Preparing National Strategy for Rural Renewable Development

Asian Development Bank Advisory Technical Assistance (TA No. 4810-PRC)

FINAL REPORT

Submitted to: The Asian Development Bank East Asia Department and The Ministry of Agriculture

April 2008 National Strategy for Rural Biomass Energy Development

Prepared by:

Dr. Wang Gehua, Team Leader Dr. Pat Delaquil, Deputy Team Leader Dr. Jerry Yan, International Biomass Energy Specialist Mr. Mengjie Wang, Domestic Biomass Specialist Mr. Tian Yushui Domestic Biomass Technology Specialist Mr. Jia Xiaoli, Domestic Biomass Power Plant Technology Specialist Dr. Zhi Hua Fu, Domestic Investment And Financial Specialist Dr. Liu Xin, Domestic Environmental Specialist Dr. Daniel Wang Dexiang, Social Development Specialist

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Table of Contents

1.1 Study Background and Objectives ...... 1 1.2 Technical Assistance (TA) Goal ...... 4 1.3 Specific TA Objectives ...... 4 1.4 National Status of Rural BioEnergy Use ...... 5 1.5 International Biomass Policy Review ...... 6 2.1 Straw Resources and Evaluation ...... 14 2.2 Animal Waste and Evaluation ...... 18 2.3 Energy Crop Resource and its assessment ...... 25 3.1 Background ...... 33 3.2 Methodology ...... 33 3.3 Analysis of Household Energy Consumption by Rural Residents ...... 35 3.4 Analysis of civil energy demands by rural residents ...... 39 3.5 Scenario analysis and identification of calculation schemes ...... 40 3.6 Estimation and Analysis of Energy Consumption by Rural Residents ...... 41 3.7 Conclusion ...... 43 4.1 Introduction ...... 44 4.2 Solid pelletizing fuel technology ...... 45 4.3 Biogas fermentation technology ...... 47 4.4 Pyrolysis and Gasification Technology of straw ...... 52 4.5 Liquid Biofuel ...... 53 4.6 Biomass Power Plant Technology ...... 59 4.7 Conclusions and comments ...... 62 5.1 Introduction ...... 70 5.2 Summary ...... 70 5.3 Cost-Benefit Methodology ...... 74 5.4 Technological maturity and uncertainties in the biomass energy in China ...... 75 5.5 Rural Household Cooking and Heating ...... 76 5.6 Power Generation ...... 82 5.7 Biofuels Production from Energy Crops ...... 83 6.1 Biomass energy projects invested by government ...... 87 6.2 Financing mechanism and incentive measures ...... 91 6.3 International Financial Approaches ...... 96 7.1 Brief introduction ...... 100 7.2 General environmental impact related to biomass energy in China ...... 100 7.3 Environmental impact of bio-fuel technologies ...... 103 7.4 Environmental Impact of Biogas Technology ...... 107 7.5 Environmental impacts of crop residues utilization technologies ...... 110 7.6 Comparative analysis of environmental impacts ...... 111 7.7 Conclusion ...... 112 8.1 Methodologies and Steps ...... 116 8.2 Social Impacts Assessment on Biogas Technology ...... 117 8.3 Social Impact Assessment on Pellet/Briquette Fuel Production ...... 120

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8.4 Social Impact Assessment on Crop Straw Gasification ...... 123 8.5 Social Impact Assessment on Biomass Power Plant Technologies ...... 124 8.6 Social Impact Assessment on Biomass Liquid Fuel Development ...... 126 8.7 Employment Estimates of Biomass Technologies ...... 129 8.8 Key Findings and Conclusions ...... 131 9.1 Introduction and Approach ...... 136 9.2 Comprehensive Assessment on BRE Technology and Overall Roadmap ...... 137 9.3 Roadmap by Development Stage ...... 140 9.4 Considerations of Regional Aspects for Bioenergy Development ...... 142 9.5 R&D Needs for Biomass Energy Technologies ...... 143 10.1 Principles and Strategic Objectives ...... 145 10.2 Strategic Tasks ...... 145 10.3 Macro Management Mechanisms ...... 147 10.4 Micro Development Mechanism – Industrial Development Mode ...... 150 10.5 Technology Development ...... 155 10.6 Framework of Policy Incentives ...... 156 10.7 Investment Requirements and Financing Mechanisms ...... 160 10.8 Resource Distribution ...... 163 11.1 Objectives and Approach ...... 167 11.2 Rural BioEnergy Finance and Investment Partnership ...... 168 11.3 Policy Foundation ...... 169 11.4 Integrated Financing Plan ...... 172 11.5 Partnership Coordination Mechanisms ...... 180 11.6 Monitoring and Evaluation Plan ...... 180 11.7 Partnership Management Center Support ...... 182 Policy Foundation ...... 183 Integrated Financing Plan ...... 185 Partnership Coordination Mechanisms ...... 186 Monitoring and Evaluation Plan ...... 187

List of Tables

Table 2-1: Grain Straw Ratios of Different Crops in China ...... 14 Table 2-2: Crop Straw Collection Coefficients ...... 14 Table 2-3: Straw Production and Available Quantity in 2005 (10,000 ton) ...... 15 Table 2-4: Straw Production and Available Quantity in 8 Regions in China in 2005 (10,000 tons) ...... 16 Table 2-5: Structure of Straw Consumption in China in 2005 ...... 16 Table 2-6: Forecast of Straw Resources in 2010 and 2015 ...... 17 Table 2-7: of Straw Utilization (unit: 10,000 ton) ...... 17 Table 2-8: of Straw Resources for Energy Use in China ...... 18 Table 2-9: Quantity of Selected Livestock in China (unit: million head) ...... 19 Table 2-10: Animal Waste Resource in China in 2000~2005 (unit: Mt) ...... 19 Table 2-11: Possible Biogas Production from Animal Waste in China (unit: billion m3) ...... 19 Table 2-12: Available Quantity of Animal Waste in China in 2005 ...... 20

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Table 2-13: Biogas Production in China in 2000~2005 (million m3) ...... 21 Table 2-14: Utilization of Animal Waste Resources in China (in biogas) ...... 21 Table 2-15: Prediction of Selected Livestock Quantity in China (unit: million) ...... 21 Table 2-16: Prediction of Animal Waste Resource in China in 2010 ...... 21 Table 2-17: Prediction of Animal Waste Resource in China in 2015 ...... 22 Table 2-18: Prediction of Animal Waste Resource in China in 2020 ...... 22 Table 2-19: Available Quantity of Animal Waste in China in 2010, 2015, and 2020 ...... 22 Table 2-20: Pig and Cattle Manure Resource in Provinces in 2005 ...... 22 Table 2-21: Structure of Pig and Cattle Manure Resource in China in 2005 (billion m3 of biogas) ...... 24 Table 2-22: China’s changes in arable land area (unit: thousand hectare) ...... 27 Table 2-23: China’s reserve arable land resource (unit: 10.000 hectare) ...... 28 Table 2-24: Standard definition of suitable free arable land ...... 29 Table 2-25: Provincial reports of available land areas (not including Tibet and Taiwan Province, unit: mu)29 Table 2-26: Production potential for liquid biofuel production ...... 31 Table 3-1: Household energy consumptions by rural residents (104 tce) ...... 36 Table 3-2: Proportion of household energy consumptions by rural residents (%) ...... 36 Table 3-3: Energy consumption for cooking and water heating by Chinese rural residents ...... 37 Table 3-4: Heating energy status of rural residents in 2004 ...... 38 Table 3-5: Power consumption by appliances kept by rural residents ...... 38 Table 3-6: Rural energy consumption by end-use application in 2004 (10,000 tce) ...... 39 Table 3-7: Objectives of China’s social and economic development in 2020 ...... 40 Table 3-8: Scenario 1 Rural energy consumption by application (million tce) ...... 42 Table 3-9 Scenario 2 Rural energy consumption by application (million tce) ...... 42 Table 3-10: Rural residential energy consumption (by region) in 2010 (Scenario 2) - 10,000 tce ...... 42 Table 3-11: Rural residential energy consumption (by regions) in 2020 (Scenario 2) - 10,000 tce ...... 42 Table 3-12: Scenario 3 Rural energy consumption by application (million tce) ...... 43 Table 3-13: Rural residential energy consumption (by scenario and application) in 2020 - million tce ...... 43 Table 4-1: Conversion technologies for biomass resources ...... 44 Table 4-2: Index system for biomass energy technology ...... 45 Table 4-3: Combustion properties of several typical biomass solid pelletizing fuels ...... 46 Table 4-4: Comparison of ethanol fermentation with different raw materials ...... 55 Table 4-5: Comprehensive evaluation of all types of biomass conversion technologies ...... 64 Table 4-6: Technology Assessment of Biomass ...... 68 Table 5-1: Summary Cost-Benefit Results ...... 71 Table 5-2: Environmental benefits from the development of biomass energy in 2005 in China ...... 74 Table 5-3: Technological maturity in the biomass energy in China ...... 75 Table 5-4: Uncertainties in the development of biomass energy ...... 75 Table 5-5: External costs and benefits in the development and utilization of biomass energy ...... 75 Table 5-6: Comparative evaluation of costs and benefits of Traditional Stoves and High Efficient Energy Saving Surface (200 Households) ...... 76 Table 5-7: Survey of Pellet biomass use in Huairou District ...... 77 Table 5-8: Comparison and evaluation of costs and benefits of biomass pellet fuel ...... 77 Table 5-9: Comparative evaluation of costs and benefits of Crop Straw Gasification biomass pellet fuel . 78 Table 5-10: Comparative evaluation of costs and benefits of gasification of straw program ...... 79 Table 5-11: Comparative costs and benefits of different household bio-digesters systems ...... 80

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Table 5-12: Comparative evaluation of costs and benefits of Medium and Large-sized Bio-digesters ...... 81 Table 5-13: Comparative evaluation of costs and benefits of Household bio-digesters and Medium and Large-sized Bio-digesters (System Size :200 Households) ...... 82 Table 5-14: Cost and Benefit of Power Generation by Direct Crop Straw Combustion ...... 82 Table 5-15: Cost and Economic Benefit of 6 MW Power Generation by Crop Straw Gasification ...... 83 Table 5-16: Comparative evaluation of costs and benefits of Supply of or process heat ...... 83 Table 5-17: Costs of different energy materials to make ethanol fuel ...... 84 Table 5-18: Cost-benefit comparison of ethanol fuel projects ...... 84 Table 5-19: Comparative evaluation of cost and benefit in different bio-diesel programs ...... 85 Table 5-20: Comparative evaluation of costs and benefits of Liquid Fuel ...... 86 Table 6-1: Matrix of Energy Fiscal Policies (1) ...... 93 Table 6-2: Matrix of Energy Fiscal Policies (2) ...... 94 Table 7-1: Type of the impact factor of fuel ethanol ...... 103 Table 7-2: Pollutants emission of bio-diesel ...... 107 Table 7-3: Environmental impacts indicators of biogas plants ...... 108 Table 7-4: Treatment effects of the energy--environment biogas in Hangzhou Xizi livestock production farm ...... 109 Table 7-5: Environmental impacts indicators of household biogas ...... 109 Table 7-6: Environmental indices of crop residue gasification furnace ...... 110 Table 7-7: Characteristic of bio-fuels ...... 111 Table 7-8: Pollutant discharge in the using of biodiesel and fuel ethanol ...... 112 Table 7-9: Environmental impact assessment of rural biomass energy technologies ...... 112 Table 7-10: Environment impacts of biomass energy technology ...... 113 Table 8-1: Social Impact of Biomass Technology- Analytical Framework ...... 116 Table 8-2: Distribution between the rich and the poor in 4 project provinces (N=499) ...... 117 Table 8-3: Changes in per capita net income before and after the utilization of biogas ...... 118 Table 8-4: Time on each activity after biogas utilization to that before biogas utilization% ...... 118 Table 8-5: Estimates Job Opportunities from Biomass Technologies ...... 129 Table 8-6: Overall Evaluation and Conclusions on Impacts of Rural Biomass Technologies ...... 133 Table 9-1: Selected Technologies for Biomass Resources Utilization ...... 137 Table 9-2 Comprehensive Assessment of Technology ...... 138 Table 9-3: Priority Activities at Each Technology Development Stage ...... 141 Table 10-1: Strategic Goals for Rural Biomass Energy Development ...... 147 Table 10-2: Categories of rural biomass energy development tasks ...... 147 Table 10-3: Policy Framework for Rural Biomass Energy ...... 159 Table 10-4: Details of New Policies ...... 160 Table 10-5: Investment required for achieving the strategic goals of rural biomass energy development160 Table 10-6: Preliminary Investment Breakdown ...... 162 Table 10-7: Biomass Resources Distribution among Technologies ...... 164 Table 11-1: Recommended Policy Foundation ...... 170 Table 11-2: Example Joint Programs in the Areas of Renewable Energy, Energy Efficiency and Climate Change ...... 172 Table 11-3: Summary of Rural Biomass Energy Programs ...... 174 Table 11-4: Preliminary Outline of an Integrated Financing Plan ...... 179 Table 11-5: Measures of Partnership Effectiveness ...... 181

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Table 11-6: Example Breakdown of PMC Funding ...... 182 Table A1: Recommended Policy Foundation ...... 184 Table A2: National Implementation Goals and Investment Targets for Rural Bio-Energy Development . 186 Table A3: Measures of Partnership Effectiveness ...... 187

List of Figures

Figure 2-1: Structure of Animal Waste Resource in China in 2005 (in Biogas) ...... 20 Figure 3-1: Rural Energy Consumption System ...... 34 Figure 4-1: Process flow of biomass pellet fuel production from stalk ...... 45 Figure 4-2: Flow of pool fermentation process...... 48 Figure 4-3: Dry digestion from straw ...... 49 Figure 4-4: Flow chart of biogas production ...... 50 Figure 4-5: Centralized supply system for biomass gasification ...... 52 Figure 4-6: Cost of fuel ethanol from different raw materials ...... 56 Figure 4-7: Process flow for biodiesel production ...... 58 Figure 4-8: The process of Straw Power Generation ...... 59 Figure 4-9: Process steps for small-scale biomass gasification technology ...... 60 Figure 4-10: Process steps for large-scale biomass gasification technology ...... 60 Figure 4-11: The development potential of biomass ...... 62 Figure 6-1: Relation between fiscal incentives and the life cycle of biomass energy technologies ...... 92 Figure 7-1: Life cycle impact assessment of bio-fuel ...... 103 Figure 9-1: Steps to Develop the Biomass Energy ...... 137

Figure 9-2: Priorities by category based on comprehensive assessment ...... 140

Figure 9-3: Development road by stage ...... 141 Figure 10-1: The implementation mechanism for rural biomass energy ...... 148 Figure 10-2: Household biogas operational model ...... 151 Figure 10-3: Industry supply chain of straw pellet fuel, straw biogas, central gas supply plants ...... 152 Figure 10-4: Stakeholders in energy crop production and supply ...... 153 Figure 10-5: Stakeholders for centralized production and centralized consumption mode ...... 154 Figure 10-6: Financing Mechanism Framework ...... 162 Figure 10-7: Future trends of crop residues utilization ...... 163 Figure 10-8: Future trends of Animal Waste utilization for energy purpose ...... 164 Figure 10-9: Modern Energy Used Energy for Straw, Biogas, and Biofuels ...... 165 Figure 10-10: Potential of for Straw, Biogas, and Biofuels (Not including Traditional Stove) ...... 165 Figure 10-11: Biomass Resources Breakdown by Technologies (Not including Traditional Stove) ...... 166 Figure 11-1: Overview of Policy Framework Development ...... 167 Figure 11-2: Outline Approach to Development of the Partnership Framework ...... 168

List of Acronyms

ADB Asian Development Bank

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BRE biomass renewable energy CDM Clean Development Mechanism EA Executing Agency EIRR Economic Internal Rate of Return FIRR Financial Internal Rate of Return G Giga = 109 GEF Global Environment Facility M Mega = 106 MOA Ministry of Agriculture MOF Ministry of Finance MOST Ministry of and Technology NDRC National Development and Reform Commission OPAD Office of Poverty Alleviation & Development P Peta = 1015 PMO Project Management Office PRC People’s Republic of China REN Renewable Energy MEP Ministry of Environmental Protection (formerly SEPA) TA Technical Assistance Tce Tone coal equivalent TOR Terms of Reference WB World Bank

TA-4810 PRC – Final Report Page viii National Strategy for Rural Biomass Energy Development Introduction and Background

1. Introduction and Background

This Final Report for TA-4180 PRC prepares a long-term development strategy to increase the use of biomass to meet China’s rural energy demand and outlines a partnership framework between the PRC and the ADB for rural biomass renewable energy (BRE) development. The TA team worked to accomplish the following objectives: (i) Incorporate international experiences in rural BRE development to improve mechanisms for promoting their sustainable development in the PRC. (ii) Design strategies for attracting external financing for rural BRE development. (iii) Develop a technical roadmap for rural BRE development. (iv) Prepare a draft national strategy for rural BRE development. (v) Promote government and donor acceptance of the roadmap and partnership strategy The TA report assesses the availability of rural biomass resources and future levels of rural energy demand. It then evaluates biomass energy conversion technologies based on cost-benefit indicators and the possible environmental social and impacts of each technology’s widespread use. These studies form the basis of the Roadmap for Rural BRE Development and the Recommended National Strategy for Rural BRE Development, both of which outline a long-term development strategy for China’s utilization of BRE in rural areas. Lastly, this report offers a Partnership Framework, a foundation through which the GOC and international financial institutions agree to cooperatively promote the recommendations issued in this report. 1.1 Study Background and Objectives 1.1.1 Energy shortage and environmental pollution have been constraining severely the sustainability of social and economic development in China As the second largest energy producer and consumer all over the world, China produced 2.06 billion tons of coal equivalents (tce) of primary energy and consumed 2.22 billion tce in 2005.At the same time, In 2005 China’s total energy consumption, coal accounts for 68.7%,accounting for 21.2% of oil and natural gas accounted for 2.8%, and hydropower 7.3%. The production and consumption of fossil energy cause severe damage to the and environmental pollution. Since the structure relies mainly on coal, pollution caused by coal consumption is the main challenge to the environment protection in China. About 90% of SO2, 85% of CO2, 67% of NOx and 80% of the total fly ash exhausted into the atmosphere are due to coal burning. Furthermore, coal burning also produces mass of toxic gases, gangue, corrosive solutions, coal dust, coal cinder and fly ash as well. In 2004, the total SO2 emissions by China were about 20 million tons ranking on the top in the world. Over 40% of the total farmland has been affected by acid . The total emissions of CO2 have reached 4.6 billion tons in China ranking the second all over the world. The excessive use of coal not only damages environment in China but also the whole world. Now, China is at a crucial stage of its social and economical development. Along with the progressing of population expansion, industrialization and urbanization, the social and economical development, as well as the improvement of people’s living standard, it can be envisaged that energy demand will increase significantly. Based on the development trends of national economy in the recent years, it is anticipated that the goals of constructing a well-off society and realizing industrialization will be achieved in China by 2020. And the energy demand will be 3 to 3.6 billion tce. That is to say, China will face severe problems related to energy supply and environmental protection in the upcoming 15 years. On the other hand, the total energy consumption in rural areas has been increasing significantly, particularly the demands of commercial energy. According to a statistic by the MOA, the rural energy consumption was totally 0.479 billion tce in 2004, increased by 83.65% than that of 1980 with an average increase rate of 2.57% annually. Among which, commercial energy consumed was 0.209 billion tce

TA-4180 PRC – Final Report Page 1 National Strategy for Rural Biomass Energy Development Introduction and Background accounting for 43.62% of the total. Comparing with the commercial energy that was consumed in 1980, it was increased by 4.1 times. Along with the improvement of living standard, types of energy supply have been developing towards more and more commercialized with better quality. This causes a new problem, i.e. the contradiction between the increasing demand of commercial energy in the rural areas and the national capacity of energy supply. In this connection, from either the fact of structurally shortage of energy supply, or the sustainability of social and economical development, China should never continue such a development way of exhaustion of its energy resources, but initially explore new energy resources and renewable energy including rural bio-energy. President Hu Jintao pointed out at Beijing International Renewable Energy Forum 2005 that “to strengthen the exploration and utilization of renewable energy is the only way to deal with the increasingly severe problems of energy shortage and environmental pollution. And it is also the only way to the sustainable development of our society”. 1.1.2 Development of rural bio-energy is a solid support to the construction of a well-off society in China As a historic task, the construction of a “new socialist countryside” in China was formally launched at the 5th plenary session of the 16th CPC Central Committee. By now the achievements are of a type of incomplete, unbalanced development and low level “well-off”. The key and most difficult aspect to construction of a well-off society is in rural areas. By taking development of rural bio-energy as an essential part of long-term development strategy in China’s rural areas, the government of China (hereafter GOC) attaches great importance to the exploration and utilization of bio-energy. As early as 1995, GOC decided, in the “9th 5-year Development Plan (1996-2000)” and the Long-range Perspective Plan (2010), “to actively develop new energy resources and to improve China’s energy structure”. It is clearly stipulated in Provision 1: General Provision of the “China Electricity Law (1995)” that “The state encourages and supports power generation with new energy resources and renewable and clean energy”. In the Provision 2: Rural Power Construction and Consumption of the law, it is reemphasized the importance of the use of new energy resources and renewable energy. In addition, it is stipulated in “China Energy Conservation Law” that “the government encourages the exploration and utilization of new energy resources and renewable energy”. Furthermore, the GOC has released auxiliary regulations and policies, and implemented corresponding programs and projects in this regards, including “China 21st Century Agenda”, “A Guideline on the Development of New Energy Resources and Renewable (1996-2000) and its Perspective in 2010”, “5- year Renewable Energy Development Plan”, “Renewable Energy Law”, “A Plan to Construct Ecological Homestead and Make Farmers Wealthy”, “State T-Bond Funded Project – Construction of Rural Biogas” and an ADB/GEF/PRC funded project entitled “Efficient Utilization of Agro-wastes Project”, etc. All these activities support strongly the development of the rural bio-energy. There is still existence of a big gap between energy demand and demand at the “well-off” level in rural areas, though it has been ameliorated to some extent. Currently, about 50% of energy still relies on directly burning of rural biomass, e.g. crop stalks and firewood, while high quality energy accounts for a low proportion. The energy structure is very irrational. The outdated means of energy consumption pollutes severely the atmosphere, hazards people’s health, and obstructs the improvement of living standard The excessive use of agro-residues and firewood can also damage natural vegetation (e.g. forest) and the overall ecology. It also makes it difficult to recycle chemical elements, e.g. N, P, and K contained in crop stalks and firewood back into the fields and it reduces the fertileness of the soil. Besides, there are about a total of 20,000 villages that have no power supplies, where about 30 million rural people of 8 million households lives. People there still live in a manner of slash-and-burn cultivation that is far from modern civilization. China is a large agricultural country, its biomass which can be used as bio-energy is characterized with multiple kinds, substantive quantity and wide distribution. The annual yields of biomass includes over 600 million tons of crop stalks, over 100 million tons of agro-residues (e.g. paddy chaff, corncob, peanut hull and bagasse, etc.) and over 1.8 billon tons of livestock wastes and waste organic solutions from farm production. Theoretically, this can be used for producing 70 billion cubic meters of biogas. Moreover, there are about 1.657 billion mu (Chinese unit of area, 1 mu equals 1/15 hectare) of geographical fringes that can be cultivated for growing biomass plant, including 740 million mu of barren land and 150 million

TA-4180 PRC – Final Report Page 2 National Strategy for Rural Biomass Energy Development Introduction and Background mu of land encrusted with salt. Due to lack of technology and funding, plus poor awareness of the local farmers, masses of rural biomass are yet to be effectively used. This not only wasted abundant resources, but also caused severely environmental pollution. Fumes and fly ash from burning crop stalks polluted the atmosphere. Discretionary discharge of livestock wastes and organic wastes from farm production can also result in epidemics. During the construction of new socialist countryside and along with energy demand of transferring to commercialization in rural China, it will demand for substantive energy. This is really a big challenge. Because most rural areas are far from modernization with poor infrastructure (especially communication or transportation), the supply of high quality and commercialized energy needs to build lots of necessary infrastructures, and this will demand a huge amount of investment cost. However, rural biomass is characterized by wide distribution, and it is inexpensive and facile. This makes it really practical and feasible to develop biomass in rural areas. In case that energy can be sufficiently self supported and locally available in rural areas, it will not only help improve farmers’ living standard, but also significantly contribute to minimizing the situation of energy shortage in China, to securing the national energy safety and building up system thereby reducing GHG emissions and making significant contribution to the whole society. The exploration and use of rural bio-energy will enable numerous farmers to consume clean type energy. This will not only be helpful for “reducing cultivation and returning lands back for forestry” thereby minimizing vegetation (e.g. forest) damages, but also well for protecting coarse fodder and organic fertilizer resources. Other advantages generated by doing so include returning more crop stalks back into fields to increase the content of organic matter in the soil, effectively treating household and farm production wastes, reducing environmental pollution, more rational utilization of natural resources and result in improving rural sanitation. Finally it can obtain the dual-objective of improving living standard and protecting environment. To explore and use rural biomass will also improve significantly rural living- conditions and sanitation by freeing rural women from suffocating kitchen fume. 1.1.3 “Renewable Energy Law” provides a historic opportunity and a legal safeguard for rural bio-energy development in China The Renewable Energy Law was approved by the Standing Committee of the National People’s Congress on February 28 and has become effective since January 1, 2006. The law supports and promotes the development of rural bio-energy. It is prescribed in the Provision 16 that the state promotes to clearly and efficiently explore and use biomass fuel, and promotes the development of energy crops and the use of gases and heating power produced with biomass. It is also prescribed in the Provision 18 that “The state promotes the exploration and use of bio-energy in rural areas. Local governmental authorities in charge of energy administration at county level or higher shall, in collaboration with other authorities concerned, devise a renewable energy development plan based on local social and economical situations and the requirements related to ecological protection and sanitation as well, and promote the utilization of such kinds of bio-energy as biogas, solar thermal utilization, wind turbine systems and mini hydraulic power stations, etc. by adjusting measures to local conditions. Local authorities shall provide financial support to renewable energy projects in rural areas.” Moreover, some incentive measures are provided by the law. it is prescribed, in the Provision 24, that “The State Finance shall set up appropriative funds for renewable energy development”, and, in Provision 25 “Any renewable energy project, that is listed in the catalog of National Renewable Energy Development Guideline and in line with funding conditions, should be funded with interest subsided preferential loans by financial institutions. Detail regulations will be prescribed by the State Council”. 1.1.4 Barriers to Rural Bio-energy Development in China Major barriers to the bio-energy development in rural areas include barriers of information, recognition, market, financing and policy. 1) Information barriers: China has a vast territory with complex terrains and resources, and the economical development is unbalanced in its rural areas. Up to now, there is lack of detailed studies on the usability of rural bio-energy resources, such as species, distribution, securable quantity, economical

TA-4180 PRC – Final Report Page 3 National Strategy for Rural Biomass Energy Development Introduction and Background quantity of resources and development potential, etc. As for the securable quantity, it is actually closely connected with energy consuming behavior of farmers, thus need to be further and carefully investigated to obtain complete and exact insight. In addition, there is lack of detailed feasibility study on bio-energy utilization technology, including detailed assessment of its technical, economic and environmental application patterns, its technical adaptability concerning various terrains, users, resource conditions, as well as the socio-economic conditions. Particularly, barriers to rural bio-energy development are yet to be identified. 2) Recognition barriers: The public pays little attention to its significance. Some people regard the rural bio-energy as a matter of farmers, thus do not actively participate in and support the development of rural renewable energy. Some local governments make indefinite development orientation and goals due to lack of knowledge related to rural bio-energy. And some authorities only adopt a few technologies that can bring profits while some beneficiary groups adopt pragmatism, and promote only the advantaged ones and neglect the disadvantaged ones. 3) Market barriers: Though an integrated biogas system has come into being in China’s rural areas, there is still lack of organization, collection and service systems of rural biomass like crop stalks thereby blocking the replication and utilization of rural bio-energy. Besides, the high cost and price of the bio- energy is the biggest barrier to the commercialization and utilization of the technology. Comparing with similar technology, its initial cost is much higher than that of fossil fuel. For example, even if the government provides subsidies to farmers, the cost of the biogas digester would not be afforded by local farmers in the poor western areas in China. Thus, a vicious circle of energy shortage and ecological depravation is formed. The price of farm products and biomass is low while the technical and material cost for the bio- is high. Under the current price-making mechanism, the environmental and social benefits of the bio-energy cannot be realized. 4) Financing barrier: There is lack of effective investment and financing mechanisms, thereby blocking the application of rural bio-energy technology. For example, it is almost not possible for a farmer to build a large-and-medium-sized biogas project on a large livestock or poultry farm due to the high initial investment, if there is no sufficient investment and available access to financing or no incentive to lower the cost. It can neither be set up nor be operated. 5) Policy barriers: Though the Renewable Energy Law has come into effect, but only releasing an auxiliary regulation of Trial Management Method of Power Price and Cost Apportionment with Renewable Energy is not enough for its effective implementation, particularly lack of corresponding incentives for the sake of farmers, which limit their enthusiasm to utilize bio-energy. Obviously, rural bio- is a feeble industry with great environmental and social benefits. According to experience abroad, the government support is an indispensable driving force to its initiation. For both developed and developing countries, the development of bio-energy industry depends on the government’s support, like favorable policies regarding investment and financing, taxation, subsidy and market exploration. It is now a crucial stage for rural bio-energy development in China. Whether breakthroughs can take place 515 years later is up to the government support. Research conducted by institutions conducted in China and abroad shows that there is a great potential for the development of rural bio-energy in China. But most of the researches are generic and superficial, and become outdated. They cannot provide actually practical guidance to China, which results in shortage of strategies, programs and pertinent policies related to rural bio-energy development. 1.2 Technical Assistance (TA) Goal

To prepare a long-term development strategy and a partnership framework between the PRC and ADB on rural biomass renewable energy (BRE) development, covering 2006-2020. 1.3 Specific TA Objectives

The TA team will work to accomplish the following specific objectives. (i) Incorporate international experiences in rural BRE development to improve mechanisms for promoting their sustainable development in the PRC. (ii) Design strategies for attracting external financing for rural BRE development.

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(iii) Develop a technical roadmap for rural BRE development. (iv) Prepare a draft national strategy for rural BRE development. (v) Promote government and donor acceptance of the roadmap and partnership strategy 1.4 National Status of Rural BioEnergy Use

China has developed some technologies related to direct burning rural biomass for heating. Be the end of 2004, China has promoted energy-saving firewood stoves in 190 million rural households, including commercialized stoves in 46.5 million households. In compare with the indigenous stoves, its thermal efficiency is two times of that of old ones. It significantly mitigates the shortage of energy in rural areas. Up to now, the dissemination rate of the new type stoves has reached 70% of the total in China. Power generation with biomass has become preliminary to scales. Most of these kinds of power plants use bagasse as fuel and are equipped onto sugar refineries located in the south. There are 300 power plants of this kind (with a total capacity of 800MW) in Guangdong Province and Guangxi Zhuang Autonomous Region, and a number of such types of power plants using bagasse as fuel in Yunnan Province. Furthermore, the first batch of power plants fueled with crop stalks will be built in Shijiazhuang and Jinzhou City, Hebei Province and Shanxian County and Heze City, Shandong Province. As for biogas digestion, it has been fast developing in China in recent years, typically the large and medium sized technology, and especially small sized biogas digesters combined with other bio-energy technologies. In the vast rural areas, multiple energy technologies, e.g. and biogas, have been combined with environmental friendly farming technologies, i.e. “bio-energy and eco-gardening technology”, have been developed based on local conditions. Among these new technologies, “four-in-one” and “three-in- one” are of the main types characterized by combining biogas technology and solar heat technology. In this way, rural bio-energy can be fully used. In 2004, the new rural customers of small sized digesters reached 2.8 million households adding up to a total number of 15.451 million households, while the total capacity of biogas digestion reached 5.568 cubic meters. This can be used for replacing over 8 million tons of crop stalks or firewood, or 4.2 million tce. In the meantime, a total of 2,676 waste treatment plants have been built to harmlessly treat wastes from animal farms. In addition, 137,000 urban sewage clarification plants have been constructed. In China, all governmental authorities in charge of agro-business at provincial/municipal level and in over 90% counties have established a division dedicated to rural energy administration and technical dissemination. Their business scope covers supervising the construction of biogas digesters, delivering technical training and disseminating new technology, etc. The total employment of these divisions is over 50,000. Up to now, there are over 150,000 farmers who have been certified as “Biogas Worker” by the MOA, and over 50 factories producing biogas digestion equipments with an output of 5 million digesters annually. Two national codes, i.e. “Denatured Fuel Ethanol” and “Driving Ethanol Gasoline” have been issued and become effective by GOC. 4 demonstration projects, one each in provinces of Heilongjiang, Jinlin, Anhui and Henan with an annual capacity of 100,000 tons, 300,000 tons, 360,000 tons and 300,000 tons respectively, were launched by the former State Planning Committee. With the projects, ethanol fuel is produced with aged grains and blended and trial sold by certified companies as driving fuels for experimental purposes. Since June 30, 2002, a one-year pilot project to further test driving ethanol fuel had been implemented in provinces of Heilongjiang, Jilin, Liaoning and Anhui, and in some regions in provinces of Hubei, Shandong, Hebei and Jiangsu. By the end of 2005, normal driving gasoline had been ultimately replaced with ethanol fuel in the projected regions. Given the fact that China faces the shortage problems of both energy supply and food supply, the GOC encourages, in the 11th 5-year National Development Plan, the production of liquidized bio-fuel with energy crops. Comparing with developed western countries, most of locally developed bio-energy technologies are still outdated with poor working efficiency. The locally produced bio-energy accounts for only a small portion of the total primary energy in China. Indeed, the locally developed technologies are still of low standards with limited production capacity. A well developed bio-energy industry is yet to be built, and some key technology and equipment have to rely on import over a long period of time.

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1.5 International Biomass Policy Review

This review and assessment of international experiences in the rural BRE development has focused on the following geographic regions: European Union, South Asia, USA and Brazil. The review also focuses on two key applications of biomass: 1) renewable energy for heat and electricity generation and 2) bio-fuels. Biomass has long been used as a traditional fuel in rural areas. The traditional applications are primarily lighting, cooking and space heating, and they are characterized by inefficient and often polluting technologies. Therefore, this review has striven to identify those policies around the world which have been successful in promoting modern, efficient and clean technologies for converting biomass into the energy services most needed by rural people and households. Biomass has several unique characteristics compared to other forms of renewable energy which need to be understood and properly factored into policy discussions. • Biomass in its various solid, liquid and gaseous forms can be directly substituted for fossil fuels • Biomass can generally be stored over relatively long periods of time, but its low energy density requires large volumes and leads to high handling and transport costs • Biomass is the only renewable energy not “freely” available and has a long supply chain from planting, growing, harvesting, pre-treatment and conversion. • Biomass cuts across several policy areas, including energy, agriculture, forestry, environment, land use, regional development, taxation and trade. • Because of limitations in arable land, the use of biomass for energy must be balanced against the need for food, materials, bio-chemicals and natural forests. Over the past decade, biomass technologies have improved significantly, especially in Europe for the areas of large and small-scale CHP systems, co-firing with coal, district heating combustion systems and anaerobic digestion of animal and other wastes. However, operating costs vary widely in different countries because of different level of technical capability and the wide variation in biomass resource prices. The largest difference is the biomass price, which varies partly due to its intrinsic value (often dictated by the competing applications for the material), local policies related to agriculture, and the cost of labor. Therefore, it is almost impossible to generalize either the energy cost resulting from biomass resource use or the types of policies that are best for promoting its utilization. With these comments in mind, this review will quickly summarize the various policies implemented around the worlds, and then try to assess the implications to rural China and national biomass energy strategy. 1.5.1 International Experiences in Rural BRE Development 1.5.1.1 EU Countries – Electricity Generation Mandatory feed-in laws with specified tariffs are the principal RE policy tool used in EU countries for promoting electricity generation with renewable energy, including biomass. Under an electricity feed-in-law, electric utilities are obligated to allow renewable energy power plants to connect to the electric grid, and they must purchase any electricity generated with renewable resources at fixed, minimum prices. These prices are generally set higher than the regular market price, and payments are usually guaranteed over a specified period of time. Tariffs usually vary with the type of renewable resource and have a direct relationship with cost or price, or may be chosen instead to spur investment in renewable energy. The costs of higher payments to renewable energy producers are usually covered by an additional per kilowatt-hour (kWh) charge on consumers. In most countries, the charge is levied on all customers according to their level of use. In a few cases, taxpayers share in the cost, such as in Denmark through a combination of feed-in rates and reimbursement of a carbon tax. To date, those countries with feed-in-laws have experienced the most significant market growth in renewable energy. While wind power has seen the largest market growth under EU feed-in-laws, biomass-based power generation has seen significant gains. EU countries have established targets for RE generation as a percentage of electricity consumption ranging from a low of 3.6% for some small eastern European countries to a high of 78% for Austria, a leader in utilization of biomass resources.

