast to 40 percent in the highest quintile
(CBS 2004). Increases in food prices exposes those in the bottom quintile to further food
insecurity as food expenditure takes up a bigger portion of their total expenditure. The lowest
quintile is also comprised of net food buyers, making them more vulnerable to soaring food
prices (Karkee 2008).
What is food security?
Food security has been understood in different forms and very often it has been defined narrowly to mean food self-sufficiency, but it is much more than this. The FAO defines food security as a state when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for active and healthy life. Indicators of food security can be defined at different levels – for the world as a whole, for individual countries, or for households (ibid). At the national level, adequate food availability means that on average sufficient food supplies are available, from domestic production and/or imports, to meet the consumption needs of all in the country. Similarly, as in the case of individuals, purchasing power at the national level is a determinant of national food security. Source: (FAO 1996)
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Impacts of Rising Food Prices in Nepal
The impacts of the rising food prices in 2008 were felt in many ways because of these factors:
Net Importer of Food
In Nepal, as a net importer, the rising food prices meant that it greatly increased the budgetary
costs of maintaining food subsidies, leading to a rise in food insecurity. This also led to a decline
in the capacity of the state to fund other public goods and services such as medical facilities and
infrastructure that may also contribute to food insecurity.
Recovering from Armed Conflict
Nepal just emerged from a decade-long armed conflict (1996-2006) and the government
structures are very weak. The food crisis further posed significant challenges to any lasting peace
process. Improvements in living standards are urgently needed to avoid civil unrest that may
threaten the new government.
Excessive Dependency on India
Many countries in the region are dependent on India for food. Countries like Nepal and
Bangladesh rely heavily on food imports from India. Moreover, India is the only country in the
region with a food surplus (Babu 2005). This means that the Indian food market has a huge
influence on the entire South Asian region.
1. C. Climate Change in Nepal
The Intergovernmental Panel on Climate Change (IPCC), the world’s leading authority on
climate science, in its fourth assessment report noted that the evidence of global warming is now
“unequivocal” (2007). A rise of 4C would be enough to wipe out hundreds of species, bring
extreme flood and water shortages in vulnerable countries and cause catastrophic floods that
would displace hundreds of millions of people, warns the IPCC.
The Himalayan region is the most critical region in the world in which melting glaciers will have
a negative affect on water supplies in the next few decades (Barnett, Adam and Lettenmaier
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2005). The region, with over 1.3 billion people, is demonstrating a number of noticeable impacts
related to global climate change with the most widely reported being rapid reduction in many
glaciers, which has implications for water resources (ICIMOD 2007).
As home to the Himalayas, Nepal is particularly vulnerable to the impacts of climate change. In
Nepal, temperature observations from 1977-1994 show a general warming trend (Shrestha, et al.
1999). There is some evidence of more intense precipitation events in Nepal (Shakya 2003).
Stream flow patterns in certain rivers show an increase in the number of flood days (ibid). Some
rivers are also exhibiting a trend towards a reduction in dependable flows in the dry season,
which has implications both for water supply and energy generation (ibid). Significant glacier
retreat as well as significant area expansion of several glacial lakes has also been documented in
recent decades that have been linked to rising temperatures (OECD 2003).
The IPCC report (2007) has provided specific information for South Asia region concerning the
nature of future impacts. Some of the future impacts include:
• Glacier melting in the Himalayas will increase flooding as well as affect water resources
• Sea-level rise will exacerbate inundation, storm surge, erosion and other coastal hazards
• Mortality due to diarrhea and other water-borne diseases primarily associated with floods will
rise in South Asia
• Climate change will put additional pressures on the environment and natural resources that are
already affected by industrialization, population growth, and rapid urbanization.
• By the mid-21st century, crop yields could decrease up to 30% in South Asia
Overall development requires an integrated approach linking access to credit markets,
infrastructures, education, healthcare, safe water and food etc. Access to energy is a significant
part of this integrated approach, as will be elaborated in the next section.
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2. Renewable Energy Technologies (RETs) in Nepal
“No country in modern times has substantially reduced poverty in the absence of massive
increases in energy use” - (UN-Energy 2007, 6)
In recent years, as oil prices have been fluctuating, countries all over the world have been
exploiting a wider array of renewable energy sources, particularly micro-hydro, solar, wind, and
biomass. Renewable Energy Technologies (RETs) are often ideal for rural areas for providing
them access to heating, cooking, electrification, transportation, food processing and milling etc.
Nepal’s topography, however, does not make it easy to create access for energy nationwide.
Recognizing the role of various alternative energy sources in development, the Alternative
Energy Promotion Center (AEPC) was established in 1996 under the Ministry of Environment,
Science and Technology (MoEST), Nepal.
2. A. Main Sources of Alternative Energy in Nepal
According to the AEPC (2009), the main sources of alternative energy in Nepal have been:
1. Biogas: Biogas is the mixture of gas produced by the methanogenic bacteria while acting upon
biodegradable materials in an anaerobic (without oxygen) condition. Biogas is an odorless and
colorless gas. It burns with clear blue flame similar to that of LPG, with 60 percent efficiency in
a conventional biogas stove. The GoN, the German Government and the Dutch Government
have been providing subsidy to biogas plants since 1992.
2. Micro-Hydro Power: Micro-hydro projects have been providing electricity to rural
communities that are not served by national electricity services. Micro-hydro power can be used
to power TV, radios, and various household electric appliances. Hydro electricity is also a clean
and renewable form of energy. The GoN with the assistance from the Kingdom of Denmark has
jointly initiated Energy Sector Assistance Programme (ESAP) that provides a comprehensive
subsidy program for micro-hydro power.
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3. Biomass Energy: Biomass energy includes technologies like biomass briquettes and
improved cooking stoves, which are used for cooking and heating purposes.
4. Solar Energy: Two types of solar energy technologies, namely solar thermal and solar
photovoltaic systems, are available in the country. Solar thermal systems include solar water
heaters, solar dryers, and solar cookers. Solar PV systems include solar communication systems,
solar electrification systems, and solar pumping systems. In order to promote rural electrification
through solar energy and mini-grid electrification throughout Nepal, the GoN has made
arrangement to provide direct and indirect subsidy through ESAP.
5. Wind Energy: Although wind energy is one of the cheapest and cleanest renewable energy
sources available, it is one of the least harnessed energy sources in Nepal. Wind energy could be
an important source of generating electricity. Given Nepal’s topography, with mountain
passages, it seems likely that Nepal has a huge potential for wind energy.
2. B. Alternative Fuels for Vehicles
The alternative energy sources in Nepal focus primarily on rural electrification through micro-
hydro power and solar energy and on cooking and heating through biogas and biomass.
However, there has been very little focus on alternative energy for transportation.
Given the price fluctuations in petroleum and diesel prices and Nepal’s heavy dependence on
Indian oil exports, Nepali farmers are vulnerable to any price shocks in the oil market. In the
agriculture sector, diesel-run tractors and irrigation pumps can contribute to higher agricultural
productivity. Rising oil prices also put pressure on the national budget, as the government of
Nepal subsidizes oil for consumers. Hence, there is a need for alternative sources of energy for
vehicles.
