Fuel for the Future

While China remains a key biofuels player it will have to secure new feedstock to meet its own targets for the sector

Given that China has to feed a fifth of the world’s population on a fifth of its arable land， it’s not surprising that talk of ‘waste land’ sparks heated debate in local agricultural and policy circles. Lately the endless undulating hills of southwestern China’s Yunnan Province have been presented as the salvation of the local biofuels business.

These sparsely populated， red-soiled hills of pine and scrub are being touted as the place to grow feedstock like jatropha to make up for a clamp-down in edible alternatives such as corn， rice and wheat. China’s agricultural minister Han Changfu this spring stressed that in 2011 there would be restrictions on corn being used for non-food products. The news， perhaps not unexpected， means China will struggle to meet the targets it has set for itself regarding ethanol and biodiesel.

Others disagree with the very idea of waste land. Among them is Heinz-Peter Mang， a veteran researcher at the German Society for Sustainable Biogas and Bioenergy Utilization (GERBIO) and adviser to several Chinese governing bodies. “There is just not that much land to do all the renewable energy projects， the potential is much less than recorded， and yes there is land that is not used for growing rice anymore， but it is being used somehow， or it is just too costly to farm due to lack of access to infrastructure”#8239;Mang says.

Mang argues that the cost of accessing scrub land for growing biofuel feed stocks is simply uneconomical. China， he says， is unlike the US or Europe where energy crops utilize spare land to produce biofuels. Growing food is already risky enough in China， given the scarcity of arable land， increasingly volatile prices and ‘poor agriculture infrastructure’， a reference to the small-scale and labor-intensive nature of much of China’s farming of staple crops like corn and soybeans. “So what makes growing energy any less risky， or more profitable? If you cannot make money farming food， what makes farming bioenergy more profitable?”

While the country badly needs clean fuel for soaring car sales — 18 million new vehicles hit China’s roads in 2010 — the country’s leadership has made fighting food price inflation its number one priority over green fuels. Persistent inflation (which hit a 6% high through 2010) in the country’s key food and edible oil markets has been partly blamed on rising corn and wheat prices. Droughts in central and southwestern China have also played a part in ensuring the government has set itself against any alternative uses for edibles， such as biofuel stocks.

Currently around 80% of the local feedstock for ethanol production comes from corn， the rest from rice. China maintains a 2007 ban on new approvals for grain-based ethanol production. That cap was instilled in the 2006-2010 Five Year Plan and hasn’t been repealed in the latest Five Year plan， which kicked in this year.

In the meantime there’s been an attempt to push alternative crops such as cassava， sorghum and jatropha but feedstock supply remains limited. A cassava-based ethanol plant in semi-tropical Guangxi Province set up by state-owned agricultural commodities giant COFCO has yet to hit 200，000 ton-per-year capacity. In comparison， the country’s four largest ethanol producing plants， based in grain belt provinces like Jilin， Heilongjiang， Henan and Anhui each run at 500，000 ton-per-year capacity.

Yet the country is not giving up on biofuels. Somehow China has managed to remain the world’s number three producer of biofuels. Pradeep Tharakan at Clean Energy Asia believes that China， like India， won’t meet its biofuel target of two million tons by 2020， though it will hit its ethanol target (10 million tons in 2020). China has plans for 12.3 billion tons of biofuels by 2020 and 2.3 billion liters of biodiesel by the same date.

Government policy has worked in favor of biofuels where there’s no conflict with fuel supplies. Tax exemptions on fuel with a 70% waste oil mix is “significant step”， says Liu Dehua， professor of chemical engineering at Beijing’s Tsinghua University.

Liu believes government adjustment of local petrol prices more in line with international norms is another piece of good news for biofuels. A government tax on petrol， initiated when oil prices dipped during the global recession， has made it more expensive than ever at local filling stations. While still low by international standards， petrol prices “make biofuels at least a more viable alternative [to petrol]” says professor Liu.

As long as large-scale biofuel production remains unfeasible， China may have to take the same path on biofuels as it’s taken on solar power: decentralized production to meet poverty and electrification targets in remote rural areas. Just as China subsidizes the installation of solar panels in rural homes， it could find a similar approach useful with biofuels， suggests Pradeep Tharakan， who studied the sector’s prospects across Asia.

Biofuels have helped raise income levels in rural China – giving subsidies to the country’s poorest farmers to grow biofuel feedstock like jatropha seems like killing two birds with one stone. Jatropha has had some support from the industry here: Boeing is collaborating with Petrochina to use the latter’s jatropha as well as algae feedstock from the Chinese Academy of Sciences in a test this summer on Air China jets.

While petroleum giants CNOOC (中國海洋石油總公司) and Petrochina (中國石油天然氣股份有限公司) have both invested in jatropha plantations， China has moved slower on jatropha than neighboring India. Andreas Renner， a researcher at Global Exchange for Social Investment， which has studied jatropha production throughout Asia for the WWF， predicts China will have 600，000 hectares planted by 2015， compared to five million hectares in India and four million hectares in Burma， which neighbors China’s Yunnan Province.