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For developing countries, the critical concern regarding feed-in laws is that the price for renewables may be set too high and the cost to the country will be greater than it would have be under a more market- based incentive. On the other hand, markets are apt to be particularly sensitive to the need for relatively uncomplicated access to the electric grid and low transaction costs. Pricing laws allow for ease of entry into the marketplace and tend to favor smaller companies and incremental investment, making them particularly suited to developing countries, where power markets are often small and dispersed. 1.5.1.2 EU Countries – Heating European countries have a long tradition of district heating systems and consider biomass use in residential and industrial heating to be simple and cheap. However, many district heating systems face problems competing with individual heating, and many systems require both a more modern plant and refurbishment of their infrastructure and management to improve their cost-efficiency and make them more convenient to use. Recent policies are based on the fact that new technologies are available to turn wood and clean residues into standardized pellets that are environmentally safe and easy to handle. Also, legislation on biomass energy in heating has taken a different approach compared to other renewable energy applications, because the key problems lie in market confidence and attitudes rather than costs. Therefore, new policies on biomass energy in heating include: • Measures to ensure that fuel suppliers make biomass fuels available; • Efficiency criteria for biomass fuels (pellets) and their installations • Equipment labeling to enable people to buy clean and efficient devices; • Amendment of the standards for energy performance of buildings to increase incentives for renewable energy • R&D to improve the performance of household biomass boilers and reduce pollution. Additional policies aim to stimulate a renewal of district heating. District heating can manage the use of biomass fuels more easily and burn more types of fuel with lower emissions. It is easier to develop biomass use in district heating than in individual heating. The European Commission allows the Member States to apply a reduced rate of VAT to encourage district heating systems. The Commission is also considering other tax incentives that would promote district heating. 1.5.1.3 EU Countries – BioFuels EU policy in support of biofuels has the goals of reducing greenhouse gas emissions, reducing CO2 emissions from transportation fuels, enhancing energy security and promoting new income sources in rural areas. In December 2005 the European Commission adopted a Biomass Action Plan designed to increase the use of energy from forestry, agriculture and waste materials. EU production of all biofuels is significantly lower than the US. In 2004, the EU produced about 768 million gallons of biofuels compared with 3.4 billion gallons in the US. Furthermore, US production is almost entirely ethanol, while biodiesel accounts for nearly 80% of EU biofuel production. Germany produced over half of the EU’s biodiesel followed by France and Italy, while Spain is EU’s leading bioethanol producer. The supply of feedstocks is crucial to the success of the EU’s biofuel strategy because they represent the primary cost component in the biofuel production process. The major feedstock for EU biodiesel production has been rapeseed oil. In 2004, EU biodiesel production used about 4.1 million tons of rapeseed, or 27% of a record EU crop of 15.3 MMT. In 2004, the EU harvested oilseeds from an estimated 7.5 million hectares of which 60% was rape seed, 29% sunflower seed, and 4% soybeans. EU bioethanol is generally produced using a combination of sugar beets and wheat. EU Policy on biofuels is partly driven by the relatively high-production cost of EU-produced biofuels, which is due primarily to high-priced feedstocks relative to fossil fuels. The 2003 Biofuels Directive on the promotion of the use of biofuels for transport, set out indicative targets for Member States. To help meet the 2010 target – a 5.75% market share for biofuels in the overall transport fuel supply – the European Commission has adopted an EU Strategy for Biofuels, which consists of the following policies and directives.

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• Common Agricultural Policy (CAP). EU crop production patterns have traditionally been heavily influenced by the CAP with its high support prices, planting restrictions, intervention buying, stock management, and rigid border controls. Presently, the CAP includes rules on agricultural land use, as well as a special payment for the production of crops dedicated to biofuels. • CAP Land Use Rules. Under the CAP, EU farmers are required to set aside 10% of their land to qualify for other CAP benefits. Participating farmers receive a set-aside compensation payment. In addition, EU farmers are allowed to plant oilseeds on the setaside land as long as it is contracted solely for the production of biodiesel or other industrial products and not sold into either food or feed markets. • Energy Crop Payments. Starting in 2003, energy crops grown for the production of biofuels or for use as biomass in the production of electric and became eligible for a premium of 45 Euro per hectare. The payments are restricted to a maximum guaranteed area of 1.5 million hectares. In 2005, an estimated 0.5 million hectares received the energy crop payment. • Biofuels Use Directive. In 2003, the EC established a goal of deriving at least 2% of EU transportation fuel from biofuels by the end of 2005, then growing the biofuels share by 0.75% annually until December 31, 2010, when it would reach 5.75%. However, the biofuels goal is not mandatory and individual Member States are free to establish higher standards, and there is no penalty for noncompliance. Despite various State and EU-wide policies designed to support biofuels production, the EU biofuels goal of 2% by 2005 was not achieved. Instead, biofuels attained an EU-wide share of only about 1.4% of transport fuels. • Energy Taxation Directive. In 2003, the EU’s framework for the taxation of energy products and electricity was amended to allow Member States to grant tax reductions and/or exemptions in favor of renewable fuels under certain conditions. However, to minimize the tax revenue loss for Member States, the final tax on biofuels intended for transport use may not be less than 50% of the normal excise duty. • Fuel Quality Directive. In 2003, the EU’s environmental specifications for market fuels were amended to establish new specifications for petrol and diesel that encompassed the incorporation of biofuels. For technical reasons, a limit on biodiesel blending has been set as no more than a 5% share by volume (or 4.6% in energy terms). As a result, this issue will need to be resolved if the EU is to achieve its goal of a 5.75% share of transport fuel by 2010. While this complicated set of EU-wide policies encourage common goals across Member States, there exists considerable State-level variation in terms of the degree of participation in biofuel requirements, incentives, production, and use. In addition, EU oilseed production remains constrained by suitable land and growing conditions, as well as high domestic feedstock costs relative to foreign producers. As a result, trade of both biofuels and biofuel feedstocks is likely to play an increasingly important role in the EU in the future. Furthermore, as discussed in more detail for the US, the EU sponsors research on the development of thermo-chemical and biological processes for converting lignocellulosic biomass into fuels. 1.5.1.4 USA – Electricity Generation As of the end of 2006, twenty-two U.S. states, covering more than 40 percent of the U.S. electricity demand, have implemented mandatory quotas through RPS laws. The RPS (Renewable Portfolio Standard) is a policy measure that legally establishes a target for the minimum amount of electricity generation that must come from renewable energy sources according to a specific schedule leading to a target amount at some future date. The types of renewable resources or technologies that can be used to meet the target are specified and defined as qualifying resources. In addition, fees are usually established for non-compliance. The mandated market share often increases gradually over time, with a specific final target and end-date. The mandate can be placed on electricity producers, distributors or consumers, but is generally placed on the distributors if they are distinct from generators. Solar, wind and geothermal technologies are generally included as qualifying resources, but some forms of biomass (municipal wastes) or hydropower above a specific size may be excluded. Some RPS legislation even includes energy efficiency. All these accepted technologies compete equally for supply contracts, and developers negotiate for the price and contract terms they will accept. In a few cases,

TA-4180 PRC – Final Report Page 8 National Strategy for Rural Biomass Energy Development Introduction and Background specific targets are established by technology type so that, for example, solar PV does not have to compete against wind. At the end of each target period, electricity suppliers must demonstrate that they have met their target market share through the ownership or purchase of qualifying renewable energy sources. In most cases, they can also purchase renewable energy credits on the open market to meet a portion of their requirement. Fees for non-compliance are usually set at levels that will encourage the electricity suppliers to meet the targets. With an RPS, as with the feed-in-laws, the additional costs of higher payments to renewable energy producers are paid through a special tax on electricity or by a higher rate charged to all electricity consumers. Because RPS laws establish specific targets for renewable energy, there is certainty regarding the future share of the market, and this provides producers and manufacturers with a predictable, steadily-growing market. One concern regarding RPS policies is that the speed with which technologies are introduced is based on a political decision that might be largely unrelated to technical progress and the efficiency of using renewable energy. However, many economists prefer RPS policies because they allow the market to set prices. On the other hand, some analysts believe that the lower purchase prices common under bidding or RPS systems result in lower levels of installed capacity. 1.5.1.5 USA – BioFuels In 2006, 5 billion gallons of fuel ethanol were produced in the United States—primarily from the fermentation of corn. The ethanol industry was started in the late 1970s, when ethanol blended with gasoline was promoted as a strategy for reducing US dependence on foreign oil. Policy supports included loan guarantees and a producer price subsidy of $0.60 per gallon. Most ethanol is used as an oxygenate for gasoline to help reduce smog-producing pollutants. In the early 1990s, tax credits were provided for purchasing vehicles capable of operating on E-85 (a blend of 85% ethanol and 15% gasoline or for converting a vehicle to use E85. In 1998, the ethanol subsidy was reduced to $0.54 per gallon. Since 2000, the U.S. ethanol industry has enjoyed growth rates of 10% to 30% per year. The recently enacted Energy Policy Act of 2005 established a Renewable Fuel Standard (RFS), a mandate for renewable fuels that translates into a steady growth in ethanol production up to a level of 7.5 billion gallons per year in 2012. It also extends the ethanol subsidy, but gradually reduces the level to $0.51 per gallon in 2005. Recently, US government policy has spurred the introduction and significant growth of the vegetable oil- based biodiesel fuel. The initial subsidy begun in the early 2000s and administered by the US Department of Agriculture, reimbursed producers for a portion of their feedstock cost. The subsidy was based on the price of soybeans (not oil) and other oils in relation to soybean oil. However, new legislation in 2003 energy provided producers of all crop-based biodiesel (from soybeans, cotton-seed or any “virgin” agricultural feedstock – but not waste oil) with a $1/gallon subsidy. As a result, the fledgling U.S. biodiesel industry tripled its production each year between 2004 and 2006, reaching 226 million gallons of production. The number of production plants has increased from 22 in 2004 to 85 in January 2007, with another 65 under construction. Industry proponents envisions that biodiesel blends will displace 5% of all US diesel fuel by 2015. Biofuels from conventional crops such as corn and soybeans represent fairly limited resources, compared to the size of the U.S. demand for transportation fuel. Oak Ridge National Laboratory recently estimated an upper limit on ethanol production from corn at around 10 billion gallons per year1. This amount of ethanol would represent only 7 billion gallons per year of gasoline equivalent—5% of total gasoline demand, which reached almost 150 billion gallons per year in 2005. Therefore, the US Department of Energy has sponsored research on the development of thermo- chemical and biological processes for converting lignocellulosic biomass into fuels. Thermo-chemical processes include: gasification combined with catalytic conversion of syngas to fuels such as Fischer- Tropsch liquids, dimethyl ether and hydrogen; and pyrolysis of biomass to produce bio-oils that could serve as intermediates in a petroleum refinery. Biological processes include: enzymatic hydrolysis of

1 Perlack, R., L. Wright, et al., Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply, Oak Ridge National Laboratory, Oak Ridge, Tennessee, 2005. ORNL/TM-2005/66.

TA-4180 PRC – Final Report Page 9 National Strategy for Rural Biomass Energy Development Introduction and Background cellulose, combined with fermentation of sugars from cellulose and hemicellulose and use of the noncarbohydrate residue (primarily lignin) for heat and power production. 1.5.1.6 Brazil – Ethanol In 2006, Brazil reached the point of oil self-sufficiency. Between new off-shore supplies of crude oil and growing domestic ethanol production, the country no longer imports crude oil. The situation, which has been driven by government policy, represents an astonishing accomplishment for a country that in the 1980s imported 40% of its energy needs. In late 1973, the cost of Brazil’s oil imports tripled due to the Arab oil embargo, and world sugar prices, which had been climbing upward since the mid-1960’s, declined sharply in 1974. The Brazilian National Alcohol Program was launched in late 1975 with the goals of reducing the need for oil imports and providing an additional market for Brazilian sugar. The key element of the policy was to require the blending of ethanol into gasoline to the maximum extent feasible in existing vehicles (approximately 20% by volume). To promote an ethanol industry, the government offered credit guarantees and low-interest loans for construction of new refineries. A state trading enterprise began purchasing ethanol at favorable prices. Government set gasoline prices to give ethanol a competitive advantage, and the state-owned oil company, Petrobras, began making investments for distribution of ethanol throughout the country. The results were dramatic. Between 1975 and 1979, ethanol production increased more than 500%. In 1979, the Brazilian government began promoting ethanol-only cars and provided taxi drivers with incentives to convert their cars to 100% ethanol. The Brazilian ethanol program flourished during the early 1980s with the help of government pricing policies, which kept the cost of ethanol to consumers significantly cheaper than the cost of gasoline, and by the mid-1980’s, ethanol made up roughly half of Brazil’s liquid fuel supply. However, when world oil prices dropped sharply in 1985-86, Brazil’s ethanol program began to experience problems, and ethanol production stagnated but did not seriously decline – even throughout the 1990’s when deregulation and privatizations began throughout the Brazilian economy and world oil prices remained low. The main reason was that the national government continued to require that all gasoline sold in Brazil contain roughly 20% ethanol by volume. Currently, ethanol provides roughly 40% of transportation fuels in Brazil, a higher percentage by far than in any other nation. Ethanol production in 2005 was over 4.23 billion gallons of ethanol (16,500 million liters). The most dramatic development in the Brazilian ethanol program in recent years has been the explosive growth of flex-fuel vehicles, which have grown from 30% of new car sales in 2004 to 53% in 2005 and more than 70% for 2006. Production costs for ethanol in Brazil are the world’s lowest. The ethanol industry trade association estimates average production costs of approximately US$0.80 per gallon2. (In comparison, costs in the U.S. vary from US$0.90 - US$1.30 per gallon.) A favorable climate, low labor costs and mature infrastructure built up over several decades are among the factors producing this advantage. The Brazilian government’s principal intervention on behalf of its ethanol industry is the requirement that all gasoline sold contain a minimum percentage of ethanol. This blending ratio is currently set at just over 20%. In addition, the government provides a slight tax preference for the purchase of new flex-fuel cars. However, Government price-setting for ethanol in Brazil was phased out during the 1990’s. 1.5.1.7 India – Electricity Generation In the early 1990s, in response to the serious and ever-increasing power crisis faced by the country, India’s central government implemented a policy of renewable energy promotion that included as the central element, mandatory grid purchases of electricity from biomass, small hydro and wind power plants at attractive prices, which at the time were about $0.07 per kWh. The policy was implemented into law, with slight modifications, in most of India’s 25 states, which have responsibility over power generation. As an additional financial incentive, the central government created IREDA, the Indian Renewable Energy Development Agency, as a specialized unit dedicated to financing renewable energy projects. As result, India has become a leader in the development of wind farms and biomass cogeneration power plants. The total capacity of biomass cogeneration power plants at sugar mills reached 600 MW in 2006, but given that the potential of cogeneration in the Indian sugar industry is about 5,000 MW, some experts

2 Ethanol: Lessons from Brazil, David Sandalow, Brookings Institute, Washington, DC, May 2006.

TA-4180 PRC – Final Report Page 10 National Strategy for Rural Biomass Energy Development Introduction and Background consider this a poor record of performance in spite of the liberal financial assistance and concessions provided by the government. These experts point out that the government did not evolve a suitable technical package for implementation, but left it entirely to the executives of sugar factories who could not conceive the concept of cogeneration. Several seminars/workshops were organized that did not concentrate on technical inputs to be given to sugar mill executives for implementation of projects. They propose that had two or three model cogeneration plants been set up in existing sugar factories with the help and assistance of thermal power experts experienced in the operation of large power plants in the country, the more solid foundation for technical promotion of efficient cogeneration plants in the sugar industry would have lead to greater implementation. Many sugar executives failed to understand the technical requirements of cogeneration plants and continued to believe in past methods of sugar mill operation, such as having two boilers and two turbines for reliability, and purchasing equipment at the lowest price. The sugar mill executives did not have the experience or knowledge to take a systems approach to the specification of every component of the boiler, water treatment/cooling towers, fuel/ash conveyor systems, etc in detail. Also, they needed to be shown the necessity for and value of high reliability in a cogeneration plant, which does not shutdown during the non-crushing season, but must operate all year long. Procuring the most reliable equipment from reputed manufacturers even if it costs 15-20% more than the market price will pay for itself after 2-3 months of efficient and trouble-free operation. Also, most of the State Electricity Boards (SEBs) did not show much interest in assisting entrepreneurs in the implementation of cogeneration plants. In fact, they discouraged entrepreneurs in some of the following ways: 1) By signing PPAs but not adhered to the tariffs set by the Government. Some SEBs even canceled PPAs forcing the entrepreneurs to go to court for reinstatement. 2) By not upgrading substations to improve the stability of frequency and voltage and facilitate efficient evacuation of power without any stoppage. In 2005, the central government developed a New and Renewable Energy Policy Statement for energy from biomass, wind and solar. With regard to bio-energy, it calls for development of bio-energy technology for grid electricity, distributed generation and stand alone systems. It sets a target for full use of cogeneration in sugar and other biomass-based industries by 2012. It calls for both development of more cost-effective technology and promotion of energy crop plantations on waste-lands. It sets a target for the development of biomass-integrated gasifier/gas turbine (BIG/GT) systems for electricity generation with electricity costs under Rs 2.50/kWh ($0.05/kWh) by 2021-22. It also calls for establishment of a National Institute of Renewable Energy to be the focal point for all activity in synthetic fuels and biofuels. It establishes a mandatory bio-fuels policy started in 2006 with a target of 10% by 2009. In rural areas, it calls for high efficiency cook stoves, and small-scale biomass gasification coupled with 100% producer gas engines for supply to the grid where there is surplus biomass; and for village power supply where there is no electricity grid. 1.5.2 Applicability and Implications for Rural BRE Development in the PRC One of the key lessons learned from renewable energy policy development around the world is that consistency is of paramount importance, and that while policy adjustments are often necessary to deal with changes in market conditions and other external factors, maintenance of the basic goals of the program over time is essential to long-term success in building industries, changing consumer behavior and achieving the desired economic, environmental and social benefits. 1.5.2.1 Heating and cooking applications In the area of rural household cooking, only India has policies in this area that are relevant to China. The Indian policy to promote energy efficient stoves is relevant, but China’s energy efficient stove program is reputed to be the best in the world. India does not promote village-scale gasification for cooking gas applications because of concerns over carbon monoxide poisoning. India has a major problem with rural electrification, with over 50% of rural households lacking access to grid electricity. Therefore, India’s has policies to promote small-scale biomass gasification for village electrification.

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With regard to heating applications, the EU policies are most relevant to China. First, they promote biomass pellet fuels as providing a modern and convenient form for biomass fuels that can be acceptable to consumers in a more industrialized setting. This can also be relevant to China, but the potentially high cost of the pellet fuel is the largest concern in China. This would imply that policies are needed to reduce the cost of the pellet fuel to the rural households. The following options are possible and will be investigated further during the remainder of this ADTA. • Low-interest loans, loan guarantees and tax incentives to pellet fuel producers; • Standards and criteria for biomass pellet fuels; • Equipment certification for stoves and furnaces using pellet fuels; • Grants to low-income households to facilitate the purchase of pellet fuel and appliances 1.5.2.2 Electricity production In February 2005, China adopted a Renewable Electricity Law that began implementation in January 2006. For biomass-based power generation, the law specifies a tariff premium of 0.25 yuan/kWh above the base electricity generation cost in each province. The base electricity price is essentially the average cost of generation from the existing coal and hydropower plants operating in the province. This base cost is generally thought to be between 0.3 and 0.45 yuan/kWh, depending upon the province. After about 18 months of implementation, the law has resulted in more than 50 biomass power plants having been approved by the National Development and Reform Commission (NDRC) and the Local Development and Reform Commissions. The total planned capacity is 1500 MW, and the total planned investment is about 10 billion RMB. It is estimated that in 2007, at least 10 power plants will be put into operation with installed capacity of about 200 MW. However, economic analyses performed under Special Study D3 investigated the cost-effectiveness of several biomass power plants being constructed in China under the renewable energy tariff and with several possible tax incentives. Even with the most favorable tax treatment (0% VAT and 0% income tax) most of these plants do not appear to be cost-effective. The two principal reasons for this result are: a) the use of imported boiler and auxiliary technology by several of the early plants, which increases the unit investment by about 50%, and b) the price of biomass fuel, which is more than 50% higher than the current price of coal. Given this assessment, the level of the current tariff premium under the Renewable Electricity Law may need to be revisited as the actual results from these initials plants starting operation in 2007 becomes known. While price setting policies, such as China’s Renewable Electricity Law, have generally been most successful at developing renewable energy markets and domestic industries, there have been several examples where the initial tariffs have had to be revised as more information on the actual implementation costs became known. A key principal of successful renewable energy policies is that they must ensure the ability of the electricity suppliers to show a reasonable return on investment. Otherwise, they will not be able to get banks and other financial institutions to provide the capital required for investment, and project implementation will come to a halt. 1.5.2.3 BioFuels Several common lessons can be learned from experiences in the US, EU and Brazil regarding biofuels policy. First, rapid expansion of biofuels production capacity (both ethanol and biodiesel) is possible with government support. A common policy tool used to promote a rapid growth in supplies includes credit guarantees and low-interest loans for producers. Second, consistency counts. Brazil’s ethanol program has accumulated three decades of experience and one central requirement - that ethanol make up a certain percentage of the fuel supply - was important in sustaining the industry through hard times.

3 Report on Special Study D: Crop Straw Utilization For Rural Energy Needs, Efficient Utilization of Agricultural Wastes, ADB Loan: PRC 1924, Landell Mills Limited, April 2007

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Third, anticipate commodity price swings. One essential way to prepare for price swings in fossil fuels relative to biofuels is with flex-fuel vehicles. Whether the price swing is due to a drop in world oil prices, or to an increase in biomass feedstock prices, flexible fuel vehicles give consumers a short-term way to adjust and provides government with time to adjust policy in relation to the price swing. Fourth, minimize requirements for infrastructure change. Blending biofuels with conventional fuels is the easiest way to avoid costly infrastructure investments – especially early in the development of the biofuels industry. Finally, biofuel technologies improve steadily with time. This is true of almost all technologies, but the Brazilian experience of the past 30 years provides some compelling data when it comes to ethanol. Between 1975 and 2000, production of ethanol per hectare in Brazil more than doubled. During the same period, harvesting costs fell by half. Policy should anticipate and encourage similar improvements by promoting R&D for the biofuels industry.

TA-4180 PRC – Final Report Page 13 National Strategy for Rural Biomass Energy Development Estimates of Availability Biomass Resources

2. Estimates of Availability Biomass Resources

2.1 Straw Resources and Evaluation 2.1.1 Calculation of Straw Resources Crop straws are the crop byproducts after processing of main products of crops, the research is to study on biomass energy resources, therefore, the straws in this paper refer to straws of rice, wheat, corn, cotton, and legume crops. The quantity of straw resources is usually calculated based on the grain straw ratio of crops. For example, the grain straw ratio of rice is 1:0.9. If the production of rice is 100,000 tons, the production of rice straw is 100,000×0.9 = 90,000 tons. The quantity of straw resources in China in this paper is calculated based on the grain straw ratios of different crops in Table 2-1 and the plantation areas and productions of crops from the statistics publications such as China Agricultural Statistics. It is necessary to notice that the quantity of straw resources in this paper is the air dried weight, not the proper dry matter weight.

Table 2-1: Grain Straw Ratios of Different Crops in China Crops Ratios Rice 1 : 0.9 Wheat 1 : 1.1 Corn 1 : 1.2 Soybean 1 : 1.6 Cotton 1 : 3.4 Data source: Niu Ruofeng, Liu Tianfu, Agricultural Technology and Economy Handbook, Agriculture Press, October, 1984, P309. The available quantity of straw resources means the maximum quantity of straw that can be collected and utilized under the realistic farming conditions, especially the harvesting condition. It is usually calculated based the collection coefficient. The collection coefficients of different types of straw are calculated based on the ratio of stubble height to the plant height and the stem and leaf falling ratio. The collection coefficients are estimated based the result of ADB SS-D 4 , the investigation of stubble height in Huanghuaihai Region on the basis of distinction of mechanic harvesting and manual harvesting, in combination with the publications on straw retuning field, see Table 2-2.

Table 2-2: Crop Straw Collection Coefficients Type of Straw Collection Coefficients Averagec 0.85 Rice Straw Mechanic Harvesting 0.75 Manual Harvesting 0.90 Averagec 0.54 Wheat Straw Mechanic Harvesting 0.45 Manual Harvesting 0.90 Corn Straw 0.95c Averaged 0.87 Soybean Straw Mechanic Harvesting 0.80 Manual Harvesting 0.90

4 Crop Straw Utilization For Rural Energy Needs, Efficient Utilization of Agricultural Wastes, ADB Loan: PRC 1924, Submitted by Landell Mills Limited, April 2007.

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Type of Straw Collection Coefficients Cotton Straw 0.95 Average 0.83 Note: cBecause the area of mechanic harvesting of corn and cotton is very small, the collection coefficient in this paper does not consider the mechanic harvesting for these two crops. dAverage = collection coefficient of mechanic harvesting × proportion of mechanic harvesting + collection coefficient of manual harvesting × proportion of manual harvesting 2.1.2 Total Quantity of Straw Resources and Utilization in China 2.1.2.1 The Total Quantity and Available Quantity of Straw Resources in China In 2005, the total production of straw in China is about 841.83 Mt. The straw of food crops is 591.10Mt, accounting for 70.22% of the total amount; the straw of economic crops (vegetable, cotton, sugar crops, oil crops, tobacco, medical materials, and hemp crops) is 212.33 Mt, nearly equivalent the quantity of rice straw production, 25.22% of the total amount; the straw of other crops is 38.39 Mt, 4.56% of the total amount. Please see Table 2-3 for details. In 2005, the production of rice straw, corn straw, wheat straw, cotton straw, and soybean straw is 599.29 Mt, accounting for 71.18% of the total straw production in China. In 2005, the available quantity of straw in China is 698.48 Mt. The average collection coefficient is 0.83, the proportion of leaving in the field and loss in collection is about 17%. The available quantity of food crop straw is 498.84 Mt; accounting for 71.42% of the total available quantity, economic crop straw is 168.92 Mt, 24.18%; and other crop straw 30.71 Mt, 4.39%. Please see Table 2-3 for details. In 2005, the available quantity of rice straw, corn straw, wheat straw, cotton straw, and soybean straw is 519.17 Mt, accounting for 74.33% of the total available quantity of straw in China.

Table 2-3: Straw Production and Available Quantity in 2005 (10,000 ton) Straw type Total Quantity Available Quantity Total Production 84183.12 69847.77 I. Food Crops 59110.02 49884.48 1. Cereal 53714.22 45280.14 (1) Rice Straw and Hull 21129.26 18544.99 (2) Wheat Straw 10718.95 5788.23 (3) Corn Straw and Core 20207.93 19371.74 (4) Others 1658.08 1575.176 2. Legume Crops 3661.80 3217.14 3. Tuber Crops 1734.00 1387.20 II. Oil Crops 4423.34 3872.86 III. Cotton Straw 5257.04 4994.19 IV. Hemp Straw 124.90 113.25 V. Sugar Crops 2780.41 2572.45 VI. Tobacco Straw 429.28 407.82 VII. Medical Materials 570.60 342.36 VIII. Vegetables 7648.33 4589.00 IX. Other Crops 3839.20 3071.36

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2.1.2.2 Geographic Distribution of the Available Straw Resources Referring to the Regional Planning of Crop Production in China and the Regional Planning of Farming System in China and based on the disciplinarians of geographic distribution of agricultural crops in China, the distribution of straw resources in China can be divided into 8 regions. Among the 8 regions, HHH region (No. 2) and MLRC region (No. 3) produce the biggest quantity of straw resources. In 2005, each of these two regions produced 1/4 of the total quantity of straw in China. The total quantity of straw production in Northeast region and Southwest region is about 1/4 of the total quantity of straw in China. The total quantity of straw production in South-China region and Northwest region is about 1/5 of the total quantity of straw in China. The straw production in Loess Plateau region and Qinghai-Tibet Plateau region is small, 5.73% and 0.43% of the total quantity of straw in China, respectively. Please see Table 2-4.

Table 2-4: Straw Production and Available Quantity in 8 Regions in China in 2005 (10,000 tons) Region Straw Production Available Quantity % Total 84183.12 69847.77 100.00 Northeast 11360.96 9429.60 13.50 Huanghuaihai (HHH) 20519.31 17031.03 24.37 middle and lower reaches of 20901.03 17347.85 24.83 Changjiang River (MLRC) South-China 7750.76 6433.13 9.21 Southwest 10871.97 9023.74 12.91 Loess Plateau 4825.16 4004.88 5.73 Northwest 7587.78 6297.86 9.01 Qinghai-Tibet Plateau 366.16 303.91 0.43

2.1.2.3 Structure of Straw Utilization Straw can be used for five purposes, i.e. fuel, feed, fertilizer, industrial material, and base for edible fungus. In 2005, 338.00 Mt of straw was used for fuel (direct combustion by farmers), accounting for half of the total available quantity of straw resources; 2.75Mt for renewable energy development, 0.39%; 176.60 Mt for animal feed, >1/4; <35.00 Mt for industrial material, 5%; and 10.00 Mt for edible fungus plantation, 1.43%; and 222.75 Mt for returning to the field, >1/4, see Table 2-5.

Table 2-5: Structure of Straw Consumption in China in 2005

Available Fuel Animal feed Others Regions Quantity Quantityc Quantity Quantity (%) (%) (%) (10,000 t) (10k t) (10k t) (10k t) Total 69847.77 33804.19 48.40 17657.58 25.28 18386.00 26.32 Northeast 10242.81 4861.79 47.47 1924.62 18.79 3456.40 33.74 HHH 15625.22 6822.53 43.66 5953.21 38.10 2849.48 18.24 MLRC 17256.66 8269.21 47.92 3202.84 18.56 5784.61 33.52 South-China 6643.04 2797.16 42.11 834.37 12.56 3011.51 45.33 Southwest 9243.90 5965.77 64.54 2019.79 21.85 1258.34 13.61 Loess Plateau 3957.99 2602.36 65.75 922.61 23.31 433.02 10.94 Northwest 6580.92 2275.69 34.58 2738.32 41.61 1566.91 23.81 Qinghai-Tibet 297.22 209.69 70.55 61.82 20.80 25.71 8.65 Note: cAverage quantity for straw used for direct combustion in 2003~2005. Data source: Department of Science, Technology, and Education, Ministry of Agriculture, and Center for Energy and Environmental Protection Technology Development, Ministry of Agriculture, Statistics of Renewable Energy in Rural Area of China, 2003, 2004, 2005

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2.1.3 Energy utilization of Straw Resources and Its Evaluation 2.1.3.1 Forecast of potential of the straw resources The book “Arable Land in China” (Bi Yuyun et. al.) shows that the maximum potential (theoretic output of agricultural products) of the arable land resource in China is 1.1~1.2 billion ton of food crop production equivalent. Based on this result and the current average grain straw ratio (1:1.17), it can be calculated that the maximum straw production in China is 1.3~1.4 billion tons, 1.6 times of the total straw production in 2005. That is to say, on the basis of straw production of 2005, there is at most 60% of increasing space. In the Report on “Division of Medium- and Low-Yield Fields and Study of the Potential of Their Yield Improvement in China”, Bi Yuyun et. al. predicted that the total of arable land in China would drop to 116.46 million hectares in 2010, and 111.98 million hectares in 2015. Historical data show that the straw production per hectare increases form 6,033 kg in 1996 to 6,896 kg in 2005, with annual increasing rate of 1.50%. Using the model of utmost increase, it can be forecasted that the straw production per hectare will increase to 7,428 kg in 2010 and 8,000 kg in 2015. Based on the above prediction, the total straw production in 2010 and 2015 will be 865.06 Mt and 895.84 Mt, increasing by 23.23 Mt and 54.01 Mt from 2005, respectively. The available quantity of straw resources in 2010 and 2015 will be 705.02 Mt and 716.67 Mt, increasing by 6.54 Mt and 18.19 Mt from 2005, respectively. See Table 2-6. Assuming the crop structure does not have big change, the proportion of rice straw, wheat straw, corn straw, cotton straw, and soybean straw is still about 74% of the total straw production, the available quantity of these five types of straw resources will be 521.71 Mt in 2010 and 530.34 Mt in 2015.

Table 2-6: Forecast of Straw Resources in 2010 and 2015 Straw Production Available Quantity Year Collection Coefficient (%) (10,000 ton) (10,000 ton) 2005 84183 69848 83 2010 86506 70502 81.5 2015 89584 71667 80 Increase from 2005 to 2323 (1.6%) 654 (0.2%)1 -1.5 percentage point 2010 Increase from 2005 to 5401 (0.6%)1 1819 (0.3%)1 -3.0 percentage point 2015 Note: 1annual increasing rate. 2.1.3.2 Analysis of Competition of Straw Utilization At present, the competition of different uses of straw resources is not obvious. The structure of straw utilization will visualize only after long time of competition development. With the increase of the scale of straw utilization on renewable energy development and industrial processing, the straw resources will gradually come out from the natural economy and enter the market competition as the raw materials for energy industry, paper making, construction material industry, and feed industry. The competition of straw utilization has the following trend: 3 increases and 2 decreases. That is, increases: for animal feed, for industrial material, and for edible fungus; decreases: for direct combustion and for waste (including burned in field), see Table 2-7.

Table 2-7: Competition of Straw Utilization (unit: 10,000 ton) Year Total Feed Industry Edible fungus Return to field + waste Energy 2005 69848 17660 3500 1000 4850+8758 34080 2010 70502 22700 4700 1750 5097+4255 32000 2015 71667 27700 6000 2700 5267+0 30000

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2.1.4 Evaluation of Straw Used for Energy Purpose Density of straw resource is the annual straw production over an area. It reflects the degree of richness of straw resource in that area. Density of Straw Resources = Annual Straw Production / Land Area. In 2005, the average density of straw resource in China is 88.55 ton/km2. More than 3/4 of the total straw resources is distributed on less than 1/3 of the land of China. Straw resource per capita is an important criterion for evaluating the degree of richness of resources. In 2005, the straw resource per capita in China is 644 kg. Straw abundance considers both of the quantity of resource per unit area and the quantity of resource per capita. Straw abundance = available quantity of straw resources / (land area × population). It can be used to evaluate the degree of abundance of straw resource in an area. This criterion not only reflects the degree of richness in local resources, but also be used to evaluate the suitable utilization approaches. Table 2-8 shows that the straw resources is rich in Northeast region and HHH region, where centralized utilization with proper scale can be developed, while distributed utilization can be development in other regions. The straw resources is poor in Qinghai-Tibet Plateau region, where is not suitable for utilization for energy purpose.

Table 2-8: Abundance of Straw Resources for Energy Use in China Regions Density (t/km2) Per capita (t/person) Abundance (10-3t/km2⋅person) Northeast 143.48 1.056 11.2 (HHH) 380.53 0.725 10.1 (MLRC) 225.93 0.559 4.5 South-China 134.44 0.446 4.0 Southwest 96.58 0.535 3.0 Loess Plateau 62.94 0.497 4.5 Northwest 26.51 1.529 3.6 Qinghai-Tibet 1.91 0.446 0.5

2.1.5 Summary In China, 300 Mt of straw resources can be used for energy purpose, rich in Northeast region and HHH region, where centralized utilization with proper scale can be developed, while distributed utilization can be development in other regions. 2.2 Animal Waste and Evaluation 2.2.1 Calculation of Animal Waste Resource in China 2.2.1.1 Definition of Animal Waste and Scope of the Study As a source for energy, animal waste can be utilized in two ways: 1) direct combustion after air dried, manure of large grazing animals such as cattle and horse can be used through this way; and 2) produce biogas through anaerobic fermentation, animal waste is a good material for biogas production because of high content of organic matter. The animal waste resource in this study refers to the resource for biogas production only. In China, many kinds of livestock are fed, including cattle, horse, donkey, mule, pig, sheep, rabbit, chicken, duck, and goose, etc. There are two forms of livestock rearing in China: 1) extensive feeding: the traditional feeding form is suitable for small livestock farms and households to feed livestock, except

TA-4180 PRC – Final Report Page 18 National Strategy for Rural Biomass Energy Development Estimates of Availability Biomass Resources those stable feeding livestock, the animal waste scatters on the grazing land or in the pool, and it is difficult to collect; and 2) intensive feeding: the livestock farms are suitable to feed cattle, pig, and chicken, the animal waste is easy to collect and utilize. Because the collection of animal waste is the most important condition for energy utilization, the forms of livestock feeding can be used as the criterion for classification of animal waste: that is, the animal waste under the extensive feeding and intensive feeding. 2.2.1.2 Conditions for Utilization of Animal Waste Animal waste has two uses: 1) used as fertilizer; and 2) produce biogas and used as energy. There is no competition between the two uses. After anaerobic fermentation and biogas production, the animal waste can be used as fertilizer without any reduction of fertility. Therefore, all collectable animal waste is available animal waster resource. Biogas production has two forms: 1) household biogas digester, and 2) large biogas plant. Animal waste in intensive livestock farms is easy to collect and suitable for centralized utilization, and can be used as material for large biogas plants. The quantity of utilizable animal waste resource for small household biogas digesters depends on the quantity of household biogas digesters. The available quantity of animal waste resources includes two part: 1) animal waste from intensive pig, cattle, and chicken farms, and 2) animal waste used for household biogas digesters. 2.2.1.3 Current Status of Animal Waste Resource in China The quantity of animal waste resource can be estimated based on the variety of livestock, weight, daily excretion, and feeding period. Then, the energy quantity of the resource can be calculated based on the quantity of animal waste resource and the water content and biogas production rate of different types of animal waste.

Table 2-9: Quantity of Selected Livestock in China (unit: million head) Year 2000 2001 2002 2003 2004 2005 Pig 527 549 567 592 618 661 Cattle 129 128 131 135 138 142 Hen for eggs 2,060 2,146 2,261 2,394 2,501 2,644 Chicken for meat 8,691 8,707 8,993 9,439 9,722 10,534 Note: quantity of pig and cattle is from the official statistic data, while quantity hen for eggs and chicken for meat is calculated based on the production of poultry egg and poultry meat and average egg production and average carcass weight in 2005.

