Feb 1, 2008: By 2010, the global biodiesel production could touch 20 million ton—up from eight million ton in 2007, estimates a study by FO Licht and Agra CEAS. The study says that although the industry is still small, it’s growing fast at a rate of 25 to 50 percent annually. Generous regulatory support has given the sector a much-needed boost in terms of healthy margins and short investment payback times.

The outlook is seconded by a report from the Organization for Economic Co-operation and Development (OECD) and the Food and Agriculture Organization (FAO). This report states: the annual corn-based ethanol output in the US, will double between 2006 and 2016. In Europe, the amount of oilseeds (mainly rapeseed) used for biofuels is set to grow from just over 10 million ton to 21 million ton in a decade. In Brazil, annual ethanol production is projected to reach some 44 billion liter by 2016 from around 21 billion liter today. Chinese ethanol output is expected to rise to 3.8 billion liter, a 2 billion-liter increase from current levels.

On the consumption side, in 2007, about 1.2 million ton of biofuel was consumed in Asia with Australia, China, Indonesia and Philippines being the largest users. A Frost & Sullivan report states that backed by right policy, eight million ton of biofuels could be in use by 2013.

• The Philippines is considering a proposal to give priority to licensed approvals of public utility vehicles that use one percent coco-biodiesel.
• Japan is planning to introduce more tax incentives to promote the use of biofuel in 2008 as it struggles to meet its 1997 Kyoto Protocol target to cut greenhouse gas emissions.
• The government of Perak State in Malaysia signed an MoU with Earth Biofuel (Asia) to develop a 200 acre, $400 million Biofuel Integrated Environmental Park.
• India is considering doubling the five percent mandatory doping to 10 percent from October 2008.

  The success enjoyed by the first movers, and bright prospects for future growth, are attracting investors. And it is not just the players from private sector, the governments in Asia Pacific region too are looking at biofuels as a solution for reducing carbon emissions and their dependence on imported fossil fuels, as well as generating exports.

While local markets in the region are likely to grow significantly from the current negligible base, Frost & Sullivan says biodiesel producers are likely to target export markets given the availability of low-cost feedstocks—palm oil and jatropha— in the region. Since feedstock is the single largest cost component in biodiesel production, these considerably cheaper feedstocks give Asian producers a significant cost advantage over producers in the US and Europe who primarily use rapeseed and soybean oil. Asian producers can export biodiesel at prices that are affordable to the Western buyers.

Most Asian countries import motor fuel, so the governments have taken initiatives to encourage domestic use of alternate fuels to reduce dependence on oil imports. In addition to providing licenses for biofuel production, tax allowances, and capital grants, governments are planning to introduce mandatory quotas for biofuels. The increased penetration of diesel-powered vehicles is expected to further help the biofuel industry, says Frost & Sullivan.

Besides government agencies, petrochemical and auto companies have started promoting biofuels, both to emphasize their environmental benefits and to address consumer concerns such as their usability in standard engines. Countries are actively promoting biodiesel by conducting trials using biodiesel in existing fleets. For instance, the Philippines is considering a proposal to give priority to licensed approvals of public utility vehicles that use one percent coco-biodiesel. Japan is planning to introduce more tax incentives to promote the use of biofuel in 2008 as it struggles to meet its 1997 Kyoto Protocol target to cut greenhouse gas emissions. The government of Perak State in Malaysia signed an MoU with Earth Biofuel (Asia) to develop a 200 acre, $400 million Biofuel Integrated Environmental Park. India is considering doubling the five percent mandatory doping to 10 percent from October 2008. This decision will directly benefit the sugarcane producing states such as Uttar Pradesh, Maharashtra, Karnataka, Tamil Nadu, Andhra Pradesh, Gujarat and Bihar that are facing a serious problem of excess sugarcane cultivation.

Government initiatives
Asian countries have made significant progress in introducing legislative or fiscal measures to support the biodiesel industry and boost the demand. These measures are creating an increasingly viable domestic market within the region.

Frost & Sullivan noted that the domestic demand for biodiesel in the region is emerging as an important driver for the industry with governments setting formal targets for biofuels usage, imposing mandates on oil companies to blend biofuels, providing tax benefits to biofuels, or introducing other measures to stimulate the industry. The governments of New Zealand, Philippines and Taiwan have introduced blending mandates, for biofuels as a class or specifically for diesel, which will create a guaranteed market, although the blending percentages are generally low when compared to the EU.

South Korea and Indonesia have reached agreements with oil companies to introduce blends. Where diesel is taxed, as in Australia, Thailand, and South Korea, some tax benefits have been given to biodiesel. The governments have also encouraged biodiesel production by offering waivers from corporate taxes, grants, or other incentives.

The governments are promoting biofuels production through specific and general support programs. Depending on the country, the choice of crop and how it is grown, the technology used to turn it into energy and the type of biofuel produced, production costs vary considerably, according to OECD. Right now, Brazil is the only major country producing biofuel from crops on an economically viable basis. Still, there is government support in Brazil: biofuels are exempted from the oil fuel excise tax and biofuel producers are exempted from a social tax on revenues. These subsidies totaled $1 billion in 2006. In addition, Brazil has had blending requirements for many years. Biofuel production could be economically viable in some less developed countries with a favorable climate and low cost inputs, but there is no significant output from these countries at this point.

Consequently, producers in the region are actively exploring alternative feedstocks such as waste cooking oil and jatropha. As these are available at a lower cost than the main vegetable oils, they can improve commercial viability to the biodiesel sector.

Challenges
The increased demand for biofuels is causing fundamental changes to agricultural markets that could drive up world prices for many farm products, says a report from OECD and the FAO.

The most common feedstocks for biodiesel are: Soyoil —used mainly in the US and South America, Rapeseed and sunflower oils in Europe, Palm oils in Asia.

The global biofuels industry has experienced a slowdown in growth over the third quarter of 2007, caused by rising feedstock prices and a rapid expansion in capacity that may outstrip demand, says Ernst & Young’s quarterly Biofuels Country Attractiveness Indices. It further says that the future of the industry hinges on governments cooperatively developing environmental mechanisms that complement each other in order to foster a sustainable industry. Without this planning it will be difficult for biofuel legislation to meet the objectives of any stakeholders, at home or abroad. 

Despite these issues, over the next five years, the outlook for biofuel remains bright. The International Energy Agency (IEA) in its Medium-Term Oil Market Report forecasts global biofuel output will double from 2006 levels to 1.75 million barrels a day in 2012, with ethanol making most of the gains. Exciting breakthroughs in ‘second-generation’ and cellulosic ethanol are being made, but the IEA says that commercial development of these is realistically about five years away.