Other than petroleum products (gasoline and diesel), there are different alternative fuels for
vehicles. In general, alternative fuels for vehicles include:
- Compressed natural gas (CNG)
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- Liquefied petroleum gas (LPG)
- Alcohol fuels such as methanol (methyl alcohol) and denatured ethanol (ethyl alcohol)
- Biodiesel
- Electricity (stored in batteries)
- Hydrogen (fuel-cell)
- Solar
Alternative fuels for vehicles have high costs associated with their initial implementation stage,
making it difficult for developing countries to adopt alternative fuels for vehicles. For each of the
fuel mentioned above, besides biodiesel, the vehicle used has to be specific to that fuel.
However, diesel-run vehicles are cheaper compared to electric or CNG vehicles, and diesel-run
vehicles can run on biodiesel. This makes biodiesel a popular alternative fuel for vehicles.
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3. Biofuels
Biofuels have been defined as any fuel of biological and renewable origin, including biomass.
Much of the public debate has focused on liquid biofuels for transportation, namely bioethanol
and biodiesel. Biofuel currently come in two forms:
1. Ethanol: Ethanol can be made from sugars (e.g., sugar beets, sugarcane and sweet
sorghum), grains (such as maize and wheat), root crops (such as cassava), cellulose and
waste products
2. Biodiesel: Biodiesel can be manufactured by the transesterification of vegetable oil. It
can be blended with diesel to reduce the consumption of diesel from petroleum
A Quest for Energy Security
It is expected that oil prices will continue to remain unstable and unpredictable, which has
prompted countries to diversify energy sources for reducing the dependency on finite fossil fuel.
In many developing countries, oil imports take up a large and unsustainable share of their foreign
exchange earnings, in some cases offsetting any gains from recent foreign debt elimination
agreements (UN-Energy 2007). Recent oil prices increases had devastating effects on many of
the world’s poor countries, some of which now spend as much as six times as much on fuel as
they do on health, and others twice the money on fuels as on poverty reduction (ibid).
Distinguishing Bioenergy from Biofuel
It is important to distinguish biofuel from bioenergy. Bioenergy is energy produced from organic matter, or biomass. Biofuels are energy carriers derived from biomass. A wide range of biomass sources can be used to produce energy. Some have been used for millennia, such as fuelwood, charcoal and animal dung. Newer sources include ethanol, biodiesel and biogas. These new sources depend on natural vegetation, crops grown specifically for energy, or agricultural or other biological forms of wastes and residues. Biofuel essentially refers to liquid fuels used for transport and energy generation. Bioenergy is a broader terms, incorporating different kinds of energy and sources in rural areas, such as fuelwood or small-scale community energy production, which has always been essential to households and local community needs. Source: (FAO 2008b)
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Global Trends
Brazil, the member states of the European Union, the United States, and several other countries
are actively supporting the production of liquid biofuels from agriculture—usually maize or
sugarcane for ethanol, and various oil crops for biodiesel. Brazil has been an undisputed leader in
the sugarcanes based bioethanol industry, currently producing 52% of the global bioethanol
production, followed by the US (43%) (Sharma and Banskota 2006). However, the success of the
Brazilian story is based on a 70 years of history and almost two decades of government support;
it took Brazil 25 years before bioethanol could compete with crude oil (ibid).
Among countries that have enacted pro-biofuel policies in recent years are Argentina, Australia,
Canada, China, Colombia, Ecuador, India, Indonesia, Malawi, Malaysia, Mexico, Mozambique,
the Philippines, Senegal, South Africa, Thailand, and Zambia (UN-Energy 2007).
Second-generation Biofuels
Much hope has been pinned on so-called second-generation biofuels, which use cellulose
conversion technologies to turn cellulose-rich biomass into energy. This could provide
developing country farmers, including smallholders, with a use for crop residues like stalks and
leaves, which would be converted into ethanol for electricity, thereby benefiting both poor
farmers with additional income and also poor consumers with cheaper energy. This has positive
food security implications because it has the potential to improve access to food through added
income.
3. A. Biofuels and its Impact on Food Prices
Biofuels has gained a wide growing acceptance the world over. However, any discussion of
biofuels is incomplete without considering its impact on food prices.
The world faced its worst food crisis in 2008 since the 1970s. Agricultural commodity prices had
been rising since 2006 and they increased sharply in 2008. Overall global food prices increased
by 75 percent in dollar terms since 2000 (FAO 2008b). Of the factors that are widely accepted
as having led to the rise in food prices, biofuels are possibly the most controversial. Biofuel
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production is charged with diverting land, food, and feed away from food to fuel. According to
Timmer (2008), economic analysts place the share of biofuels’ contribution to the rise in grain
prices at anywhere between 25% and 75%. According to an analysis by the International Food
Policy Research Institute (IFPRI), it accounted for 30 percent of the escalation in global cereal
prices between 2000 and 2007 and for nearly 40 percent of the increase in the real global price of
maize (Rosegrant 2008).
However, biofuels are not the sole cause of the global food crisis 2008. Several long-term
structural factors and short-term cyclical factors have been associated with the rise in food prices
in 2008. The dominant factors are structural and include (i) reduction of production capacity in
developing countries, (ii) the growing demand for grains as a result of population and income
growth in emerging economies and associated dietary changes, (iii) the surge in oil prices, which
drove up prices of fertilizers and fuels, and (iv) increased use of agricultural commodities for
biofuel production; the crisis was intensified by cyclical factors such as (i) the weakening of the
US dollar, (ii) increased speculative investment after the global financial crisis, (iii) declining
food stocks, and (iv) unfavorable weather in key producing countries (ADB 2008; Timmer
2008).
3. B. Biofuels and the Environment
Biofuels are seen as a ‘cleaner’ form of energy. Biofuels being fundamentally carbon neutral1
have significant potential to reduce GHGs in the transport sector (Sharma and Banskota 2006).
These benefits are not undisputed, and they need to be carefully assessed before extending public
support to large-scale biofuel programs.
Cohen et al. (2008) argue that biofuels offer only a very small gain in energy efficiency and their
production minimally reduces GHG emissions. A study by Crutzen et al. (2007) show that some
of the most commonly used biofuels, such as biodiesel from rapeseed and bioethanol from corn,
can contribute as much if not more to climate change as fossil fuels. OECD (2008) estimates that
1 Biofuels are made from plants that during tree growth have taken carbon dioxide out of the atmosphere, so when this is then released during combustion the net effect is zero flux of carbon dioxide to or from the atmosphere.
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current support measures reduce net greenhouse gas emissions by less than 1% of total emissions
from transport.
Joachim von Braun, Director General of IFPRI, cites a number of studies. With land-use change,
increased world corn-based ethanol production doubles emissions over 30 years and increases
greenhouse gas emissions for 167 years (Searchinger et al. 2008, as cited by Braun 2008). For
palm biodiesel produced in Indonesia or Malaysia, the payback period to the carbon debt from
land conversion is 423 years (Fargione et al. 2008, as cited by Braun 2008). Technologies
expected to have positive environmental impact and decrease the competition for scarce natural
resources, such as the ones producing biofuels from lingo-cellulosic materials and wastes, are
still in the making. Factoring in environmental and economic aspects, embarking on large-scale
biofuel production with grain and oilseeds based technologies does not make sense at this time
(Braun 2008).