Based on the above data, the total quantity of animal waste resource can be estimated, about 4.4 billion tons in 2005, please see Table 2-10.

Table 2-10: Animal Waste Resource in China in 2000~2005 (unit: Mt) Year 2000 2001 2002 2003 2004 2005 Pig 1,185 1,236 1,275 1,332 1,391 1,487 Cattle 2,536 2,528 2,579 2,654 2,716 2,790 Hen for egg 75 78 83 87 91 97 Chicken for meat 52 52 54 57 58 63 Total 3,848 3,894 3,991 4,130 4,257 4,437

Based on the biogas production rates of different types of livestock manure, the possible biogas production from animal waste in China in 2005 is 226 billion m3, see Table 2-11.

Table 2-11: Possible Biogas Production from Animal Waste in China (unit: billion m3) Year 2000 2001 2002 2003 2004 2005 Pig 91 95 98 102 106 114 Cattle 88 88 90 93 95 97

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Year 2000 2001 2002 2003 2004 2005 Hen for egg 7 7 8 8 8 9 Chicken for meat 5 5 5 5 5 6 Total 191 195 200 208 215 226 Mtce 136 139 143 148 154 161

Figure 2-1: Structure of Animal Waste Resource in China in 2005 (in Biogas)

Hen Chicken 4% 3%

Pig 50% Cattle 43%

Figure 2-1 shows that pig manure and cattle manure account for the majority in the animal waste resource in China (about 93%). 2.2.1.4 Available Quantity of Animal Waste Resource In 2005, there are 90 million households feeding pigs, 15.7 million households feeding cattle, 85 million households feeding chickens, and 26 million households feeding sheep in rural area of China. Considering the social, economic, and climate conditions, there are 148 million rural households suitable for developing biogas. If all of these households develop biogas, 60.89 billion cubic meter of biogas will be produced, based on the 411.39 cubic meter of average biogas production per digester in 2005. Together with the 73.76 cubic meter of biogas from animal waste in intensive livestock farms, the total available quantity of animal waste in China in 2005 is 134.65 billion cubic meter of biogas, equivalent to 96.18 Mtce, see Table 2-12.

Table 2-12: Available Quantity of Animal Waste in China in 2005 Number of households suitable for developing biogas (Million) 148.00 Biogas production from household biogas digesters (billion m3) 60.89 Biogas production from large biogas plants (billion m3) 73.76 Available quantity of animal waste in China (billion m3) 134.65 Coal equivalent (Mtce) 96.18

2.2.1.5 Quantity of Current Utilization of Animal Waste Since 1990s, the number of household biogas digesters has developed rapidly and steadily. By the end of 2005, the number of household biogas digesters accumulated to 18.06 million, 7.06 billion cubic meter of biogas was produced, equivalent to 5.04 Mtce. Table 2-13 shows the developing trend of both of large biogas plants and household biogas digesters. Although the biogas development is very fast, either the

TA-4180 PRC – Final Report Page 20 National Strategy for Rural Biomass Energy Development Estimates of Availability Biomass Resources large biogas plants or the household biogas digesters, the utilization ratio is still very low relative to the huge amount of animal waste resource, see Table 2-14.

Table 2-13: Biogas Production in China in 2000~2005 (million m3) Year 2000 2001 2002 2003 2004 2005 Large biogas plants 34 36 51 58 89 230 Household biogas digesters 2,589 2,982 3,699 4,580 5,568 7,059 Total 2,622 3,017 3,749 4,638 5,657 7,289

Table 2-14: Utilization of Animal Waste Resources in China (in biogas) Year 2000 2001 2002 2003 2004 2005 Utilization (billion m3) 2.6 3.0 3.7 4.6 5.7 7.3 Resource (billion m3) 191 195 200 208 215 226 Utilization rate 1.37% 1.55% 1.87% 2.23% 2.63% 3.23%

2.2.2 Prediction of Animal Waste Resource in 2010, 2015, and 2020 2.2.2.1 Prediction of Quantity of Animal Waste Resource According to the Development Plan for Husbandry of China in the 11th Five-Year Plan (2006~2010), the production of meat, eggs, and milk in 2010 will reach 86.00 Mt, 30.00 Mt, and 42.00 Mt, respectively. Assuming the increase of meat products and egg products keeps the same speed and the increase of milk products keeps the half of that speed, the production of meat, eggs, and milk in 2015 will reach 95.67 Mt, 31.26 Mt, and 52.00 Mt, respectively; and the production of meat, eggs, and milk in 2020 will reach 106.42 Mt, 32.56 Mt, and 64.39 Mt, respectively. Assuming the structures of meat products, egg products, and milk products in 2015 and 2020 are the same of those in 2010, the quantity of pigs, cattle, and chickens can be estimated (Table 2-15).

Table 2-15: Prediction of Selected Livestock Quantity in China (unit: million) Year Pig Cattle Hen Chicken 2010 735.27 171.57 2,754.81 11,718.24 2015 817.91 198.04 2,870.09 13,035.25 2020 909.84 229.20 2,990.20 14,500.29

Correspondingly, the total quantity of animal waste resource in 2010 will be 5,207 Mt, biogas production: 387 billion m3, and coal equivalent:276 Mt, see Table 2-16. The total quantity of animal waste resource in 2015 will be 5,928 Mt, biogas production: 440 billion m3, and coal equivalent: 314 Mt, see Table 2-17. The total quantity of animal waste resource in 2020 will be 6,762 Mt, biogas production: 501 billion m3, and coal equivalent: 358 Mt, see Table 2-18.

Table 2-16: Prediction of Animal Waste Resource in China in 2010 Pig Cattle Hen Chicken Total Animal waste (Mt) 1,654 3,382 101 70 5,207 Biogas production (billion m3) 127 244 9 7 387 Coal equivalent (Mtce) 90 175 7 5 276

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Table 2-17: Prediction of Animal Waste Resource in China in 2015 Pig Cattle Hen Chicken Total Animal waste (Mt) 1,840 3,904 105 78 5,928 Biogas production (billion m3) 141 282 10 7 440 Coal equivalent (Mtce) 101 201 7 5 314

Table 2-18: Prediction of Animal Waste Resource in China in 2020 Pig Cattle Hen Chicken Total Animal waste (Mt) 2,047 4,519 109 87 6,762 Biogas production (billion m3) 157 326 10 8 501 Coal equivalent (Mtce) 112 233 7 6 358

2.2.2.2 Prediction of Available Quantity of Animal Waste For household biogas digester, the available quantity of animal waste resource depends on the number of digesters, i.e. the number of households who have enough material and other conditions needed by a digester. Considering the social, economic, and climate conditions, there are 148 million rural households suitable for developing biogas. It is predicted that the number of households suitable for developing biogas in 2010, 2015, and 2020 will be 139 million, 130 million, and 121 million, respectively. At the same time, the animal waste resource from intensive livestock farms will increase with the increase of scale and number of livestock farms. The available quantity of animal waste in biogas in 2010, 2015, and 2020 will be 141 billion cubic meter, 147 billion cubic meter, and 154 billion cubic meter, respectively, see Table 2-19.

Table 2-19: Available Quantity of Animal Waste in China in 2010, 2015, and 2020 Year 2010 2015 2020 Number of households suitable for developing biogas (Million) 139 130 121 Biogas production from household biogas digesters (billion m3) 57 53 50 Biogas production from large biogas plants (billion m3) 83 93 104 Available quantity of animal waste resources (billion m3) 141 147 154 Coal equivalent (Mtce) 100 105 110 Proportion of Available quantity 36% 33% 31%

2.2.3 Provincial Estimates of Animal Waste Resource and Utilization 2.2.3.1 Animal Waste Resource in Provinces From the analysis in the previous sections, pig manure and cattle manure account for the majority in the animal waste resource in China (about 93%). In addition, these two types of animal waste can be used as material for both household biogas digester and large biogas plants, while chicken manure is difficult to be used for household biogas digester. Therefore, in calculating the quantity of animal waste resource in provinces, we consider pig manure and cattle manure only (see Table 2-20).

Table 2-20: Pig and Cattle Manure Resource in Provinces in 2005 Province Manure (Mt) Biogas production (billion m3) Beijing 14.91 0.94 Tianjin 19.58 1.13 Hebei 264.47 13.44 Shanxi 57.19 2.58 Inner Mongolia 135.16 5.61

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Province Manure (Mt) Biogas production (billion m3) Liaoning 119.74 6.33 Jilin 137.04 5.97 Heilongjiang 135.22 6.02 Shanghai 7.38 0.52 Jiangsu 79.67 5.56 Zhejiang 49.01 3.46 Anhui 144.28 7.49 Fujian 63.11 3.96 Jiangxi 123.65 6.41 Shandong 294.51 14.56 Henan 410.48 19.52 Hubei 158.98 8.75 Hunan 258.51 14.80 Guangdong 154.75 8.78 Guangxi 208.70 9.93 Hainan 37.80 1.72 Chongqing 77.80 4.58 Sichuan 386.61 20.13 Guizhou 189.04 7.95 Yunnan 219.60 10.21 Tibet 125.08 4.38 Shaanxi 81.83 3.72 Gansu 109.74 4.48 Qianghai 82.80 3.00 Ningxia 23.01 0.95 Xinjiang 108.01 4.12 Total 4,277.67 211.02

Sichuan province ranks the first in pig and cattle manure resource, with 386.61Mt of total quantity and 20.13 billion cubic meter of biogas production. Pig and cattle manure resource in either of Henan, Shandong, Hebei, Hunan, and Yunnan can produce biogas of more than 10 billion cubic meters. The quantity of pig and cattle manure resource in Tianjin, Ningxia, Gansu, Shaanxi, Hainan, Zhejiang, Shanxi, Tibet, Qinghai, Xinjiang, Beijing, and Shanghai is relatively low. 2.2.3.2 Grade of Animal Waste Resource in Provinces of China • Provinces Rich in Animal Waste Resource: Sichuan, Henan, Shandong, Hunan, Hubei, and Yunnan have resources of pig manure and cattle manure enough for biogas production of more than 10 billion cubic meters. • Provinces Middle in Animal Waste Resource: Guangdong, Guangxi, Hebei, Inner Mongolia, Liaoning, Jilin, Heilongjiang, Guizhou, Jiangsu, Jiangxi, and Anhui have resources of pig manure and cattle manure enough for biogas production of more than 5 billion cubic meters and less than 10 billion cubic meters. • Provinces Poor in Animal Waste Resource: Beijing, Tianjin, Shanghai, Chongqing, Ningxia, Qinghai, Gansu, Shaanxi, Xinjiang, Hainan, Tibet, Fujian, Zhejiang, and Shanxi have resources of pig manure and cattle manure enough for biogas production of less than 5 billion cubic meters.

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2.2.3.3 Utilization of Animal Waste Resource in Provinces In the pig and cattle manure resources at the national level, which account for the majority (about 93%) of the total quantity of animal waste resource in terms of energy, only 1/3 from the intensive livestock farms. At the provincial level, the proportion of pig and cattle number of intensive livestock farm is higher in Beijing, Tianjin, Shanghai, Guangdong, Liaoning, Jilin, Heilongjiang, and Fujian, and the corresponding proportion of animal waste resource from intensive livestock farms is higher; whereas the proportion of pig and cattle number of intensive livestock farm is lower in Tibet, Yunnan, Guizhou, and Qinghai, and the corresponding proportion of animal waste resource from intensive livestock farms is lower (see Table 2-21).

Table 2-21: Structure of Pig and Cattle Manure Resource in China in 2005 (billion m3 of biogas) Province Intensive farms Proportion Extensive feeding Proportion Beijing 0.96 97.72% 0.02 2.28% Tianjin 0.96 84.42% 0.18 15.58% Hebei 5.66 42.12% 7.78 57.88% Shanxi 0.89 34.47% 1.69 65.53% Inner Mongolia 1.71 30.43% 3.90 69.57% Liaoning 3.26 51.49% 3.07 48.51% Jilin 4.16 69.75% 1.81 30.25% Heilongjiang 4.00 66.46% 2.02 33.54% Shanghai 0.45 87.07% 0.07 12.93% Jiangsu 2.01 36.15% 3.55 63.85% Zhejiang 2.26 65.35% 1.20 34.65% Anhui 1.65 22.08% 5.84 77.92% Fujian 2.14 53.98% 1.82 46.02% Jiangxi 1.58 24.68% 4.83 75.32% Shandong 6.22 42.69% 8.34 57.31% Henan 5.96 30.53% 13.56 69.47% Hubei 1.72 19.68% 7.03 80.32% Hunan 5.22 35.29% 9.58 64.71% Guangdong 4.14 47.11% 4.65 52.89% Guangxi 1.45 14.58% 8.48 85.42% Hainan 0.32 18.36% 1.40 81.64% Chongqing 0.75 16.31% 3.83 83.69% Sichuan 2.91 14.44% 17.22 85.56% Guizhou 0.61 7.63% 7.34 92.37% Yunnan 0.70 6.84% 9.52 93.16% Tibet 0.08 1.88% 4.29 98.12% Shaanxi 0.85 22.88% 2.87 77.12% Gansu 0.88 19.62% 3.60 80.38% Qianghai 0.23 7.71% 2.77 92.29% Ningxia 0.29 30.62% 0.66 69.38% Xinjiang 1.90 46.03% 2.23 53.97% Total 65.91 31.23% 145.11 68.77%

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2.2.4 Summary Pig, cattle, sheep, draught animal, and poultry are the major livestock in Chinese husbandry. In animal waste resource, pig and cattle account for the majority (about 93%) of the total quantity of China. Animal waste resource from extensive feeding of pig and cattle is almost twice of that from intensive livestock farms in 2005. Estimated based on the Development Plan for Husbandry of China in the 11th Five-Year Plan (2006~2010), the total quantity of animal waste resource in 2010 will be 5,207 Mt, biogas production: 387 billion m3, and coal equivalent: 276 Mt. The total quantity of animal waste resource in 2015 will be 5,928 Mt, biogas production: 440 billion m3, and coal equivalent: 314 Mt. The total quantity of animal waste resource in 2020 will be 6,762 Mt, biogas production: 501 billion m3, and coal equivalent: 358 Mt. The available quantity of animal waste in biogas in 2010, 2015, and 2020 will be 141 billion cubic meter, 147 billion cubic meter, and 154 billion cubic meter, respectively. The available quantity of animal waste in 2010, 2015, and 2020 accounts for 36%, 33%, and 31% of the total quantity of animal waste resource in corresponding year, respectively. 2.3 Energy Crop Resource and its assessment 2.3.1 Definition and categorization of energy crops The term “energy crop” mainly refers to agricultural products and types of biomass with inherent value through its potential energy, benefits in its development and utilization as energy source and to biomass characterized by high ability and high output. Energy crops are considered renewable energy, belonging to the area of biomass. Only biomass with potential for energy supply and attributed with technological and economic viability are “energy crops”. The MoA’a document Nr. [2007]10 “Concerning initiation of assessment and analysis of energy crops suitable to China’s boundary land areas” clearly states: “Energy crops” is a term applied to crops specially cultivated for production of biofuels. This includes sweet sorghum, sugar cane, types of potatoes, sugar beet, rape, Castor-oil plants etc. In this study, the only energy crops referred to are sweet sorghum, cassava, sweet potato, and rape. 2.3.2 Characteristics of various energy crops 2.3.2.1 Sweet sorghum Sweet sorghum is an energy crop because under equal conditions its biomass-conversion efficiency and yield are high. Sweet sorghum has three resource streams: Plentiful seeds, high quantities of celluloses and stem juice with high sugar-content. Its seed are left to farmers as edible food; the stem juice with high sugar content is used for fuel ethanol conversion; celluloses material is utilized as cattle feed, as material for pulp and paper production or used to further produce fuel ethanol via acidic and enzyme processes. Cross-cultivated/hybrid sweet sorghum is a highly productive C4 plant. Compared to C3 plants, its photosynthetic abilities are much higher and can even reach double of C3 plants’. Its biological output also ranks highest within the C4 plants. Its light-energy conversion ration reaches 18% - 28%, its biomass output is 1,5 tons dry matter/Mu, maximum output reaches 3 tons dry matter /Mu, which is 1-2 times the output of corn and sugar cane. Sweet sorghum is insensitive to arid, waterlogging and salty environments. Per kilogram dry biomass produced sweet sorghum need 250 kilograms water, compared to 500- 700 kilograms that wheat and various types of beans need and 1000 kilograms that trees need. Sweet sorghum even grows satisfactorily in soil that has a pH- value of 5.0-8.5. The sweet sorghum stem is rich in sugar, mainly being sucrose, dextrose and fructose. The stem juice Brix is above 10%, types selected as energy crops can all maintain above 15°BX ～ 20°BX. The hydrocarbons synthesized by sweet sorghum on each Mu soil per day can produce 3.2 litres ethanol, compared to only 1 litre with corn, 0.5 litres with wheat, 0.6 litres common edible sorghum. Hence, sweet sorghum is an excellent energy crop. 2.3.2.2 Sweet potato Sweet potato is rich in starch, has only little cellulose, has sufficient protein, its processing is fairly easy, starch utilization thorough, thus it is a feedstock suitable for ethanol production. The sweet potato is a

TA-4180 PRC – Final Report Page 25 National Strategy for Rural Biomass Energy Development Estimates of Availability Biomass Resources high-output crop. Rich arable fields can produce 5000 kilograms per Mu. The sweet potato is very flexible and strong, it endures drought, sustains infertile, acidic and alkali rich land, its stems and leaves grow crawling, its regenerative abilities are strong, it is defensive against wind, hail, bugs and other natural disasters, which are all reasons for it to be chosen as an energy crop. The sweet potato is a plant that prefers higher temperatures. After seeding the earth’s temperature in 5~10 mm depth is within the range of 15 ~ 30 °C, and it stops growing at 15 °C. Sprouting of root nets/root blocks form best at temperatures of 24 °C, root nets/root blocks expands best at temperature of 22-23 °C. Normally the best harvest time is when local temperatures drop to 15 ~ 12 °C, which is between beginning until mid of October. This is the best time for drying and processing of the “spring potato” starch since the sweet potato will dry fast and its quality will be good. Safe storage of the sweet potato is very important. Harvest quality of the sweet potato directly affects its storage conditions/effects. Ethanol production from sweet potato is a traditional and mature process. The sweet potato is mainly composed of starch, other than that it has 3% dextrin, dextrose, fructose, sucrose and traces of other components. Common edible ethanol plants can generally all produce ethanol from sweet potato. For purpose of avoiding environmental pollution a complete and dedicated waste-water processing system is necessary. 2.3.2.3 Cassava Cassava is a multiple-year plant. Its origins are in South-America and it is mainly cultivated in Africa, Asia, South-East Asia, Latin America and other tropical areas. Its horizontal distribution is south north latitude 30 °, vertically it is to be found below 2000 meters above sea-level. Cassava has been introduced into China during the 20s of the nineteenth century, at first in Guangdong province around the Gaozhou area, afterwards it was introduced into Hainan. Now its cultivation has already spread throughout southern China, primarily in the provinces Guangdong, Guangxi, Hainan, secondly in Fujian, Yunnan, and Hunan, Jiangxi, Sichuan, Guizhou provinces have established smaller test cultivations. Cassava is a multi-annual bush plant/ shrubs in tropical and subtropical areas, in tempered zones it is a once per year bush plant/ shrubs. Its growth flexibility is high, it sustains draught and infertile land well and it can grow on various kinds of soil. Cassava’s starch output is much higher that that of cereals, it has very good processing properties, fresh cassava roots can produce starch and it is the main resource of the ethanol industry. The starch bagasse can be utilized as cattle feed, or for alcohol brewing purposes, and has a high value for integrated utilization. Growing of cassava does not compete with edibles. In subtropical and tropical areas the plant can grow throughout all four seasons, which is beneficial for year-round feedstock supply. The types of cassava in China are mostly introduced from outside, only few are nationally selected and bred. Types with broader cultivation area are: • Huadiaosu 205: Introduced to Guangdong from the Philippines, afterwards introduced to Hainan and Guangxi etc. Pro Mu land 2000- 3000 kg of fresh cassava are produced, intensive cultivation can reach 5000 kg. • Huanan 124: This is a new type that has been successfully cultivated and commercialized in 1988 by the Chinese tropical agricultural academy of science. It normally yields 2000- 3000 kg per Mu land, intensive cultivation can reach above 5000 kg. • Huanan 6068: Early maturing type, can be harvested 7-8 months after planting, yield quantity is medium, ranging at 1000- 1500 kg per Mu land and can reach max. 3000 kg per Mu land. • Bread cassava: also called “Malay Red”, introduced from Malaysia. It is the earliest edible type cultivated and also the first type broadly grown in Hainan. Per Mu land around 1000 kg can be yielded. Ethanol production from cassava is a mature and traditional process. It is basically identical to processing of sweet potato to produce ethanol. Common edible ethanol plants can generally all produce ethanol from cassava. For purpose of avoiding environmental pollution a complete and dedicated waste-water processing system is necessary.

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2.3.2.4 Rape Rape is an important oil plant of China. Its seed has an oil-content of 33% - 50%. Starting from 1995 the total growing area has been 100 Mio. Mu of land with an annual output of approx. 10 Mio. tons of rapeseed, which converts into 40%- 45% of oil-containing crops (not including soybean); at the same time it produces 6 Mio. tons of rape cake. Rape includes many types of brassica. All cultivated ruciferae and brassica plants to yield seeds for oil extraction are called rape. As to rape cultivation in China it can be classified into three big types, being B. Chinensis (Chinese cabbage type), B. juncea (Mustard type) and B.napus (Cabbage type). B. Chinensis originates in China, most concentrated along the Yangze River and north-western high-grounds. B. juncea is mostly concentrated in north-west and south-west. B. napus has been introduced into China from Japan and Europe during the 30s-40s of the twentieth century, most concentrated in Huanghuai and along the Yangze River. Rape is widely distributed in China. It is classified by ecological conditions into the two big areas of winter rape and spring rape. These two areas are separated by a border which starts in the east at Shanhaiguan, it then goes along the Great Wall. South of the described border lies the winter rape area, to its North-west is spring rape area. Yangze area winter rape occupies Chinas rape growing area’s 82.2%, total output occupies its 83.5%, thus it is Chinas main rape production area. It is also the world’s largest rape production area, since its rape seed production quantity represents the world’s rape seed productions quantity’s 25%. 2.3.3 Land resources to develop energy crops 2.3.3.1 Principles of developing energy crops The Chinese State Council has decided to stop coal chemistry projects already in construction and projects producing ethanol from edible crops on 7th of June, 2007. Consequently, it states that China will strongly pursue development of non-edible crop fuel ethanol with basic principles of not competing for arable land, not consuming edible food and not polluting environments. China’s oil crop development has main purposes of supplying food oil and other purposes. Therefore, developing biodiesel in China will have to be based on oil-producing wood plants. As a possible crop/plant to produce biodiesel the southern “land unoccupied in winter” can be used to produce oil plants (such as rape). 2.3.3.2 China’s arable land is very scarce Since biofuels resource are always either agricultural or forestry products, it is naturally limited by the area of land that can be utilized. China’s per capita arable land is not even 0,1 hectare, satisfying edible demand of more than 1 billion inhabitants is already not easy. Furthermore, apart from seasonal changes, China’s arable land area is decreasing annually, see Table 2-22.

Table 2-22: China’s changes in arable land area (unit: thousand hectare) End of year available Increase in arable land Decrease in arable Net decrease in arable Year arable land during year land during year land during year 1998 129,642.1 309.4 570.4 261.0 1999 129,205.5 405.1 841.7 436.6 2000 128,243.1 603.7 1,566.0 962.4 2001 127,615.8 265.9 893.3 627.3 2002 125,929.6 341.2 2,027.4 1686.2 2003 123,392.2 343.5 2,880.9 2537.4 2004 122,444.3 345.6 1,146.0 800.3 2005 122,082.7 306.7 594.9 361.6 Source: 2006 Agricultural White Book Reserve arable land resource refers to suitable free arable land. It is mainly composed of land suitable for growing agricultural products, such as cultivated grasslands and natural economic forestry, thin forestry

TA-4180 PRC – Final Report Page 27 National Strategy for Rural Biomass Energy Development Estimates of Availability Biomass Resources grasslands, bush lands and other not yet utilized areas. China’s suitable free arable land covers 35.35 Mio. hectares, it is distributed and categorized as seen in Table 2-23.

Table 2-23: China’s reserve arable land resource (unit: 10.000 hectare) Primary Secondary Tertiary Area Total land land land National total 3536.87 314.93 796.13 2425.80 Tempered moist areas 550.47 132.60 222.67 195.20 Tempered semi-moist areas 208.53 79.53 59.87 69.13 Tempered half-dry areas 835.20 72.20 256.20 506.80 Tempered dry areas 665.00 16.27 94.00 554.73 Warm temperate moist, semi-moist areas 149.86 28.73 121.13 Warm temperate half dry areas 35.40 35.40 Warm temperate dry areas 565.40 12.47 552.93 Northern, central subtropical moist areas 306.53 0.27 3.73 302.53 Southern subtropical, tropical moist areas 92.26 88.93 3.33 Elevated colder areas of Highlands of Qingzang 128.20 14.07 29.53 84.60

China’s reserve arable land resource is mainly situated north of north latitude 35°, concentrated in Northeast China and in Inner Mongolia. The plain of the three rivers, the Songnen plain, the valleys of the North-eastern mountainous areas and hill before mountains, eastern Inner Mongolia, Hexi corridor, Huaigeer Basin, Tarim Basin, Yixihe river area, etc. The wild land of these area make up 80% of China’s wild areas. According to MoA’s “Agricultural technology lecture document (2007) Nr. 10”, evaluation of energy crops in bordering areas it states: Border areas for energy crops means land unoccupied in winter and suitable free arable land utilizable to grow energy crops. 2.3.3.3 Valuation standard for land “Land unoccupied in winter” refers to arable land after harvesting in autumn and before seeding in spring, on which one season could be used to grow plants, yet it is left unused for that season. Area of land unoccupied in winter and utilizable by energy crops refers land unoccupied in winter on which crops are able to grow in one season with basically not affecting autumn sowing conditions. With Yangze river area as an example, it refers to utilizable land unoccupied in winter sufficient for at least one-seasonal early mature rape growth. “Suitable free arable land” refers to land dedicated to liquid biofuel production that is suitable to grow energy crops, such as natural grass lands, loose woodlands, bush lands and non- utilized areas. Non- utilized land refers to land which can be provided to agriculture, but hasn’t been yet provided wild grass land, salt alkaloid land, sandy wild land, bare land, tidelands and so on. 1) Suitable free arable land does not take into consideration following land types Firstly, protected natural forest areas, protected natural areas, protected wildlife areas, protected water sourcing forests, water and soil protection areas, protective forest regions and such protected loose forestry lands, bush lands, irrespective of its suitability for agricultural development, are not considered as suitable free arable land. Secondly, areas for flood protection and protected beaches of wetlands are, irrespective of its suitability for agricultural development, not considered as suitable free arable land. 2) Land types recognized as suitable free arable land Other than soil characterized above, land conforming to following characteristics such as natural grass lands, loose woodlands, bush lands and other non-utilized lands can be defined as suitable free arable land (see Table 2-24).

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Table 2-24: Standard definition of suitable free arable land Classification system Standard 1.Surface angle ＜25° 2.Soil quality Not sand and gravely soil Northern areas, including Yellow Huaihai area, Northeast China, Yellow Earth high grounds, dry regions of the ＞30 cm Northwest, Highlands of Qingzang 3.Efficient soil depth Southern China, Sichuan Basin and ＞20 cm Southern areas mid- to downstream of Yangze River Highlands of Yunnan ＞10 cm 4.Soil salinization Soil salt content ＜2% Land with guaranteed irrigation or dry land where dry cultivation can 5.Water conditions be developed, During growth period of the crop rainfall is normally not below 160 mm Cold-resistant plants can grow 6.Temperature conditions stably

3) Suitable free arable land is classified into Grade I, Grade II and Grade III. Grade I refers to suitable free arable land with no or little restriction to agricultural utilization. These wild lands are even, its soil is high in fertility, its mechanical cultivation conditions are well, don’t require reconstructing or only little reconstructing to immediately begin energy crop cultivation, and under normal cultivation management satisfactory/ good output can bee achieved, and its cultivation does not lead to local or neighboring soil degradation. Grade II refers to suitable free arable land with certain restrictions on its usage as agricultural land. These wild lands need a good deal of reconstructing when to be used to grow energy crops, or it needs certain protective measures to prevent soil degradation. Grade III is low in quality; it has high restrictions on its agricultural use. These wild lands need larger measures with intensive reconstructing, only then can it be used for agricultural purposes, or it can only be used under stringent protective measures, since it will otherwise degrade easily.

Table 2-25: Provincial reports of available land areas (not including Tibet and Taiwan Province, unit: mu) Land unoccupied Province in winter Grade I Grade II Grade III Total Hebei 2,151,366 470,500 488,700 1,982,200 2,941,400 Shanxi - 655,968 986,532 2,487,000 4,129,500 Inner Mongolia - 10,547,575 20,263,232 35,651,808 66,462,615 Liaoning 17,690,887 2,137,682 3,081,681 6,304,313 11,523,677 Jilin - 4,701,145 8,771,154 7,656,981 21,129,280 Heilongjiang - 3,592,089 4,591,251 4,575,912 12,759,252 Jiangsu 2,969,337 1,307,633 3,375,901 4,124,801 8,808,335 Zhejiang 98,070 620,985 597,556 1,018,738 2,237,279 Anhui 8,967,151 3,717,825 3,771,885 2,613,885 10,103,595 Fujian 3,391,856 484,987 593,835 1,086,758 2,165,580 Jiangxi 5,675,000 1,500,000 2,500,000 16,000,000 20,000,000

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Land unoccupied Province in winter Grade I Grade II Grade III Total Shandong 11,721,910 1,722,800 1,510,400 1,986,500 5,219,700 Henan 11,117,175 6,435,750 5,510,895 4,458,242 16,404,887 Hubei 11,215,000 7,265,000 8,629,700 1,027,000 16,921,700 Hunan 6,560,000 1,200,000 1,750,000 1,550,000 4,500,000 Guangdong 6,487,565 3,264,674 3,917,423 3,475,743 10,657,840 Guangxi 8,080,563 2,164,616 2,832,575 2,005,765 7,002,956 Hainan 341,400 3,596,600 1,469,500 2,409,000 7,475,100 Chongqing 8,266,032 1,878,945 3,003,157 3,224,635 8,106,736 Sichuan 14,143,229 5,255,397 10,040,238 8,761,028 24,056,663 Guizhou 11,496,231 6,801,482 28,614,375 19,332,543 54,748,400 Yunnan 16,996,217 6,044,372 14,750,039 14,877,254 35,671,665 Shaanxi 6,992,734 1,442,407 1,505,448 3,118,086 6,065,941 Gansu - 4,459,130 9,897,984 13,730,399 28,087,513 Qinghai 3,740,000 670,000 1,200,000 1,870,000 3,740,000 Ningxia 6,725,834 158,200 573,250 8,817,958 9,549,408 Xinjiang 20,202,715 28,465,755 17,277,061 28,906,168 74,648,984 Total 185,030,270 110,561,516 161,503,772 203,052,717 475,118,006

2.3.3.4 Utilizable land for energy crop development According to MoA’s Letter for Survey and Evaluation of Marginal Land Resource Suitable for Energy Crop Development (2007- No. 10), provincial Rural Energy Office implemented the survey in March to June of 2007. At present, China’s marginal land for energy crop development includes: land unoccupied in winter of 185 million mu, Grade I land suitable for energy crops of 111 million mu, Grade II land of 162 million mu, and Grade III land of 203 million mu. According to Academician Shi Yuanchun, the area of reserve land with relatively good soil conditions of 320 million mu (21.36 million hectares) can be used to develop energy crops such as sweet sorghum and cassava. According to the Report of Status of desertified and desertifying lands in China published by the State Forestry Administration in June 2005, the Ministry of Land Resource took one and a half years to implement the survey in 851 counties and in an area of 3.31 million km2, and more than 10,000 experts and technicians participated in the survey. The survey used the method of combination of ground survey with satellite remote sensing, GIS, and GPS. The reserve resource for arable land in China shows that the area of exploitable reserve land resource in 1.33 billion mu (88.74 million hectares). Except the reed beds, tidal flat, and wetland which are forbidden to develop crop production by the laws, only waste grassland, saline alkali land, and bare land can be used to develop energy crops. The area of these three types of land is 3.62 million hectares, 0.80 million hectares, and 1.71 million hectares, respectively. The total is 6.13 million hectares (91.90 million mu). These lands are basically the Grade I and II land suitable for energy crops. In Jiangsu, Anhui, Hubei, Hunan, and Chongqing, there is 43.62 million mu of land unoccupied in winter. Considering the labor conditions, soil conditions, and the economic benefit of rape production on land unoccupied in winter, it is possible to develop 20 million mu of land unoccupied in winter to produce rape seed (production of 1.50 Mt of biodiesel). The total of waste grassland, saline alkali land, bare land, and 20 million mu of land unoccupied in winter is 111.90 million mu. Combined the land survey, national survey, and experts’ research, the Grade I land suitable for energy crops (including saline alkali land) is the land for energy crop production in future. 110.56 million mu of land can be used to develop energy crops.

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2.3.4 Potential for liquid biofuel development According to Chinas strategic goals set within the “Eleventh Five- Year Plan” and “Mid- to longterm Plan”, it was stated that first 5% (demonstration stage) of Chinas suitable free arable land (including salt alkaloid land) with development value, later 10% and 15% of this land (development stage) shall be used to produce liquid biofuels. With above calculation, liquid biofuel production potentials are 5.99Mt ethanol and 0.28Mt biodiesel, 11.98Mt ethanol and 0.55Mt biodiesel, and 17.97Mt ethanol and 0.83Mt biodiesel respectively. See Table 2-26.

Table 2-26: Production potential for liquid biofuel production Provinc Suitable 2010 2015 2020 e energy crops Bio- Bio- Bio- Bio- Bio- Bio-diesel Hebei Sweet th l 3 di l 0 th l6 di l 0 th l9 0 sorghum/potat o, potat Shanxi Sweet 5 0 10 0 15 0 sorghum Inner Sweet 83 0 166 0 249 0 mengoli sorghum Liaoning Sweet 15 0 29 0 43 0 sorghum Jilin Sweet 26 0 53 0 79 0 sorghum Heilongj Sweet 16 0 32 0 48 0 iang sorghum Jiangsu Sweet 7 1.5 13 3 20 4 potato/Rape Zhejian Sweet potato/ 3 0 6 0 9 0 g sugar cane Anhui Sweet potato/ 8 4.5 15 9 23 13 rape Fujian Sugar cane 4 0 8 0 12 0

Jiangxi Sugar cane/ 35 3 71 6 107 9 rape Shando Sweet 5 0 10 0 16 0 ng sorghum/pota Henan Sweet potato 13 0 25 0 37 0

Hubei Sweet potato/ 6 5.5 13 11 19 17 rape Huban Sugar cane/ 8 3.5 16 7 24 10 rape Guangd Cassava/ 14 0 27 0 41 0 ong sugar cane Guangxi Cassava/ 9 0 18 0 27 0 sugar cane Hainan Cassava/ 9 0 19 0 28 0 sugar cane Chongqi Sweet potato/ 6 4 12 8 18 12 ng rape Sichan Sweet potato/ 30 0 61 0 92 0 rape Guizhou Sugar cane/ 98 5.5 196 11 293 17 rape Yunnan Cassava/ 45 0 90 0 136 0 rape Shaanxi Sweet 6 0 12 0 18 0 sorghum/pota

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Gansu Sweet 35 0 70 0 105 0 sorghum Qinghai Sweet 5 0 9 0 14 0 sorghum Ningxia Sweet 12 0 24 0 36 0 sorghum Xinjiang Sweet 93 0 187 0 280 0 sorghum Total 599 27.5 1,198 55 1,797 83

Above table shows: Liquid biofuel (Ethanol) production centrals are in the north-western and north- eastern areas, eastern and central China mainly produce feedstock for biodiesel. According to Chinese conditions and taking into consideration process characteristics, when mapping energy crop areas, one could consider the Northeast, Northwest, North and East of China to be main sweet sorghum production areas; North, greater East, Central China could be considered mostly suitable as sweet potato production areas; Mid-south China as a cassava production area; Southern China would be both sugar cane and cassava production area. 2.3.5 Intermediate conclusion Complying to the principles of “Don’t compete with citizens for foods, don’t compete with foods for land”, China can only use land suitable for energy crops and arable land not utilized during winter season to develop energy crops. Area of land suitable for energy crops (including salt alkaloid land) with practical development value is totals 300~350 million mu, predominantly in Northwest, North and Northeast of China. Using 5% (2010), 10% (2015), 15% (2020) of China’s land suitable for energy crops (including salt alkaloid land) and land unoccupied in winter, to develop bio-liquid fuels, liquid biofuel production potential in 2010, 2015, and 2020 will be 5.99 Mt of fuel ethanol and 0.28 Mt of biodiesel, 11.98 Mt of fuel ethanol and 0.55 Mt of biodiesel, and 17.97 Mt of fuel ethanol and 0.83 Mt of biodiesel, respectively.

