Fernan is the coordinator of Sustainability Watch and a fellow of Action for Economic Reforms. This article was published in the Opinion Section, Yellow Pad Column of BusinessWorld, March 12, 2007 edition, page S1/4.
In late January 2007, the Philippine Congress passed the Biofuels Act. The law seeks to partly replace some of the imported fuel requirements of the country, thereby supposedly lowering dependence on foreign oil. Promoters of the act also promise higher incomes for farmers who grow the plants from which fuels can be extracted. The law sets mandatory targets for blending these biofuels with fossil fuels, 5 percent for bio-ethanol (blended into gasoline) and 1 percent for biodiesel within two years of the law’s enactment. By the way, biofuels (or, more appropriately, plant fuels) are cleaning burning fuels and are supposed to reduce greenhouse gas emissions at the tail pipe (primarily carbon dioxide), but no one really knows by how much (i.e., will a 5 percent plant ethanol blend reduce GHG emissions by 5 percent?).
The Economics of Biofuels
Since appealing to the environmental moral high ground cannot serve as a motivation for profit-seeking entrepreneurs to go into plant fuel production (despite PR statements to the contrary), the law provides them with various incentives to do so, such as tax and import duty breaks, financial assistance in the form of low-interest loans, and even exemption from water effluent standards and charges, as well as other incentives as provided in the investment priorities program. It is well known that biofuel production is economically unviable and would not proceed without significant government subsidies. The American government reportedly handed out between US$5.1 billion and US$6.8 billion in ethanol subsidies in 2006 alone. Germany and France subsidize biofuels by 47 cents per liter and 33 cents per liter, respectively. Such incentives cut potential government revenues and ultimately may add to the public’s tax burden.
However, the domestic market for biofuels is minuscule and will continue to be small compared to the projected demand in gas-guzzling countries like Japan, China, the European Union, and the United States, all of which have put in place biofuels consumption targets. The projected demand for domestic biofuels is less than 1 billion liters per year at the maximum mandated blends of 5 percent and 10 percent for plant diesel and ethanol, respectively. The Japanese requirement for ethanol alone, on the other hand, is 6 billion liters per year. This is why the government is exploring deals to supply plant fuels to both China and Japan. Agreements are reported to have been signed with the Chinese involving sizable amounts of land to be planted to fuel crops. The Chinese also plan to put up three ethanol plants, two in Negros and one in Zamboanga del Norte.
The viability of biofuel production depends crucially on the conditions existing at the project site, according to a 1984 PIDS (Philippine Institute for Development Studies) study evaluating the country’s proposed alternative fuel programs then. In fact, this study by Armando Armas, Jr. and Denise Joyce Clyde is the only one I could find that looks into this particular aspect. The study is admittedly dated, when crude oil prices were about half of where they stand today, but instructive nonetheless. It concludes that “the alcogas and cocodiesel programs look economically unattractive under the prevailing economic conditions.”
Food or Fuel
Many critics of unregulated biofuels production are worried that the expansion of plant fuels will take away land from food production, thus posing a threat to food security. For example, all current grain production of the U.S. would have to be converted to ethanol if it wanted to maximize the use of ethanol blended gasoline. Already, the Philippine government officials are urging ethanol producers to use sweet sorghum, cassava or other feedstock instead of sugar.
No study has been made of the global impact of expanded biofuel production on global food prices. Dire consequences, however, are foreseen if plant fuel crops replace even some food crop production. This would likely lead to a rise in prices and a lowering of supplies, force more people to go hungry while further restricting food aid to those already starving.
The financial feasibility of biofuel production depends on the production facility being near a steady source of feedstock. This means that a refinery has to be located in a place with a core plantation and possibly contract growing of the appropriate plant around the plantation. This can only result in the extensive monoculture of the plant and the conversion of agricultural land in the area from existing crops, including food crops, to the plant to be used for fuel extraction.