The ability of various biofuels types to reduce GHGs varies widely, and in cases where forests
are cleared to grow energy crops, any reduction in GHGs may be offset or even negative. Hence,
biofuel policies must ensure that forests and farmland are protected.
3. C. Jatropha Cultivation in Nepal
More recently, the use of non-edible oil for biodiesel has attracted considerable interest, in
particular jatropha, and others such as pongamia and neem. The seeds of jatropha curcas (a
perennial shrub that can grow in low-rainfall areas and on degraded soils) contain up to 30
percent oil, which once processed into biodiesel and blended with conventional diesel can be
used in standard diesel cars (Bamuller 2008).
Extensive research has shown that jatropha offers the following advantages: it requires low water
and fertilizer for cultivation, is not grazed by cattle or sheep, is pest resistant, is easily
propagated, has a low gestation period, has a high seed yield and oil content, and produces high
protein manure (Gonsalves 2006). Furthermore, because jatropha can grow on nearly any kind of
land, it can be cultivated on land that is now useless, and thus can play a major role in the
14
prevention of erosion and restoration of degraded soils (ibid). Jatropha also provides by-products
that can be used for soap making, making it a useful plant for rural employment generation.
Jatropha is a small tree native of Mexico and Central American region and was later introduced
in many parts of tropics and subtropics most probably by Portuguese during their colonial time
(Kuikel 2009).2 At present it is found all five continents. In Nepal, Jatropha is found widely in
the wild in over 70 of the 75 districts of Nepal. High oil yielding Jatropha is found in all tropical
and subtropical districts up to 1200 m. Oil from Jatropha seeds can be used to produce biodiesel
locally using simple small-scale biodiesel plant. Rural communities can cultivate their own
Jatropha plants in the community wastelands or as hedges in their private land. The biodiesel can
be used to operate irrigation pumps and the oil cake can be used as organic fertilizer replacing
the currently used chemical fertilizer.
3. D. Biofuels in India
Given Nepal’s excessive dependency on India for petroleum products, it is important for Nepal
to understand Indian energy scenario and their direction towards energy security.
India is the world's fourth largest producer of ethanol at 1.6 billion liters in 2005 (Gonsalves
2006).3 With 4.8 per cent annual growth in energy demand and only 25 per cent of consumed
crude oil produced domestically, India is looking increasingly to biofuels to meet its growing
energy needs. The Indian government has set ambitious targets to fulfill its energy requirements.
Beginning in 2003, the national government mandated the use of a 5 per cent ethanol blend in
gasoline in nine of its sugar-rich states, a standard that will eventually extend to the entire
country. In addition, the government is pursuing a National Biodiesel Mission (NBM), which
aims at replacing 20 per cent of the country's diesel requirements with biodiesel by 2012.
Ethanol is produced in India from sugarcane molasses. India is also the world's largest consumer
of sugar and is therefore susceptible to fluctuations in price and availability in the sugarcane 2 This paragraph is based on in-person interview with Kuikel (2009). 3 This section is based on Gonsalves (2006).
15
market. In 2004, a drought during the monsoon season limited the amount of sugarcane
feedstock available for ethanol production, prompting a relief of the 5 per cent blend mandate
and the importation of significant volumes of ethanol, mainly from Brazil.
In recent years, Jatropha has become the preferred source of biodiesel in India, especially
because the plant can grow in wastelands. The Indian government has pursued a large-scale
jatropha research, cultivation and awareness program, including demonstrating vehicle
performance using biodiesel blend and organizing seminars to expand awareness of biodiesel
programs.
Implications of Indian Biofuel Industry in Nepal
Given India’s influence on Nepal, such a huge-scale jatropha cultivation and production will no
doubt have ramifications for Nepali agricuture as well. The growth in domestic demand in India
will increase labour migration to India, and that trend too could hit the Nepali agricultural sector
hard (The Kathmandu Post 2009). If land, labor, water, and food are diverted away from food to
fuel in this process, this will have severe negative implications on the Nepalese food secutiy
situation.
16
4. The Trade-Offs Associated with Biofuels in Nepal
Before discussing the trade-offs associated with biofuel production, it is important to make the
distinction between large-scale biofuel production that diverts water, labor, land, and food crops
like maize and sugarcane away from food to fuel and small to medium-scale local biofuel
production for local energy needs using non-food crops, marginalized land, and labor where
there is minimal employment opportunities. The former relates to the way biofuel production is
pursued in advanced economies and the latter relates to how biofuel production can be pursued
in developing countries, under proper policy guidelines.
4. A. Large-Scale versus Small-Scale Production
There are two approaches for biofuel production: 1) a large-scale centralized program with the
objective of meeting national requirements and 2) small-scale decentralized program for the
energy needs of a given village or neighborhood.
With a large-scale program, the primary benefit may be in the form of efficiency gain.
Significant economies of scale can be gained from large-scale biofuel production, as is true for
many industrial activities. However, the implications of biofuel production on food security and
environment are still not very clear and depend mainly on biofuel policies. More research is
needed before extending support to large-scale biofuel production.
Small-scale decentralized program, on the other hand, can complement other sources of energy
such as solar and micro-hydro power in meeting the energy needs of a village. Furthermore, their
impacts on food security and environment can also be managed to ensure that neither is being
compromised.
Given the constraints of rural infrastructure and financing, local, small-scale production of
biodiesel may be the best option for Nepal. A number of small-scale programs across the country
would also assure a more even distribution of benefits. Smaller-scale and rural-based production
will open up opportunities for biofuel to be pro-poor. Because small-scale biofuel production can
17
be done by a small group of households even on marginal land, communities can take ownership
of such programs as well. Experience in many countries has shown that biofuel production
facilities that are small and locally owned tend to being about higher local revenues (UN-Energy
2007).
Biofuel production carried out in small-scale in rural areas is financially viable, which is very
important since the Government of Nepal is not in a position to subsidize biofuel production.
Jatropha oil expellers are simple, affordable, and portable, making it suitable to meet the energy
needs of a small rural community. Where national electric lines cannot reach due to the difficult
mountain terrain and lack of proper infrastructures, local biofuel production provides some hope
in reaching these communities.
Below are the specific trade-offs associated with small to medium-scale local biofuel production:
4. B. Biofuels and Food Security
i. Biofuels and Its Implications on the Four Dimensions of Food Security
The expansion of biofuel production could affect food security at the household, national, and
global levels through each of four major dimensions: availability, access, stability, and utilization
The availability of adequate food supplies could be threatened by biofuel production to the
extent that land, water, and other productive resources are diverted away from food production;
food access could be compromised for low-income net food purchasers; food prices being linked
to fuel prices could affect stability; and utilization could be affected if biofuel production leads
to water insecurity (FAO 2008b).
ii. What Does this Mean for the Nepalese Population?
Economic Implications
Rising food prices are generally considered as an opportunity for farmers to benefit from supply
response. However, those in the bottom quintile are net food buyers, making them more
vulnerable to rising food prices (Karkee 2008). According to the recent estimates of the WFP and
NDRI, a total of 19.2 million rural people may lose out from rising food prices while 3.8 million
may stand to gain (WFP and NDRI 2008).
