BEIJING - Studies debunking the
environmental benefits of ethanol have made little
impression in China, which is betting on biofuels
as the green answer to coal and oil to help clear
its increasingly smog-filled skies.
But
economic realities of surging food prices and
global inflation are beginning to disturb the
ethanol dream. Prices for cassava and other
non-grain feedstock promoted in China as a safe
alternative to the conversion of precious corn
into ethanol fuel are quickly rising.
Producers say they need more government
subsidies to keep their projects going. Given
government control on fuel prices, doubts are
growing as to whether the expensive production of
cleaner fuels can ever be
made profitable.
"The government controls
all fuel prices - whether oil or ethanol - but
with the prices for feedstock going through the
roof we are all suffering losses," Li Jiangdong, a
salesperson at Jilin Fuel Ethanol Ltd, one of the
four largest state-mandated bio-ethanol producers,
told China Times this week.
In Guangxi, an
impoverished southwestern province where ethanol
is commercially produced from cassava instead of
from grain, officials this month said they were
replacing traditional petrol and diesel oil with
biofuel. The locality plans to phase out fossil
fuels entirely by the end of the month, expanding
the scope of a pilot scheme currently running in
nine other provinces.
But what should have
been a cause for environmental victory got little
resonance among a public worried about galloping
inflation and surging food prices. Consumer prices
in March increased 8.3% while food prices have
risen by 21% since last year. The rising price of
corn, the primary source for ethanol production,
has had a knock-on effect on all other staples.
This is consistent with warnings from the
International Assessment of Agricultural Science
and Technology for Development (IAASTD), released
in a report prepared by 400 experts that says
diversion of agricultural crops to producing
biofuel can raise food prices.
Prices of
non-grain feedstock such as cassava and sorghum
have risen too, squeezing producers' already thin
profit margins.
"Without more and larger
subsidies from the government our projects are
doomed," one procurement official at Guangxi
Zhongliang Bio-energy Co, said. "Prices of cassava
have doubled since last year and one can't say how
long the production can be sustained."
Chinese leaders have encouraged the
production of biofuels from renewable resources to
satisfy the country's voracious appetite for
energy and reduce its dependence on imported oil.
Biofuels are seen by Beijing as a greener way to
sustain the country's robust economic growth in
the face of growing international clamor about its
pollution.
Under pressure to tackle its
worsening smog and acid rain, China has stepped up
efforts to develop clean alternative energies and
has a target for renewable energy to account for
at least 15% of consumption by 2020, up from just
6% in 2006.
Yet the promotion of biofuel
has presented the leadership with the most
difficult choices. Because of the country's vast
population and low per-capita arable land, Beijing
has had to carefully manage the competition for
grains between food and fuel producers. Moreover,
new evidence has shaken the earlier belief that
biofuels are a silver bullet for climate change.
In the long term, effects on food prices
may be reduced, but environmental effects caused
by land and water requirements of large-scale
increases of first generation biofuels production
are likely to persist, the IAASTD report has
warned.
Although a relative newcomer to
the biofuel market, China in the past three years
has emerged as the world's third-largest producer
after Brazil and the United States. In 2006, the
production capacity of China's ethanol mills
reached 10 million tonnes, outpacing the
government mandated output of six million tonnes
for the whole of the 11th Five-Year plan
(2006-10).
Amid rising corn prices and
food security concerns, Beijing has tried to
promote non-grain resources for the production of
bio-ethanol, limiting the amount of corn used for
conversion into green fuels and restricting
investment into corn-based ethanol projects.
But even non-grain feedstock production of
bio-ethanol is proving problematic as producers
complain about sinking fortunes.
A
circular released in 2006 by the nation's top
planning body, the National Development and
Planning Commission, estimated that the cost of
producing one tonne of ethanol from corn was
roughly 4,500 yuan (US$652) while the cost of
producing it from cassava was lower, at $580.
The circular's estimates were used as a
cost basis for the expansion of non-grain
feedstock production but agricultural researchers
say these projections have been now rendered
meaningless, as prices have risen steeply.
Chinese researchers say the country uses
about 3.3 tonnes of corn to produce one tonne of
ethanol. It takes though 7 tonnes of cassava, or
15 tonnes of sorghum, to produce the same amount
of biofuel. With the current prices of inputs
there is no cost advantage of using non-grain
feedstock as a substitute to corn.
China's
corn-based ethanol production is already heavily
subsidized. However, given domestic controls of
retail fuel prices and steep corn prices, the
subsidies are only sufficient for producers to
break even or make tiny profits, according to a
study by Deutsche Bank.
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