Even though the local jatropha crop is comparatively weak， with the constraints on land and food here， one could expect China to become the testing ground for second generation biofuels. Liu says universities here are “very serious” about alternative biofuel feedstock research. He points to several demonstration projects using corn stover， wheat chaff and sugarcane waste in the north， central and south of the country respectively.

Outside suppliers to the biofuels industry in China are also optimistic about the future for second generation biofuels. A provider of the enzymes used in biofuel production， Novozymes has teamed up with COFCO (中糧集團有限公司) and China Petrochemical (中國石油化工股份有限公司) to work on a pilot plant with a 10，000 ton capacity to produce biofuel from corn stover (leaves and stalks). Michael Christiansen， head of Novozymes China， believes China has the potential to become a leader — out of necessity — on second generation (non-food feedstock) biofuels. He hopes that by 2012 the operation will have 20 times its current scale.

He bases his optimism on political will – the clean energy targets in the 12th Five Year Plan. “China has committed itself to having 11% of its energy generated by non fossil fuels by 2015，” argues Christiansen， who sees 2.8% of this coming from organic matter. His views appear to be in accordance with the Chinese Academy of Sciences， which will open a new National Laboratory for Clean Energy later this year， and has been working with oil firm BP on research for second generation biofuels though no details were available from either party on research findings.

While foreign firms are involved as suppliers or research partners， a major constraining factor in China is the absence of private businesses， long locked out of the country’s energy sector. More than elsewhere， the fate of biofuels in China is driven by government policy and controlled by established players. It’s unlikely that major private players will be allowed to challenge state energy giants Petrochina， Sinopec and CNOOC， all of whom have entered the biofuels sector.

Private enterprises have been allowed to operate in the slower-moving biodiesel space. Firms like China Biodiesel International Holdings (中國生物柴油國際控股有限公司) in Fujian and Wuxi Huaheng Biofuels in Jiangsu Province both turn waste cooking oils and animal fats into biodiesel， which is in turn sold directly to customers. Biodiesel has yet to join the national fuel distribution chains， controlled almost entirely by the local oil giants Petrochina and Sinopec. Meanwhile， ethanol — production of which is dominated by state-owned firms —is mixed into the petrol supply in ten provinces.

China will have to look much more closely at waste food oil such as that being processed by China Biodiesel International Holdings. Mang believes there’s still hope for biofuels – but specifically biofuels based on waste feedstock like waste (used) food oil， which have “enormous” potential. He estimates every 100，000 people in China produce one ton of collectable waste food oil per day which means 1 ton of biodiesel per day.

While China has a framework in the form of the Renewable Energy Law， enacted in 2005， the array of government agencies and bureaucratic infighting weakens resolve to act on the country’s biofuels targets. The National Reform Development Council， a research body that draws up policy for the government， has been driving biofuels production rather than the Ministry of Energy， or either of the two ministerial level departments that set environmental policy.

Similarly， China lacks an agriculture lobby like that which has pushed biofuels in the US. Nor does it have the powerful industry lobbies spawned by local makers of solar panels and wind turbines， both sectors seen by China as strategic points for exports and employment. Worth noting is the NDRC’s collaboration with the United States’ departments of agriculture and environment: an MOU commits both sides to co-research on algae and cellulose feedstock for biofuels.

Importing feedstock remains an alluring alternative， but brings its own challenges. “Given China already imports 70% of its edible oils， why can’t we also import feedstock?” asks Liu at Tsinghua University. He may have a point: China upped its imports of soybeans by 29% in 2010， to 55 million metric tons， much of which is from Brazil. Liu concedes however that his proposal to cultivate land in Africa and Latin America is a “complex and sensitive” proposition for these countries. China’s forays overseas to secure feedstock have caused alarm in the region: Sinopec’s USD 5 billion investment in jatropha and palm plantations in Indonesia caused alarm among environmentalists， though the company has yet to confirm details of the plantations.

Given sensitivity around food-price inflation and demand for edible oils (Asia-wide consumption is set to double to 240 million tons by 2050) its unlikely China will be willing to import edible oils for biofuels. It’s often forgotten that China exports ethanol: 110，000 tons in 2008 before China repealed tax rebates to exporters. In 2009 China allowed a 5% rebate on exports to drive output. Ethanol imports are negligible at 500 tons in 2009 according to figures collected by the USDA.

While China has made positive movements to encourage renewable fuels， given the scale of its needs — China will have 300 million vehicles on its roads in 2025 — China will have to get a lot more serious about biofuels. There are huge issues at stake here， not to mention China’s desire to leap frog the EU and US to be the leader in clean energy. Given its keenness for self-sufficiency， its likely China will bring biofuels back into favor. The key question is where it will get the feedstock.