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Social Implications
The decade-long conflict that started out in the rural areas left the rural people handicapped as
infrastructures were destroyed along with the economy. Many villages in Nepal are still
recovering from the aftermath of the conflict, as infrastructures that were destroyed have not
been replaced. Unemployment has been rising, as jobs are not being created, particularly in the
rural areas. As youths were forced to join the war, children and elderly were left to sustain
themselves. Agricultural production further fell because of the conflict, further contributing to
food insecurity. The increasing pressure on the state to stabilize prices of food has meant that the
other public goods and services such as medical facilities and infrastructure have taken a
backseat. Any upward movement in food prices will put millions of lives at serious risk. The
social and economic implications are closely linked as economic stress leads to social stress as
well.
Political Implications
If food prices rise, the state’s capacity to maintain food subsidies will be limited, further
contributing to food insecurity. Having just emerged from a decade-long armed conflict (1996-
2006), the Nepalese government cannot afford to have civil unrest over high food prices that may
threaten any political stability that the country has come to see in over a decade. In case of any
political unrest, the ones hurt the most are the ones most vulnerable socially and economically
and hence food insecure. A further destruction of rural infrastructures and economy would leave
the country crippled for a very long time.
iii. Ensuring Food Security in Nepal
It is important to focus on increasing agricultural productivity so that the country does not rely
heavily on importing food. The story would have been different if the country had a vibrant
export sector that could support the importing of foodstuffs. Moreover, being a landlocked
country with the Himalayas in the North and India on three sides, Nepal is vulnerable to any
price hikes or unrest in India as well. “Food, fertilisers, pesticides and even seeds – we are so
dependent on India and the other countries that any price fluctuation in the international market
19
is going to have a huge impact on prices here in Nepal," says Jagannath Adhikari, a food security
expert (2008).
Additionally, ensuring food security means providing employment opportunities that would
protect the population from food price shocks. This also means looking for alternative sources of
fuel so that the country is less vulnerable to fuel price hikes, which affects agricultural inputs due
to associated transportation costs.
iv. Increasing Agricultural Productivity for Improving Food Security
Growth of the Nepalese economy is determined mainly by the growth of its agriculture, which
has been slow and minimally productive. Poor irrigation facilities and access is one of the major
reasons for low agricultural productivity in the country. Decentralized irrigation systems like
pumping water from underground sources, rivers, and ponds can be a more cost effective and
sustainable approach. Most farmers in Nepal use diesel or electricity for irrigation pumps, which
poor farmers cannot afford.
Electricity is cheaper at the government subsidized rate but extending lines to farmers’ individual
lands requires high upfront costs (Winrock International Nepal 2008). There is also severe
under-supply of electricity in the country resulting in long power-cuts everyday. Energy services
will enable farmers to access bio-diesel run tractors that may increase agricultural productivity.
As fuel prices have increased, so have prices of agricultural inputs such as seeds and fertilizers
because of the high transportation costs associated with them. Biofuels may help reduce that
cost.
Biofuels can potentially contribute to increasing agricultural productivity through the use of
biodiesel-run tractors as well as engines for processing and refining agricultural products.
v. Can We Protect Food Security While Pursuing Biofuel Production?
The answer is yes, but it is contingent on two factors: 1) farmland is not diverted away from food
to fuel, and 2) food crops are not diverted away for fuel. This can be achieved by:
20
Assigning wasteland for growing energy crops
In India, the fourth largest ethanol producer, wasteland has been identified for large-scale
production of biofuels (Gonsalves 2006). Paulo Sotero, the director of the Brazil Institute at the
Wilson Center, notes that the most impressive display of Brazilian success is that, so far, just
1.5% of arable land has been used to replace 50% of the country’s fossil fuel use (2008). If
biofuel production can be confined to wastelands, then not only will this ensure that farmland is
not diverted away from food, but also replenish wastelands and prevent landslides.
Growing non-edible energy crops
Growing non-edible biofuel crops such as jatropha on degraded and marginal lands that are
unsuitable for food production would not compete directly with current food production and can
play a major role in the prevention of erosion and restoration of degraded soils. There is a
concern that growing crops for biofuels would compete for water and labor. However, locally
produced jatropha oil is expected to be significantly cheaper than diesel fuel for powering
irrigation pumps, providing access to water.
Also, the residue left over after oil has been squeezed out of jatropha seeds can be used to make
jatropha oil cake, which can replace chemical fertilizers that are expensive. Using this fertilizer is
shown to save costs as well as increase agricultural production as compared to chemical
fertilizers. Those members of the households who cannot engage in heavy work can engage in
making jatropha oil cake, making more efficient use of labor available.
4. C. Biofuels and Climate Change
Emissions of greenhouse gas emissions (GHGs) between 2000 and 2006 increased on average by
3.1 percent per annum, compared to 1.1 percent in the previous decade, and are likely to continue
to grow rapidly in view of high economic growth and lack of effective mitigation strategies
(Braun 2008). Although rich countries are responsible for most GHGs, the impact of climate
change is expected to be most severe in developing countries and on the poorest populations.
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Biofuel production has generally been shown to have a positive effect in mitigating climate
change. The net CO2 emission of burning a biofuel like ethanol is zero since the CO2 emitted on
combustion is equal to that absorbed from the atmosphere by photosynthesis during the growth
of the plant used to manufacture ethanol.
i. Reducing GHG Emissions
The potential of biofuels to reduce GHG emissions depends on a number of factors: land use;
choice of feedstock; biofuel processing methods; and end-use practices. For example, if forests
are cleared to make way for corn and the corn is grown using chemical fertilizers, harvested
using machines driven by fossil fuel, and processed into ethanol using fossil fuel, then the
amount of GHG emitted over the lifecycle of the biofuel may be greater than the amount
reduced. However, if agricultural wasteland is used to grow plants like jatropha that require little
pesticides and fertilizers and processed in a small-scale plant using bioenergy, then biofuels can
significantly reduce GHG emissions compared to fossil fuels.
ii. Climate Change and Food Security
Climate change will affect all four dimensions of food security i.e. availability, stability, access,
and utilization, leading some to call agriculture a victim of climate change. As a result of these
changes, climate change could hamper the achievement of many of the Millennium Development
Goals (MDGs), including those on poverty eradication, child mortality, malaria, and other
diseases, and environmental sustainability. To ensure long-term food security, it is critical to
address the challenges of a warming planet.
iv. Clean Development Mechanism (CDM) for Government Revenue
Under CDM, Nepal can benefit from selling carbon credits to countries with reduction
commitments. Estimates indicate that more than a ton of GHG emission can be avoided for every
ton of biomass used to make biofuels and that one tone of petrodiesel releases 3.2 ton of carbon
dioxide (CO2) with biodiesel reducing net CO2 emission by 2.51 ton (Sharma and Banskota
2006). With average price of certified emission reduction of USD 10 per ton of CO2, the earning
potential would be over USD 25 for every ton of biofuel used – not including the carbon
sequestered by the oil bearing plants (ibid).
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4. D. Biofuels and Energy Security
Greater access to energy services is closely linked to poverty reduction because it can:
• Improve access to pumped drinking water, which reduces the incidence of diarrhea;
• Provide access to mechanized agricultural inputs, such as irrigation pumps, tractors,
food processors, that may increase agricultural productivity
• Reduce the time spent by women and children on basic survival activities (gathering
firewood, fetching water, cooking, etc.);
• Allow lighting, which increases security; and
• Reduce indoor pollution caused by firewood use and consequently reduce deforestation.
