Biodiesel Featured Articles
Biofuel Markets and Policy Impacts
If the current trade distorting policies attached to the biofuels industry at present were abolished, then the implications for both ethanol and biodiesel production would be significant, writes TheBioenergySite Senior Editor, Chris Harris.
The prices for both biodiesel and ethanol as well as agricultural commodity prices would increase dramatically, according to the UN Food and Agriculture Organisation report The State of Food and Agriculture 2008.
The FAO says that many current biofuel policies distort biofuel and agricultural markets and influence the location and development of the global industry, so that production may not occur in the most economically or environmentally suitable locations.
However, it shows that international policy disciplines for biofuels are needed to prevent a repeat of the kind of global policy failure that exists in the agriculture sector.
The FAO says that policy support to the production and use of ethanol and the rapid rise the price of oil and petroleum have made biofuels more attractive as substitutes for fossil fuels.
The attraction of biofuels in recent years has seen global production triple since 2000, reaching 62 billion litres last year.
Production of biodiesel has increased 10 times over the same period reaching 10 billion litres.
Over the last six years, food prices have been on a constant upward movement - 64 per cent between 2002 and 2008 and during this time vegetable oil prices have gone up even more - by 97 per cent according to the FAO report.
It says that while fluctuations in prices are common, what has distinguished agricultural price rises is that they are across the board.
Part of the reason for the rise in agricultural commodity prices - cereals, oilseeds and livestock products - is the rapid economic growth in some of the developing countries along with population growth.
But he FAO adds that another major link is between agricultural commodity prices and fossil fuels and biofuels.
At the same time the volatility of currencies and the value of the dollar has also had a strong effect on the price of agricultural products.
One of the major triggers for price rises in agricultural commodities is the fall in cereal production in the major exporting countries. Here there has been an annual decline of between four and seven per cent.
Rises in oil and petroleum costs have also helped to hike up agricultural commodity prices.
"Rising petroleum prices have also contributed to a surge in demand for agricultural crops as feedstocks for biofuel production," the report says.
"An estimated 93 million tonnes of wheat and coarse grains were used for ethanol production in 2007, double the level of 2005 (OECD-FAO, 2008). This represents more than half of the total growth in wheat and coarse grain use during the period, but probably accounts for less than half of the increase in prices, as other factors were also involved.
"Most of this growth can be attributed to the United States of America alone, where the use of maize for ethanol rose to 81 million tonnes in 2007 and is forecast to increase by another 30 percent during the current crop year (FAO, 2008b)."
The FAO says that the while these rises in prices affect the poorer consumers, in real terms they are actually below 1970 levels and while some prices will go up, there could be a downward trend in the future.
"Long-term projections suggest that agricultural commodity prices will retreat from their current levels and resume their long-term declining trend in the next few years, although prices for coarse grains and oilseeds are likely to remain above the levels that prevailed during the previous decade," the report says.
And it adds: "Demand for biofuels is likely to continue its influence on prices well into the future, as biofuel demand serves to forge closer linkages between the energy and agricultural markets."
The major demand for biofuels is going to come from transport. The FAO predicts that demand will rise from 19 million tonnes in 2005 to 57 million tonnes in 2015.
And the expansion of biofuel production could be stronger depending on the policies adopted by different countries.
Biofuels share of the global energy output could rise from 3.3 per cent in 2015 to 5.9 per cent by 2030.
This rise can be achieved by extending the area devoted to producing feedstocks either by shifting production of other crops on land already under cultivation or by converting land that is not already under crops.
The FAO adds that production can also be increased by improving the conversion rates of crops.
Global production of ethanol is predicted to more than double by 2017 reaching 127 billion litres compare to 62 billion litres in 2007. International trade in ethanol is also expected to increase to 11 billion litres with most of it coming from Brazil.
"Brazil and the United States of America will retain their positions as the largest ethanol producers through to 2017, but many other countries are expanding production rapidly," says the report.
"In the United States of America, ethanol production is expected to double during the projection period, reaching some 52 billion litres by 2017, corresponding to 42 percent of global production."
It adds: "In the EU, total ethanol production is projected to reach 12 billion litres by 2017. As this is still well below the projected consumption of 15 billion litres, net ethanol imports are expected to reach around 3 billion litres. A strong increase in blending obligations, which can only partially be met by EU production, will be the main driver behind EU ethanol imports."
China, India, Thailand and several African countries are forecast to increase their ethanol production as well to meet the growing domestic demand.
"Many African countries are beginning to invest in the development of ethanol production. Developing a biofuels/bioenergy sector is seen as an opportunity to promote rural development and reduce dependence on expensive imported energy," the FAO says.
For biodiesel production is expected to grow even faster than for ethanol although there is substantially less produced and the main drivers for production are the mandates, such as the blending mandates, and tax concessions from governments, largely seen in the EU.
It is the EU that dominates the market with the US second. However, large growth is predicted for Brazil, Indonesia and Malaysia, where production is forecast to reach 1.1 billion litres by 2017 largely on the back of the palm oil industry.
In Africa and India, the growth of biodiesel is expected to be on the back of Jatropha Curcas production.
"Although EU biodiesel use is projected to decline in relative terms, it will still account for more than half of global biodiesel use in 2017,"says the report.
"This strong demand will be met by both increased domestic production and growing imports."
However, it is the policy of tariffs and subsidies in the developed countries that is underpinning the ethanol and biodiesel production industries.
The FAO says that if the trade distorting subsides and support measures are removed there would be a decline in global ethanol production and consumption of between 10 and 15 per cent.
The largest reductions would be in the EU closely followed by the US.
For biodiesel, the FAO says the removal of trade barriers could have an even larger impact than for ethanol.
The report concludes: "Current support policies to biofuels risk repeating past mistakes in the field of agricultural policies.
"Future development of an economically efficient biofuel sector at the international level will depend on the establishment of appropriate non-distorting national policies as well as trade rules that encourage an efficient geographic pattern of biofuel production.
"In addition to being costly, current biofuel policies may have unintended consequences, especially to the extent that they promote excessively rapid growth in biofuel production from an already stressed natural resource base."
Further Reading
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- | You can view the full report by clicking here. |
November 2008