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3. Estimates of Rural Energy Demand

3.1 Background

Along with the improvement of their income and living standards, rural residents want better quality energy. Expenditures on energy by rural residents are expected to increase greatly and bring significant affects on the overall structure and volume of energy consumption in China. Currently, most rural areas in China are still undeveloped with poor transport, and the supply of high quality energy needs large numbers of transport facilities. The consumption level of civil energy and power stands for a crucial indicator of a country’s development and civilization. In developed countries, energy consumed for civil, industrial and communication purposes are the three key elements in the total energy consumption. In this connection, to study in depth and find out the essential development trends of energy consumption by rural residents are very important. The project is aimed at exploring approaches to the sustainable development of China’s rural energy needs, providing a basis for new policy and decisions to increase the efficiency of energy utilization and better the energy consumption structure by studying the current status of energy consumption by China’s rural residents, comprehensively analyzing factors and elements and policies and methods affecting China’s development in the future, thereby promoting the social and economical development in rural China. 3.2 Methodology 3.2.1 Scenario Analysis In order to reflect objectively the causality between various factors, work done in the past was firstly reviewed and assessed to analyze their internal relations and development regulations and to set up scenarios regarding those uncertain factors accordingly. In addition, driving factors affecting energy demand and efficiency in the future were identified during the analysis, to verify different trends of policy under each scenario thereby making the scenarios be visualized. 3.2.2 Modeling Framework To conduct the analysis by focusing on end devices of energy consuming, which are divided in to four categories, e.g. lightings, cooking and water heating, space heating and electric appliances. Levels of energy consumption of the four categories will be assessed respectively. An analysis of rural energy consumption system is shown in Figure 3-1. 3.2.3 Study procedures The Long-range Energy Alternatives Planning System (LEAP) was used to study in depth the current status and development trends of energy consumption in rural China. As an econometrics model for analyzing the emissions profiles of energy scenarios from bottom to top, the LEAP model was developed by SEI-Boston/Tellus Institute. With the LEAP model, the balance between energy demand and supply in a projected region can be studied from the various energy resources, transformation technologies and end-use demands. It can be used for modeling various scenarios of energy consumption based on the pattern of energy demand by various sectors, calculations of social and economic development, policies and technologies to be adopted. It can also provide basic information for programming energy development in rural China by assembling and comparing various development scenarios.

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Figure 3-1: Rural Energy Consumption System

Electric Lights Power Light Ke rosene Light Kerosene

Coal Stove Coal

C ooking/Wa te r Firewood Stove Straw heating Biogas Cooker Biogas

Rural Energy Coal Gas Cooker Coal Gas Consumption

LPG Cooker LPG

Kang – Stove Straw Space Heating Heating Stove Coal

Air Conditioner

TV Set

Appliances Refrigerator Power Washing Machine

Electric Fan

Others

3.2.4 Notes on Statistics and Data Currently, China’s system of energy statistics is divided into categories of 1st, 2nd and 3rd industries5 and civil consumption. While industrial statistics are comparably systematic and accurate, this is not the case for civil consumption. In particular, there are a big gap in the quality of data between urban areas and rural areas, which is in addition to the big differences in the level of economic development, customs and living conditions. Non-commercial energy with low energy efficiency, e.g. straw and firewood, is the main type of energy consumed by rural residents, while commercial fuel with high energy efficiency, e.g. coal and natural gas, is the main energy for people living in urban areas. In addition, there are significant regional differences in levels of energy consumption and types of energy consumed that must be analyzed. One of the largest problems is that only data for commercial , like coal, oil and natural gas are counted in China’s energy statistics while non-commercial energy, e.g. fuel wood and crop residues, are not included. Furthermore, these traditional bio-energy resources play a

5 The first industry stands for agriculture, forestry, livestock and fishery; the second industry includes industries of mining, manufacture, power generation, fuel gas, water supply and civil engineering; while the third industry are industries except the first and the second industry, e.g. communications and transportation, storage, posts and telecommunications, computer and software, wholesale] and retail, hotel and food-service industry， finance, real estate, leasing and commercial services, scientific research, technical services, geologic investigation, water conservancy, environmental protection, public facility management, service, education, public health, social security and social welfare, culture, physical culture & sports, recreation, public administration, social organizations, international organizations, etc.

TA-4180 PRC – Final Report Page 34 National Strategy for Rural Biomass Energy Development Estimates of Rural Energy Demand significant role in rural energy consumption in China. In this connection, the current statistics can not precisely reflect the status of rural energy consumption in China. The Ministry of Agriculture (MOA) has collected rural energy statistics since 1990. Data in the statistics include household energy consumptions by rural residents. But the data were not complete enough as they were only provided by authorities in charge of energy at the country level, and data of Shanghai and Tibet were not included. Therefore, this project explored the real status of rural energy consumption by comprehensively assessing the all the data sources mentioned above. Specifically, data for commercial energy were quoted from the China Energy Statistical Yearbook, while data for non-commercial energy were obtained from energy statistics and surveys conducted in China’s rural areas. 2004 was considered a baseline year for the project due to reasons of data/information collection, etc. 3.2.5 Survey Methods and Contents China is a large and diverse country with great differences of natural conditions, environment, resources and social and economic development from place to place. This affects significantly the energy demands and supply in rural areas. Therefore, a survey was designed that identified various typical regions thereby gaining a real status of energy supply, demands and consumption in rural areas. The study conducted by the project was based mainly on document/information collection, compiling and assessment plus sampling surveys when and where it was necessary. In each identified province, two countries, one from economically developed urban area and the other from undeveloped rural area). In each of the two countries, 50 – 100 households were surveyed by sampling. 3.2.6 Methods for Calculating Energy Demands 3.2.6.1 Cooking and water heating Energy consumption for cooking and water heating was calculated according to types of devices and fuels applied, as well as the thermal efficiency of the devices used. A term namely “available energy” was introduced into the modeling, i.e. the quantity of energy consumed by a civil energy end using device. The applied calculation formula is as below.

n = ∑ iqQ )( = ...1 ni i=1

)( = × i × × / emhpuiq i In the formula: Q = total energy consumption by cooking or water heating q i = energy consumption by a certain type of stove u = available energy consumption per capita for cooking or water heating

pi = Proportion of a certain type of stoves used by residents h = number of households m = residents per household

ei = thermal efficiency of a certain type of stoves 3.2.6.2 Energy consumption by home appliances Power consumption was calculated according to the number of devices, operating hours per year and the average capacity of each appliance, i.e. Average annual energy consumption by the appliance = number of appliances per 100 households x total number of households/100 x operation hours/yr x average capacity. 3.3 Analysis of Household Energy Consumption by Rural Residents

The total household energy consumptions by rural residents in China reached 209 million tce in 2004 (including 59.15 million tce of commercial energy accounting for 28.31% of the total consumption, or

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3.05% of the national total (See Table 3-1). Among which, coal was accounted for 20.25%, LPG for 1.84% and power for 5.44%) , and 149.79 million tce of non-commercial energy accounting for 71.69% of the total consumption including 69.78% of straw and 1.91% of biogas (See Table 3-1). Traditional bio- energy like straw and firewood is the main energy consumed by rural residents. Besides, such high quality energy as LPG, electricity and biogas consumed reaches 19.96 million tce accounting for 9.55% of the total.

Table 3-1: Household energy consumptions by rural residents (104 tce) Energy Type 2000 2001 2002 2003 2004 Commercial Energy Coal 3,243.98 3,139.88 3,285.43 3,903.11 4,231.77 Coke 67.65 64.06 63.99 58.56 49.07 Kerosene 96.63 100.03 80.01 74.13 37.22 LPG 222.29 237.21 278.68 331.79 383.61 Coal Gas 2.27 2.33 3.08 2.85 3.25 Natural Gas 3.99 Electricity 829.55 950.10 1,023.12 1,082.34 1,205.84 Subtotal 4,462.37 4,493.61 4,734.31 5,452.78 5,914.75 Non-commercial Energy Straw 12,360.35 13,080.77 14,147.77 14,284.10 14,579.87 Biogas 162.29 220.00 267.69 330.21 398.85 Subtotal 12,522.64 13,300.77 14,415.46 14,614.31 14,978.72 Total 16,985.01 17,794.38 19,149.77 20,067.09 20,893.47 Note: Calculated using the method of electricity and heat equivalence.

Table 3-2: Proportion of household energy consumptions by rural residents (%) Energy Type 2000 2001 2002 2003 2004 Commercial Energy 26.27 25.25 24.72 27.17 28.31 Coal 19.10 17.65 17.16 19.45 20.25 Coke 0.40 0.36 0.33 0.29 0.23 Kerosene 0.57 0.56 0.42 0.37 0.18 LPG 1.31 1.33 1.46 1.65 1.84 Coal Gas 0.01 0.01 0.02 0.01 0.02 Natural Gas 0.00 0.00 0.00 0.00 0.02 Electricity 4.88 5.34 5.34 5.39 5.77

Non-commercial Energy 73.73 74.75 75.28 72.83 71.69 Straw 72.77 73.51 73.88 71.18 69.78 Biogas 0.96 1.24 1.40 1.65 1.91

High Quality Energy 7.16 7.92 8.21 8.71 9.55

In 2004, the average per capita household energy consumptions in rural China was 275.99 kgce. The physical quantities per capita of rural fuels included 448.92 kg of straw, 73.41 kg of coal, 129.76 kWh of power, 0.33 kg of kerosene, 2.96 kg of LPG and 7.38 m3 of biogas.

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In comparison with 2000, per capita household energy consumptions in rural China increased by 31.35% in 2004, with an annual increase rate of 7.06%. This was a little bit higher than the incremental value rate (6.76%) in the same year. Among which, biogas consumption increased fastest, at 27.26%; LPG consumption ranked the second, at an increase rate of 16.51%; then come electricity and coal gas, at 11.62% and 11.1% respectively. 3.3.1 Lighting By now, power supply has reached over 98% in China’s rural areas. About 30 million residents of 800 households in 20,000 villages are not to get power supply yet. In most rural areas, people use electricity for lighting. However, residents in China’s remote rural areas still have to rely on kerosene lamps for lighting because there is no public grid connection. In pastoral areas of Inner Mongolia, people use power generated by a wind mill or diesel engine for lighting; and in regions where there are rich water resources but no public grid connection, such as Guizhou province, people get electricity from mini-hydropower generators. The total electricity consumption for lighting by rural residents in China reached 35.8 billion kWh in 2004 accounting for 36.5% of the total civil power consumption. In comparison with that in 2003, the rate was reduced by 2%. 3.3.2 Energy for cooking and water heating The proportion of energy consumption for cooking and water heating is much higher than other living activities due to the dietary habits and manner of cooking by Chinese rural residents. In rural China, there are various types of cooking and water heating devices consuming different types of fuels. Currently, most energy used for cooking and water heating is non-commercial energy like firewood and straw. Second is coal, while clean fuels like LPG and biogas account for only a very small proportion. In addition, there might be more than one type of cooking or water heating device in one household, e.g. firewood stove, coal stove or LPG cooker, etc. Based on our study, it is estimated that 3.56 MJ of energy are consumed for cooking and water heating per rural capita per day, and the total energy consumption in rural China for cooking and water heating can be estimated accordingly. (See Table 3-3)

Table 3-3: Energy consumption for cooking and water heating by Chinese rural residents Quantity Proportion Efficiency Total consumption Device (10000 Types of energy (%) (%) (10,000 tce) households) Firewood stove 13905.75 56.00 20 Fuel wood & Straw 9,395 Coal stove 8070.00 32.50 40 Coal 2,726 Biogas cooker 1465.07 5.90 50 Biogas 396 LPG cooker 1390.57 5.60 50 LPG 376 Total 24831.39 100.00 12,893

3.3.3 Space heating With a vast territory, there are great graphic differences in China. The sunlight radiant intensity and heating manners or behaviors for heating and air conditioning are also different from place to place. Taking winter season as an example, the average temperature in the northernmost China (53 degrees north) in January is about 40°C lower than that in the southernmost (47 degrees north). Furthermore, even in the same area, such as in a biter cold area, the bitter cold period and heating demands/period are also different. According to the average temperature in January and in July, China can be divided graphically into 5 areas, e.g. bitter cold areas, cold areas, hot-in-summer and cold-in-winter areas, hot-in-summer and warmer-in-winter areas and temperate areas with significant climate differences. Traditionally, bitter cold

TA-4180 PRC – Final Report Page 37 National Strategy for Rural Biomass Energy Development Estimates of Rural Energy Demand areas and cold areas are also called space heating areas, e.g. areas in the Northeast, Northwest, North China and Qinghai-Tibet Plateau. China’s space heating regions are mainly located in bitter cold areas and cold areas, including Heilongjiang, Jilin, Liaoning, Beijing, Tianjin, Hebei, Shandong, Shanxi, Henan, Inner Mongolia, Shaanxi, Ningxia, Gansu, Qinghai, Xinjiang and Tibet accounting for one third of the total population. Straw, firewood and coal are the main fuel for heating in the regions, while Kang-stove and coal stove are the main type of heating facilities. Due to lack of information, a simplified model was applied. It was on the assumption that Kang – stove accounted for 65% of the total heating facilities applied in China, with an energy efficiency of 40%, while coal stoves accounted for 35% of the total with an energy efficiency of 70%. The averaged heating duration was assumed as 3 months. The calculated energy consumption by rural residents for space heating was shown in Table 3-4.

Table 3-4: Heating energy status of rural residents in 2004 Terminal heating Days of Total Types of Percentage Efficiency Description load heating consumption energy (%) (%) (W/m2) (days) (10,000 tce) Fire wood Straw 65.00 40 50 90 5,313.22 stove Coal Stove Coal 35.00 70 50 90 1,634.84 Total 6,948.06

3.3.4 Home appliances Home appliances commonly used by rural residents include TV sets, refrigerators, electric fans, washing machines and air conditioners, etc. In 2005, the numbers of appliances kept by every 100 rural residents and the increase than that in 2000 were as the following: 84 TV sets, increased by 35.3 sets; 20.1 refrigerators, increased by 7.8 sets; and 40.2 washing machines, increased by 11.6 sets. Other durable consumer goods like telephone, mobile phone, air conditioner and personal computer have been introduced into rural households. In 2005, every 100 households had 58.3 sets of telephone, 50.2 mobile phones, 6.4 air conditioners and 2.1 PC that were 1.2 times, 11 times, 3.8 times and 2 times higher than that in 2000, respectively. The average capacity and annual operation hours of various types of appliances are as the following: washing machine, 300 W, 100 hours; electric fan, 50W, 450h; refrigerator, 0.8kWh/day；air conditioner, 1200W, 450h; Range hood, 80W, 1080h; color TV, 80W, 1050h; and black-white TV, 30W, 1050h. Power consumption by main appliances kept by China’s rural residents can be estimated based on the statistics of durable appliances kept per 100 rural households in 2004. (See Table 3-5)

Table 3-5: Power consumption by consumer appliances kept by rural residents No. of appliances Power Annual Total Annual energy per 100 consumption operation consumption Description households Appliances per appliance hours (billion kWh) (set) (10000 sets) (W) (h) Washing machine 37.32 9319.36 300.00 100.00 27.96 Electric fan 141.91 35437.06 50.00 450.00 79.73 Refrigerator 17.75 4432.44 -- -- 129.43 Air conditioner 4.70 1173.66 1200.00 450.00 63.38 Range hood 4.81 1201.13 80.00 1080.00 10.38 TV (black-white) 37.92 9469.19 30.00 1050.00 29.83 TV (color) 75.09 18751.10 80.00 1050.00 157.51 Total 498.21

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To sum up, the household energy consumptions by China’s rural residents reached 211.93 million tce in 2004. Among which, consumption by lighting accounted for 1.8%, cooking and water heating for 61.9%, space heating for 33.3% and appliances for 2.9%. (See Table 3-6)

Table 3-6: Rural energy consumption by end-use application in 2004 (10,000 tce) Description Straw Coal Biogas LPG Electricity Subtotal Lighting 382.03 382.03 Cooking and water heating 9,394.99 2,726.22 395.93 375.80 -- 12,892.95 Space heating 5,313.22 1,634.84 ------6,948.06 Home appliances ------612.30 612.30 Total 14,708.21 4,361.06 395.93 375.80 994.33 20,835.33

3.4 Analysis of civil energy demands by rural residents

Civil energy demands by China’s rural residents can be affected by many factors including the increase of living standards, changes of living patterns and housing, structural reform of energy consumption, numbers of energy consuming appliances owned, and the use and promotion of energy efficient technology and renewable energy. 3.4.1 Impacts by macro social and economic elements The macro social and economic elements involve changes of population and urbanization, which are also the main factors affecting household energy consumption in rural areas. In the coming 5 – 15 years, China will face continued population growth, but because of the continuing migration from rural areas to urban areas, the population in rural areas will see a decreasing trend. As a result, energy consumption will partly shift from rural areas into urban areas resulting in a reduction of energy consumption in rural areas. According to “National population development strategy report” (2006) , China’s population will increase by 200 million within the incoming 30 years, reach to 1.36 billion and 1.45 billion in 2010 and 2020, while the proportion of urbanization will be 47% and 53% respectively. 3.4.2 Impacts by policy related to energy and environmental protection Energy consumption by rural residents in the future will be affected, directly or indirectly, by national energy and environmental development strategy, including national policies related to energy conservation and renewable energy, as well as the issuance or modification of national standards of energy consuming equipments. Of course, the enforcement of concerned policies is mostly crucial. 3.4.3 Impacts by raise of income and living standard The raise of living standards of rural residents will directly affect the choice of energy and the way of consumption. Rural residents’ consumption level will certainly rise along with the strengthening of the national economy. The total energy consumption will increase as the improvement of living standards and degree of living comfort, individuation of consumption and consuming diversification, the popularization of energy consuming equipment, as well as the improvement of energy efficiency of equipments. To be in line with the objective to build a socialist countryside in China, the average disposable income per rural capita should be 6,000 RMB; the average housing area of over 80% of the total rural residents will reach 25 m2. Among the houses, the proportion of houses structured with concrete or bricks should reach 95% (adobe houses will be eliminated by and large) and the popularization rate of color TV will be 98%. 3.4.4 Impacts by energy structure China has long been dedicated to the promotion of renewable energy to improve the energy consumption structure and energy quality. There is a great potential for optimizing civil energy structure in rural China.

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Any change of energy consumption structure will generate direct impacts on the improvement of energy utilization and environment in rural China. 3.4.5 Technical upgrade and improvement of energy efficiency There is tremendous potential to further raise the effectiveness of energy consumption in rural China. This potential can be realized through the currently available energy efficient technology and the future development energy efficient home appliances. In addition, there is a great potential for the improvement of building standards to increase insulation use, implement better windows and doors, etc. 3.5 Scenario analysis and identification of calculation schemes

The 11th “5-year National Development Plan” is a crucial period for the program of building a new socialist countryside. In accordance with the Plan, the following goals will be reached: • GDP increased by 7.5%。 • Proportion of urbanization raised by 47%。 • National population controlled within 1.36 billion • Net income per rural capita increased by 5% Key goals of China’s social and economic development in 2020 can be estimated as shown in Table 3-7. Note that the population data is quoted from “National population development strategy report” (2006)

Table 3-7: Objectives of China’s social and economic development in 2020 No. Description Unit 2004 2010 2020 1 Population 10,000 129,988 136,000 145,000 2 Proportion of urbanization % 41.75 47.00 53.00 3 Rural population 10,000 75,718 72,080 68,150 4 Residents/rural household Person 3.03 3.03 3.03 5 Numbers of rural households 10,000 24,972 23,789 22,492

To model the possible energy need in the future, three scenarios were identified based on the achievement of the policies related to end-use energy efficiency and changes to the energy structure. The three scenarios are: • Scenario 1: Slow development. With this scenario, reform of energy structure and improvement of energy efficiency can not reach the projected level due to risks of market failure and poor sustainability. This can also be called weak policy scenario. • Scenario 2: Normal development. Under this scenario, state policy is enforced, energy conservation and technology of renewable energy are promoted, and energy consumed for civil purposes are transferred to commercial types. • Scenario 3: Sustainable development. Under this scenario, the government makes strong policies and regulations to promote enthusiastically bio-energy and energy efficient technology, i.e. impelling policy scenario. The following sections describe the projected rural energy demand by specific end-use under the three scenarios. 3.5.1 Lighting Experiences of developed countries show that, prior to the living area per capita reached 30~35m2, housing demands will continue to increase. In 2005, the living area per rural capita reached 29.7 m2. Along with the increase of urbanization, rural population will decrease gradually. Rural residents go to the cities to get jobs, study or do business. But the most important factor is the large numbers of laborers that

TA-4180 PRC – Final Report Page 40 National Strategy for Rural Biomass Energy Development Estimates of Rural Energy Demand migrate from rural areas into urban areas leading to a significant increase of urban population thereby resulting in reducing house demands in rural areas. Therefore, it is estimated by the project that living area per capita will be 32.35 m2 in 2010 and 41.45 m2 in 2020 respectively. As the living standards of rural residents improve, functions of lighting have been evolving to include not only basic lighting but also decorations resulting in an increase of power consumption per capita. To be in line with the designing code of residential lighting, the practical conditions and demanding trends, it is on the assumption that house illumination will increase from 3.0 W/m2 to 4.0 W/m2, the energy required for lighting will increase from 1.75 kWh/m2 to 2.45 kWh/m2 in 2010 and 4.09 kWh/m2 in 2020, respectively. With Scenario 1, it is assumed that the application of energy efficient lamps will reach 22% and 33% in 2010 and 2020 respectively. Under Scenario 2, the assumption is that the application of energy efficient lamps will reach 30% and 50% in 2010 and 2020 respectively, while it is assumed in Scenario 3 that the application of energy efficient lamps will reach 45% and 70% in 2010 and 2020 respectively. 3.5.2 Cooking and water heating Currently, energy for cooking in rural China relies mainly on biomass, such as stalk residues, and this phenomenon will not change dramatically by 2020. As living standards in rural China increase, the demand for cooking and water heating energy by rural residents will increase. Considering the level of energy consumption by both urban and rural residents and the increasing trend of living standards, cooking and water heating energy demands were projected to be calculated, i.e. 238.89 kJ in 2010 and 329.67 kJ in 2020. For Scenario 3, it is assumed that all the objectives mentioned above have been fully accomplished and that the energy efficiency of end-use equipment has also been raised in a certain extent and gained desirable results. For Scenario 1, it is assumed that rural residents continue to consume primarily coal and straw, while the use of biogas has been disseminated in a much smaller extent than the government plan. For Scenario 2, it is assumed that only some of the objectives mentioned above have been accomplished. 3.5.3 Space heating Along with improvement of living conditions, houses in rural areas are being converted into concrete- made ones. Terminal heating load becomes decreasing thanks to the dissemination of energy-efficient building technology. The assumptions of terminal heating load are 45 W/m2 for the year of 2010 and 36 W/m2 for 2020, respectively. The rural residential heating days will increase along with the raise of living standards. It is on the assumption that the days will be 110 in the year of 2010 and 140 in 2020. 3.5.4 Home appliances Given the economic development, application trends of house appliances using by rural residents, and refering to the practical status in urban areas, the scenario assumptions for energy consumption of home appliances can be provided. 3.6 Estimation and Analysis of Energy Consumption by Rural Residents 3.6.1 Scenario 1 Based on calculations using the LEAP model, it is estimated that under Scenario 1 energy consumption by rural residents will reach to 253 million tce in 2010 and 358 million tce in 2020, increasing by 172% compared to 2004 and representing an annual increase of 3.44% (See Table 3-8 for details.) Within this increase, energy consumption for lighting accounts for 3.0%; cooking and water heating for 50.3%; space heating for 41.85%; and home appliances for 4.9%. Regarding the fuel types in 2020, straw accounts for 59.45%, which is a decline in proportion but an increase in total volume. Coal accounts for 23.1% with an increase in the proportion. The proportions of electricity, LPG and biogas will reach 7.9%, 2.25% and 3.9% respectively.

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Table 3-8: Scenario 1 Rural energy consumption by application (million tce) Description 2004 2005 2010 2015 2020 Lighting 3.82 4.16 5.77 8.48 10.78 Cooking and Water heating 129.04 131.43 142.42 162.32 179.94 Space heating 69.27 73.84 95.16 124.63 149.65 Home appliances 6.12 6.61 9.34 13.33 17.51 Total 208.25 216.05 252.7 308.76 357.88

3.6.2 Scenario2 The LEAP calculations for Scenario 2 indicate that energy consumption by China’s rural residents will reach to 238 million tce in 2010 and 307 million tce in 2020, increasing by 147% compared to 2004 and representing an annual increase of 2.35%. (See Table 3-9 for details.) Within this increase, energy consumption for lighting will account for 2.8%; cooking and water heating for 48.2%; space heating for 43.4%; and home appliances for 5.6%. Regarding the fuel types in 2020, straw will account for 50.1% with a decline in its proportion and a peaking of total consumption. Coal consumption will keep increasing and account for 25.5%. The proportions of clean energy like electricity, LPG, biogas and pelletized fuel will reach to 8.4%, 2.9% and 6.6% and 6.6% respectively.

Table 3-9 Scenario 2 Rural energy consumption by application (million tce) Description 2004 2005 2010 2015 2020 Lighting 3.818 4.112 5.323 7.279 8.511 Cooking and Water 129.04 129.71 132.172 141.096 147.874 heating Space heating 69.268 73.078 90.848 113.901 133.282 Home appliances 6.12 6.615 9.393 13.214 17.131 Total 208.246 213.515 237.737 275.489 306.797

See Table 3-10 and Table 3-11 for details of rural residential energy consumption (sorted by regions) in 2010 and 2020.

Table 3-10: Rural residential energy consumption (by region) in 2010 (Scenario 2) - 10,000 tce Region Coal LPG Power Straw Pellet Biogas Total North China 1922.93 59.46 441.06 3554.86 0.067 93.46 6071.82 Western 1081.16 6.52 83.19 1760.87 0.037 20.45 2952.23 Northeast 159.05 20.01 176.61 2272.85 0.045 15.27 2643.84 Eastern 84.80 164.28 287.27 1640.72 0.031 17.27 2194.38 Middle -lower reaches of Yangtze 1415.95 49.75 335.74 4462.38 0.083 363.73 6627.64 River Southwest temperate region 44.32 34.52 139.99 574.17 0.023 161.42 954.45 Southern 1138.07 167.87 277.26 1306.94 0.027 141.73 3031.89

Table 3-11: Rural residential energy consumption (by regions) in 2020 (Scenario 2) - 10,000 tce Region Coal LPG Power Straw Pellet Biogas Total North China 2846.48 100.91 768.48 3489.43 4.807 233.74 7443.84 Western 1600.43 11.06 144.95 1728.47 2.118 51.15 3538.17 Northeast 235.44 33.97 307.72 2231.02 2.925 38.20 2849.27

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Region Coal LPG Power Straw Pellet Biogas Total Eastern 125.53 278.82 500.52 1610.53 1.902 43.20 2560.50 Middle -lower reaches of 2096.02 84.44 584.97 4380.25 5.383 909.70 8060.76 Yangtze River Southwest temperate region 65.61 58.59 243.92 563.60 1.401 403.72 1336.84 Southern 1684.67 284.91 483.08 1282.89 1.672 354.45 4091.66

3.6.3 Scenario 3 The LEAP calculation for Scenario 3 indicates that energy consumption by China’s rural residents will reach to 226 million tce in 2010 and 280 million tce in 2020, increasing by 135% compared to 2004. (See Table 3-12 for details.) Within this increase, energy consumption for lighting will account for 2.2%; cooking and water heating for 45.6%; space heating for 46.8%; and home appliances for 5.4%. Regarding the fuel types in 2020, straw will account for 50.1% with a decline in proportion of the total after a peak in consumption. Coal consumption will keep increasing and account for 25.5%. The proportions of clean energy like electricity, LPG, biogas and pelletized fuel will reach to 7.6%, 5.1%, 11.4% and 9.5% respectively.

Table 3-12: Scenario 3 Rural energy consumption by application (million tce) Description 2004 2005 2010 2015 2020 Lighting 3.818 4.012 4.483 5.78 6.242 Cooking and Water 129.04 127.97 122.092 125.557 127.979 heating Space heating 69.268 73.078 90.848 113.045 131.237 Home appliances 6.12 6.548 8.857 11.985 15.012 Total 208.246 211.609 226.28 256.368 280.47

3.7 Conclusion

In conclusion, household energy consumption by residents in rural China will range from 280 to 358 million tce by 2020 representing an annual increase of 1.88% to 3.44%. Comparing the three scenarios that were developed based on different policy enforcement assumptions, there will be a difference by 2020 of about 78 million tce, which represents 25.4% of the total rural energy consumption. This potential energy savings is achieved through diversity and optimization of rural fuel types, technical improvements and increases in energy efficiency standards - all caused by strong policy implementation. The size of the potential energy savings indicates that the level of energy consumption by rural residents can be significantly affected by policy implementation strength in China. With the developing of China’s economy, more and more of traditional straw use will be replaced by other types of energy. By 2020, the total amount of straw used for space heating, cooking and water heating will decrease to 130 to 213 million tce, while the proportion of high quality energy will increase significantly. Among the high quality energy resources, the proportion of biogas will increase between 3.9% to 11.4%, pelletized fuel by 3.9% to 9.5%, and electricity consumption by 7.6% to 8.4% (see Table 3-13).

Table 3-13: Rural residential energy consumption (by scenario and application) in 2020 - million tce House appliance Space heating Water heating & Cooking Lighting S1 17.514 149.647 179.936 10.781 S2 17.131 133.282 147.874 8.511 S3 15.012 131.237 127.979 6.242

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4. Evaluation of Biomass Energy Technology

4.1 Introduction

This report was independently accomplished by consultation experts through field survey, expert interviews, workshop and case study after systematic analysis of existing literatures on biomass energy conversion technology. Combined with the authors’ experience and expertise, the report was completed based on information and knowledge mainly from statistical documents, laws and policies, publications, research reports, etc. Due to the time and supports limit, errors and omits in this report may occur and the consultation experts would take the responsibility. We appreciate the project of Efficient Utilization of Agricultural Wastes –Special Study D: Crop Straw Utilization for Rural Energy Needs provided loan by Asian Development Bank. The chapter regarded biomass solid pelletizing fuel in this report referred to some of the research results of their project. Biomass resources in agriculture include crop residues, animal manure and energy crops. Conversion technologies for biomass involve combustion, thermo-chemical, bio-chemical, chemical and physico- chemical processes, and corresponding secondary energy as shown in Table 4-1 are heat/power, solid fuel (solid pelletizing fuel), liquid fuel (fuel ethanol, biodiesel, biomass pyrolysis Oil) and gaseous fuel (biogas, biomass fuel gas, hydrogen), respectively.

Table 4-1: Conversion technologies for biomass resources Raw Source Technology adopted Output Usage Materials Separate feeding Rural household biogas Biogas Cooking Animal Livestock farm and Biogas/ Cooking/ Power/ manure Breed Aquatics Small Biogas plant on husbandry farm power Transportation Areas Crop Direct combustion for power residues, generation farm Power Power/ heating produce Co-combustion for power generation Gasification and power generation

Byproduct Agricultural production Solid (rice husk, Solid pelletizing fuel technology pelletizing Cooking/ heating corn-cob, fuel bagasse Dry digestion Biogas Cooking/ heating etc.) Hydrolyzation Fuel ethanol Fischer-Tropsch synthesis Biodiesel Sweet Sorghum stems Sugarcane Fermentation Fuel ethanol Transportation Energy Cassava crops Rapeseed Chemical Biodiesel Cottonseed

Index system, consisting of techniques, economical, environmental and social sections, was established in this report for reasonable evaluation of the biomass energy conversion technology. The techniques sections defined the indices of conversion efficiency, energy consumption, water demand, raw material supply, technical maturity, market share and development potential.

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Table 4-2: Index system for biomass energy technology Primary Weight Secondary indices Weight Evaluation Remarks indices Conversion efficiency 0.25 The ratio of output energy to input energy。

Energy consumption 0.05 5, 4, 3, 2, 1 Denote the consumption of fossil fuel indicate and electric power, excluding excellent, consumption of biomass energy Technical 0.3 good, section Water demand 0.05 average, Raw material supply 0.2 poor, very technical maturity 0.2 poor Market share 0.05 Development potential 0.2

4.2 Solid pelletizing fuel technology 4.2.1 Technology description 4.2.1.1 Production of solid pelletizing fuel It brought certain difficulties in collecting, transportation, storage and application due to dispersed distribution and low bulk density of crop straw. Increasing the biomass density will facilitate to solve the difficulties, so solid pelletizing fuel technology has been established as a mode of bio-resources pretreatment. It refers to the process of pressing loose agricultural residues and wood wastes, such as straws, branches, sawdust, etc, into pellets or briquettes with adhesive effect of lignin. The technical procedures of biomass solid pelletizing fuel include drying, grinding, humidity conditioning, molding (granulation, briquetting, etc.), cooling, and packing (Figure 4-1). At present, the main types of solid pelletizing fuel technologies developed in China are roller press, piston press and screw press.

Figure 4-1: Process flow of biomass pellet fuel production from stalk

Air blower

Dried raw material Dust collector

Silos

Granulator Grinder Cooler Humidity Control

Packing

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4.2.1.2 Equipment consuming solid pelletizing fuel The density of biomass solid pelletizing fuel is 1.1~1.4 t/m3, and energy density is similar to that of middle quality bituminous coal. Durable firepower of solid pelletizing fuel ensures high temperature in hearth where the combustion characteristics of biomass fuel are significantly improved. The technology provides high quality energy for livelihood in rural China. Table 4-3 lists several typical biomass solid pelletizing fuels.

Table 4-3: Combustion properties of several typical biomass solid pelletizing fuels Pellet fuels of Pellet fuels of Block fuels of corn Block fuels of Properties corn straw wheat straw straw wheat straw Low calorific value / 3770±300 3676±300 3770±300 3676±300 (kcal/kg) Sulphur/% 0.12 0.18 0.12 0.18 Density /(t/m3) 1.1±0.1 1.1±0.1 1.1±0.1 1.1±0.1 Bulk density /(t/m3) >0.6 >0.6 >0.6 >0.6 Size /mm 12×20 12×20 32×32×30 32×32×30

Biomass stoves, main equipment of solid pelletizing fuel utilization, are advantageous in higher combustion efficiency and lower pollutant expelling than traditional firewood stoves. Biomass stoves can be classified to cooking, warming and cooking &warming stoves based on the function desired; pellet and stick stoves based on the solid pelletizing of fuel; automatic feeding and hand feeding based on fuel- feeding patterns; combustion, semi-gasification, and gasification stoves based on combustion mode.

Box 1 Technical specification of household biomass stoves in Beijing 1. Safety requirements Surface temperature of stove do not exceed 60℃; Chimney connecting to outdoor is necessary for stove; The demand of blast shelter of warming stove refer to GB16154-2005《Universal technical specification of water warm coal stove for civilian use》; Content of CO indoor do not harm to human health. 2. Environment protect requirements When natural combustion, blackness of smoke plumes < Ringelmann grade 1; Dust emission concentration <50mg/m3; SO2 emission <5050mg/m3; NOx emission=150mg/m3 3. Energy save requirements Thermal efficiency of cooking stove >=30%；thermal efficiency of warming stove (including cooking-warming stoves) >=60% 4. Applicability requirements Easy to use, Economical and durable, applicable to rural consumers

4.2.2 Applicability of technology Considering good availability of raw materials, solid pelletizing fuel technology is suitable for main grain production areas and vicinity of agricultural processing plants where crop residues and waste materials are abundant. In addition, forest area and timber processing factories are good locations for solid pelletizing fuel plant. Rural area is believed to be primary market of solid pelletizing fuel. Functioned as cooking and heating energy source, solid pelletizing fuel would be commonly utilized in developed rural areas due to the high cost. Cancellation of coal burning in middle and small town becomes inevitable along with the implementation of national energy saving and emission reduction policies. Fuel oil and natural gas are not competitive in long term use because of the high cost. Therefore, solid pelletizing fuel turns to be a reasonable option

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4.2.3 Development status Started at 80th of twenty century, biomass solid pelletizing fuel technology witnessed its 20 years’ history. Overall operation cost remains unacceptable because the equipments are of large volume, high energy consumption and low efficiency. Difficulties in collecting raw material act as anther hindrance in development of solid pelletizing fuel industry. The actual great progresses were achieved after year 2000. Equipments for solid pelletizing fuel production and applications, which mostly transformed from feed equipment, were developed to considerable scale. But as a whole biomass solid pelletizing fuel plants are in the demonstration stage. 4.2.4 Trends estimation Biomass solid pelletizing fuel utilization in present China is still problematic. Unveiled shortcoming are various, difficulties in straw collection and storage, low lever of mechanization, poor reliability of manufacture equipments. Severe wear, short service life, and inconvenient repair& replacing of die, will hinder continuous production, cause frequent faults and repairs, spend more energy, lead to poor ability of coordination of equipment and unstable operation. Domestic pelletizing equipments mostly work in inefficient one-machine mode instead of product line. The requirements of pelletizing equipments for raw materials differ greatly from material types, particle sizes and moisture contents. Biomass stoves need technical improvement. Lack of technical standards, well experienced operation mode and scientific service management system are restrictions for the development of solid pelletizing fuel technology. General application of biomass solid pelletizing fuel is dependent on scaled development of pelletizing equipments and stoves. Through demonstrations the technology is expected to be improved gradually. The mission of the industry is to actualize large-scale development and industrialization of equipment production, create integrated equipment production and product distribution system, improve and practice the .reliability and economical features in manufacturing, effectively lower the cost of biomass solid pelletizing fuel, research with attached importance to operation reliability, service life of vulnerable parts, convenience of maintenance and reduction of energy consumption, lower cost to realize commercialization of pelletizing equipments, stoves and solid pelletizing fuel. 4.3 Biogas fermentation technology

Biogas fermentation, generally termed anaerobic digestion, is a process producing biogas by microbial of organic substances under anaerobic conditions. Hereinto, microbial breeding, the decomposition of organic matter and the formation of biogas are all occurred within the enclosed container for anaerobic digestion, which is the core part of biogas fermentation equipment and scientifically named as “biogas digester”. According to the different scales and applications, biogas digestion can be conducted in rural households, breed aquatics small area and livestock farm. Biogas fermentation technology refers to the techniques and methods applied in the raw materials- products cycle. Biogas fermentation can be divided into continuous fermentation, semi-continuous fermentation and batch fermentation process by different feeding ways. Another classification differentiates high-temperature fermentation, thermophilic fermentation and room temperature fermentation by working temperatures. In the light of different stages, biogas fermentation consists of single-phase fermentation and two-phase fermentation processes. 4.3.1 Biogas for rural households 4.3.1.1 Description of Technology Household digester refers to the device for biogas fermentation with volume of 6 m3, 8 m3 or 10 m3, which can be used producing biogas for cooking. China’s rural biogas pools generally adopt the semi- continuous fermentation and the flow chart is presented in Figure 4.2. The basic raw materials are kinds of manures and crop residues. One quarter or half of the total feeding material is loaded to the pool at the very beginning of the fermentation cycle. After a period of normal output, the speed of gas production will gradually draw bit. Afterwards, regular feed-in of poultry manure and toilets dung should be ensured daily at least. If the manure resource is inadequate, composted cut crop residues could be termly added as the complement for carbon. Household biogas fermentation is progressed normally under room temperature

TA-4180 PRC – Final Report Page 47 National Strategy for Rural Biomass Energy Development Evaluation of Biomass Energy Technology and climate dependently. If the temperature of liquid materials is below 10°C, the fermentation process will stop.