A program that develops energy from raw material grown will go a long way in providing energy
security, which would aid agricultural productivity and consequently food security.
Climate Change and Food Security Climate Change Impacts on Food Availability The impact of changing climate on agriculture, fishery, forestry and other crucial sectors has raised concerns particularly in developing economies depend heavily on these sectors for food production. It has been estimated that crop yields could decrease up to 30 percent in South Asia by mid- 21st century. Climate Change Impacts on Stability of Food Supplies Changes in the patterns of extreme weather events will affect the stability of food supplies. Global and regional weather conditions are expected to become more variable than at present, with increases in the frequency and intensity of cyclones, floods, hailstorms, and droughts. Climate Change Impacts on Access Climate-related animal and plant pests and diseases will reduce food access through reduction of income from animal husbandry, reduction of yields of food and cash crops as well as increased costs of control. Climate Change Impacts on Food Utilization Climate change may affect health outcomes and food utilization with additional malnutrition consequences. Populations in water-scarce regions are likely to face decreased water availability, with implications for the consumption of safe food and drinking water. Flooding and increased precipitation are likely to contribute to increased incidence of infectious and diarrhoeal diseases. Source: FAO 2008a
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i. Viability of Biofuels as Rural Energy Providers
Biodiesel offer opportunities for power production at relatively small scales at village levels.
Where fossil fuel prices are high due to transport costs and reliable supply of feedstock for
biofuels exist, biofuels may prove to be the most economical option. For rural energy needs, a
small-scale community-based biofuel plant would be sufficient. These plants, such as jatropha oil
expeller, are affordable, portable, and simple to use. Winrock International Nepal’s project
shows that one expelling center, costing around EUR 3000, which includes the expeller house,
can support the needs of 100 households (2008).
4. E. Biofuels and Employment Generation
With almost half of the country’s labor force unemployed and with population growing by 2.2%
annually, providing employment opportunities for social and economic development of the
country is critical. Biofuels could provide the much needed stimulation in rural development and
create employment opportunities.
Improving Food Security Through Increased Job Creation
Biofuels could benefit poor people through raising agricultural incomes, creating additional rural
jobs in crop harvesting and processing, and utilizing marginal lands and crop residues (Braun
2008). Because biofuel production is labor-intensive, it could be a boon to rural areas with
abundant labor. Smaller-scale and rural-based production will open up opportunities for biofuel
to be pro-poor. This has positive food security implications because it has the potential to
improve access to food.
How to Encourage Job Creation in Nepal
While ethanol production requires fairly large economies of scale, small-scale production of
biodiesel could meet local energy demand in developing countries (World Bank 2008).
Organizing groups of smallholders through contract farming schemes to grow and market
biomass to processing plants may be most effective for this (Hazell and Pachauri 2006). Given
the constraints of rural infrastructure, local, small-scale production of biodiesel could meet
energy needs of a village while providing employment opportunities.
24
In Nepal, because job creation is a high priority, the focus may include the encouragement of
labor-intensive biofuel feedstock, production of biodiesel, and local use of energy services. The
UN-Energy (2007) notes that of all biofuel feedstock, oilseed crops in developing countries tend
to be stimulate job creation particularly when harvested manually. Because the process of
converting plant oils into biodiesel is relatively straightforward, biodiesel conversion can often
occur at a smaller scale.
Examples of Increased Employment Opportunities
There are examples of small-scale, labor-intensive biofuel production systems aimed at
providing employment and income for smallholders. For example, a local NGO in Mali called
the Mali-Folkecenter Nyetaa (MFC Nyetaa) that has been working on the promotion of jatropha
production and use, including plantation, use as a living hedge, soap making, use as a diesel
substitute for transportation, and power generation for rural electrification (Mali-Folkecenter
2008). In fact, the MFC has been using a Nepalese jatropha oil press, a South-South technology
transfer that has removed a significant barrier to wide scale adoption of jatropha oil technology
in Mali (ibid).
Preliminary results from an IFPRI macroeconomic analysis suggest that expansion via either
plantation production of sugarcane for ethanol or jatropha for biodiesel will lead to increased
welfare and reduced poverty, due to income-earning opportunities, with positive implications for
food security (Cohen, et al. 2008).
4. F. Biofuels and Health
Reduction in Indoor Pollution
Many rural families around the world depend more on basic energy services such as heat for
cooking and power for processing food than on energy for transportation. The direct burning of
firewood and other biomass for energy services affects the health of the rural population,
particularly women who are a majority of the primary caretakers of the home. This has serious
implications for gender issues as well where women’s health are more severely affected than
25
men’s. Access to modern energy services can reduce indoor-pollution and improve women’s
health. It may also reduce the time spent on basic survival activities such as gathering firewood,
fetching water, cooking, etc that will enable women to live more productive lives.
In the Philippines, a new cooking stove that can run on kerosene as well as a number of plant
oils, including jatropha oil, is being developed and disseminated by an innovative public-private
partnership (UN-Energy 2007). This also sets an example of how public-private partnership can
benefit the production of biofuels in a country where the state has limited capacity.
Toxicity of Jatropha
Jatropha fruit has been found to be toxic, however, in small quantities it only induces vomiting
(Kuikel 2009). 4 Where Jatropha is native, villagers are aware of this property of jatropha. In
areas where jatropha plantation is new, the production process needs to have an awareness
component to make people aware of the side effects of jatropha consumption. In Nepal, many
villagers use jatropha stem to brush their teeth and are well aware that the fruit is toxic. This
property of jatropha in fact makes it suitable as hedges and fencing around farmland to keep
animals like cows and monkeys off from the field.
4 This section is based on in-person interview with Kuikel (2009).
26
Summary of Trade-Offs Associated with Biofuels
There are costs and benefits associated with biofuel production, and a careful analysis is needed
to devise biofuel policies. If we ensure that land, water, and food crops are not diverted away
from food, then the negative impact of biofuels on food security could be mitigated.
Table 2: Summary Table of Trade-Offs Associated with Biofuels The Nepalese Scenario Implications
Costs Diversion of food and land to biofuels may cause food prices to rise
- High poverty and low nutritional indicators - Net importer of food - Stagnant productivity in agriculture and lowest crop yields in South Asia
- To improve food security, there has to be growth in agricultural productivity, employment opportunities, and access to energy services
Benefits Energy access
- NOC running at a monthly loss of more than USD 2.2 million
- Only 48% population has access to electricity
- Agriculture characterized by slow and variable growth and low productivity
- If local energy needs can be met through biofuels, it would lower the monthly losses of NOC
-Energy services may improve agricultural productivity by making mechanized agricultural inputs available, thus contributing to food security
Employment generation
- Unemployment is at 42% - Population is growing at a rate of 2.2% annually
- Job creation in rural areas is even more important in the face of rising food prices - Small-scale production of biodiesel could meet energy needs of a village while providing employment opportunities
Reducing GHG emissions
- With climate change impacts, crop yields could decrease up to 30 percent in South Asia by mid- 21st century - Nepal can take advantage of the CDM and sell carbon credits to countries with reduction commitments
- Biofuel production has generally been shown to have a positive effect in mitigating climate change, so this may have positive implications on food security in the long run - Under CDM, the Nepalese government can earn revenue
Reducing indoor-pollution and improving health
- The vast majority of the population rely on biomass energy - Biomass makes up for 92% of the basic energy services such as cooking and heating
- Biofuels can reduce indoor-pollution and improve women’s health -Women’s health have significant impact on food security of the entire household
27
The trade-offs are depicted in Figure 2 as well. It shows how food security is affected by climate
change and biofuel production as well as how climate change and biofuel production are related.