Biofuels’ Environmental Impact
The burning of biofuels alone may be less pollutive but the production of biofuels, particularly for use in transport, is itself an energy-intensive, greenhouse gas-emitting process. Some studies have been done of the energy and greenhouse gas balance of biofuels, but these have mostly been in the U.S. and Europe. These assessments are done through life-cycle studies that plot the energy and pollution impact of such fuels “from cradle to grave,” that is, from crop production to refining to consumer end-use. Significant greenhouse gases are emitted from production facility, transport, use of farm machinery and the production of fertilizer, as well as from the preparation of the land for planting (which releases CO2 and nitrogen dioxide). The refining/distilling process, however, is the significant source of such pollution, from waste water and vinasse (an acid substance) to nitrous gases that are more potent than CO2 in their greenhouse effect to volatile organic compounds. It is vinasse that can be used as fertilizer (and in the Philippine Biofuels Act is exempt from wastewater charges), but only if diluted by a lot of water (1 part vinasse to 400 parts water) and carefully monitored in its application because of its potency.
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The energy and greenhouse gas balance of biofuels are positive, but only marginally so, if co-products and by-products of processing are used to offset the production of similar goods, something that is not currently happening.
The expansion of biofuels production, however, has more insidious effects. If demand for biofuels in Europe, Japan, China and other rapidly growing economics were to expand as envisioned, the supplies would have to sourced from tropical developing countries, primarily Brazil and the Southeast Asian countries of Indonesia and Malaysia. But in all these countries, expansion inevitably means destroying the rainforest for agriculture—the Amazon in Brazil and the peat forests of Borneo. Deforestation already accounts for a quarter of greenhouse gas emissions, according to the FAO (Food and Agriculture Organization). Experts fear that further destruction of rainforests, partly to meet biofuel demand, could cause the whole ecosystem to collapse. This will lead to the devastation of biodiversity and natural habitats. It could trigger positive feedback effects on climate change, accelerating global warming.
Need for More Studies
There is admittedly a lack of scientific studies on the specific effects of greatly enlarging the supply of plant fuels. This is particularly true for life cycle assessments of the plants being promoted as sources of alternative fuels in the country. (A paper by Leizzel Pascual and Raymond Tan of De La Salle University’s Chemical Engineering Department applying a life cycle assessment on cocodiesel and petroleum diesel shows positive results for the former, but needs to be reviewed carefully.) This lack of studies, however, should not be an excuse to blindly push ahead with a national biofuels program just for the sake of lessening dependence on foreign sources of oil. What the climate change problem illuminates clearly is that we can no longer regard national interests as separable from global interests. Global warming respects no national boundaries.
People before Profits
What is fueling the current frenzy with biofuels appears to be the usual motivation to profit from someone’s misfortune while the going is good. The cultivation and processing of plant fuels can be someone’s cash cow because governments are willing to heavily subsidize their production and use, because not all environmental and social costs are calculated in the frenzy to produce them, and because the market for carbon credits and offsets promises potentially lucrative returns for those who can take advantage of the situation quickly.
Industry biofuel advocates in this country are already pushing the Department of Energy to get on with writing the Biofuel Law’s implementing rules and regulations (IRR) so that they can get on with their production plans. Unfortunately, unlike the Clean Air Act, the new law has no provisions for citizen participation in the writing of the IRR or in the National Biofuel Board that is supposed to monitor the implementation of the law. In spite of that shortcoming, civil society should now intervene in the process of implementation, starting with the writing of the IRR.
Two important provisions need to be included in the IRR: one is to make sure that biofuel production is carried out in an ecologically sustainable manner (positive net energy and greenhouse gas balance, no biodiversity loss, etc.), and the other is to make sure that production and consumption directly benefit poor farmers and workers. It may be necessary to include a provision for certification of the sustainability of domestically produced as well as imported biofuels.
At the global level, local NGOs must join others in pressuring the EU and the international community to agree on certification standards as well as a condition for purchase.
We also all need to agree that biofuels do not represent a magic cure to the environmental ills afflicting our planet, and that complementary measures need to be taken as well—such as the promotion of non-motorized transport, better urban planning, curbing carbon excessive lifestyles, etc. Only through these can we be assured that the production of alternative fuels will truly be the beginning of the end of the petroleum industry’s “tyranny” all these years.
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