Figure 4-2: Flow of pool fermentation process

Digester Mixing and Cooking stoves Materials - Batching Incubation Biogas Lamps, etc. checking

Adding water Loading Material and sealing Gas production out termly Fertilizer

Regular feed

Livestock house, lavatory

4.3.1.2 The applicability of household biogas technology Household biogas fermentation is particularly applicable in less developed rural area supplying farmer with energy for cooking and illumination. Bacteria for biogas fermentation is active between 8°C and 60°C, therefore, it is inappropriate to development room temperature fermentation in regions with severe cold. From the view of social economy, farmers not behooving biogas use mainly distribute in four types of regions. Firstly, farmers in the region rich in coal, solar, wind and hydropower resources should make full use of local energy and development other new energy; secondly, farmers without durable materials supply in the nomadic areas; thirdly, farmers in developed region with full-use of clean energy; fourth, farmers in the underdeveloped areas lack support to build digesters and relevant rebuild. Considering the feed-in style, climate and socio-economic factors, there are about 146 million farmers suitable for biogas production using animal manure in China. 4.3.1.3 Development status According to the statistics of Chinese ministry of agriculture (MOA), Chinese government has invested 3.4 billion Yuan for rural households’ biogas production, and a total of 3.74 million farmers benefited during “the 15th Five-year Plan”. By the end of year 2005, the rural users had developed to 18.07 million nationwide, and annual biogas output amounted to about 70 billion m3 (equivalent to about 500 million tons of standard coal). 8.71 million users, accounting for 48.2% of the total were in the western region, 7.9 million (37.1%) in the middle region, and 1.59 million (8.8% ) in the eastern region. 4.3.2 Dry digestion technology from straw 4.3.2.1 Description of Technology Dry digestion technology of straw is an emerging technology fermenting crop stalks (rice straw, etc.). Straw is co-composted with composite bacteria and then inoculated into the digester together with the inoculants to produce biogas. The full use of straw resources efficiently solves the “bottleneck” problem of raw materials. Farmers not raise pigs can also enjoy the convenience of biogas with bio-gasification technology. Biogas residue as a good kind of fertilizer increases the efficiency of straw resources utilization. Dry digestion process of straw is showed in Figure 4-3. Numbers 1 and 2 denote two kinds of pretreatment methods, namely in-pool pretreatment and out-of-pool pretreatment respectively. The two processes don’t differentiate in other sessions and are similar in efficiency.

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Figure 4-3: Dry digestion from straw

4.3.2.2 Applicability of technology Dry digestion technology is suitable for the areas which are major grain-producing regions or rich in straw resources. 4.3.2.3 Development Status Currently, dry digestion technology of straw has already been demonstrated in more than 100 counties and achieved good results. According to the experiment and survey, for an 8 m3 biogas digester with materials of 400 kilograms rice straw or rice husk added with 1 kg bacteria and 15 kg ammonium bicarbonate, the total output of biogas can be consumed for more than six months in a five-people family. If counting the night soil as backup material, the time of normal gas production can prolong to more than 12 months with additional 10 Yuan invest monthly. Now, there are many problems such as costly strains, fussy daily management, feed-in and residue removal, and inconveniency of collecting biogas residues for organic fertilizer production. 4.3.2.4 Development Trend With the development of agriculture, scale-breeding gradually increase and separate breeding farmers decrease. Household pool fermentation is more or less restricted by shortage of animal manure. Some biogas pools are shut down because of the lack of raw materials, and farmers are no longer enthusiastic for building new pools. On the other hand, open burning of rural straws in field not only harms the environment, but also causes a waste of organic fertilizer. Dry digestion technology of straw solves the “bottleneck” problem of raw materials, so farmers not raising pigs can use it. 4.3.3 Biogas plant on livestock farm 4.3.3.1 Description of Technology Biogas engineering aim at ecological and environmental friendly energy production integrated utilization of biogas, bio-liquid and biogas residue by means of anaerobic fermentation. The selection of biogas fermentation types mainly base on both objectives and surrounding conditions. Biogas production should be environmental protective prevent secondary pollution. Technically there are two types of biogas fermentation model, energy & ecological construction model and energy & environment protection model. (1) Energy & ecological construction model. For energy & ecological construction model, there are sufficient farms, fish ponds, plants pool surrounding to deal with the biogas residue and liquid. Therefore linkage between biogas engineering and ecological agricultural park construction is established. Energy & ecological construction model provides reasonable planning of plant farming and breeding industry, results in low-cost biogas liquid disposal and promotion of ecological agriculture. (2) Energy & Environment protection model. In energy & environment protection model, biogas residue must be made into commercial fertilizer and biogas liquid discharge must be after aerobic fermentation according to the national standards because the surrounding can not afford to area to deal with theses waste. There are many intensive farms neighboring big cities and medium-sized cities to ensure the urban supply. With little land area for biogas liquid and residue treatment, organic matters and nutrients in biogas liquid may lead to secondary pollution. Common solution is aerobic fermentation. In despite of high construction and operation cost, biogas digestion is preferred because biogas as energy is produced combined with organic matter removal of waste water.

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Since the primary objective of energy & environment projects is to make the sewage discharge meet standards, it is important to reduce gross waste water and dry matter inside during industry manufacture for technology type selection. It is recommended that fresh manure cleaning be done before water wash. By means of solid-liquid separation, animal manure and the solid part of sewage can be made into organic fertilizer after aerobic composting, and the liquid part is for anaerobic digestion. Solid-liquid separation may reduce the cost of dealing with waste water and meanwhile decrease the biogas output. Equipment of Biogas production is generally made up of five systems: pretreatment, anaerobic digestion, biogas utilization, biogas liquid treatment and biogas residues treatment, showed in Figure 4-4.

Figure 4-4: Flow chart of biogas production

Biogas

Separator Desulphurization Storage tower

Heater Drainage

Deposition Pretreatment pit pool Anaerobic reactor

Acidification pit

Granule machine Drying jar

(1) Pre-treatment system. The main purpose of pre-treatment is for solid-liquid separation. More than 80% of deleterious matter root in pig manure. Solid-liquid separation can reduce the contents of BOD, COD and SS in the liquid and decrease the load of follow-up processing units. After solid-liquid separation, the solid waste is used to make fertilizer, and the liquid part is for fermentation. Pre- treatment system includes the grille, collecting tank, solid-liquid separation equipment, and conditioning/hydrolysis pool. Solid-liquid separation can be completed in sedimentation tanks, hydraulic screen or solid-liquid separator. Wastewater treatment system for a farm should be installed with upstream regulation pool to avoid strike effect to the downstream process. Suggested effective volume of the regulation pool is about 80% to 100% of designed daily flux.. (2) Anaerobic digestive system. Currently, anaerobic reactors extensively used in large and medium- sized biogas projects in China are Continuous Stirred Tank Reactor (CSTR), Up-flow Solid Reactor (USR) and Livestock Farm Based Biogas Plant (HCPF). The case in this report is daily disposal of 10 tons of fresh cow dung under the middle-temperature. Three typical anaerobic reactors have respective advantages. CSTR and HCPF are recommended under the conditions of low level of management, simple operation and convenience; USR and CSTR are suitable for chicken manure with greater grit content; USR and CSTR are preferred for coarse cattle manure. (3) Biogas utilization system. Biogas is transported to the gas storage through pipeline after the desulphurization and purification and then distributed to users by the gas distribution system. The design volume of gas storage is generally 25% to 40% of averaged daily output. Water capper located in the appropriate locations on pipeline can adjust and stabilize pressure, isolate among the digester, gas storage, compressors, boiler room and other structures; and exclude condensing water. Hydrogen sulfide usually accounts for 0.005% to 0.01% of the total biogas volume. Biogas utilization system includes gas and water separation, purification and desulphurization, gas storage and transport and gas-burning equipment. User system includes biogas combustion devices, gas torches, gas cookers etc. If there are a number of residents nearby a small or medium-sized pig farm, biogas

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can be used as civilian fuel. In case consumers are far from large or medium-sized pig farms, biogas can be considered to generate electricity or used for boilers. (4) Biogas liquid treatment system. Anaerobic treatment has high efficiency for COD treatment, but has very low removal rate for N, P. Aerobic biological treatment can be used in pig farms with strict discharge standards for waste water. The types of aerobic biological treatment used for animal sewage treatment mainly include completely mixed activated sludge, sequencing batch activated sludge (SBR), oxidation ditch process, BAF and contact oxidation process. (5) Biogas residue treatment system. Biogas residue, which contains abundant nutrients and organic matter, can be applied as both base fertilizer and topdressing. Biogas residue treatment system includes drying, solid-liquid separation and granulation equipments. Application of the system improves the economical efficiency and makes overall utilization of rural resources viable. 4.3.3.2 Applicability of the technology With rapid development of livestock breeding industry, the scale and production value are undergoing tremendous changes in China. Hereinto, annual increments of meat, milk and egg output are all more than 10%. Rapid increase of the market demand brings breeding industry rapid and intensive development, which also brings large amounts of animal waste. Animal sewage is a kind of organic wastewater with high concentration, in which BOD content is up to 4 g/L, and the contents of COD and SS are more 10 times than relevant emission standards. It is proved that biogas technology in a large or middle scale is an effective method to deal with the pollution of livestock industry. Biogas plants based on large or medium-sized farms, industrial wastewater treatment plants and urban sewage treatment plants, take discarded waste as raw materials. Unsuited disposal of these wastes harming the environment will be fined. In a word, biogas projects will benefit both enterprises and the society. For farms near the villages, large or medium-sized biogas projects will provide biogas for cooking. Self- support power station could be built in livestock farms far from residence villages. 4.3.3.3 Development status According to the statistics of Chinese ministry of agriculture, totally 3764 large and medium-sized biogas projects with 1.7241 million m3 of capacities in China by the end of 2005. Handling 123 million tons of wastes, 341 million m3 of biogas was produced for 1.38 million households use and about 40 million kilowatt-hour of electricity. Hereinto, 3556 large and medium-sized biogas projects disposing agricultural waste handled 8710 tons of wastes to produce 230 million m3 of biogas for 1.32 million households. In eastern China 4139 big farms exist, accounting for 46.0% of national gross. 1515 large or medium-sized biogas projects, 42.6% of existing biogas projects, were established in the eastern region. In middle China, there are 3911 big farms, accounting for 43.5% of national gross, fostering 1594 large or medium- sized biogas projects (44.8% of national gross). In western China, 447 large or medium-sized biogas projects (10.6% of national gross) were developed based on 950 big farms, namely 12.6% of the total. 4.3.3.4 Development trend In a summary, it is very necessary to improve biogas quality and open up new ways. The key technologies to be tackled in the future include: 1) Selection of high efficient fermentation strains, investigating the fermentation characteristics of materials and the mechanism of anaerobic digestion; 2) Efficient waste heat utilization after power generation; 3) Control technology by artificial intelligence during biogas utilization, on-line monitoring, automatic alarm system and automatic adjustment under running conditions; 4) Technology and devices for Integrative biogas production and storage; flexible storage technology. 5) Technology for biogas purification and high-value-use, including biogas purification and storage.

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4.4 Pyrolysis and Gasification Technology of straw 4.4.1 Technology description Biomass gasification refers to the chemical reaction converting combustible of biomass into combustible gas in high temperature medium of oxygen, vapor and hydrogen. The primary products of biomass gasification were carbon monoxide hydrogen and methane, namely biomass fuel gas. Combustible gas from biomass gasification can be directly used as boiler fuel, or centralized supplying consumers after dust and tar cleaning and cooling, or introduced to turbine/engine for electricity generation. The centralized gas supply system of biomass gasification was developed in 1990s as a new technology for biomass energy utilization. The system were built at scale of tens to hundreds families based on natural village. Gasification stations (gas tank inside) were set up and biomass fuel gas was pipe transported to consumers. The centralized gas supply system consists of pretreatment device (grinder), feeding device, gasification stove, purification device, air blower, gas storage tank, safety device, pipe network and gas burning system. The centralize supply system of straw gasification was shown in Figure 4-5.

Figure 4-5: Centralized supply system for biomass gasification

Biomass gasification assembling unit

Biomass materials Gasification Gas cleaner Air blower Water sealing stove device

Consumers Pipe network

Flame arrester Gas tank

Water holder

Gasifier is core part of the system where biomass materials are gasified to produce biomass fuel gas. According to the operation mode, gasifier can be basically divided into of fixed bed gasifier and fluidized bed gasifier. Both two categories of gasifiers can be subdivided into many types. Several problematic things probably encountered have restricted the promotion and application. (1) Carbon monoxide poisoning. In case of straw gasification the CO content is about 20% in gaseous products, which is considered as probable safety troubles. (2) Secondary pollution. Water wash of raw gas, aiming for elimination of tar and other harmful impurities, will produce plenty of waste water. Unplanned discharge will result in contamination of surroundings soil and groundwater. How to dispose these pollutants, avoid secondary pollution to the environment, becomes an outstanding difficulty in construction of centralized gas supply system. (3) Reduce the tar content in fuel gas. Tar removal in small-scale gasification project is incomplete, high content of tar in final fuel gas will impact on stability of gasification system in long term as well as regular consumption.

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Box 2. Biomass gasification centralized gas supply system in Huangtai County, Shandong Province The first straw gasification centralized gas supply system was set up for demonstration at Dongpan Village, Chenzhuang Town, Hengtai County of Shandong Province in October 1994. The system integrated gasification station, pipe network and indoor facilities. Core equipments is the XFF fixed bed assembling unit inside gasification station, which fixed bed gasifier, gas decontamination device and air pump with 1 km reach. The gas decontamination device includes two levers of cyclone separator, a tubular cooler, tar removal device and box-type filter. The parts upstream of air pump works at negative pressure. Pipe network of fuel gas is made of polypropylene or Polyethylene plastic materials. Customers terminals were equipped with active carbon filter, gas meter, cooker and water heater special for low calorific value gas. The system was shut down about one and half years later. Explanations we suggested are, 1) Tar content in gas too much high, caused by immature decontamination system, limited routine use. 2) Seasonal materials supply of agriculture could not afford to meet gas demand in entire year. 3) Non-profitable running of the project due to the high cost could not last for long time. The price of 0.15 Yuan RMB per cubic meter is expensive for low-income farmers.

4.4.2 Technology applicability Straw gasification with centralized supply system was applicable to regions with abundant straw resources on basis of natural villages. Generally the system can regular work only if managing teams are financially affordable for long term non-profit operation. 4.4.3 Development status Since the first case in 1994, straw gasification station gained nationwide popularity quickly. But many stations were shut down, or nearly shut down because of technical and management obstacles. Taking advantage of New Villages Construction of Socialism, gasification stations projects were reexamined the applicability in Beijing, Liaoning province, etc. By the end of 2005, 537 straw gasification stations, each supplied tens to hundreds families, were built Shandong, Jiangsu, Beijing and Heilongjiang. 4.4.4 Development trend Secondary pollution is still a restriction for application of straw gasification technology. Water wash of raw fuel gas, applied in most stations, produce waste water contaminated with ash and tar. Waste water was usually recycled and demanded improved disposal methods. The very solution is to advance techniques to reduce tar content in fuel gas, hereby dispose waste water in an easier way. The development of gasification stations will not clear if above mentioned technical and management hindrance exist. 4.5 Liquid Biofuel

Liquid biofuel, such as fuel ethanol bio-butanol, biodiesel and dimythyl ether, refers to fuel produced with the biomass materials. Liquid biofuel utilization, need no or slight adjustment of engines and fuel system, is a good supplement of fossil fuels. 4.5.1 Fuel ethanol Fuel ethanol was biologically converted from biomass materials. As substitutes, it can directly used in the gasoline engine, or mixed with gasoline to improve the quality of gasoline. Current domestic standards relevant to fuel ethanol include, GB 18350-2001 Modified Fuel Ethanol and GB 18351-2001 Vehicle Use Ethanol Gasoline. Materials for producing fuel ethanol include grains (corn, wheat), tuber (cassava, sweet potato), sweet sorghum stems, sugar cane and crop residues

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Box 3 Modified fuel ethanol and vehicle-used ethanol gasoline 1) Modified fuel ethanol is made from starch (corn, wheat etc.), sugary materials (tuber products), through fermentation, distillation, dehydration and denaturant treatment (unleaded gasoline). GB18350-2001 Modified fuel ethanol specified that, volume proportion of fuel ethanol to denaturant should be 100:2~100:5. In other word, the volume percent of denaturant in fuel ethanol should be between 1.96~4.76%. And denaturant quality should accord with GBl7930-1999 vehicle-used unleaded gasoline to avoid mistaking intake as edible alcohol. In the standard, moisture content is restricted to lower than 0.8%. High moisture in gasoline will result in separation between ethanol and gasoline phases, and probable fault of motor. As ethanol absorbs moisture easily, strict prevention must be ensured to avoid phase separation. The standard also specified maximum contents of methanol, actual colloidal matter, inorganic chlorine, acidity, copper, Phe (the measurement of acid strength), to prevent corrosion and clogging during the combustion. 2) The vehicle-used ethanol gasoline refers to mixture of non-oxide liquid hydrocarbon, certain amount of modified fuel ethanol and quality-improving additives, for Spark Ignition Engine. GB18351-2001 vehicle-used ethanol gasoline specified that maximum addition of modified fuel ethanol should be 10%±0.5% (V/V), maximum moisture 0.15%. Because moisture content in the gasoline was directly related with phase separation temperature, moisture of 0.3% will lead to phase separation at -24℃. Considering transportation, storage and days remaining in motor tank, maximum moisture content was set to 0.15%.Other technical requirements accord with GB17930-1999 vehicle-used ethanol gasoline .

4.5.1.1 Technology Description Fuel ethanol was produced by fermentation, in which microbe fermented sugar or starch into ethanol and carbon dioxide. Cellulose materials can also be used for ethanol fermentation after hydrolysis. Raw materials for ethanol fermentation, therefore, include sugar, starch and cellulose. The latter two required a first stage of hydrolysis to produce fermentable sugar. According to the state of raw materials, fermentation can be divided into solid state fermentation, semi-solid state fermentation and liquid fermentation. According to feeding methods of fermenting mash, there are batch fermentation, semi- continuous fermentation and continuous fermentation. Fuel ethanol production from starch materials The process of fermentation with starch materials generally consists of pretreatment of raw materials, saccharification, fermentation and distillation. In preprocessing stage, raw materials are grinded, steamed to soften, gelatinize starch, provide necessary catalysis environment; afterwards starch was hydrolyzed to glucose with help of saccharifying enzyme. Fuel ethanol production from sugary materials Sugary materials basically include sugarcane, sugar beet, and sweet sorghum. The largest content sugar in these materials is sucrose, which is a disaccharide (glucose + fructose) linked by glycosidic bond and could hydrolyzed to glucose and fructose in acid solution. The usual way of ethanol production from sugary materials is as follow, sucrose is firstly converted to glucose and fructose by yeast or hydrolysis, then anaerobic fermentation arises to yield ethanol, finally distillation and refination are conducted to obtain purified fuel ethanol. Fuel ethanol production from cellulose materials Bio-ethanol production as far now is mainly from fermentation of sugary and starch materials. The population explosion and food shortage will limit the development of ethanol production from grain fermentation. Ethanol fermentation from straw and other cellulosic material has raised great interests and is considered as a promising technology. Ethanol fermentation from cellulosic materials consists of two steps firstly the cellulose was hydrolyzed to produce fermentable sugar, i.e. saccharization. Secondly, the fermented liquid was converted to ethanol.

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Table 4-4: Comparison of ethanol fermentation with different raw materials Corn, wheat, cassava, Sugarcane, sweet Raw materials Cellulose sweet potato sorghum stems Pre-treatment Grinding, steaming, Screw Grinding, physical and gelatinizing chemical treatment Hydrolysis Acid or enzyme No hydrolysis, no Acid or cellulose hydrolysis, saccharization, easily inhibitant effects against difficult hydrolysable, complex hydrolysable, single fermentation products, inhibitants exist product, no inhibitant Fermentation Hexose fermented by Hexose fermented by Hexose and pentose fermented Yeast strain producing ethanol-resistant yeast by special yeast strain amylase strain Distillation and preparation Distillation, retification, Distillation, retification, Distillation, retification, of ethanol absolute preparation of ethanol preparation of ethanol preparation of ethanol absolute absolute absolute

By-product Feed, biogas, CO2 Feed, paper making Lignin, fuel, biogas, CO2 fiber, biogas, CO2 Energy consumption 0.6~1.2 0.5~0.9 0.8~1.4 (standard coal/ ethanol, ton/ton)

Box 4 Ethanol production by solid state fermentation of sweet sorghum stems Huachuan Siyi ethanol company limited of Heilongjiang province, with registered capital of 1 million Yuan RMB and workshop covered over 7200 square meters, built a bio-ethanol plant of 3000 square meters and a raw product line with annual output capacity of 2000 tons in October 2004. Heilongjiang Province is rich in land resources, flat, fertile in soil, with the heat and rain quarter, suitable for the growth of sweet sorghum. This provided the priority to organize large plantation of sorghum. Both seeds and stems output are considerable, and the stems are cheap. The abundance of raw material for ethanol production was secured. Dregs from ethanol production can be used to produce high-grade pulp, realizing the overall economic efficiency and recycling economy features of this project.

The costs of ethanol production differ from raw materials utilized. Per ton of ethanol from sweet potato cost most and is up to 4050 Yuan RMB; ethanol from cassava costs least and only reach 3420 Yuan RMB. Details of costs by different raw materials are figured in Figure 4-6. Note that the prices referred here include only raw materials and processing costs, neglecting of management and marketing cost.

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Figure 4-6: Cost of fuel ethanol from different raw materials

5000 4500 4000 3500 3000 Processi ng 2500 Char ges 2000 Raw materials 1500 1000 500 0 Sweet sor ghum stemsSugar cane Cassava Sweet potato

4.5.1.2 Applicability of fuel ethanol technology There are two approaches of application for biomass fuel ethanol. Mixed utilization of fuel ethanol and gasoline (10%, v/v), namely ethanol gasoline, is one common way. The other way is complete substitution of gasoline with ethanol absolute. When ethanol adds up to 10%, calorific value of ethanol gasoline decreases theoretically by 3%, because the calorific value of fuel ethanol is lower than that of gasoline. This will impair the dynamic performance of motor vehicles. On the other side, addition of ethanol will enhance the oxygen content of the fuel by 3.5 percent, thus the part cannot be complete combusted in gasoline could now burn to give heat. Balancing the strong and weak points, total fuel consumption for the motors stays or slightly decreases. 4.5.1.3 Development status China initialized projects of fuel ethanol at the end of last century. Several fuel ethanol plants taking aged grain as feeding were established in Henan, Anhui, Jilin and Heilongjiang province during the 10th five year plan. Total output of these plants could reach 1.02 million tons annually. Ethanol gasoline with 8%~12% addition of fuel ethanol was put into market in 9 provinces since. However, China will no longer develop fuel ethanol based on grain in the near future considering the limited total grain output. To explore more sources for biomass fuel, China independently originated fuel ethanol production technique using sweet sorghum stems. Regional plantation and pilot plants were developed in Heilongjiang, Inner Mongolia, Shandong province, Xinjiang autonomous region, and city of Tianjin. Particularly the plant in Heilongjiang province had already met annual production of 5000 tons. While current production of fuel ethanol in China is limited to designated factories, leading to circulation of fuel ethanol is active in adulteration in alcohol drinking instead of vehicle fuel market. Fuel ethanol producing from cellulose is also under research. Thousand-ton scale plants were established in Zhaodong Ethanol co. Ltd., COFCO Heilongjiang, Shangdong Longlive Bio-technology co. Ltd., and BBCA group of Anhui. 4.5.1.4 Trend of development Fermentation strain cultivation, optimization of key processing and equipment, recycling of waste residue and water are still the challenges in fuel ethanol industry fermenting sweet sorghum, cassava, sugarcane. Technical difficulties needs to be solved include: • Screen high temperature resistant and ethanol resistant strains to improve the conversion efficiency and fermentation rate. • Dispose waste water properly, separate solid and liquid with low energy consumption, reuse waste water in steaming process or digest to produce biogas.

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• Optimize manufacture process to lower cost of production and energy consumption, dehydrate raw ethanol by membrane technology, develop non-rectification process for purification. • Develop sugar-preservation technology for sweet sorghum stems. • Innovate solid state fermentation process, cultivate high production strains, equip high efficiency fermentor, and develop overall utilization of by-products. • Develop fast fermentation process for liquid material. • Couple biosynthesis-products separation to simplify separation process and lower cost. • Adopt pretreatment to lignocellulosic materials, better application of cellulase and hydrolysis of cellulose, co-ferment hexose and pentose. China is short of fossil fuels, with only 2.4% crude oil and 1.2% natural gas of the world’s total storage. The import petroleum amounted up to 160 million tons, from which calculated dependence ratio is 47%. Estimated gasoline demand in 2010 and 2020 is 60-66 million tons and 86-110 million tons, respectively. If 10% addition in gasoline, demand for fuel ethanol will be 6.0-6.6 million tons in 2010 and 8.6-11 million tons in 2020. Towards the near future, it is a feasible way of fuel ethanol production. Cellulosic ethanol technology is yet applicable due to the high cost and large-scaled development could be expected only if significant technical breakthrough and cost cut occur. Taking into consideration of field , production cost and substitution benefit, we proposed some strategies for the fuel ethanol industry. In the near future and medium-term period, it is advisable to take use of infertile land to develop ethanol fermentation primarily with cassava, sweet potato and sweet sorghum, meanwhile reasonably develop ethanol fermentation with corn and sugarcane adjusted to local conditions, strength researches on cellulosic fermentation and strive for industrial application in the medium-tern and long-term period. 4.5.2 Biodiesel Biodiesel as a type of biofuel refers to alkyl esters made from the transesterification of vegetable oils or animal fats. Chemically, transesterified biodiesel comprises a mix of mono-alkyl esters of long chain fatty acids. It can be applied to engine as substitute of diesel oil. 2%-30% mixed into diesel oil is also preferable. Taking an example, usual 20% biodiesel added to diesel oil forms so-called B20 diesel oil. Raw materials for biodiesel production are various, such as discarded vegetable oil and animal fat (hogwash oil and waste oil) and oil plant (rapeseed, sunflower, soybean and palm). 4.5.2.1 Description of Technology Transesterification is widely applied in biodiesel production. Vegetable oil, animal fat and waste oil from food industry were esterified by methanol/ ethanol under specified temperature and catalyzer environment. Fatty acid methyl/ethyl ester, i.e. biodiesel, was obtained along with glycerin as by-product. The most popular transesterification process nowadays contains two steps, reaction and purification. Detailed process flow was showed in Figure 4-7. Methanol and ethanol are two most frequently used esterification solvents, methanol particularly.

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Figure 4-7: Process flow for biodiesel production

Catalyzer Glycerin

Oil plant Biodiesel Grinding Filtration Extraction Esterification Purification Vegetable oil

Raw gluten meal Methanol

Chemical method Acid and alkali are common used catalyzers in biodiesel production. Alkaline catalyzers include NaOH/KOH, sodium alkoxides and potassium alkoxides. Acidic catalyzers include sulfur acid, phosphatic acid and hydrochloric acid. Different raw materials may lead to different process. Acid catalyzation provides higher yield but slower reaction. Plenty of waste water brought by catalyzer removing, recycling of glycerin, formation of free fatty acid are troublesome problems leading to higher cost. Solid catalyzer Solid catalyzer becomes an important research point in respect that its applications avoid rigor reaction conditions and long reaction cycle as in general acid/alkali catalyzed process and, are environmental friendly as well. Solid catalyzers for biodiesel production include resin, clay, molecular sieves, composite oxides, immobilized enzyme, sulfates, carbonates and so on. Quite a lot of issues on preparation and application of solid catalyzers need to be solved, according to the results of current research. The most outstanding problem is solid catalyzers are sensitive to free acid, carbon dioxide and moisture in atmosphere. Bio-enzyme catalysis Bio-enzyme catalysis is a process where animal grease and higher alcohol transesterified with help of lipase. It needs only moderate reaction conditions, less higher alcohol, and causes no pollution. The deficiency is the conversion ratio is less than 90% due to the inhibit effect of higher alcohol on enzymes. How to improve activity of enzyme, and prevent enzymes from inhibition are sticking points of bio-enzyme catalysis. Supercritical technology Reaction occurs in a supercritical environment, with temperature from 350 to 400℃, pressure from 45 to 65 Million Pascal, and designed ratio of rapeseed oil to methanol 1:42. Methanol and rapeseed oil transesterified without catalysis in a preheated batch reactor. With higher yield than common catalysis process, supercritical transesterification avoids fussy separation and purification, renovates transesterification to a simpler, safer and more efficient process. 4.5.2.2 The applicability of technologies Biodiesel, which has many advantages such as low sulfur, features good combustion properties (high cetane number), good lubrication properties, and good safety performance (high flash point) and so on , can be directly used as the fuel of diesel engines without modification or be used by mixing in proportion to diesel oil (2%~30%). Biodiesel provides alternative fuel not only for public transport vehicles, trucks and other diesel vehicles but also for marine transportation, mining, power plants industry with non-mobile combustion engine. Biodiesel can be directly applied to the heating and transportation on a large scale without changing existing distribution network. 4.5.2.3 Development status National standard about biodiesel “GB/T20828-2007 biodiesel for diesel fuel blending (BD-100) “has been issued early this year. Recently, “Experimental study on the biodiesel vehicles performance” by Tianjin

TA-4180 PRC – Final Report Page 58 National Strategy for Rural Biomass Energy Development Evaluation of Biomass Energy Technology automotive technology and research center achieved desired results and passed expert demonstration. However, China’s development level of biodiesel is still at the initial stage comparing to foreign countries. There is still a considerable gap in private enterprises with many disadvantages as follows: small-scale equipment, low technical level, inadequate supply of raw materials, diverse product qualities, irregular circulation and low level of comprehensive utilization and deep processing. 4.5.2.4 Development trend Currently, the main technical problems of developing biodiesel include high cost, lack of competitiveness and the environment pollution caused by popular chemical methods. Waste disposal therefore increases the technical difficulty and the production cost. The key technologies to be tackled include: • Reducing the cost of raw materials. Present raw material cost accounts for more than 75% of the total costs. Crude oil of rapeseed oil may be categorized into two parts: one can be extracted as edible oil and the other can be used as raw materials of biodiesel production. • Breeding new types of rapeseed special for biodiesel. Promoting large area plantation taking use of idle land resource to provide a low-cost materials for biodiesel production. • To develop high-yield and environment-friendly synthetic technology such as highly selective aerobic oxidation of alcohol catalyzed, enzyme catalysis and so on. • To develop symbiotic chemical products, such as lubricants, solvents, plasticizer and so on, to improve the economic benefit of biodiesel plants. Diesel consumption will remain at a relative high level in China, and will reach 150 million tons in 2010 and 200 million tons in 2020, respectively. Future diesel production will continuously be driven by the demand and gasoline/diesel ratio strategy. According to addition ratio of 5%, demanded biodiesel is about 7.5 million tons in 2010 and 10 million tons in 2020, respectively. 4.6 Biomass Power Plant Technology

Biomass power plant technology is the process by utilizing the energy in agriculture, forestry waste fuel through direction combustion or converted into steam for driving the steam engine or turbine to generate electricity. At present, the major straw power generation technologies include: direction combustion power generation technology (combustion technology), co-firing power generation technology with coal, oil and natural gas (co-firing technology) and gasification power generation technology (gasification technology). The major fuels for biomass power plant are crop stalks and forestry wastes. 4.6.1 Combustion Technology 4.6.1.1 Technological principle Direction combustion technology means that the biomass is burned in steam boiler to generate high- pressure steam that drives a steam turbine and transfer the power to the generator for electricity generation. Compared with the traditional power generation technology from fossil fuel, the major differences lie in pretreatment of feedstock and the special requirements of boiler for biomass, which are key factors to guarantee the heat transfer efficiency and stable and long operation.

Figure 4-8: The process of Straw Power Generation

Biomass Boiler Steam Generator Power pretreatment turbine

The major crop residues utilized for biomass power generation are corn, wheat, cotton and rice stalks. The shape and composition of the fuels are varied by different soil, fertilizer and farming habits. Compared with coal, the straw has higher water content, high volatile, low heat value, and thus different combustion characteristics. The agriculture straw generally contains higher alkali metals than that of the coal, and the resulting as has a lower melting point, which can cause slag formation as well as and corrosion in the boiler. The alkaline metals, together with chlorine content in the flue gas are main reasons for heating surface erosion. The contents of alkaline metals and chlorine are determined by the

TA-4180 PRC – Final Report Page 59 National Strategy for Rural Biomass Energy Development Evaluation of Biomass Energy Technology biomass species, soil conditions and farming practices. Compared with cotton stalk and wood chip, stalks of rice, wheat and corn have higher alkaline metal content, and thus higher slag, corrosion and erosion risks In China, pre-treatment equipments and the boilers adopted for straw-fired power generation is still lack of pertinent experience in boiler design, manufacturing and operations now. The introduced biomass boiler and auxiliary facilities have been adopted in the demonstration project, and the boilers exclusively utilizing domestic technologies also begin to be installed and regulated in the biomass power plant. 4.6.1.2 Technological development Combustion technology, either introduced or domestic technology, has been developed relatively mature. Combustion technology is characterized by its advantages of fairly large construction scale, high energy conversion efficiency and no secondary pollution; also, since combustion technology demand for large amount of biomass consumption, it can effectively pave the way to resolve a large number of surplus agriculture biomass and contributes to facilitate China’s rural economic development, increase farmers’ income, improve rural energy structure. At present, there are more than 6 biomass power generation projects sold power to the grid and operating well in China. There are still several technical problems not solved yet in respect of boiler slagging and corrosion, fuel pretreatment, technological localization and domestic technology development. With more and more straw-fired power plants put into operation, it can be expected that such technical obstacles like foreign boiler’s adoption for fuels variety and the operation of domestic boiler and pretreatment equipments will inevitably appear. Only through a series of boiler installation, regulation and operation in the demonstration projects, the technical obstacles mentioned above can be gradually found and overcome. 4.6.2 Gasification Technology 4.6.2.1 Technological principle Straw gasification for power generation is the process of gasifying biomass to drive an internal combustion engine (ICE) or gas turbine to drive a generator for electricity production. The gasification is the process with oxygen, steam or hydrogen as media, conversion of biomass to combustible syn-gas at high-temperature conditions. The main components of syn-gas include CO, H2 and CH4. The key technologies for gasification power generation are low-cost syn-gas purification and auxiliary power generation equipment. The gas generated from gasifier is mixed with tar, ash and alkaline metals, and tar is the main factor effecting the normal operation of the power generation equipment. In addition, the design and manufacture of ICE or gas turbines still need further development.