Climate change will negatively affect food security. Biofuel production can either contribute to
climate change or mitigate it, depending on how the production takes place. The production also
determines whether biofuels can improve or worsen food security. If we can emphasize the
positive signs and reduce the negative signs, biofuel production can improve food security.
Figure 2: Trade-Offs among Biofuels, Food Security, Climate Change, and Energy Security
(-) FOOD SECURITY CLIMATE CHANGE
(-) (-)
(+) (+)
BIOFUELS
(+)
Energy Security5
(+)
5 The dotted line represents the indirect effect of energy security on food security.
Increased GHS emissions from increased corn-based ethanol production; land-use change such as cutting forests to produce feedstock; and byproducts of increased corn production
Reduced agricultural production; increased risks of flooding and droughts; and decreased water availability and increased water contamination
Diversion of land, food, and feed to fuel
Employment generation in farming and processing biofuels could lead to higher incomes that subsistence farming
Ethanol from agricultural wastes and non-food crop may reduce GHG emissions by consuming less energy; utilizing wasteland would reduce pressure on agricultural land
Reducing indoor pollution caused by firewood use and reducing deforestation; allowing lighting; improved access to pumped drinking water, reducing incidence of diarrhea; agricultural productivity through access to mechanized agricultural inputs
28
5. Viability of Biofuel Production in Nepal
5. A. Potential of Jatropha Cultivation in Nepal
Nepal has 14.7 million hectares of land of which 4.41 million ha (30%) has favorable climatic
conditions for cultivation of jatropha (Sharma and Banskota 2006).6 Even if only 10% of this
potential land is used for jatropha cultivation, with the yield assumption of 10 tons per hectare,
4.41 million tons of jatropha seed can be produced annually, which is equivalent to 1.1 million
tons of jatropha oil or biodiesel assuming oil yield is 25% of weight of the seeds. This is almost
twice the amount of total petroleum products (i.e. 0.67 million kiloliters) imported into the
country in 2004/05.
Jatropha also has a huge potential for meeting the rural energy requirement at the village level.
With 250 jatropha tree planted around the perimeter as living fence, enough oil (68 liter
assuming the yield rate of 1 kilogram per tree and 27% oil content) would be produced annually
to meet processing cost and to fuel at least one clean burning lamp continuously day and night
for the whole year for negligible cost of plantation and harvesting. Additionally, 188 kg of oil
cake would be available as by product, which could either be retained by household for use as
manure or sold, where market is available, at NRS 4 (approximately USD .05) per kg of oilcake.
If oil is used as a kerosene substitute, there will be about NRS 130 million (USD 1.6 million)
saved and about 40 kilotons of CO2 mitigated annually in the country besides the revenue
generated from credit on carbon storage in roots and woody biomass of tree. Further assuming
that 10 percent of the potential households (25000 in the Terai and the hills) are involved in
planting 250 plant each then annual energy produced will be equivalent to 4.5% of the kerosene
or diesel import or 10% electricity consumption.
5. B. Financial Viability of Jatropha Plantation
In order to assess whether jatropha plantation are financially viable in Nepal or not, Sharma and
Banskota (2006) have carried out a simple analysis of jatropha plantation based on the available
6 This section is based on Sharma and Banskota (2006).
29
cost and benefit parameters and certain assumptions about yields and oil content.7 Their result
indicates the breakeven price of NRS 5 (USD 0.06) per kg of fruit seed beyond which jatropha
cultivation become profitable yielding acceptable rate of return. They conclude that financial
viability of jatropha plantation is robust even under assumptions of high cost and low benefits,
and state further that their findings compare well with similar studies conducted in India on
economics of jatropha.
Although biodiesel has not been produced from jatropha seeds in a commercial manner in Nepal,
it is economical to cultivate jatropha seeds for biodiesel production, as shown by studies done by
Research Center for Applied Science and Technology (RECAST) through pilot cultivation of
jatropha seeds. Planting jatropha seeds on 10 hectares of land shows a profit of USD 0.12 per kg
of seed and USD 1,231 per hectare (Sharma and Banskota 2006).
Furthermore, the price of jatropha oil to be used as biodiesel is much less than the market price
of petrodiesel (USD 0.64 per liter) making it a commercially viable product (Tiwari 2006).
Especially given the difficult mountain terrain of Nepal that make transportation costs
particularly high, with some places not even accessible by vehicles, the cost of biofuels may be
even lower.
Other Energy Crops
Some feedstock is better suited for large-scale production while others more for small-scale
production, depending on the availability of land, labor, water, markets, and technology. The
choice of feedstock also depends on factors such as yield per hectare, oil content of the
feedstock, crop versatility, market price, byproduct usage, drought and pest resistance potential,
water requirements, fertilizer needs etc.
The paper focuses on jatropha crops because of the nature of the crop – it requires low water and
fertilizer for cultivation, is pest resistant, has a high seed yield and oil content, produces high
protein manure, can be cultivated on wasteland, and can assist in the prevention of erosion and
restoration of degraded soils (Bamuller 2008; Gonsalves 2006; UN-Energy 2007). Because 7 For details on the analysis, refer to Sharma and Banskota (2006, p6)
30
jatropha harvesting is labor intensive, it is suitable for areas with high unemployment problems
(UN-Energy 2007).
5. C. Financing Biofuels Projects
Given the potential and financial viability of jatropha cultivation in Nepal, it is recommended
that the Nepalese government take initiatives on pursuing biofuel production. To date, financing
of domestically produced biofuels for consumption has always depended on government support.
However, given the state of the country’s economy, government financing may be limited.
Furthermore, in Nepal, small-scale biofuels projects could face challenges obtaining finance
from traditional financing institutions because of high risks associated with it such as crop
failure. This is where microcredit could come useful. The growth of microcredit in recent years
has largely benefited rural communities in Nepal as well (Winrock International Nepal 2004).
Already programs like USAID’s Nepal Biogas Microfinance Capacity Building Program,
UNDP’s Small Grant Program, and Biogas Sector Partnership Nepal, to name a few, have used
microcredit to finance biogas and solar energy projects in Nepal (ibid).
There are also significant opportunities created through public-private partnerships. Given the
commercial viability of biofuel projects, private investors could be drawn into investing.
However, before large-scale biofuel projects are initiated, the government should set biofuel
policies in place that take into account the various trade-offs discussed earlier.
5. D. Case Study of Biofuel Projects in Nepal Winrock International Nepal’s Jatropha Project8
Winrock International Nepal, an international Non-Governmental Organization (NGO), is
currently undertaking a project that encourages villagers to use community-grown jatropha oil
for irrigation pumps to support increased agricultural production and rural economic growth. The
project aims to promote rural economic growth by making irrigation affordable for poor farmers
in the Siraha district of Nepal.
8 This section is based on in-person interview with Kuikel (2009).
31
Before initiating the project, Winrock undertook a study covering all major populations of
Jatropha in Eastern Nepal. This includes Chitwan, Dhading Makwanpur, Bara, Parsa, Dhanusa,
Mahottari, Siraha, Saptari, Udayapur, Morang, and Jhapa Districts. The results showed that
estimated seed production per tree varies from 3.23 kg to 20.53 kg. Among the sampled tree
from different population the mean seed production per was 10.46 kg.
Because jatropha is a shrub that can be used as hedges around the house, farm or forests,
households may want to participate in projects if the benefits are explained to them.
Communities can also decide to make use of public wastelands in the vicinity, with necessary
approval from local authorities, for new Jatropha plantations and develop modalities for tending,
collection, distribution etc. For the landless, usually the most food insecure segment of the
population, this is not feasible but they can be employed in the plantation and processing if
pursued in a community-based manner.
Crystal Bioenergy: A Public Enterprise9
Crytal Bioenergy is the largest public enterprise involved in biofuel production in Nepal. They
believe that it is possible for Nepal to be fully independent from diesel in the next 10 years with
jatropha cultivation on 0.15 million hectare of land, assuming that 1 hectare yields 2500 trees.
Like Winrock International, they estimate 4 -20 kg of fruit can be bore from one tree.
At present, community forest user group have 1.2 million hectare all across mountains, hills, and
terai region of Nepal. This includes areas under high-tension electric wires where trees or other
food crops cannot be grown, highway sides, riversides, and periphery of forests. Crystal
Bioenergy hopes to utilize these lands where nothing is presently being grown.
The enterprise only works with community forest groups, women’s groups, and farmers group.
They make agreements with the groups to buy jatropha seeds for 50 years, as this is the life of a
jatropha plant to produce maximum yield. Investment on the land is from both groups – the
9 This section is based on in-person interview with Rai (2009).
32
enterprise makes financial investment on building nurseries, providing seeds and technology, and
assisting in technical capacity building and the groups contribute labor. Presently, seedling is
exported from India. The profit from jatropha seeds is shared, with 75% going to the community
and 25% to the enterprise. Overhead costs for the enterprise takes up about 80% of the 25% and
the remaining is profit for the enterprise. Because they have several such projects across 33
districts in Nepal, the profit adds up for them. At the same time, the community with 75% share
in the project also benefits.
Crystal Bioenergy currently has 10,000 hectare farmed so far, and their investment has been
NRS 50 million (USD 0.64 million). By the end of this year, they would have farmed 50,000
hectares, and next year, they plan to have an additional 50,000 hectares. Ramesh Kumar Rai, the
Managing Director, cited the success of the State of Chhatisgarh in India in producing jatropha-
based biofuel. The soil profile of Chhatisgarh is sandy. Chhatisgarh initiated its jatropha
plantation in 2005, and within 2 years, they had managed to plant jatropha on about 84,000
hectares of fallow land (Chhatisgarh Biofuel Development Authority 2007). They are projecting
to grow jatropha on 1 million hectare by 2012.
33
6. The Way Forward: Recommendations and Challenges
Small to medium-scale local biofuel production in Nepal has many benefits to offer in the form
of employment generation, mitigating climate change, providing access to energy, and improving
health; all these benefits in turn have the positive effect of improving food security. However,
steps should also be taken to ensure that rural farmers receive some of the benefits and that
farmland, food crops, and water are not diverted away from food to fuel.
6. A. Nepal’s Biofuel Policy at Present
Nepal has no national biofuel policy so far, and any activity in this area is limited to academics
or R&D levels with no support from the government. In January 2004, the cabinet had decided to
blend 10 percent ethanol in petrol being used in the country, however, this decision has not yet
materialized because of unsettled dispute over ethanol prices between NOC and “Shree Ram
Sugar Mill” that was willing to supply necessary ethanol to NOC (Tiwari 2006).
The annual sales of petrol, diesel and kerosene according to NOC (see Table 3) were 101,912,
306,687 and 197,850 kiloliters respectively in the fiscal year 2006/07 (Ale 2008).10 These
quantities were 80,989, 294,329 and 226,637 kiloliters respectively in the fiscal year 2005/06.
The figures indicate the increase in sales by 25.8% and 4.2% in petrol and diesel respectively and
decrease in sale in kerosene by 12.7%. The growing trends of transportation fossil fuel will be
difficult to meet due to budgetary imbalances. It is crucial to develop and promote biofuels to
substitute fossil fuel to some extent gradually. Even the 10% blending of ethanol to petrol
requires about 28 kiloliters of ethanol per day. Similarly the 3% blending of bio-diesel to petrol
diesel requires 25 kiloliters of bio-diesel.
Although AEPC is the main government entity responsible for making biofuel policies, there is a
lack of coordination among the different ministries such as the Ministry of Forestry, Ministry of
Environment, Science and Technology (MoEST), Ministry of Agriculture (MoA), and Ministry
of Energy (Adhikari 2009). 11 When the then Finance Minister of Nepal, Babu Ram Bhattarai,
10 This section is based on Ale (2008). 11 This section is based on in-person interview with Adhikari (2009).
34
allocated NRS 50 million (USD 0.64 million) for developing a biofuel program for Nepal in
September 2008, there was confusion as to which ministry the fund should go to. Food security
and land use fall under the jurisdiction of the Ministry of Agriculture but AEPC is formally
under MoEST.
Table 3: The Sales Report of Petrol, Diesel, and Kerosene and Requirement of Biofuels in Kiloliters
Fiscal year Petrol Diesel Kerosene Ethanol
(E10) Biodiesel
(B5) Ethanol
(E10)/day Biodiesel (B5)/day
Biodiesel (B3)/day
1993-1994 31,061 195,689 162,157 3,106 9,784 8.5 26.8 16.1
1994-1995 34,983 226,622 180,900 3,498 11,331 9.6 31.0 18.6
1995-1996 41,193 250,500 208,715 4,119 12,525 11.3 34.3 20.6
1996-1997 44,709 257,910 243,810 4,471 12,896 12.2 35.3 21.2
1997-1998 46,939 300,604 282,026 4,694 15,030 12.9 41.2 24.7
1998-1999 49,994 315,780 294,982 4,999 15,789 13.7 43.3 26.0
1999-2000 55,589 310,561 331,120 5,559 15,528 15.2 42.5 25.5
2000-2001 59,245 326,060 316,381 5,925 16,303 16.2 44.7 26.8
2001-2002 63,271 286,233 386,592 6,327 14,312 17.3 39.2 23.5
2002-2003 67,457 299,973 348,620 6,746 14,999 18.5 41.1 24.7
2003-2004 67,586 299,730 310,826 6,759 14,986 18.5 41.1 24.6
2004-2005 75,989 315,368 239,328 7,599 15,768 20.8 43.2 25.9
2005-2006 80,989 294,329 226,637 8,099 14,716 22.2 40.3 24.2
2006-2007 101,912 306,687 197,850 10,191 15,334 27.9 42.0 25.2
Source: Ale, 2008
35
6. B. Recommendations
The recommendations are targeted towards AEPC:
A Biodiesel Board
With India pursuing such an ambitious biofuel production strategy, it would no doubt have direct
or indirect effects on Nepali agriculture. Before major investments are made in biofuel
production in Nepal, it is crucial that the government take immediate steps to formulate clear
guidelines on where and how biofuel production can take place.