Figure 4-9: Process steps for small-scale biomass gasification technology

Biomass Gasifier Purification Engine Generator Electricity pretreatment

Figure 4-10: Process steps for large-scale biomass gasification technology

Biomass Gas Gasifier Purification Generator Electricity pretreatment turbine

Boiler for Steam Generator waste heat turbine

4.6.2.2 Technological assessment Compare with combustion power generation, the installed capacity of gasification technology is small with less fuel demand and low unit investment. In some rice processing factories, rice husk is still utilized for

TA-4180 PRC – Final Report Page 60 National Strategy for Rural Biomass Energy Development Evaluation of Biomass Energy Technology power generation. However, the technology can be meet large-scaled industrial application restricted by technical, policy and other obstacles. The main technical obstacles are as follows: • Tar removal. The world-wide technical difficulty for gasification technology is effectively removing tar with low cost. It results in pipe blocking and security operation of power generation equipments etc. At present, water washing technology is widely used for tar removal, however the treatment of tar-content wastewater is will cause second-time pollution; Catalyzing technology is the other way for tar removal, but it still at R&D stage. • And for some small-scaled gasification power plants, the electricity generated is difficult to be sold to grid since it cannot meet its basic technical requirement of the grid. For example, Gansu gasification power generation project with installed capacity only 200 kW. In the international market, biomass gasification combined cycle projects have been developed commercially. However, since the gasification power generation technology is not technically mature and is not yet competitive in the market, biomass gasification power plants have not been operated commercially at large scale. At present, the liquid fuel has become a new area of development in the field of biomass gasification. 4.6.3 Current Status of Biomass Power Plant Technology By the end of 2006, biomass power generation in China reached an installed capacity of almost 2200 MW, consisting of 1700 MW of combined heat and power (CHP) in sugar mills, 400 MW of power generation using Municipal Solid Waste (MSW), 50 MW from rice husk gasification power generation and straw-fired power generation about 50 MW. Till the end of 2006, more than 50 biomass power plants have been approved by the National Development and Reform Commission (NDRC) and the Local Development and Reform Commissions (LDRC). The total installed capacity is 1500 MW, in which 38 power plants with installed capacity of 1284MW were approved in 2006. The total investment was about 10 billion RMB. Shandong Shanxian project invested by Guoneng Bio-Energy Corporation was put into operation and sold power to the grid On December 1, 2006. The project is considered to be the first national straw-fired demonstration project with imported foreign technology. In this year of December 20, Jiangsu Suqian project invested by CECIC Biomass Investment Corporation ignited for the NO. 1 boiler and put into operation, and it is regarded as the first straw-fired demonstration project exclusively utilizing domestic technologies. By the end of June 2007, there are over 8 large-scale biomass power plants with installed capacity of 200 MW have been put into operation and sold power to the grid. It is estimated that by the end of 2007, at least 25 biomass power plants will be put into operation with installed capacity of more than 600 MW. The annual power generation is 3000 GWh, more than 4 million tons of biomass will be converted into clean fuel, the farmers’ annual income will increase by more than 1.2 billion Yuan, 2 million tons of tces will be saved and 6 million tons of CO2 emission will be reduced, which will contribute to the significant economic, social and environmental effects. 4.6.4 Future Development of Biomass Power Plant Technology For straw combustion power generation technology, regions with sufficient straw resources outside the main crop production regions north of the Yangtze River have priority to develop this technology. As for gasification power generation technology, it will be more suitable for those regions with insufficient resources, but tar removal is still the critical issue for these gasification power plants. And for some small- scaled power plants (<1MW), since the electricity generated is difficult to be sold to grid, there should be a confirmed alternative customer with a long-term and stable load requirement. The best choice among biomass power generation technologies is co-firing technology in terms of technological adaptation and economic effect. At present, the development of co-firing technology confronts the problem that there is not a verifiable approach for measuring and monitoring the percentage biomass mixed with coal. Once these problems have been solved, the co-firing technology will be significantly developed.

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4.7 Conclusions and comments

(1) Generally speaking, the development of agriculture biomass energy in China is still in an early stage, so its technical maturity and commercialization level is not high. Currently, several kinds of conversion technologies of biomass energy such as rural households’ biogas, farms’ biogas projects and power generation technology of straw are relatively mature and were used in a large scale through all kinds of economic incentives including government’ subsidies. A number of biomass conversion technologies such as biomass solid pelletizing fuel technology, dry digestion from straw, bio-fuel ethanol and biodiesel technology are at the demonstration phase and gradually enter the early development stage of commercialization. In the future 5-15 years, these technologies will be possibly used in a large scale. Straw pyrolysis and gasification technology have technical problems in practice and affect the application effect. In addition, cellulose degradation and Fischer-Tropsch synthesis are in the stage of research and development and expected to achieve commercialization over the next 20 years. Detailed was showed in Figure 4-11.

Figure 4-11: The development potential of biomass Technology Alternatives R&D Pilot Commercial appl. 2005 2010~2015 2015~2020 2020

Direct combustion

Co-firing

Gasification

Village-scale gasification

Pellet technology

Stove

Household bio-digesters

Medium to large scale anaerobic digesters

Fuel Ethanol

Bio-Diesel

Rapid Pyrolysis Technology F-T synthetic fuels from gasification

Gasification and H2 separation

(2) Considering the development potential and market prospects, rural households’ biogas, biogas projects on farms, biomass solid pelletizing fuel technology, dry digestion from straw technology, can provide good quality energy for rural residents, wash out traditional low efficiency combustion. With great potential, these technologies should be developed with detailed plans according to the distribution of rural resources, local custom, economical development, and technical maturity. Fuel ethanol and biodiesel technologies are with promising future, but large-scale development is restricted by raw materials supply (combining land resource and Industry policies). Straw gasification and biomass pyrolysis technologies are technically deficient, thus of uncertain future; biogas projects based on livestock farms are useful measure in disposing animal manures. Large amount of biogas plants are demanded in consideration of, firstly environment protection then energy production. In addition, ethanol production by cellulose degradation and Fischer-Tropsch synthesis are very potential and considered to be the directions in the future. Technology evaluation of all types of biomass conversion is presented in Table 4-5 and Table 4-6. Household biogas, solid pelletizing fuel, biogas plant based on live stock farm and straw gasification technologies can provide rural residents energy for cooking. Suggested from the comparison, household

TA-4180 PRC – Final Report Page 62 National Strategy for Rural Biomass Energy Development Evaluation of Biomass Energy Technology biogas, solid pelletizing fuel and biogas plant based on livestock farm are technically applicable. Straw gasification is not technically applicable. Therefore, rural households’ biogas projects and biogas projects on farms, for which there are matured technologies and great market potential, are the development focus providing fuel for rural users in the recent future; biomass pelletizing technology, straw bio-gasification technology, bio-fuel ethanol and biodiesel technology with the great market potential under the conditions of demonstrations are the development focus in the middle stage; ethanol production by cellulose degradation and Fischer-Tropsch synthesis technology are the long-term development focus.

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Table 4-5: Comprehensive evaluation of all types of biomass conversion technologies Technology Materials Development Development measures and Product Applicability Problems Trends / potential category sources status suggestions Solid Crop stalks, by- pelletizing products in fuel agricultural Rural Basically mature, Mould is easily attrite, high Solid Replacing traditional stoves, To develop distributed town- technology processing residents use energy efficiency; raw pelletizing in the pilot improving the consumption scaled fuel plants in the main industry (such for cooking or material supply system is fuel demonstration structure of rural energy. grain production areas. Highly as corn-cob, heating phase incomplete. efficient peanut shells, stoves etc.) To guide social services and By 2010, 23 million rural property management system, Some farmers didn’t raise household biogas digesters equip necessary digesters Maturity, pig any more, because of will be built in china, the total moulds, residue feed-out device the lack of raw materials will reach 40 million, and Manures from the number of and testing equipments. Rural Rural and necessary service percentage of household small farms new biogas Explore the rural energy household residents use facilities and equipment; biogas use will reach 28.8%; and digesters promotion system at county, biogas for cooking with rapid development of By 2020, national rural households amounts to 18.07 township and village level; rural gas projects, many biogas digesters will achieve million in China in summarize, research and management problems 80 million, and percentage of 2005. popularize different models of arises in some places. household biogas use will property management achieve 70% mechanism. Manure from Gas large or Currently, a large number medium-sized of national debt are used farms and the for household biogas Large or medium-sized organic digesters annually; but no To provide biogas projects will be built wastewater in Basically mature, special funds for biogas To arrange special funds for the gas or by averaged rate of 800 Biogas the industries China built 3556 projects on farms. large and medium-sized biogas electricity for annually in intensive projects on as below: biogas projects on Because of low profits of projects. To guide and support surrounding breeding farms; the number farms alcohol, wine, husbandry farms breeding enterprises and biogas projects on the large- rural will reach 4 thousand and 10 sugar, food, in 2005. financing difficulties, most scale farms and breeding units. residents. thousand by 2010 and 2020, pharmaceutical of the owners are unable respectively. , papermaking or unwilling to built biogas and projects, so the manure slaughtering, are not treated effectively. etc.

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Technology Materials Development Development measures and Product Applicability Problems Trends / potential category sources status suggestions Promoting more demonstration High price for bacterium of straw bio-gasification; Improving of biogas production Rural strain; To solve “bottleneck” technology using straw; Timely households problems of raw material Fussy feeding and amend or modify the contents Straw bio- for cooking or In demonstration supply during the bio- Crop stalks exhausting, daily and standards of national debt gasification centralized stage gasification, the farmers not management, and construction projects; Bring the gas supply breeding pigs also can use difficulties in residue straw bio-gasification into for village clean energy. collection for organic national debt construction fertilizer production. project and establish building standards.

Crop stalks, by- Rapidly Straw products in progressed in High content of tar; The gasification agricultural Centralized wastewater causes early stage; Research catalytic pyrolysis with processing gas supply to secondary pollution; Prospects are uncertain. standstill present technology for tar Centralized industries (rice villages Superfluous CO may due to technical gas supply husk, bagasse, cause safety problems etc.) problems. Carbohydrates (including sweet sorghum Alternative energy, facilitated To explore energy crops base stalks, sugar Basically mature to expand the application using idle land resources such and In Inadequate supply of raw scale, sustained as wasteland and saline, etc. Fermentation cane) Added to the demonstration materials. development potential. The To solve technical problems; Starch gasoline by Fuel stage development goal in 2010 is Research operating mechanism (including 8%~12%, ethanol to 400 million tons. and subsidy programs. cassava, sweet alternative of potato) oil High cost and not easy to Strengthening basic research Extensive source of raw Cellulose (crop achieve technical and breakthroughs in key Hydrolysis Under research materials, development stalks) breakthrough in the near technologies as soon as trends in the future. future. possible. To develop energy crops base Oil energy Alternative energy, great Basically mature in idle lands in winter and other crops Add into potential market, suitable for and In Inadequate supply of raw resources; To solve technical Chemical (soybean, diesel oil, larger application scale, with demonstration materials. problems; Research operating rapeseed, replace oil lon term development stage mechanism and subsidy Biodiesel cottonseed oil) potential. programs. Add into To develop pilot and F-T In demonstration High cost, lack of core May be development trend Crop stalks diesel oil, demonstration projects, reduce Synthesis stage technologies. in the future. replace oil costs.

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Technology Materials Development Development measures and Product Applicability Problems Trends / potential category sources status suggestions Heat value of bio-crude-oil is between 16-18MJ/kg, 1/2 of the fuel oil, instable Fast To improve the physical Bio-crude- chemical properties, high As boiler fuel, uncertain pyrolysis Crop stalks Boiler fuel Under research chemical properties of bio- oil content of water and prospects. technology crude-oil; improve its stability. oxygen, limiting the efficiency of utilization as fuel Straw, agricultural and Biological Currently, applicable in To strengthen basic research; forestry wastes, Hydrogen Immature technology; high Hydrogen hydrogen Under research special fields with great settle key technologies as soon manure, Fuel cell cost production potential in the future. as possible. organic wastewater Till the end of 2006, more than 50 biomass power plants have been approved by the National Areas with Development and Biomass feedstock and It is expected to fulfill the Combustion rich biomass Strengthen capacity building of Reform pretreatment; key target of localization of power resources to service industry; and R & D of Commission technology still depends foreign key technology and generation the north of domestic technology and (NDRC) and the on abroad; immature equipment in China in the technology Yangtze equipments Local biomass boiler technology recent coming years. River Crop stalks, Development and Electricity agricultural and Reform forestry wastes Commissions (LDRC). The total installed capacity is 1500 MW The first co-fired National policy of limitation Coal-fired power generation of small coal-fired power Co-firing power plants unit-Shiliquan co- generation units will prompt Measuring issue of co-fired power in the areas firing power plant the development of co-fired Develop measuring methods coal; lack of practical generation with rich had been put into technology; measuring issue and policy supports policy support technology biomass operation; Lack of is expected to be solved for resources practical policy better development of co- support fired technology

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Technology Materials Development Development measures and Product Applicability Problems Trends / potential category sources status suggestions In demonstration stage, Jiangsu Xinghua 4MW biomass Gasification the areas Tar removal; difficulty of Research tar removal gasification power It is viable to scale-up power with rich selling power to the grid for technology; technological generation project development if the problems generation biomass some small-scaled problem of small-scaled power had been certified mentioned can be solved technology resources projects plant to the grid by Ministry of Science and Technology (MOST)

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Table 4-6: Technology Assessment of Biomass The level Technology Conversion Energy Water of Technology Market Development Comprehensive Product remark Category efficiency consumption consumption materials maturity share potential Evaluation supply Solid Solid 0.90 ～0.15kW•h/ 0 +++++ +++ + ++++ ++++ Conversion pelletizing pelletizing fuel kg efficiency is the fuel technology solid briquette production efficiency; If consider end users efficiency, compared to 0.30. Highly efficient 0.30 0 0 +++++ +++ + ++++ ++++ Thermal efficiency stoves for cooking, heating efficiency of 0.60. Gas Rural 0.10 0 0 ++++ +++++ +++ ++++ +++++ Terminal energy household efficiency of 0.55. biogas Biogas 0.10 0.8kWh/m3,0. 0 +++ ++++ + +++ ++++ Terminal energy projects on 2tce/m3 efficiency of 0.55. farms Straw bio- 0.10 0 0 +++++ +++ + +++ ++++ Terminal energy gasification efficiency of 0.55. Straw 0.72 0.09kWh/m3 A little +++++ +++ + + + Terminal energy gasification methane efficiency of 0.50. with Centralized gas supply Generating direct firing 0.24_0.28 400-470g/kwh Quite a lot ++++ ++++ + ++++ ++++ Energy electricity generation consumption technology refers to tce (g) consumed for combined 0.28 400 g/kwh Quite a lot +++++ +++++ + ++++ +++++ generating 1kWh firing electricity to the generation grid. technology Gasificaty 0.26 433 g/kwh A little +++++ +++ + +++ +++ generation technology Fuel Fermentation ++ 0.5~1.2tce/t 35~120m3/kL +++ ++++ + ++++ ++++ Ethanol hydrolyze ++ 1.0tce/t +++++ ++ + ++++ ++

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The level Technology Conversion Energy Water of Technology Market Development Comprehensive Product remark Category efficiency consumption consumption materials maturity share potential Evaluation supply Biodiesel Chemical +++ 25kWh/t,0.1tc 0.86m3/t +++ ++++ + ++++ ++++ e/t F-T alternate +++ +++++ ++ + ++++ ++ Bio-crude- Fast Pyrolysis +++ +++++ ++ + + + oil Technology hydrogen Biological + +++++ + + ++++ + hydrogen production Notes： 1) Power generation by coal consumption calculation method. 2) + denote bad、++ denote poor、+++ denote mid、++++ denote good、+++++ denote excellent

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5. Cost-Benefit Assessment

5.1 Introduction

This cost-benefit analysis was undertaken in order to rank the alternative biomass resource/technology/application options in a systematic manner. The purpose of the analysis is to provide a basis for selection or rejection of biomass pathways when factoring in both profitability and social and environmental benefits. In general, cost-benefit analysis can be performed using a variety of analytical tools to assess the financial and economic viability of alternative investment options6. For this analysis, the Net Present Value (or Discounted Cash Flow) and the Internal Rate of Return will be the principal criteria used because they are more suited to the analysis of alternatives that vary significantly in size and scale and they are less sensitive to the choice of discount rate. The first step in the process is the discounted cash flow analysis of the various options, which is the difference between the money generated (revenue) and ongoing costs (expenses) of the project. In order to minimize issues related to comparing options with greatly differing time spans, the typical projects used for each resource/technology/application option were designed as much as possible to have similar sizes and lifetimes. The Net Present Value (NPV) and the Internal Rate of Return (IRR) approach are similar but distinct. The NPV determines today’s value of future cash flows at a given discount rate, while the IRR determines the discount rate (or interest rate) at which the cumulative net present value of the project is equal to zero. The analysis primarily uses the economic internal rate of return (EIRR), as compared to the financial internal rate of return (FIRR), in order to account for the social and economic benefits that accrue from the various options. The EIRR is most appropriate to development of a national strategy, which will use public sector funds to stimulate biomass development in rural areas that will capture economic benefits to the society. The FIRR is also be calculated for each option and its primary non-biomass competition to determine the financial attractiveness of possible projects in an attempt to determine the level of incentives needed to stimulate private sector investment in the identified options. Sensitivity analysis has been used to determine how the overall results change if key variables in the cash flow analysis are changed. 5.2 Summary

For this cost-benefit analysis, the biomass resources and technologies were grouped and compared according to their applications. Therefore, energy efficient stoves, pellet fuel, village gasification and bio- digesters (household and medium scale) were assessed as options for providing household cooking and heating. Likewise, all resource and technology options were assessed for power generation and for bio- fuels production. The overall results the cost-benefit analysis are reported in Table 5-1 and summarized in the sections below. The analysis was performed from the societal perspective, and a 6% social discount rate was used. Also, for the household cooking and heating option, the overall system from supply to end-use for a 200 household village was analyzed.

6 Best Practices Guide: Economic & Financial Evaluation of Renewable Energy Projects, Chapter 5: Cost-Benefit Analysis, USAID/Office of Energy, Environment and Technology, June 2002.

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Table 5-1: Summary Cost-Benefit Results Summary Cost-Benefit Analysis Results for Rural Biomass Energy in China Annual Initial Annual Net Benefit Payback Social/ System Economic Environmental Overall Application Resources Technology investment O&M Cost Benefit EIRR FIRR -Cost Period Health/ Jobs Size Benefit Impacts Assessment (RMB) (RMB) (RMB) Ratio (year) Impacts (RMB) Respiratory Traditional 200 No High indoor air disease, 20,000 40,000 10,000 -30,000 Negative Negative 0.20 Low stove/furnace Households Payback pollution Time consuming High Efficient Reduces fuel 200 Affordable to Energy Saving 80,000 13,333 36,667 23,333 23% Negative 1.17 3.4 use and indoor High Households poor Furnace pollution Crop Fuel and Pellet and Briquette 200 Very clean and Residues 1,330,000 194,500 400,000 303,425 27% 12% 1.43 4.4 stoves must Very high technology Households convenient be affordable Rural Clean and household Promotes crop convenient, cooking or Village-scale straw 200 No straw use and but CO and 1,094,350 103,403 92,854 52,921 Negative Negative 0.72 Low heating gasification Households Payback reduces indoor water pollution pollution concerns Significant Household bio- 200 Reduces CH4 economic 1,420,000 3,942,000 6,812,780 2,971,532 55% 54% 1.56 0.5 Very high digesters Households emissions development Animal benefits Waste Clean, Medium and Large- 200 Reduces CH4 convenient 1,560,000 138,473 193,770 140,561 7% Negative 1.04 11.1 Moderate sized Bio-digesters Households emissions and affordable Promotes crop Power Generation straw use and of Crop Straw 6 MW 39,039,000 7,800,000 17,820,000 13,839,068 29% 21% 1.80 2.8 High reduces coal Gasification use Income from Supply of Promotes crop Power Generation biomass electricity or Crop straw use and of Direct Crop Straw 25 MW 308,420,000 29,500,000 72,600,000 57,543,910 16% 11% 1.46 5.4 supply and High process Residues reduces coal Combustion jobs at the heat use power plant Promotes crop Co-Generation of straw use and Coal and Crop 32 MW 83,570,000 7,360,000 35,162,400 47,763,394 53% 30% Very high reduces coal Straw Combustion use

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Summary Cost-Benefit Analysis Results for Rural Biomass Energy in China Annual Initial Annual Net Benefit Payback Social/ System Economic Environmental Overall Application Resources Technology investment O&M Cost Benefit EIRR FIRR -Cost Period Health/ Jobs Size Benefit Impacts Assessment (RMB) (RMB) (RMB) Ratio (year) Impacts (RMB) Major reduction Effluent Animal Medium and Large- in water provides high 75 kW 1,017,000 256,250 351,000 432,348 34% 4% 1.86 2.4 High Waste sized Bio-digesters pollution and quality CH4 emissions fertilizer Sweet Sorghum 5,000 Reduces CO2 Producing Fuel 17,500,000 22,383,333 24,500,000 2,468,833 15% 12% 1.04 7.1 High tons/yr emissions Ethanol Significant Cassava Producing 200,000 Reduces CO2 807,000,000 922,900,000 956,000,000 47,186,635 2% -2% 0.98 17.1 impacts on Moderate Fuel Ethanol tons/yr emissions efficient use Sugar Cane of rural land, 100,000 Reduces CO2 Energy Producing Fuel 463,499,786 459,449,993 470,000,000 17,593,325 -3% Negative 0.96 26.3 rational Moderate Liquid Fuel tons/yr emissions Crops Ethanol structure of plantations, Rape Seed - 100,000 1,134,000,0 No Reduces CO2 and farmers’ Producing Bio 900,000,000 810,000,000 313,270,17 Negative Negative 0.68 Low tons/yr 00 Payback emissions income and Diesel Oil 9 employment Rape Seed 60,000 - No Reduces CO2 Producing Bio 120000,000 680400,000 486,000,000 Negative Negative 0.68 Low tons/yr 194400000 Payback emissions Diesel Oil Notes: * Compares equivalent systems for providing a 200 household village. 1. 1 ton of crop straw can be converted into 0.5 tce. 1m3 biogas = 0.7kgce. 1m3 gasified crop straw =0.188kgce. 1 ton of ethanol fuel = 0.915 tce. 1 ton of bio-diesel oil = 1.4 tce. 2. We assume that the value of one tce is 500 RMB. 3. Social Discount rate = 6%

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5.2.1 Household Cooking and Heating Direct burning of crop residues in traditional stoves for cooking and does significant harm to farmer’s health, the environment and increases the farmers’ work. It has no economic return, and it is not worthy of advocating further. The high efficiency energy saving stove/furnace has good environmental, economic and social effectiveness, so it is worthy to be spread. However, it is good to fix the unit price not more than 400 Yuan. It is commercially available, and if the government could offer some subsidy, its economic evaluation would rank better. Biomass pellets have high environmental, economic and social effectiveness. They provide both cooking and heating, whereas many of the other options only provide cooking gas. This option has a high EIRR because of the higher conventional fuel displacement achieved by providing winter heating. However, this social EIRR is dependent on the pellet fuel price being affordable, and the government could offer some subsidy. The comprehensive evaluation ranks this option very high. Straw gasification at the village level, although having certain environmental and social effectiveness, and a reasonable EIRR, has no financial benefit and continues to suffer from immature or poorly implemented technology. The comprehensive evaluation ranks this option low, and it should not be promoted further. Household bio-digesters systems have low investment, distinct environmental effectiveness and can be used to enhance agricultural productivity, resulting in a high economic and financial return. The comprehensive evaluation ranks this option very high. With these advantages, the government should continue to support and promote this important option for biomass energy use in Chinese villages. Medium and large-sized biogas systems providing village cooking and heat generation have a lower economic and financial return because of the higher investment needed for the gas distribution system. This option has good social and environmental effectiveness, but also provides the system owner with a lower financial return than if the gas were used to generate electricity. The comprehensive evaluation ranks this option high. 5.2.2 Power Generation Power generation using crop straw gasification has good economic, environmental and social effectiveness, and the financial return is reasonable given the subsidy from the Renewable Energy Law. The comprehensive evaluation ranks this option high. Power generation through direct crop straw combustion has good environmental and social effectiveness, but its economic and financial returns are lower than the gasification option because it currently relies on imported (relatively expensive) technology. The comprehensive evaluation ranks this option high. Power generation project of hybrid crop straw combustion project has higher environmental, economic and social effectiveness, so it is the best project worthy to be spread. The comprehensive evaluation ranks this option very high. Medium and large-sized biogas systems employed for power generation have good economic, environmental, social effectiveness. The comprehensive evaluation ranks this option as high. 5.2.3 Bio-fuels Production Ethanol production from sweet sorghum has distinct environmental, economic and social effectiveness. This option is ranked high. Ethanol production from cassava and sugar cane has good environmental, economic and social effectiveness. The comprehensive evaluation ranks this option moderate. The above options are worthy to be spread, for this kind of project to produce fuel ethanol from energy crop is determined by raw material cost and producing technique. Bio-diesel from rape seed has low economic effectiveness and high raw material cost. Although it has certain environmental and social effectiveness, it appears difficult to commercialize. The comprehensive evaluation ranks this option low.

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5.3 Cost-Benefit Methodology

On the basis of collecting available economic evaluations of biomass energy technologies as well as relevant literature regarding the investment and financing of the biomass energy options and applications, this cost-benefit analysis integrates data from field surveys, specialist interviews, workshops, and case studies with the demonstration research. The cost and performance data for each set of technologies, resources and applications are provided in sections 5.5 through 5.7. Section 5.4 summarizes the technical maturity, uncertainties and external costs and benefits of biomass technologies and resources. 5.3.1 Valuation of Environmental Benefits The evaluation of the environmental benefits follows the methodology in ADB’s Economic Evaluation of Environmental Impacts: A Workbook. The environmental impact analysis is carried out in four steps: major stressors or pollutants are identified; impact screening is carried out for each stressor; if the impacts are major, effort is made to place a monetary valuation; and the benefits (costs) flows are quantified for integration within the economic analysis of the Project. For this assessment of rural biomass energy options, the selected environmental stressors include sulfur dioxide, nitrogen oxides, particulate matter and carbon dioxide. These environmental stressors have potential impacts on human health, human welfare and environmental resources. A benefits transfer method (BTM) was used to assess the values of environmental costs and benefits. In this instance, as described in detail in the following paragraph, these data are based on similar valuations conducted in other parts of the world with proper adjustments to China. Table 5-2 provides the values used in this analysis. They are derived from recent work in China, where for 2005 the volume of renewable energy developed and utilized with modern technologies reached 50 million tce and the environmental benefits generated from the process are worth over 10.4 billion RMB yuan.

Table 5-2: Environmental benefits from the development of biomass energy in 2005 in China Emission Volume of reduced Benefit from the Total benefit from the coefficient (t/tce) emissions (10 reduced emission reduced emission (100 m thousand tons) (RMB/t) RMB)

CO2 0.726 3630 57 75.69

SO2 0.022 110 1260 13.86

NOX 0.010 50 2000 10.00 TSP 0.017 85 550 4.68 Total 104.22 Source: www.zgswzn.com, 2007 These values compared favorably to BTM values derived from the taxation of SO2/NOx emissions in Denmark in 1999; the market value of Certified Tradable Offsets (CTO) sold by Costa Rica to Norway; and the current value of carbon credits under the CDM. SO2/NOx emissions are taxed at a rate of 7 $844/ton of SO2 in Denmark . A SO2 emission tax rate of $650/ton of SO2 in the USA is cited in a recent Resources for the Future study8. The Chinese value of 1260 RMB/ton SO2 is mid-range of the purchasing power parity adjusted values for Denmark and the US. Recent data shows the purchasing power parity 9 for China is about 21% of that of USA . Tax on NOx emissions usually has a higher rate than on SO2. For example, it is more than a third higher in France10. Based on this limited data, the above Chinese value appears high, but it was used nonetheless for lack of better data.

7 Danish Environmental Protection Agency, Ministry of Environment and Energy, Economic Instruments In Environmental Protection in Denmark, 1999, pp 93-96, 150. 8 Sterner, T. (2003) Policy Instruments for Environmental and Natural Resource Management, Washington, DC, Resources for the Future 9 IMF data from http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita 10 ECOTEC, 2001, Study on the Economic and Environmental Implications of the Use of Environmental Taxes and Charges in the European Union and its Member States, ECOTEC in association with CESAM, CLM, University of Gothenburg, UCD, IEEP.

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5.4 Technological maturity and uncertainties in the biomass energy in China

Table 5-3: Technological maturity in the biomass energy in China Technologies in Trial and Technologies in initial Types of Commercialized research and demonstration stage of Technology technologies development technologies commercialization Biogas pool in √ √ household Large and medium- scale biogas power- √ √ generating projects Gasification of √ √ biomass Solid biomass energy √ √ √ Fuel ethanol √ √ Power generation via direct combustion, mixed combustion, √ √ and gasification of crop straw Biodiesel √ √ √

Table 5-4: Uncertainties in the development of biomass energy Research and development stage Production stage Application stage Uncertainty in return rate of Uncertainty in output Uncertainty in price investment Uncertainty in innovation occasion Uncertainty in demand Instability in supply Uncertainty in acquisition of materials Uncertainty in price (like land and capital) Uncertainty in policy Uncertainty in the market in which the energy green warrant is traded Uncertainty in technology Uncertainty in environment and health developments impacts Uncertainty in the supply system of Uncertainty in policy elementary energies (including renewable energies)

Table 5-5: External costs and benefits in the development and utilization of biomass energy Impacts External costs External benefits Impact on The impact on the environment and ecological • Reducing the emission of greenhouse gas and environment system in the development and utilization relevant pollutants • Lessening the impact on the environment by the nuclear energy • Reduce the soil loss • The benign recycle of matters and energy and positive influence on the ecological system

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Impacts External costs External benefits Impact on ·The policy costs incurred by the various • Driving the developments of the renewable economy incentives and procurement in protected price energy industries and relevant and will bring about excess burden, distort the technologies energy market, decrease the efficiency in • Resolving the development problems (like crops energy allocation and utilization surplus) in relevant industries (like agriculture) ·Driving the rise in the energy price and • Cushion impact of the fluctuations in the oil price reduce the surplus of consumers and in the international market producers • Relieving the impact of the exhaustion of the ·The substitution of traditional energies will fossil energy impact the overall economy and varied industries • Creation of new market (green warrant trading system) Impact on ·The utilization will affect the human health • Developing China as an economic power based society ·Affecting the usages of land and the on “Green Energies” distribution of ownership of land • Building up the significance of the renewable environment and energy • Promoting the proportion of the self-produced energy and ensure the energy supply

5.5 Rural Household Cooking and Heating

The basic data used in the cost-benefit analysis for the rural household cooking and heating application is summarized in the following sections. 5.5.1 Traditional and Energy Effective Stoves Traditional cook stoves have a cost about 100 RMB and a thermal efficiency of about 10%. They have a lifetime of about 2 years.

Table 5-6: Comparative evaluation of costs and benefits of Traditional Stoves and High Efficient Energy Saving Surface (200 Households) Traditional Stoves High Efficient Energy Saving Surface Total Capital Investment (YUAN) 20000 80000 Annual Operation Cost (YUAN) 40000 13333 Annual Benefit (YUAN) 10000 36667 Net Profit (YUAN) -30000 23333 EIRR Negative 23% FIRR Negative Negative Source: This Study, 2007 An energy efficient stove utilizing biomass (crop residues or firewood) costs around 400 RMB and has a thermal efficiency of over 30% and a lifetime of about 5 years. The emission concentration of smoke dust is calculated to be less than 50 mg/m3 and the concentration of CO is less than 10 ppm within the house. Compared with traditional stove, an energy efficient stove can save as much as 0.67 tce if the amount of solid fuel consumed by the household for cooking is 2 tons. 5.5.2 Biomass Pellets for Household Cooking and Heating Biomass pellet technologies are generally applied in northern parts of China and are used for both cooking and heating. The results of a survey conducted in Beijing are summarized in Table 5-7 and indicates that a subsidy from the government is necessary.

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Table 5-7: Survey of Pellet biomass use in Huairou District Stove using Localities Villager Zhao Fuyu’s household (2 members), Huayuan Village solid biomass Villager Ding Fangping’s household, Beizhai Village fuel Basic information The stove values 2,900 RMB yuan. The spending by the household is 500 RMB yuan and the government will provide some subsidy Responses from The farmers prefer this stove for its many advantages: the households 1. Less dirt; more smoke and dregs from the combustion of coal in the past; the coal piled beside the farmland occupies farmland, produces huge volume of smoke and dust, and pollutes the air. 2. The ash can be used as the fertilizer; 3. Less emissions of smoke and pollutants; 4. Automatic supply of fuel, very convenient; 5. Improving the environment in the village; Problems 1. The rise of the temperature is slow when combustion; 2. Many small failures, like jam in the outlet for the fuel; 3. Inadequate training for the skillful users; 4. The fuel is not cheap enough; 8 tons x 300 RMB yuan/ton = 2400 yuan Suggestions 1. The fuel shape should be changed. 2. Less expensive stove, affordable if less than 1,000 RMB yuan (400 RMB yuan for the traditional stove) Source: Field survey in Beijing, 2007 The production costs and benefits for two pellet producing systems are shown in Table 5-8. System A using crop residues for village pellet supply was the one used for this analysis.

Table 5-8: Comparison and evaluation of costs and benefits of biomass pellet fuel A- Solid biomass fuel demonstration B- Mill producing pellet fuel in program in a village Shandong Province Production capacity 1,000 tons/year 10,000 tons/year Investment Unit price (yuan/ton) yuan/year Unit price (yuan/ton) yuan/year Building 350000 2300000 Facilities 400000 2000000 Total investment 750000 4300000 Business cost yuan/year yuan/year Crop straw 100 100000 160.00 1600000 Power 30 30000 52.00 520000 Salary and welfare 15 15000 49.80 498000 Maintenance 2 2000 2.43 24300 Depreciation 20 20000 31.18 311800 Sale cost 5.00 50000 Amortizing and others 10 10000 7.53 75300 Total business cost 469.58 177000 307.94 3079400 Gross income yuan/year yuan/year Sale of pellet fuel 380 380000 350 3500000 Net profits 203000 420600 Source: program from Asian Development Bank, PRC 1924, Special Study D, 2007; Tian Yishui, Chinese Academy of Agricultural Engineering, 2007. Notes: 1m3 solid fuel =0.788kgce, 1 tce whose unit price is 500 RMB/ton

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For pellet fuel produced from crop straw, the price of the crop straw varies in different regions. The crop straw is usually discharged in the farmland and burned out. By contrast, it can be sold in 50-100 RMB yuan/ton in some regions. The process of converting the crop straw into solid fuel will last longer and the cost for 1 ton of solid fuel is about 210-300 RMB yuan, including 100 RMB yuan for power, 60 RMB yuan for worker, 50 for other spending. The replacement of the coal with biomass pellet fuel is not economic at such cost by now. Yet, it is applicable in some special industries, like porcelain and steel-making. The technologies applied in the biomass solid fuel and the research and development of facilities have to be developed yet in China due to the smaller production capacity, less professional plants, and lack of product series and standardization. We should center on developing feasible facilities and series of products as well as carrying on cutting the cost and applying advanced technologies, which will reserve necessary technologies for the massive development and utilization of biomass energy in 21st century.

Table 5-9: Comparative evaluation of costs and benefits of Crop Straw Gasification biomass pellet fuel Biomass Pellet Fuel Technology Crop Straw Gasification Technology Total Capital Investment (YUAN) 1330000 1094350 Annual Operation Cost (YUAN) 194500 103403 Annual Benefit (YUAN) 400000 92854 Net Profit (YUAN) 303425 52921 EIRR 27% Negative FIRR 12% Negative Source: This Study, 2007 5.5.3 Village-based Crop Straw Gasification The promotion of crop straw gasification has been based on its contribution to the full and effective utilization of the abundant straw residues, its ability to substitute and supplement the supply of the commercial energy, reduce the pollution, improve the living conditions in rural areas. In addition, this program can serve as the new impetus of economy, and create more job opportunities. As a consequence, the government took measures to develop the market for the integrated supply system of gasified straw and promote its commercialization. The results of this program have shown the following advantages and disadvantages. The benefits in the crop straw gasification station play crucial role in commercializing this program. Many factors, such as initial investment, operational cost, management, and policy, will affect the returns of the straw gasification station. The surveys in many stations and the analysis show that it is difficult for most stations to operate in surplus, and even more difficult for some to operate for long time. The major reasons are as follows: (1) The low price of the gasified crop straw and faint possibility of higher price At present, most of the straw gasification stations are under the management of village commission. The gas supply is treated as a welfare product with lower price. The national and governments have not yet unified the price which is not decided by the quality. The unit cost is calculated to be 0.211 RMB yuan/m3 according to calculation of the cost-return, including 0.131yuan /m3 for the fixed cost and 0.080 RMB yuan /m3 for changeable cost. The gas is mostly priced at less than 0.200 RMB yuan/m3. The people in developed villages may have free supply of gas. Hence, the present pricing for the gas cannot guarantee the returns from the investment by the straw gasification station. (2) The small number of gas consumer and single purpose of the gas The scale production of the gas may reduce the unit production and installation costs and it plays the important role in reducing the overall cost of the crop straw gasification station. As far as a supply system serving 200 households is concerned, it can provide the gas to as much as 325 households if it is installed with corresponding machines and gasification facility according to the measurement. This complies with the design requirements. The unit cost of the gas will drop to 0.145 RMB yuan/ m3 from 0.211 RMB yuan /m3 when the same system is expanded. The crop straw gasification plants in China are

TA-4180 PRC – Final Report Page 78 National Strategy for Rural Biomass Energy Development Cost-Benefit Assessment still too small to reduce the unit product cost by now. The small number of consumers, the inadequate supply of crop straw, and the shortage of users combine to impede the growth of the business. (3) High initial investment in the crop straw gasification station The initial investment in the crop straw gasification station affects the cost in supplying the gas and plays a key role in the profits of the crop straw gasification program. The initial investment in the crop straw gasification station will go to the construction including the purchase of land and building of houses and the facilities including the gasification machines, gas store tank, pipeline, and accessories. The initial investment is conditioned by the number of consumers and the concentration of the rural households. The initial investment for the gasification station serving 200 households is around 500,000 RMB yuan according our survey. The initial investment is about 2 times the money invested in the biogas program in household, which can be accepted by the households living in relatively developed regions. To the less developed villages, the investment of 500,000 RMB yuan is a huge sum. In addition, it is difficult for the developing village with 200-400 households to invest more than 100,000 RMB yuan in the development of the gasified crop straw supply system, even though they may have the subsidy from the government (4) The shortcomings in the governmental supports that are not based on market mechanism The crop straw gasification as a welfare product is a new technology applied in rural areas in the current economic and social conditions in China. The bulk of the investment in this program comes from the governmental subsidy and the money raised by the consumers in these areas. And the governmental subsidy accounts for half of the total investment. This support from the government, nevertheless, contributes less to the commercialization of the crop straw gasification station. The subsidy can only cut the threshold cost in the development of the station and has less effect on the long-term fixed and variable costs. And such favorable policy can merely drive the program that can make commercial profits but lack start-up funds (namely, the returns from the product exceed the production cost, the product price exceeds the unit cost of the product). Nevertheless, the policy can have limited positive effect on the crop straw gasification stations that are mainly engaged in the gas supply by now. The one-time subsidy cannot cut down the high cost in the production. As a result, some stations cannot carry on the operation for a long time or maintain or replace the facilities that have broken down. Worse more, some cannot maintain the short-term operation (they are unable to make ends meet even regardless of the depreciation of the assets) The survey conducted in Shandong Province shows that 20 of 96 such stations stopping the production suffer from the high cost (mainly refers to the variable cost). The governmental support for the program strengthens the dependency of the consumers in the villages on the national subsidy, which hinders the raising of money by other channels. The country will shrink the amount of subsidy applied in the program directly with the promotion of the program in more regions. And the bulk of the money will be applied in the science and technology, spreading of information, staff training. The raising of money and financing as the major factors are affecting the development of crop straw gasification which can only be maintained via new investment mechanism and more channels. The production costs and benefits for two pellet producing systems are shown in Table 5-10. System A, the gasification station at Pengfu Village was the one used for this analysis.