1. Given the lack of coordination among the different government bodies regarding biofuel
policies, the first step for AEPC to consider is recommending the formation of a
Biodiesel Board with experts in the areas of food security, environment, land reform,
alternative energy, forestry, finance, and rural development.
2. There must be a healthy debate from all sides regarding formulating biofuel policies.
Instead of closed-door policy formulation, AEPC should promote transparency and
debate in its recommendations.
3. Each biofuel production proposal should meet certain criteria, including
maintaining/improving land, air, and water quality. Biofuel production should be
categorized into small, medium, and large-scale production; large-scale production
proposals should be evaluated and approved by the Biodiesel Board.
Protecting Food Security
As discussed earlier, food security does not have to be compromised while pursuing biofuel
production. For this, the paper makes the following recommendations:
Assigning Wasteland for Growing Energy Crops
1. Currently the Ministry of Agriculture (MoA) is responsible for formulating policies
relating to land use. AEPC should work with the MoA to define wasteland and should
ban the use of growing energy crops on land other than wasteland and as fence for farms.
2. AEPC should work with the MoA in identifying highway sides, riversides, periphery of
community forests, and wasteland for biofuel production.
3. AEPC should seek support from district- and village level government entities in
collecting information regarding land use.
36
4. Also, army and police barracks can be involved in the program, as they have manpower,
technical expertise, and land needed for biofuel programs.
A Community-based Biofuel Production
1. District and village-level government entities should be involved in the monitoring
process to ensure communities are abiding by biofuel policies.
2. Biofuel program should be designed to provide poor farmers as well as those unemployed
with employment opportunities.
Growing Non-edible Energy Crops
1. AEPC should propose banning the use of food crops for biofuel production until more
research has been done in food versus fuel debate.
2. AEPC should connect with national and international research institutes to continue
researching other non-edible crops.
Private Investments
1. The scope of land use and crop use policy should be limited to waste land and non-edible
crops.
2. As noted earlier, large-scale production proposals should go through the Biodiesel Board.
3. If the Board cannot act in such a capacity immediately, the government can place a
restriction on private investments in biofuel production until such a mechanism of project
approval can be created. Because the effects of large-scale biofuel production are not
clear yet, such projects should be halted if they cannot be properly monitored.
Investing in Research and Development
Some biofuel production experiments had been conducted by scientists at RECAST in the early
1980s but very little has happened at the commercial level.
1. AEPC should consider partnering with universities at home and abroad and building
public-private partnerships that would allow investments to be shared.
Awareness Programs and Trainings
Many people from public to policy level are still not aware of the potential benefits of biofuels
and the associated technologies available for extracting oils and their wider applications (Tiwari,
37
2006). At the same time, many even in the biofuel sector are unaware of successes and failures
of biofuel programs in Nepal and in other parts of the world.
1. AEPC should continue with its training programs in biofuel production.
2. By compiling project updates from across the country and creating either newsletter or
website, knowledge can be shared so different projects can learn from one another.
The recommendations provided will have the affect of mitigating the negative impacts as well as
enhancing the positive impacts, as seen in the table below.
Table 4: Mitigating the Negative Impacts and Enhancing the Positive Impacts of Biofuels Potential Negative Impacts of Biofuel Production Mitigating the Negative Impacts Diversion of agricultural land for biofuel production diminishes the availability of land for food, thereby adding to food price increases
Assign wasteland in place of agricultural land for biofuel production
Diversion of food and feed to fuel leads to food price increases
Negative effects on health and sanitation due to water shortages and water contamination as crops like sugarcane are water-intensive
Grow plants like jatropha and pongamia that are 1) non-edible, 2) less water-intensive, and 3) can be grown on wasteland
Potential Positive Impacts of Biofuel Production Enhancing the Positive Impacts Create additional rural jobs in crop harvesting and processing
Reducing GHG emissions
Assign wasteland for biofuel production so that new jobs are not simply replacing farming on agricultural land
Access to energy services
Reducing indoor pollution and improving health
Focus on community-based biofuel production for local energy needs that would enable the communities to utilize some of the energy produced
38
6. C. Looking Forward
While a national biofuel policy that of using biodiesel as a substitute for petrodiesel may not be
foreseeable in the near future because of the country’s political economy, what can be done in
the present is formulating guidelines for community-based small-scale biofuel projects.
Identifying Wasteland
In order to avoid the problem of converting agriculture lands into bioenergy that threatens food
security, Lobell et al. (2008) use Geographic Information System (GIS) data and remote sensing
to show the global potential for bioenergy on abandoned agriculture lands. Similar technique can
be used in Nepal to overcome the challenge of identifying wasteland.
The last land use survey in Nepal was done in 1979. Lack of current data makes it challenging to
identify wasteland through GIS mapping. Presently wasteland can be identified through
consulting with district and village level government entities.
Availability of Technology for Biofuel Production
Nepal may benefit from focusing on community-based small-scale biofuel production for local
energy needs. Technology transfer is still a big part of even a small-scale project. This can be
met through agricultural extension workers who can disseminate best practices and respond to
farmers’ needs and requests for technical advice.
International capacity building activities could help to build the know-how that is a prerequisite
for extension services, thus fostering more sustainable small-scale bioenergy production (UN-
Energy 2007). Especially at this early stage of liquid biofuels production, international capacity
building may bring lessons learned from other countries that may help channel biofuel
production in Nepal in a more cost-effective and environment friendly manner.
Land Tenure
Many of the rural families in Nepal do not have official title to their land. Biofuel production
could drive away small farmers from their land in the absence of clear land ownership, further
marginalizing the poor. Strong legal structures need to be in place in order to prevent such a
39
situation. Land tenure is a very sensitive issue in Nepal, but it needs to be tackled with at some
point if the country is to move ahead without another civil war breaking out again.
This paper has considered the different trade-offs associated with biofuel production and
assessed the potential benefits of biofuel production in Nepal. Given proper guidelines, biofuel
production in Nepal may bring the much-needed stimulation in the rural economy. However, in
the case of failure of implementing and enforcing the banning of use of food crops and fertile
land, biofuel production could jeopardize the already vulnerable food security and accelerate
environment degradation. The importance of strict and clear policies and monitoring processes
cannot be overemphasized.
40
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PROJECT BUDGET (From May 15 – September 10) Supplies Description Cost
Cell phone, batteries for tape recorder, notebooks, and folders $150
Computer repair $200 Internet access $300 Supplies Total $650.00 Stipend Description Cost
Stipend to compile and analyze data and write report $1200
Stipend Total $1200.00 Travel Description Cost Flight to Nepal $1800
Local transportation (flights and buses) for site visits $450
Travel Total $2250.00 Room and Board Description Cost Lodging and meals $1200 Room and Board Total $1200.00 Project Total $5,300.00 Funds from TIE $5,300.00