Table 5-10: Comparative evaluation of costs and benefits of gasification of straw program A- Gasification station in Pengfu B- Gasification of straw demonstration Village, Jiangning District, Nanjing program Production scale 383250m3/year 219000m3/year Investment Unit price (yuan/ton) RMB yuan Unit price (yuan/ton) RMB yuan Building 158000 330000 Investment in facilities 876350 870000 Total investment 1034350 1200000 Business cost RMB yuan/year RMB yuan/year

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A- Gasification station in Pengfu B- Gasification of straw demonstration Village, Jiangning District, Nanjing program straw 100 19162 100 12170 power 6323 14308 Salary and welfare 19200 16800 Maintenance 4000 5000 Depreciation of facilities 20000 20000 Sale cost Amortizing and others Total business cost 68685 68278 Gross returns RMB yuan/year RMB yuan/year Sale of gasified straw 57487 21900 Net profit -11198 -46378 Source: Based on the field survey in Nanjing, 2007; Tian Yishui, Chinese Academy of Agricultural Engineering, 2007. Notes: 1m3 gasified straw =0.188kgce，namely 5319 m3 gasified straw can be converted into 1 tce whose unit price is 500 yuan/ton. 5.5.4 Household Bio-Digesters In the household bio-digesters program, there are several model systems based on the application of the digester effluent. These are named for the manure source, digester and application, and include (but are not limited to) the pig-digester-greenhouse system, the pig-digester-vegetables system, and pig-digester- orchard system. These systems are tailored to the climate and agricultural requirements of various regions of China. While the bio-digester produces cooking gas for household use, its most valuable output is the high quality fertilizer that can be used to enhance the output and quality of a variety of agricultural products. Studies show that one bio-digester of 8 m3 will produce 300 m3 of methane gas annually, which can basically meet the energy demand of one five-member household each year as well as over 20 tons of liquid effluent and over 10 m3 of solid sediments. The basic cost of the digester is around 2,000 yuan. However, other costs for improvements to the pigpen, household kitchen and toilet, and expansion of agricultural production can increase the system cost significantly. The production costs and benefits for three household bio-digesters systems are shown in Table 5-11. System B, the combination of pigs, digester and vegetable field was the one used for this analysis.

Table 5-11: Comparative costs and benefits of different household bio-digesters systems A-Pig-Digester- B-Pig-Digester- Bio-digester system C-Pig-Digester-Orchard Greenhouse Vegetables Investment RMB yuan Ratio RMB yuan Ratio RMB yuan Ratio Productive investment 50000 92.6% 2900 42.0% 30000 88.2% Bio-digester 1880 3.5% 1880 27.2% 1880 5.5% Pigpen 1600 3.0% 1600 23.2% 1600 4.7% Restructuring of kitchen 200 0.4% 200 2.9% 200 0.6% Restructuring of toilet 330 0.6% 330 4.8% 330 1.0% Total investment 54010 100.0% 6910 100.0% 34010 100.0% RMB RMB RMB Business cost Ratio Ratio Ratio yuan/year yuan/year yuan/year Labor force 4000 58.3% 10000 50.7% 6000 20.2% Seed, spawn, etc 330 4.8% 300 1.5% 320 1.1% Breeder 450 6.6% 450 2.3% 4500 15.1%

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A-Pig-Digester- B-Pig-Digester- Bio-digester system C-Pig-Digester-Orchard Greenhouse Vegetables Fertilizer 800 11.7% 2700 13.7% 9330 31.4% Pesticide 80 1.2% 600 3.0% 800 2.7% Feed 800 11.7% 5300 26.9% 8000 26.9% Power consumption in 400 5.8% 360 1.8% 800 2.7% pumping water Total business cost 6860 100.0% 19710 100.0% 29750 100.0% RMB RMB RMB Gross income Ratio Ratio Ratio yuan/year yuan/year yuan/year Food 980 5.4% 4700 13.8% 8400 17.6% Vegetable/fish/fruit 14400 79.8% 25900 76.2% 21000 44.0% Pig 2420 13.4% 3000 8.8% 18000 37.7% Biogas 240 1.3% 400 1.2% 300 0.6% Gross income 18040 100.0% 34000 100.0% 47700 100.0% Net profits 11180 14290 17950 Source: program from Asian Development Bank, PRC1924, Special Study B, 2007. Notes: 1m3 biogas =0.7 kgce, namely 1428 m3 biogas can be converted into 1 tce whose unit price is 500 RMB yuan/ton. 5.5.5 Medium and Large-sized Bio-digesters for Village Cooking and Power Generation The manure produced in large and medium-scale operations raising pigs, poultry and livestock can be processed via anaerobic digestion to produce biogas that can be piped into nearby villages and used for cooking gas, or it can be used on-site to generate process heat or electricity. The electric generation potential is between 1.7 to 2.5 KWh per m3 of biogas. The volume of organic wastes produced from development of the agricultural industry can provide sufficient raw materials for the production of as much as 20 billion m3 of biogas by 2020. The production costs and benefits for two Medium and Large-sized Bio-digesters are shown in Table 5-12. System A, Nanshan breeding Farm was the one used for the analysis of village-scale cooking applications, and System B, Maxiaokou Breeding farm was used for the analysis of biomass power generation applications discussed in the next section.

Table 5-12: Comparative evaluation of costs and benefits of Medium and Large-sized Bio- digesters A- Nanshan Breeding Farm, B- Maxiaokou Breeding Farm, Bio-digester program Jincheng, Shanxi Province Nanyang, Henan Province Application of technology Cooking Power generation Raw materials for bio- digester and types Manure from pig, chicken, and deer Pig dropping Number of livestock and poultry Incalculable 20000 Investment RMB yuan Notes RMB yuan Ratio Investment RMB yuan Notes RMB yuan Ratio Gross investment 1500000 1017000 Operation cost RMB yuan/year Ratio RMB yuan/year Ratio Total operation cost 13473 Labor pay not included 20400 Labor pay not included Gross benefit RMB yuan/year Ratio RMB yuan/year Ratio Production of biogas/cooking 108000 300 m3 /day 750 m3 /day Biogas power 243000 33750 KWh/month

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A- Nanshan Breeding Farm, B- Maxiaokou Breeding Farm, Bio-digester program Jincheng, Shanxi Province Nanyang, Henan Province Solid fertilizer 107967 4.93 tons/day Gross benefit 108000 350967 Net benefit 94527 330567 Source: program from Asian Development Bank, PRC1924, Special Study A, 2007. Notes: 1m3 biogas =0.7kgce, namely 1428 m3 biogas can be converted into 1 tce whose unit price is 500 RMB yuan/ton. 1 KWh =0.33kgce, namely 3030 KWh can be converted into 1 tce whose unit price is 500 RMB yuan/ton.

Table 5-13: Comparative evaluation of costs and benefits of Household bio-digesters and Medium and Large-sized Bio-digesters (System Size :200 Households) Household bio-digesters Medium and Large-sized Bio-digesters Total Capital Investment (YUAN) 1420000 1560000 Annual Operation Cost (YUAN) 3942000 138473 Annual Benefit (YUAN) 6812780 193770 Net Profit (YUAN) 2971532 140561 EIRR 55% 7% FIRR 54% Negative Source: This Study, 2007 5.6 Power Generation 5.6.1 Power Generation with Direct and Hybrid Crop Straw Combustion Crop straw is a clean and carbon-neutral energy resource. To operate a 25 MW biomass power plant could reduce annual carbon dioxide emission by 10,000 tons compared to the same size coal power plant. The ash generated from biomass combustion could be used as high quality potassium fertilizer and be added to fields directly, with predominant environment protection effectiveness. The assessment assumes that China will have 60 to 100 million tons of crop straw for heating supply and power generation by direct combustion between 2010 and 2020, enough to satisfy the needs of 350 power plants at 25 MW level. Table5-14 provides the cost and performance data used for the cost-benefit analysis of power generation using direct crop straw combustion.

Table 5-14: Cost and Benefit of Power Generation by Direct Crop Straw Combustion 1. Construction Scale 25 MW 2. Investment a The Static Investment of All Projects 300 million RMB b The Static Investment of Each Project 12,000 RMB Yuan/KW c The Dynamic Investment of All Projects 308.42 million RMB 3. The Power Sent to Network Per Year 121GWh 4. The Amount of Burned crop straw Per Year 147,500 Tons Sources: Professor Jia Xiaoli, 2007. 5.6.2 Crop Straw Gasification for Power Generation Power generation projects of crop straw gasification usually have small scale and are operated in short term. The long-term projects are very scarce. The following data of power generation cost of crop straw gasification are coming from the 4MW crop straw Gasification Project in Xinghua of Jiangsu Province. Table 5-15 provides the cost and performance data used for the cost-benefit analysis of power generation using crop straw gasification.

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Table 5-15: Cost and Economic Benefit of 6 MW Power Generation by Crop Straw Gasification 1. Construction Scale 6 MW 2. Investment a The Static Investment of Project 39 Million RMB Yuan b The Static Investment of Single Project 6500 RMB Yuan/KW c The Total Domestic Investment of Project 39.96 Million Yuan（6660 Yuan/ KW） 3. The Power Sent to Network Per Year 29.7GWh 4. The Amount of Burned crop straw Per Year 39,000 tons Source: Professor Jia Xiaoli, 2007.

Table 5-16: Comparative evaluation of costs and benefits of Supply of electricity or process heat Power Generation of Power Generation of Co-Generation of Medium and Large- Crop Straw Direct Crop Straw Coal and Crop Straw sized Bio-digesters Gasification Combustion Combustion System Size 6 MW 25 MW 32 MW 75 KW Total Capital Investment 39039000 308420000 83570000 1017000 (YUAN) Annual Operation 7800000 29500000 7360000 256250 Cost (YUAN) Annual Benefit 17820000 72600000 35162400 351000 (YUAN) Net Benefit 13839068 57543910 47763394 432348 (YUAN) EIRR 29% 16% 53% 34% FIRR 21% 11% 30% 4% Source: This Study, 2007 5.7 Biofuels Production from Energy Crops 5.7.1 China’s ethanol fuel production plan The Chinese government has always attached great importance to the research and development of ethanol fuel, especially the strategic research and development of using non-food material to produce ethanol fuel, which has been listed as the country’s main technology research project and 863 Project by the Science and Technology Department. Since 1980s, the breeding technology of sweet sorghum and manufacturing technology of ethanol fuel have been developed. China’s mainland started the “bio-fuel ethanol project” in 2001, using sugarcane in the south and corn in the north to produce ethanol. Agricultural and scientific organizations coordinated the research and development of bio-fuel throughout the country. The Development and Reform Committee gave exclusive subsidies to four enterprises which manufacture ethanol using corn. Fujian, Hainan, Guangxi and some other southern provinces have developed a special kind of sugarcane to make ethanol fuel. Till first half of 2005, nine provinces had experimented to use ethanol gasoline. NDRC authorized 2.9 billion RMB in Jilin to set up an ethanol fuel program with an annual production capacity of 600 thousand tons, five other ethanol fuel programs have also been put into production, including a 200-thousand-ton program in Henan and a 100-thousand-ton program in Heilongjiang province. Ethanol fuel programs under construction in China include: (1) Xinjiang started ethanol fuel production programs consecutively in 2006. (2) Shache County started to use sorghum straw to produce ethanol fuel in 2006. (3) COFCO launched its ethanol fuel project at Pan-Beibu Gulf in 2006. (4) Dalian Jinxin

TA-4180 PRC – Final Report Page 83 National Strategy for Rural Biomass Energy Development Cost-Benefit Assessment cooperation put huge funds to build a 500-thousand annual production program of ethanol in 2006. (5) Hengshui city initiated a 300-thousand annual production program of ethanol fuel in 2006. International cooperation projects of ethanol fuel include: (1) Sino-Brazilian cooperation in 2006. (2) COFCO initiated cooperation with Denmark in 2006. (3) sino-Australian cooperation at Hulu island in 2007. 5.7.2 Ethanol fuel projects The relative production cost of ethanol from various crops, such as corn, wheat, cassava, sweet sorghum, is provided in Table 5-17. The comparison includes the price of raw materials, processing cost (including water, electricity, labor, finance, transportation, etc), and then deducts the value of processing byproducts to arrive at a production cost estimate.

Table 5-17: Costs of different energy materials to make ethanol fuel Conversion Price Manufacture cost Byproduct Production cost Energy crops rate (RMB/ton) (RMB) (RMB) (RMB) Corn 3.2 : 1 1050 550 100 3810 Old Wheat 3.5 : 1 1000 550 100 3950 Fresh Cassava 7 : 1 400 500 100 3200 Sweet Sorghum 10 : 1 210 600 50 2650 Sugarcane 12 : 1 170, 200, 230 500–600 2440–3260 Sugarcane 17 : 1 170, 200, 230 500–600 3290–4410 Source: This study, 2007. Details of the production costs and benefits for two ethanol production systems are shown in Table 5-18. Both were used for the analysis of ethanol fuel production in this study.

Table 5-18: Cost-benefit comparison of ethanol fuel projects A: a sugarcane-made ethanol fuel B: Sweet sorghum-made ethanol fuel production factory processing factory Production capacity 100000 tons/year 5000 tons/year Capital investment unit price (RMB /ton) RMB unit price (RMB/ton) RMB Building Equipment Total investment 280000000 98000000 Operational cost RMB/year RMB/year Raw material 2700 270000000 224 11200000 Power 260 26000000 180 900000 Salary welfare 100 10000000 210 1050000 Maintenance expenses 20 2000000 included in depreciation fee Equipment depreciation 100 10000000 525.7 2625000 Sales fee 20 2000000 80 400000 Amortization & others 500 50000000 357.5 1787500 Total cost 3700 370000000 3593.2 17966000 Gross benefit RMB/year RMB/year Value of ethanol fuel 4300 430000000 4300 21500000 Fresh residue sales 2400000 Net profit 60000000 5934000 Source: Tian Yishui, Chinese Academy of Agricultural Engineering Note: 1 ton of ethanol fuel=1.4 ton standard coal, and the unit price of 1 ton of standard coal is 500 RMB.

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According to the above analysis, China should adopt the following strategies to promote ethanol fuel energy: to promote planting sweet sorghum in north-eastern and north-western regions, at the middle and lower reaches of the Yellow River, and on Qinghai-Tibet tableland; to promote planting sweet potato in China’s southern and southwestern regions. In southern and tropical regions where are suitable to grow sugarcane, such as Guangxi, Yunnan and Hainan, we should appropriately promote growing energy sugarcane. For those sugar enterprises or ethanol enterprises using sugarcane to produce ethanol, the country should give them the subsidies comparable to those northern enterprises using corn to make ethanol. Technical support should be given to the growing of the new kind of energy sugarcane to improve biological substance and lower transform proportion. 5.7.3 Bio-diesel from Rape Seed Seventy five percent of the average production cost of bio-diesel is raw material. The cost of waste restaurant oil to make bio-diesel oil is 3500 RMB/ton, the cost of palm for the oil is 5000 RMB/ton, the cost of rapeseed more than 5000 RMB/ton, and jatropha nut 4000 RMB/ton. Comparatively, the cost of petroleum to make mineral diesel oil is only 3500 RMB/ton. Details of the production costs and benefits for two bio-diesel production systems are shown in Table 5-19. Only System B using rape seed as feedstock was used for the analysis of bio-diesel in this study.

Table 5-19: Comparative evaluation of cost and benefit in different bio-diesel programs A- Recycled oil for bio-diesel B- Rape seed bio-diesel factory factory Production scale 125000 tons/year 60000 tons/year Unit price Unit Price Capital investment RMB /year RMB /year (RMB /ton)) (RMB /ton) Building construction Equipment investment Total investment 209,000,000 20,000,000 Operation Cost RMB yuan/year RMB yuan/year Feedstock cost 3,500 3,800 Power 236 200 Salary and welfare 53 40 Maintenance expense 50 30 Equipment depreciation 165 103 Sales fee Amortizing and others 61 30 Total operation cost 4,065 508,125,000 4,203 804,000,000 Gross Benefit RMB yuan/year RMB yuan/year Value of fuel delivered 5,000 625,000,000 5,000 486,000,000 Net Profit 116,875,000 194,400,000 Source: Tian Yishui, Chinese Academy of Agricultural Engineering , and this study, 2007. Note: 1 ton of bio-diesel oil=1.4 ton standard coal, and unit price of 1 ton of standard coal is 500 RMB. Results of the field survey in Hubei Province indicate that the benefit of planting rape is less than planting wheat and rice, while management and harvesting are more difficult. Most local farmers don’t want to grow rapeseed. Also, farmers lack the interest mainly because they do not know the character of the energy crop (including planting methods, cost, potential reward, etc.). Government policies also make farmers hesitate on changing to plant rapeseed. Those who are willing to grow are mostly experienced ones.

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Table 5-20: Comparative evaluation of costs and benefits of Liquid Fuel Sweet Sorghum Cassava Sugar Cane Rape Seed Producing Fuel Producing Fuel Producing Fuel Producing Bio Ethanol Ethanol Ethanol Diesel Oil System Size 5000 200000 100000 100000 Total Capital Investment (YUAN) 1750000 807000000 463499786 120000000 Annual Operation Cost (YUAN) 22383333 922900000 459449993 680400000 Annual Benefit (YUAN) 24500000 956000000 470000000 486000000 Net Profit (YUAN) 2468833 47186635 17593325 -194400000 EIRR 15% 2% 3% Negative FIRR 12% -2% ？ Negative Source: This Study, 2007 Manufacturing and promoting the use of bio-diesel has many obvious advantages. First, the raw materials are easy to get at a cheap price. Using rapeseed and methanol as the raw materials, we can get rid of the reliance of natural oil from the root. Second, planting rape with other crops helps improve the quality of soil, balance its nutrient, and improve the soil’s ability to produce more crops. Third, byproducts have economic values. The glycerin, oleic acid, lecithin, and other byproducts produced does not produce sulfur dioxide, the harmful gas emitted is 70 percent less than natural oil and diesel oil. The remains of manufacture can be completely decomposed, which is good for the environment. Although bio-diesel oil has many benefits, it is undeniable that its development is still in bottleneck. Bio- diesel relies on stable supply of energy crops as raw materials, the production cost of gathering seeds, squeezing oil from seeds and transforming it into diesel oil is pretty high, which is why it is hard to replace the traditional diesel oil.

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6. Financing and Investment Improvements

6.1 Biomass energy projects invested by government 6.1.1 The status of the biomass energy project invested by government The development of biomass energy in rural areas is one fundamental task in the long-term development strategy in China. Chinese government attaches great importance to the development and utilization of renewable energy. Some programs implemented by the central government like “Ecological Home Enriches the People”, “The National Bond for Firedamp Projects in Rural Areas”, Efficient Utilization of Agro-wastes Project, and some pilot and model projects for the utilization of fuel ethanol and biodiesel, gasification of straw programs and generation of power by firedamp. All these projects boost the development of biomass in rural areas. 6.1.1.1 Projects invested by the central government (1) The project of “Ecological Home Enriching the People” The objectives formulated in the project are as follows: to provide clean heating for the household, efficient economy for the households and pollution-free agricultural produces which stand for the various aspects of the living and production of the people in rural areas. Specific and feasible techniques have been applied to guarantee the effective implementation of this project. The contents of the project include the construction of biogas digester, cooking range that can use less firewood and coal or highly efficient kitchen that is assembled with prefabricated parts, and ecological agricultural technologies associated with the highly efficient organic fertilizers like liquid and sediments in the firedamp pool and the development of special zone that yields pollution-free agricultural produces, which will improve the quality of the local produces and promote the development of agricultural industry in an excellent, high-yield, and highly efficient pattern. (2) Biogas project funded by the national bond The subsidies allocated by the central government for the construction of biogas digester in the households in rural areas are: 1,200 RMB yuan for one household in the northwestern and northeastern regions, 1,000 RMB yuan in southwest region, and 800 RMB yuan in other regions. The latest statistics by the Ministry of Agriculture indicated that the central government has apportioned 5.5 billion RMB yuan national bonds in total from 2003 to 2006 to construct firedamp pools for 5.73 million households in 48,000 villages in rural areas. In addition, 93,850,000 RMB yuan have been allocated for the construction of 98 large and medium-scale firedamp projects. Over 1.5 billion RMB yuan have been provided from the local governments for the construction of firedamp projects in rural areas only in 2006 other than the national bond. Among those governments, Shanxi, Heilongjiang, Hubei, Hunan, Guangxi, Yunnan, Guizhou have invested more than 80 million RMB yuan. There are 9,590,000 households with the firedamp in China, which is 5.1 times as many as the total new addition from 1979 to 2000 and they have joined the project during the 10th “Five-year Plan” due to the support from the national bond (3) National demonstration projects of biomass energy The power generation based on the biomass can be classified into direct fuel-fired and gasification. The National Development and Reform Commission and the commission in local governments have approved 39 projects with 1,284,000 kilowatt of installed generation capacity in total in 2006. The aggregate investment is projected to be 10.03 billion RMB yuan. By the end of 2006, 54,000 kilowatt has been put into production. 30,000 kilowatt has been put into production in the generation of power based on the gasification of biomass and garbage filling in 2006. In addition, 90,000 kilowatt is being under construction. The Ministry of Agriculture, Ministry of Science and Technology have established a model program in Chinese Agriculture Academy of science Fuel oils Research institute in Wuhan, Hubei Province. It is mainly engaged in the experiment with the biological diesel and is projected to produce 2,000 cubic tons of biodiesel. This institute made breakthrough in producing this special diesel with high-yield cole which has higher fat and the waste cooking oil from cities. The State Forestry Administration has drawn up a

TA-4180 PRC – Final Report Page 87 National Strategy for Rural Biomass Energy Development Financing and Investment improvement plan to plant oil bearing crops nationwide (Jatropha curcas L, for example) to meet the objective of producing 6 million cubic tons of bio-diesel. 6.1.1.2 Projects invested by the local governments The local governments have committed themselves to the development of biomass energy in rural areas and some programs have contributed significantly to the development of new energy in those areas, like gasification of straw, solid fuel, large and medium-scale firedamp projects. Among them, the Beijing municipal government allocated special funding dedicated to the development of “New Countryside” and pooled the money from the Development and Reform Commission, Commission of Science, Commission of Construction, Water Affairs Bureau, and Environment Protection Bureau to develop the biomass projects in rural areas.

Box 1 : The development program of “Illumination, Heating, and Circling” in the “New Villages” by Beijing municipal government To implement the instructions on the development of rural areas by the central government and Beijing municipal government, the government allocated special funding dedicated to the development of “New Villages” and pooled the money from the Development and Reform Commission, Commission of Science, Commission of Construction, Water Affairs Bureau, and Environment Protection Bureau to further the program of “Illumination, Heating, and Circling”. The funding totals 613 million RMB yuan (including 470 million RMB yuan special funds for the “New Countryside”). The outline of the program is as follows: 1. “Illumination” Project (omitted) 2. “Heating” Project The objectives of the project: To spread 210,000 energy-saving hanging kangs to meet the demand of people living in the rural areas (Agricultural Affairs Bureau).To spread the solid biomass fuel technology; to install 18,000 cooking stoves, 3,000 heating stoves; to set up 8 manufacturing stations for the solid fuel (Commission of Science). The funding: 105 million RMB yuan for the hanging kangs, 16.45 million RMB yuan for the model villages which have cooking stoves, heating stoves, and manufacturing station for the solid biomass fuel; the Commission of Science will allocate 3.70 million RMB yuan for the research on the current energy-saving houses of the peasants and designate them for the demonstration in Mentougou District and Fangshan District. Subsidies: A fixed subsidy pattern will be introduced. 500 yuan for each energy conservation kang; 400 yuan for each cooking stove; 1,000 yuan for each heating stove that covers less 200 ㎡, and 1,500 yuan for those covering more than 200 ㎡; 500,000 yuan for each demonstration station of solid biomass fuel Procedures: The district or county government should apply first. Relevant departments accept the application, examine and approve the projects. Then, the projects will be implemented, monitored and checked. The concerned: Commission of Agricultural Affairs, Bureau of Finance, Agricultural Affairs Bureau, Commission of Construction, Commission of Science 3. “Circling” Project The objectives of the project are described as follows. 3.1 There are 150 projects that control flooding, an increase of 9,000,000 steres of storing capacity. (Water Affairs Bureau). 3.2 There are 20 newly-built large and medium-scale gas supply systems that utilizes biomass (Agricultural Affairs Bureau, Commission of Development and Reform) 3.3 There are 19 newly-built large and medium-scale centralized firedamp supply systems, 4 of which will be funded by the Commission of Development and Reform (Agricultural Affairs Bureau and Commission of Development and Reform) 3.4 There are 5 mills that produce organic fertilizer (Agricultural Affairs Bureau) 3.5 There are 160 processing stations that dispose the pig droppings (Agricultural Affairs Bureau) Funding: 90 million RMB yuan for projects that control flooding, 50 million RMB yuan from the special funds for the development of “New Villages” and 40 million RMB yuan from the water fees charged for irrigation. 82.06 million RMB yuan for large and medium-scale centralized firedamp supply systems and large and medium-scale gas supply systems that utilize gasified biomass. 27.06 million RMB yuan from the investment in the fixed assets by the Commission of Development and Reform and 55 million RMB yuan from the special funds for the development of “New Countryside”. 55.4 million RMB yuan for the processing stations that dispose the pig droppings. 45.4 million RMB yuan from the special funds for the development of “New Countryside” and 10 million RMB yuan from the outlay charged on the discharge of waste water by the Environment Protection Bureau. Subsidies: A fixed subsidy pattern will be introduced. The funds that account for 70% of the total expenditure on the construction of the projects that control flood will be allocated for those projects, 10 yuan for each stere. As far as the

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large and medium-scale centralized firedamp supply systems are concerned, 7,500 RMB yuan for each stere for each pool that exceeds 200 steres and 4,000 RMB yuan for each stere for each pool that exceeds 200 steres. As for the large and medium-scale gas supply systems that utilizes biomass 5,500 RMB yuan will be allocated for each stere based on the supply capacity of 200 units and 3,000 RMB yuan for each stere if the capacity exceeds 200 units. 500,000 RMB yuan for each mill that produce organic fertilizer.350,000 RMB yuan for each of the 10 districts and counties that set up organizations for the energy service and carry out the investigation on the resources;1 million RMB yuan for the engineering examination of the large and medium-scale centralized firedamp supply systems and the large and medium-scale gas supply systems that utilizes biomass. As for the disposition of the pig droppings in pigpen, 100,000 RMB yuan for each that has less than 1,000 pigs; 300,000 yuan for each that has less than 3,000 pigs; 600,000 yuan for each that has more than 3,000 pigs. The concerned: Water Affairs Bureau, Agricultural Affairs Bureau, Environment Protection Bureau, Commission of Agricultural Affairs, Bureau of Finance The district or county government should apply first. Relevant departments accept the application, examine and approve the projects. Then, the projects will be implemented, monitored and checked. 4.Evaluation 4.1 Beijing municipal government has attached great importance to the biomass energy in terms of policy. It was reported that the government pour 1 billion RMB yuan into the “Three Projects”, including the development of biomass energy like gasification of straw and utilization of firedamp. 4.2 As one project of the grand program of “Development of Socialist New Countryside”, the biomass energy policies introduced by the Beijing municipal government include “Three Projects”(Illumination, Heating, Circling).In other words, they are not separate policies which have both advantages and disadvantages — cooperation among various departments and coordination in development, the lack of specific plan for the development of biomass energy in rural areas. 4.3 Can the experiences from Beijing be introduced to other regions? The developed regions have enough money to subsidy the households and projects in rural areas. But the underdeveloped regions cannot. 4.4 How much can the households in rural areas benefit from the policies introduced by Beijing municipal government? The policies have gained momentum and are popular among peasants. Yet, some measures failed to satisfy the people. For example, the prescription that it is the government that can procure the cooking stoves that utilize the biomass energy give rise to different opinions.

6.1.2 Problems in the investment and financing systems of RBRE 6.1.2.1 Issues in the administration of investment and financing in the biomass energy (1) Feasible investment plans and policies that concern the utilization of biomass energy should be introduced Feasible investment plans that concern the utilization of renewable energies are the valuable foundations on which the governments administer the energy industry and investors make their decisions. And investors think highly of the affiliated policies when they select projects. The development of renewable energies is retarded due the lack of feasible investment plans and policies that concern the utilization of renewable energies, although the local governments value the renewable energies. China has been developing and utilizing the renewable energies like solar energy since the 1950s. But, the generating capacity of the renewable energies like wind power and solar energy was below 1,000,000 kW and only less than 0.2% of the total capacity of 440,000,000 kW by the end of 2004 in China. (2) The lack of a sound system that administers investment in energy projects The publication of Decision on the Reform of Investment System by the State Council in July 2004 turned the examination and approval into the ratification in the administration of investment in the energy industry by the governments. The following aspects will be taken into account during the ratification: “To guarantee the safety of economy, utilize and exploit the energies in a rational way, protect the ecological environment, optimize major layouts, safeguard the public interests, prevent the monopoly. The issues concerning the market perspective, economic benefits, funding resources, and technologies are not subject to the ratification. Compared with the investment in conventional energies, the investment in the biomass energy can generate better external advantages; however, the adequate priority and attention have to be given to the investment in the biomass energy for various reasons under the current system that administers the investment in the energy industry.

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6.1.2.2 The issues in the development and financing of biomass energy industry (1) Inadequate funding by the governments The experiences from many countries show that it is the governments that will invest in or provide subsidy for the businesses engaged in the development of biomass energy at the burgeoning phase. The governments will stop their operation in this filed only after the perfect technologies have been developed and the industry has had yields. Chinese government has been generally paying considerable attention to the development of conventional energies to cope with the shortage of energy supply despite the long- term efforts in the development of technologies for the biomass energy industry. Yet, the investment in this industry by the governments is not adequate, which led to the retarded progress in the development of technologies fro the industry and the lack of breakthrough, the smaller proportions of the output of and volume of investment in the industry in the total output and investment in energy industry. And even relevant statistics have to be gathered. (2) Reluctance to invest in biomass energy industry by the businesses The high risks and low returns dishearten the businesses to investment in the biomass energy industry. As far as the biomass energy is concerned, some businesses are not willing to invest because of the less advanced technologies in the field which prevent the manufacturing of facilities for massive production and the huge cost in importing relevant equipments. Furthermore, the enterprises that manufacture the facilities for the biomass energy industry have to operate in deficit due to the small demand on the market. Such businesses are unwilling to invest and the banking industry is reluctant to grant the loan to the biomass energy industry. (3) Inadequate investment and financing channels The debenture and (corporation bond) and stock which usually account for over 30% of the investment by the corporation play an important role in the medium and long-term capital demand in some corporation whose investment depends on the direct financing in some foreign countries, especially in some developed countries in Europe and the United States. China lags well behind these countries in terms of direct financing. It is the state that takes charge of the issuing of stock and bond. And only those corporations that have good returns are entitled to issue stock and bond. The businesses that are engaged in the production of biomass energy and manufacturers of relevant facilities are not authorized to obtain direct financing from the market owing to their low returns. 6.1.3 Perspective of the investment program of biomass energy The Instructions on the Implementation of Supportive Policies for the Development of Biomass Energy and Biological Chemistry Industry In Terms of Finance and Taxation issued jointly by the Ministry of Finance, National Development and Reform Commission, Ministry of Agriculture, State Administration of Taxation, and State Forestry Administration at the end of 2006 buoyed the development of the biomass energy industry by virtue of four financial and favorable policies in taxation. One concerns the establishment of risk funds and the flexible deficit subsidy which reduces the risks caused by the fluctuating oil price and creates the stable market anticipation for players. The state will not provide the subsidy for the deficits caused by the price that is higher than the base price according to which corporations operate and they have to allocate the funds to withstand the risks. The businesses will subsidy for the deficits with the funds when the oil price is lower that the base price. The flexible deficit subsidy will be introduced to support the corporations as long as the oil price remains low for a long period of time. The second one is the subsidy for bases that produce the raw materials. The safe supply of raw materials is the prerequisite for the development of biomass energy and biological chemistry industry. The central government encourages the exploitation of idle lands in winter, salt and alkali lands, barren hills for the development of bases that produce raw materials for the biomass energy and biological chemistry industry. “The exploitation of land, comprehensive development of agricultural industry, and forestry should be integrated and given favorable policies”. The governments will provide subsidy for the “lead” businesses that operate in the model of “corporation plus peasants”. The third one is to encourage the industrialization demonstration of some significant technologies like cellulose and ethanol to increase the technology reserves for the renewable energy and provide certain sum of subsidies.

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The last one is about the favorable policies in taxation will be granted to the enterprises in biomass energy and biological chemistry industries to enhance their competence on the market. The investment in the biomass energy industry by the central government will necessarily play even bigger role in the implementation of scientific development concept, building “Socialist New Village” and building harmonious society. 6.2 Financing mechanism and incentive measures 6.2.1 Incentive measures for biomass energy development by government 6.2.1.1 Positive incentive measures The positive incentives include: (1) More funds from budget (including the proportion and utilization); (2) National bonds; (3) Financial pay interest; (4) Favorable policies in taxation and expenditure based on taxation; (5) Attempts to reestablish the funds for some projects by the governments or transfer and restructure the existing projects supported by the funds, and then integrate them with other promising projects with the total under control; (6) Governmental procurement. The first four measures can reduce the costs of the production and consumption of energy. They are fundamentally based on the theory that the reduced cost may raise the supply of biomass energy and the corresponding consumption. But the effectiveness of these measures may be reduced one by one. And they may work well in the different phases of the biomass energy—production, conversion, store and transport, and consumption and in different life circle of the products. Generally, the support from the public finance should shrink step by step in different phases—research and development, technology demonstration, and industrialization demonstration, reduction of cost in massive production, and massive promotion. To illustrate it clearly, we use Figure 6-1 to show the how these positive measures work. From the left to the right on the horizontal axe, there stand life circle of product and technology in sequence, i.e. research and development, technology demonstration, and industrialization demonstration, reduction of cost in massive production, and massive promotion in turn. From downside to upside on the vertical axe, there stand the feasible policy tools, i.e. governmental procurement, favorable policies in taxation, financial pay interest, national bond, funds from budget in turn. (1) More funds from national finance budget. The funds from the national budget typically stand for the support for the development of enterprises with the public money. Accordingly, the beneficiaries must be the public products or the characteristics. The market mechanism alone cannot tackle the market failures. The money from the public budget must lead and integrate the technologies, investment and financing mechanism, and energy administration system. And it should reduce the cost of product that is manufactured with new technologies via the competition. In the meantime, the risks facing the public and private sectors should be minimized to grab the market. (2) National bond input policy. The funds from the national bond are usually expended on the projects or other sector instead of administrative affairs according to China’s situation although they are regarded as the public funds. The funds from the national bond should be repaid by the returns from these projects in installments. Therefore, the support from the funds from public budget is stronger than those from the national bond which usually expended on the fundamental industries. And energy industry is the foundation of the national economy for any country and more funds from the national bond should be channeled into the industry. (3) The Fiscal subsidy for interest. This measure will channel more money from the capital market into the industries bolstered by the governments, augment the effectiveness of the funds from the public finance which will generate good results. This measure is ordinarily applied in newly-built projects, the restructured ones with advanced technologies, or the ones that have something to do with producers who are engaged in the supply, conversion, store, and energy-saving in the biomass energy industry. The initial objective of the measure is to steer the supply in the biomass energy industry, reduce the cost or risk in the supply, and meet the demand at last. The meaning and capacity of the public finance show that the Fiscal subsidy for the interest reflects the direction of the future reform in the application of the funds from the public finance and an effective policy tool that benefits the producers who are engaged in the

TA-4180 PRC – Final Report Page 91 National Strategy for Rural Biomass Energy Development Financing and Investment improvement supply, conversion, store, and energy-saving in the biomass energy industry. More efforts should be made by the governments to enforce the implementation of the policy.

Figure 6-1: Relation between fiscal incentives and the life cycle of biomass energy technologies

(4) Fiscal subsidy. As a popular policy tool around the world, the Fiscal subsidy is introduced to research, development, demonstration and promotion of technologies in the biomass energy industry. This flexible policy tool may benefit both the producers and the downstream or end consumers which are determined by specific situations. As a consequence, the direct subsidy for the producers should be adopted as the preferred policy tool in China from the short-term perspective. The practice that subsidies the consumers directly can be experimented in some selected regions and industries. From the long-term perspective, the direct subsidy for the consumers should be adopted as the policy orientation in the future in the Fiscal subsidy. We should take active measures to reduce the scope of subsidy for the producers and increase the number of consumers to be subsidized. And all subsidies will be channeled to the consumers at last. (5) Favorable policies in taxation. The so-called favorable policies in taxation include the varied prescriptions that encourage or favor certain groups of tax payers. Such favorable policies in the taxation are mainly due to the two reasons—one deals with the tax system. For example, the tax payers should be treated in a favorable way if special situations occur to them, like severe natural disasters and large donations. The second reasons mainly concerns the necessary method through which the government carries out the public policy. Such favorable policies may reflect the effectiveness and equality to some degree in the tax system and raise the well-being of the whole society. The energy industry drives the development of national economy. The favorable tax policies introduced into the biomass energy industry in the new tax system reform will certainly boost the supply and development of quality and clean energies, optimize the energy structure, promote the sustainable development of the economy, society, and environment significantly. (6) The governmental procurement. It is prescribed clearly that only those products and services that are produced with relatively developed technologies can be included into the procurement list by the governments. And those products and services correspond to the initial phases of the reduction of cost and massive industrialization. The relatively developed theories and technologies have been applied in the products and services in this period. Yet, their share on the market is yet to be improved, which can be stimulated by the governmental procurement. As a result, the massive production will reduce the cost. (7) Fiscal guarantee. The fiscal guarantee intends to support the fields advocated by the government with risk investment theory. As far as the implementation of policies is concerned, the government may provide subsidy, public funds, special funds for the corporations that guarantee the supply of energy other than the direct fiscal guarantee for the projects related to the biomass energy by the governments.

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(8) The possibility of resuming the funds provided by the government. The state has launched the campaign to investigate and take over the non-tax revenues (chiefly the various forms of governmental funds) for years. The major objectives in the policy intend to abolish most funds provided by the government and maintain a small portion in principle. The rest will be transferred to the tax system. The possibility of establishing new funds by the government is small under such circumstance. To convert existing funds into the ones that can be utilized to support the development of biomass energy may be the applicable practice. 6.2.1.2 The role played by the financial system and policy in the promotion of biomass energy development (1) The effect analysis of different financial and tax policy tools that support the supply, conversion, store, and effectiveness of the energy and facilitate the implementation of the policies The effectiveness of the policies is that the effects of those are reduced gradually from the left to the right—more funds from budget (including the proportion and utilization), national bonds, Fiscal subsidy for interest, favorable policies in taxation and expenditure based on taxation, governmental procurement. Table 6-1 outlines the effectiveness of the combination of different policy tools in achieving the objectives of the above energy policy.

Table 6-1: Matrix of Energy Fiscal Policies (1) Fiscal policy means Energy policy goals To To To ensure Policy adjust increase feasibility Detailed forms energy strength energy energy supply structure efficiency Operation expenses including Relatively supporting R&D biggest small Budgetary input (direct Relatively Relatively investment, fiscal subsidy for big small Budgetary interests, fiscal guarantees) policies Relatively To producer General big Relatively To consumer general big Relatively incentive general big Tax policies Relatively Relatively restrictive big high Depreciation Relatively Accelerated depreciation general policies high Government Compulsory or preemptive Relatively general procurement purchase high

note： function remarkable； function general； little function

(2) The effect analysis of different financial and tax policy tools that support the life circle of energy production and utilization Generally, the more effective the policy tool is, the wider its function range is. Such policy tool may be applied to support the whole life circle—from the research and development of energy, technology demonstration, reduction of cost, and massive industrialization. By contrast, the policy tool with low effectiveness only can support some fields in the life circle of the energy products. The expenditure within the budget by the government and governmental procurement are the two typical policy tools. The first one may exert positive influence in any stage in the whole life circle of the energy products and the latter only can do this in the reduction of cost and cannot be applicable in the research, development, and

TA-4180 PRC – Final Report Page 93 National Strategy for Rural Biomass Energy Development Financing and Investment improvement technology demonstration. The governmental procurement may not have any economic meaning in the massive industrialization phase. Table 6-2 outlines the effectiveness of the combination of different policy tools in achieving the objectives of the above energy policy.

Table 6-2: Matrix of Energy Fiscal Policies (2) Fiscal policy means Energy policy goals Technology Lowering Mass R&D feasibility Detailed forms demonstration cost commercialization stage stage stage stage Operation expenses Relatively including supporting small R&D Budgetary input (direct investment, Budgetary Relatively fiscal subsidy for policies small interests, fiscal guarantees)

To producer general To consumer general incentive general Tax policies Relatively restrictive high Depreciation Accelerated Relatively policies depreciation high Government Compulsory or Relatively procurement preemptive purchase high

note： function remarkable； function general； little function

6.2.2 Financing mechanism by the central government in the future Obtain necessary funds from the capital market (indirect financing--the loan from bank, stock, bond, and project financing) is the major channel for development of renewable energy projects The sustainable development of the society may benefit from the biomass energy industry significantly. The above disadvantages depress the investors who pursue the return to pour their money in the biomass energy industry. To buoy the industry, the governments must interfere (including necessary support from the public finance). The government plays a crucial part in the “Market Chain” that connects the businesses, capital market, and consumer. The proper policy framework established by the government will tackle the “externality”, which will consequently help the renewable energy “win on the market”—to attain the attention of consumers that would like to pay for them, to attract the businesses that would like to invest in the industry and provide the funds. The support from the government may cope with the “market failure” and the market mechanism may ward off the “government failure”. It is internationally acknowledged that the investment in and financing for the biomass energy industry call for the “proper position” and “unvoiced cooperation” which is the basic model in which other countries promote the development of investment and financing in the biomass energy industry. China should attempt to take these practices into its policy framework concerning the investment and financing in the biomass energy industry in the market economy. To draw on international practices and promote the investment and financing in the biomass energy industry (1) To guide the public consciousness via law, policy, and regulations The establishment of a public policy and law framework that facilitates the development of biomass energy industry should be the priority when the government participates in the development of the

TA-4180 PRC – Final Report Page 94 National Strategy for Rural Biomass Energy Development Financing and Investment improvement industry. The legislation, plan, and propaganda will raise the public consciousness, which will direct demand on the market and create business opportunity. Many countries have developed programs to promote the clean energies produced from the biomass and conduct experiments in auto and construction industries which will “lead the way” for other industries. The federal government of the United States purchased 100,000 cars that use clean fuel in 2005. The Australia has set up stringent limitations on the emission from the oil. (2) The research and development of key technologies funded by the government and closer cooperation between the public sectors and the private businesses will promote the industrialization of biomass energy industry The research and development of key technologies usually should be funded by the government in the initial stage. And the industry and enterprises will follow suit after the intial investment by the government, which will accelerate the industrialization. The closer cooperation between the public sectors and the private businesses is a curial factor during this process. The closer cooperation among governments, the public sectors and the private businesses in Australia realized the aim of “sharing of risks and fruits”, which effectively stimulates the corporation to invest in the research and development of technologies in “Green Industry” and accelerates the commercialization and industrialization of key technologies. (3) To encourage the player on the market to participate in the investment in the biomass energy through all types of financial and tax incentives and market regulations All the public policies adopted by the countries to encourage and guide the development of biomass energy comply with the principle of “based on market” with “laws of market” as the major tools. Namely, all types of financial and tax incentives and market regulations are introduce to lower the investment cost and entrance threshold for the biomass energy as well as raise the investment cost and entrance threshold for the “highly polluted” and “high energy consumption” projects. The players on the market will transfer their investment in the technologies applied in the “high energy consumption” projects and those that have huge emission of CO2 to the clean energy technologies based on biomass that have lower energy consumption and are environmentally friendly. (4) The procurement of biomass energy by the government will generate more demand The avocation by the government to utilize, purchase, and support the facilities that use clean energy play a noticeable role in creating the demand for biomass energy. Many countries (like the United States, Germany, Australia, etc), therefore, are taking active measures to purchase the clean energy produced from biomass by the government. Also, these governments lead the way in this aspect. They set the limitations on the amount of energy consumed by the governmental departments. The procurement law stipulates that the products purchased by the government must comply with the authentication standard and grade. The list of clean energies to be purchased will be published regularly. At the same time, procurement directory will be formulated by the government and auditing of energy will be strengthened by the government. (5) To exert the investment leverage of the governmental funds like charitable funds The charitable funds have been set up and welcome by many countries to support the development of biomass energy at present. More than 20 countries have establish special charitable funds for the biomass energy, such as the United States, the U.K, Germany, France, Australia, Italy, Japan, and Korea. Among them, there are Renewable Energy Development Fund by the California State, U.S, and Energy Saving Funds by the Vermont State, and Carbon Fund by the U.K. Internationally, the funds for the biomass energy mainly come from the tax or charges on the energies and they will be applied in the following fields, i.e. the promotion of biomass energy market, research, development, the support for the commercialization of technologies related to the biomass energies, encouraging the investment in the biomass energy projects, etc. The investment in the biomass energy is significantly leveraged by the charitable funds. The practices from the U.K, United States, and Japan illustrate that such funds can draw more money from the capital market through their support for the research, development, and industrialization of the technologies related to the biomass energy, their support for the construction of infrastructure, and transforming of marketing. The amount of money from the capital market is usually several, dozen times as much as the corpus, even much more.

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(6) The leverage of the capital market in the investment in the biomass energy development Compared with conventional energies projects, the biomass energy projects usually stand in different life circle, apply different technologies, and operate in different markets. As a result, there should be corresponding financial tools, risk-managing techniques, and fresh financing channels from the perspective of financing. To facilitate the financing for the biomass energy projects, it is crucial to make them profitable, stable, and predictable. Furthermore, the investors should be “optimistic” for such projects. Sometimes, the support mechanism for the financing should be introduced via the policies by the government to help the investors lower the cost and control risks on the market. In addition, the insurance firms also play extremely important role in the successful financing for the biomass energy projects. (7) Sound information system and public information platform on which the financing and investment for biomass energy can be conducted The detailed publication of policies, laws and regulations, plans, charitable projects, specific incentives, and application channels by the government will facilitate the businesses and industry to gain full knowledge about the policies, and the investment environment for the biomass energy, which will increase their confidence to invest. At the same time, the investment by the players on the market will be guided and the adventurism and risks will be lowered. The Department of Energy of the U.S has published detailed guidelines for the investment in biomass energy on its website. 6.3 International Financial Approaches 6.3.1 Situation of International Financial Leasing in Biomass Energy China has a vast regenerated resources market which demands an enormous investment, appealing to all sorts of investors both domestic and abroad. The total global investment in regenerated resources is about 38 billion U. S. dollars in 2005. Expect for the large water and electricity, China accounts for 6 billion U.S. dollars among it, which makes it top in the world. There still has no statistics about the biomass energy investment and it is hard to estimate the total amount of the international financial leasing either, but we can analyze the current situation about the international financial leasing from the following two aspects. 6.3.1.1 Capital Sources From the aspect of the source of the capital, the international financial approaches include international organizations, foreign governmental funds and foreign businesses or development banks. Among these, international organizations hold a very important position in the biomass energy of international financial leasing in China , which mainly include the World Bank and Asian Development Bank; the foreign governmental funds are from Netherlands, Finland, Austria etc; while the Japan Bank for International Cooperation and Netherlands Bank for Agriculture Cooperation form the foreign business or development Banks. The World Bank has carried out the “New Rural Ecological Home Project” in China for the rural biomass energy in mainly applied to the methane project in every household. According to the project, the amount of 338 million U.S. dollars is planned to invest, including 120 million U.S. dollars from bank loans and 218 million U.S. dollars from domestic appropriations. The first phrase of “the Rural Energy Ecological Construction Project” which is being undertaken how a days in China by the Asian Development Bank, also focuses chiefly on the methane project. According to the project, the amount of 7.23 million U.S. dollars is planned to invest. Among it, 3.31 million U.S. dollars are from bank loans, 6.361 million U.S. dollars from GEF donations and 3.7839 million U.S. dollars from domestic appropriation. After the first phrase, ADBC (the Asian Development Bank) will go on with the second phrase of REECPC (The Rural Energy Ecological Construction Project). The amount of 230 million U.S. dollars is planned to invest in the methane project in the breeding farms, which includes 100 million U.S. dollars from bank loans, 15 million U.S. dollars from GEF donations and 115 million U.S. dollars from domestic appropriations. 6.3.1.2 Capital Character and Mechanism From the aspect of the character of the capital, the international financial leasing in rural biomass energy can be classified into several patterns as follows, loan, donation, CDM system, direct investment etc. We should pay great attention to the following several mechanisms which have been more and more important.

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(1) Clean Development Mechanism (CDM) According to available statistics, developed countries, on pose of fulfilling their pledges in “Kyoto Protocol”, will buy 200 million to 400 million tons of green-house gas through CDM project every year, during from 2008 to 2012. It is showed by research of the World Bank that China can provide more than half amount of those required by CDM project, as much as 100 to 200 million tons of carbon dioxide greenhouse gas. If it is calculated at the rate of 6 Euro/ton, Chinese CDM market is as high as 1 billion Euros every year. On December 19th, 2005, Ministry of Treasury of China and the World Bank signed the Memorandum on the establishment of Clean Development Foundation. Then Ministry of Treasury set a special secretariat of the Foundation under its International cooperation departments. Recently, more and more Chinese new energy enterprises are searching huge opportunities offered by CDM. (2) Plan of Recycling Resources and Resource Effectiveness Relationship The relation of Recycling Resource and Resource Effectiveness is the second cooperative relationship of World Summit on Sustainable Development, setting up its goals as to accelerate and expand the development of global recycling resources and resource effectiveness mechanism market. In October 2003, British government had set up an international secretariat to realize the innovation and to coordinate the relationship, before it was launched formally. Now, the secretariat is a permanent unit in Vienna, Austria. In addition, the secretariat of Eastern Asia was set up formally in August 2004, under the Professional Committee of Recycling Resources of Chinese Society of Resource Comprehensive Utilization, with member states including China, Japan, Mongolia, D.P.R. Korea and R.O. Korea. The 10 projects in east Asian region deal with different aspects, including promotion of public awareness(establishment of Eastern Asian Secretariat, the professional Committee of Recycling Resources of Chinese Society of Resource Comprehensive Utilization), policies and regulations( to establish regional law system of recycling resource and standard system of energy-saving and recycling resource), financing (such as Chinese Environmental Foundation 2004 Tsinghua Science and Technology Pioneer Investment Limited Company and REEEP Chinese Innovative Project Foundation— Global Environment Institute) and effectiveness (for example to develop the resource service companies in rural areas of China and other eastern Asian Countries), etc. Although REEEP just had a total amount of 1.1 million Euros as invest bid in 2005, the sum was doubled in 2006 and grew beyond 3 million Euros in 2007. These investments are mainly used in developing countries and newly born market economies. Investment countries of REEEP are Ireland, Italy, New Zealand, Norway and Britain, etc., yet different countries invest in different regions. China, India, Brazil and other developing countries have been selected with priority this time, which would screen their strategic projects from the higher level to the lower lever and vice versa. (3) Chinese Government/WB/GEF Project of Chinese Recycling Resource Development on Large Scale (CRESP) CRESP is a recycling resource police development and investment project carried out by Chinese Government, the World Bank and the Global Environment Foundation. The project aims at, through conducting the investment on Chinese recycling resource condition and sharing the advanced experience of developed countries in this field, researching and lying down Chinese recycling resource development policy, realizing the recycling electric power development on large scale on the basis of experimental units progressively, providing highly effective and commercial recycling resource for electric market to replace coal electricity, and reducing local and global environmental pollution. It will bring benefit to the modulation of energy structure, the promotion of Western Development Plan and sustainable development. The budget structure of the project is: GEF will donate $ 141 million USD, the World Bank $ 100 million USD, and the government and other resources $125 million USD. The organization and management are designed as that Energy Bureau of Development and Reform Committee of China is the leading organization and the Office of Chinese Recycling Resource Development on Large Scale is the executive unit.

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6.3.2 Problems of international financing for biomass energy 6.3.2.1 Insufficient recognition of national financing channel for biomass energy in the market and needs governmental instructions and cooperation urgently. The international community has taken the biomass energy as one of the major investment fields, but the enterprises in our country only know a little about international financing. A standard CDM mechanism, for example, should undergo 6 stages including project starting, designing, final certification verifying, and at last, CER certification issuing. It will take 10 months for project preparation; 1-3 years will be spent from the project starting to get the CER certification. It has its own realistic buyers’ market about seven kinds, such as the World Bank, Netherlands, Japan, etc., including many operation patterns like unilateral, bilateral, multilateral, compound and so on. In our country, however, the CDM projects are growing rapidly but we also confront many problems on project preparation, application and methodology definition, which leads to difficulties and last long time. 6.3.2.2 Local Governments Having Different Abilities in the Capital Allocation of International Financing Project Some loans and donations of such international organizations as the World Bank and the Asian Developing Bank often require Chinese government’s capital allocation. This responsibility is often implemented by the specific local governments. But at present, there is a wide gap among the financial abilities of governments at different levels in different regions in China, and the same is with the actual financial management systems and management levels in different provinces. This has led to great disparity in the regional ability of capital allocation. Particularly in those underdeveloped regions, their finances are almost used to meet their basic life, not to mention the ability of capital allocation. However, when such international organizations as the World Bank and the Asian Developing Bank set a program with Chinese government, they tend to take into account the aid-poor program and the Five-Balance, which makes many programs are concentrated in central and western underdeveloped regions. So how to put these allocated capitals into practice has become a current problem to be considered when our governments make the arrangements in the future. 6.3.2.3 Management of the Donation Project Being in Great Need of Being Promoted As far as the on-the-spot investigations are concerned, there exists some problems in the management models of some programs, especially some donation ones. No owners have been assigned in some programs till now. Project offices have been established by governmental departments at the country level, but there is no real superintendent in charge of the programs. In the program construction, the governments at four levels (municipality, county, town and country) superficially take active part in the organization, but as a result, no body is responsible for the program. Just because there is no specific superintendent and therefore none is responsible for the programs, some defective equipment of them can be passed in the check and acceptance, and the operators are lack of training as well.

Box 2 : Investigation on Straw Power Generating Project on Shandan Township of Gansu Province 1. Small project with profound significance Shandan straw power generating project is a donation and aid-for-poor project under Gansu Clean Energy Development project controlled by Asian Developing Bank (ADB), which is an also renewable clean technology-aid project. Located in Qidian Countryside, Qingquan Township, Zhangye City of Gansu Province, the construction of the Project was started in August 2005, and completed by the end of 2005. The total budget of the project is 1.62 million yuan, with one set of 900m3/d straw facility, one 200kw generator and 1600 meters line-in pipe net work, and 1200 meters branch pipeline. The investment bodies are: ADB with one million yuan (USD 119.800), Shandan government 150,000 yuan, Shandan Agriculture office 50,000 yuan, Qingquan Township 300,000 yuan and the test 120,000 was financed by farms themselves. The project adopt the combined operation model of kitchen gas supplying and power generating. It is targeted to 320 household of Qidian country, to supplying gas to them. Besides, it can produce 765,000 kwh. The idea is that to maintain the project operation with the income from generation. It is a small project with profound significance. It is the first renewable energy model project completed in country since the impletion of the Law on Renewable Energy issued by the state. The aim of the ADB and Gansu government is that, through project construction, to increase farmers’ income, improve environment and develop renewable energy in rural area to explore a feasible road. Therefore, it is a model biomass developing project in rural area.

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2. Actual situation: Final audit day is a project shut down day The project passed the final audit held by leaders from provincial project office and from town and township. However, the project almost did not run after final audit. Up to now, it is idling. It did not supply gas to farms, nor produce power. On-site inspection found that, owing to capital shortage only a small part of the initial pipeline for 320 household was completed. The other pipelines for 200 household still need to be connected. According to local government, the actual investment for the project has overtaken two million yuan. Several hundred thousand yuan is needed to put the project into operation. Local government is disappointed at it and they had no way out. Farms also complained: they contributed their working hours, labor and investment (500 yuan each household) to the project full of hope. In the end, their income did not increase, and their environment did not improve, and their kitchen gas furniture just stay there without any use. 3. Reasons for failure Why has this high-expected project with more than two million yuan investment failed, and did not get expected result? According to local government, various factors contribute to current situation. They are as follows: • Equipment and technology. Equipments often breakdown (gears at feeding port often broken). Local government are doubt about the advanced technology. • Operators. There is no technician in local area. The project did not train operators. Farms did not know how to operator. • Power rates. Power rates produced by the project is 0.687 yuan/kwh, 0.18 yuan higher than that of power bureau. • Capital coordination. Capitals from local government could not be injected in time, which affected project construction. • Project management. From the beginning of the project to the completion and final check of it, there is no specific owner of the project. Analyzing from the actual situation, we found that the root reason lay in project management. Up to now, no one is specially responsible for it. The municipal and township government set up Project Office. Still no specific organization is responsible for it. During the process of project construction, it looks like four-level governmental organization act proactively, which are from municipal, town, township and country. The result is that no one responsible for the project. Because there is no real owner for the project, and no one responsible for it, the project passed the final audit it even there are some equipment problems, and no operator receive relevant training. Actually, technology and equipment introduced to the project are reliable. That the local government did not inject capital timely is normal for foreign-invested project at underdeveloped region. And it is also related to the non-owner of the project. As for power rates, it is a common policy issue. According to current policy involved, the subsidy is 0.25yuan/kwn for power produced by using renewable resources. But who is responsible for the difference? It is not clear in current policy. 4 Lessons to learn To ADB, they did not achieve their purpose. Lessons should be learned are the following: Should there be different in project coordination between developed and under-developed areas? Project management model also needs to be improved for donation project. To local government, lessons should be learned are as follows: It should be serious when using foreign investment and pay attention to risk even for donation project; for “donation”, anyway, in the long run, whatever you are given, you pay for; project coordination must be pragmatic.

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7. Environmental Impact Assessment

7.1 Brief introduction 7.1.1 Methodology and General Approach The Environmental Impact Assessment of the biomass technology was based on the study of the biomass technology development itself through the research, investigation and materials and data collection. In this section, we analyze and evaluate the environmental impact of biomass energy by using life cycle assessment (LCA) and law of conservation of material and energy as analytical tools combined with on-site research. LCA is a method that evaluates the impacts of certain biomass energy on energy and environment through analyzing the and energy release in its whole life cycle. The bio-fuel life cycle starts from the production of bio-fuel crops, its processing, to the consumption of its final product. Energy flow and mass flow analysis are the evaluation methods in quantitative assessment methodology in eco-economic system. To be brief, it’s the analysis of mass and energy flow in activities. Its basis is to analyze the input and output of mass and energy quantitatively. 7.1.2 Field Investigation The Field investigation and research is divided into three stages: • The first stage: initial preparation. Many literature and documents were reviewed, analyzed and organized systematically. • The second stage: midterm investigation and research. Based on the results from the initial preparation, a great amount of field investigation and research was carried out on relevant governmental organizations, research units and enterprises. • The third stage: Analysis and draft the report. Combining the achievements of the previous two stages with actual situations, some data were analyzed again and completed, and problems in the report were corrected. 7.2 General environmental impact related to biomass energy in China 7.2.1 Current environmental pressures related to rural biomass As we agreed in this project, there are three components needed to be addressed to show the environmental pressures caused by affairs related to lack of rural biomass energy utilization. Firstly, environmental problems caused by Livestock and Poultry in rural areas will be presented. Then we are going to discuss the environmental problems caused by current transport fuels. Finally, unreasonable utilization of crop residue is also leading to some environmental problems. (1) Environmental problems caused by livestock and poultry The rapid development of animal husbandry industry has brought problems of waste disposal. Animal waste with rapid growth of China has become one of the major causes of non point source pollution. Livestock manure waste contains a lot of organic matter, and there maybe a variety of pathogenic and parasites eggs, if they are not disposed timely and used reasonably, they will cause serious organic pollution, biological contamination and become environmental hazards and endanger human and animal health. According to estimation, in 2002 the annual output of livestock and poultry manure achieved at about 1.792 billion tons and the large-scale production of washing water, the actual sewage amount are over 20 billion tons. The annual output of different pollutants are as followings: nitrogen is about 16.542 million tons; Phosphorus is about 3.76 million tons; COD about 66.294 million tons, BOD about 55.935 million tons, far higher than the total COD amount of the same year emissions of industrial wastewater and municipal sewage, namely about 21.498 tons. The loss rate of animal feces into the water is as high as 5% to 30%; the total amount of COD emissions, feces in nitrogen, phosphorus loss of more than fertilizer.

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China Animal feces load the overall land value has reached 0.49 alerts, has shown some environmental stress level (less than 0.4 suitable). At present, it is estimated that Chinese Intensive livestock industry waste emissions is as much as 2.7-3.0 billion tons, ranking the top in other various waste emissions. According to the Livestock Development Planning of Ministry of Agriculture, the animal husbandry in the next five years will maintain a sustained and stable development trend and so the feces emission amount will increase with years. Because of the size of China’s livestock cultivation farms in the geographical distribution and animal manure pollution emissions amount and the development trend was expanding, so the management of livestock manure emission allows of no delay. In recent years the animal husbandry develops very fast in China soon, especially large-scale livestock and poultry cultivation farms have developed rapidly. According to the statistics of China Animal Husbandry Yearbook, in 2001 China’s slaughter of pigs is 549.368 million, the 2004 slaughter of pigs 618.007 million, an increase of 18%, in 2001, the number of farms with more than 50 pigs is more than 920,000, in 2004, the number increased to more than 1.41 million, an increase of 55.6%. The cleaning feces methods in domestic intensive cultivation farms are: water flushing feces, water dunking feces, (make the feces artesian by Gravity), and artificial cleaning, machinery cleaning. If Livestock and Poultry Environmental Management can’t keep pace with the rapid development of reality, livestock environmental issues will become more serious, thus it will bring greater pressure on the environment. One of the pollution resources of surface water, groundwater and soil pollution results from livestock farms stacking waste, the surface runoff of sewage. (2) Environmental pollution by current transport fuel utilization Generally speaking, all bio fuels are being used as alterative transport fuel in order to replace the fossil fuels’ consumption. Therefore, environmental benefit of bio fuel’s utilization is mainly regarded as reducing environmental problems caused fossil fuel’s consumption. As all people know, fossil fuels’ consumption is causing lots of environmental problems. In the following section, all environmental problems will be presented in three aspects. Firstly, the air pollution caused by fossil fuel’s utilization is one of the most serious environmental problems people facing today. Moreover, even the WB reported that air pollution is costing China 3.8 percent of its gross domestic product, causing more diseases and claming more lives. Although compare with industrial air pollutant source, transport sector is not the most serious one; however it is growing with a high speed by many reasons’ influencing such as economy growing. In fact nowadays, by current relevant technologies bio fuels cannot replace the fossil fuels completely. However, the mixed fuel (mixed by bio fuel and traditional fossil fuel) can relieve the utilization of fossil fuel to some extent. SOx, NOx and COx are the main components in fossil fuels’ emission, which can be reduced by utilization of bio fuels significant. Secondly, GHG emission caused by fossil fuel’s utilization has also drawn lots of attention. According to the systemic carbon balance, utilization of bio fuel does not cause any CO2 emission. Therefore, utilization of bio fuel is regarded as an efficient method to deal with the global warming. For example, comparing with tradition gasoline utilization of E10 can reduce 7% of CO2 emission, and bio-diesel can reduce 15.6% (B20) and 78.4%(B100). If E100 can be used as transport fuel, all CO2 emission could be cycled by energy crop. Finally, utilization of bio fuel instead of fossil fuel can relieve Chinese energy pressure in transport sector because of the increasing of vehicles amount. For example, NDRC plans to diffuse E10 as much as 20% of gasoline market by 2020, which means nearly 5% of gasoline will be replaced by bio ethanol at that time. Moreover diffusion of bio diesel will benefit this situation in order to saving gasoline for transport fuel market, although at that time maybe gross of oil import will be much than that of nowadays. (3) Problems by straw combustion Although, people have already found many methods to utilize the crop residue, in fact some crop residue is still being unmanaged combusted, which leads to many problems. In environmental aspect, lots of SS is emitted into aerosphere. CO2 is one of the main emission gases in straw combustion, but because of the carbon balance straw combustion dose benefit for global worming. However, the heavy smoke has already influence people’s life. In some areas, the heavy smoke has disturbed into air traffic such as taking off and landing of air planes. And even absorbable granule caused by straw combustion is

TA-4180 PRC – Final Report Page 101 National Strategy for Rural Biomass Energy Development Environmental Impact Assessment damaging people’s health badly. Hence, reasonable utilization of straw instead of unmanaged combustion will contribute a lot to be environmental friendly. 7.2.2 Brief introduction of environmental benefit As known, biomass energy is a renewable and environmental friendly energy source. Therefore, the main environmental benefits of biomass energy development and utilization are embodied in the following three aspects: (1) Improve air quality Normally, utilization of biomass energy can reduce air pollution by crop residue and bio fuels’ utilization. And the pollutants which are reduced are SOx, NOx, CO, PM and so on. For example, the Sulfur content in biomass energy is 0.01%-0.1%, which is much lower than that in coal (0.5%-1.5%); therefore the SO2 generated by biomass energy is lower than that in coal combustion. It’s analyzed that the discharge of NOX by coal utilization is 1.5 times of that by crop residues providing the same amount of energy; if 10,000 tons of straw and stalk is used to replace coal, the smoke and dust emission will reduce by 100 tons. Therefore, biomass energy utilization has significant effect of air quality improving. (2) Protect regional natural environment Fossil energy’s exploitation causes lots of damage to natural environment. Ecological protection in diggings areas is very challenging. Compared with fossil fuels, biomass energy takes fewer spaces for storing in its whole process from production to being utilized. Fossil fuels, especially coal, take up huge areas during exploitation, and spaces are needed for tailings, too. Since coal reduces little in quantity after being used, the problems of land occupation and pollution are indispensable even though comprehensive utilization technologies have been applied on a large scale. (3) Reduce green house gas (GHG) emission Because of the carbon balance, biomass energy does not increase any CO2 emission. More detail explanation is that in biomass energy utilization phase, CO2 is one of the main emission gases. However, in the crop plantation phase, crop drink in CO2 as much as being emitted. Therefore, utilization of biomass energy can maintain the CO2 gross in the aerosphere. But, this carbon balance is theoretic. Generally, biomass is low-carbon fuel, and in terms of CO2 contribution its life cycle, biomass energy is almost emission-free. It’s notable that CO2 emission can be reduced by 90% compared with fossil fuels through high-efficient and reasonable technologies. On the other hand, agriculture as the basis of biomass source can emit more active N into aerosphere, which is also regarded as a source of GHG, but relevant research and theories are not consummate and authoritative. Therefore, in this report active N is not mentioned. 7.2.3 Environmental indicators for project research Based on different biomass technologies and processes, environmental indicators are established as follows for different biomass energy technologies evaluation in the project:

Biomass Technologies Environmental Indexes

Energy crops production Soil, groundwater, , CH4, HC, CO

Bio-fuel production CO2, NOx, COD, SS, PM, SO2, CH4，HC、CO、waste water

Bio-fuel utilization CO2, NOx, COD, SS, PM,SO2, CH4，HC、CO

Animal wastes COD,NH3-N,SS,PM,SO2

Crop residues gasification CO2, NOx, COD, SS, PM,SO2，tar

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7.3 Environmental impact of bio-fuel technologies

LCA has been applied for the Environmental Impact Assessment for bio-fuel as seen in Figure 7-1 below:

Figure 7-1: Life cycle impact assessment of bio-fuel Life cycle List Indicators

electricity Energy use coal Crops Energy Natural gas production Nonrenewable oil energy depletion ethanol Bio- Toxicity Life fuel Fuel CO cycle life production impact cycle PM aerosol HC

NOx Emission photochemical Fuel SO Utilization x CO2 Acidification CH4

N2O Global warming

As shown in Figure 7-1, bio-fuel consumes electricity, coal, natural gas and oil throughout its life cycle, during which CO, PM, HC, NOX and SOX were discharged, thus causing environmental impacts such as: nonrenewable energy depletion, health toxicity, PM10 and photochemical ozone creation. 7.3.1 Fuel ethanol Many impact processed in the life cycle of fuel ethanol are not important. In light of China’s current environmental conditions and the standard of research, seven impact indicators were chose and listed in the Table 7-1. These impacts can be summarized in two types which are consumption of resources and environmental pollution, including impact on resources, non-life impact, human health and ecological toxicity impact. Geographical impact divided into global and regional.11

Table 7-1: Type of the impact factor of fuel ethanol Type Geographical Indicator Non-life Human health and Resources ecosystems ecological toxicity impact impact impact Energy using + Regional Consumption of Non-renewable resource resources + Regional consumption Global warming + (+) Regional Photochemical smog + + Regional Environmental Acidification + (+) Regional pollution Human Toxicity + + Regional Gas dissolubility + Regional

11 Hu Zhiyuan, Lou Diming. Impact assessment in life cycle of fuel ethanol, Gas engine transaction, 2005, 3(23).

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The data acquired in the list analysis will be classified in different types. In the list analysis, some outputs will impact some different types. If the environmental impact is independent, it will be classified respectively (for example, NOx was classified in human toxicity, acidification and global warming). If the impact is in the same chain, it will not be classified respectively (for example, global warming and the human toxicity occurred by global warming). As the requirement of project, cassava and sweet sorghum has been chosen for the object of analysis. 7.3.1.1 Raw materials plantation Sweet sorghum and cassava absorbed carbon dioxide in the production process. The impact of global warming is negatively. Crops such as cassava cultivation will impact the local soil, such as fertilizers, pesticides and so on. Sweet sorghum is resistant infertile and salt resistance. It will be planted in any type of soil. It will grow normally in the soil with pH 5-8.5, but to the appropriate pH 6.5-7.5. Sweet sorghum can grow well in the soil with 5% -9% saline containing. Sweet sorghum was planted in saline soil, it will not only be high-yield, but also improve soil. 7.3.1.2 Fuel ethanol production The environmental impact in the process of fuel ethanol production mainly concentrated in the wastewater, exhaust gas and waste residue. The environmental impact in the process of fuel ethanol production is shown as follow: Waste water: The waste water include condensing water of secondary steam in the distillation workshop and equipment cooling water of crushing machine, turbine generators and other equipments. The wastewater will be treated and discharged directly with class I discharging standard. The impact of low concentration waste water in the rectifying tower is low and the content of COD, BOD and SS meet relevant discharging standards. Exhaust gas: The gas is not including SO2 and other harmful gases, and through west dust catcher, it will be clean. Analysis on the carbon cycle, using cassava to produce fuel ethanol will gain the environmental benefit in the Green house gas conservation, because the cassava consumes CO2 in their growing process. If the CO2 which produced in the fermentation process will be captured and made liquid CO2 (industrial products), the environmental and economic benefits is more obvious. Waste residue; One ton residue gained in the process of sweet sorghum stalks producing ethanol will provide four tons dry feed of ruminant livestock, or four tons raw materials of pulp production, or generate electricity 2,500 KWH by biomass gasification 7.3.1.3 Fuel Using Ethanol is containing hydroxy fuel. It has self-supplying oxygen effect in the combustion process. It will burn evenly and not partial excessive oxygen or partial scarce oxygen. The burning speed and flame propagation speed is high, so the constant volume burning is well and the duration of burning is short, and the thermal efficiency is high. But heat value of ethanol is low and the consumption rate of mixed fuel is high. It will be improved by changing the conditions. Impact on particulate matter, carbon monoxide and hydrocarbon emissions: As a fuel oxygenated organic fuel, it will promote the burning and reduce the pollutant discharging when it mixed in the mixed fuel. Spreen and Kass et al12 tests showed 10% and 15% mixed fuel with ethanol and diesel will reduce PM by 20% -27% and 30% -41 respectively ; HU Zhiyuan13 drew in the cycle assessment of mixed fuel, E10 (gasoline mixed with 10% the volume of ethanol) replacing petrol will reduce the PM, CH4, and CO2 by 44%, 26% and 15% respectively. Impact on acetaldehyde emissions: Acetaldehyde is a dangerous and potentially carcinogenic compound. Knapp14 discovered that the burning of E10 change acetaldehyde emission to 100% -200% of original

12 Spreen, K. Evaluation of oxygenated diesel fuels. Final report for Pure Energy Corporation prepared at Southwest Research Institute, San Antonio,TX.1999 13 Hu Zhiyuan, Lou Diming. Impact assessment in life cycle of fuel ethanol. Gas engine transaction. 2005,3(23) 14 Knapp KT, Stump FD,Tejada SB. The effect of ethanol fuel on the emissions of vehicles over a wide range of temperatures .Air Waste Mgmt Assoc, 1998.48 (7): 646-53

TA-4180 PRC – Final Report Page 104 National Strategy for Rural Biomass Energy Development Environmental Impact Assessment emission, and sometimes even up to 700%. Fuel ethanol was used extensively in Brazil, but according to reports, the volume fraction of Brazil’s four main cities was significantly higher than that of any one city15. Impact on nitrogen oxide emissions: Nitrogen oxides will cause ground-level ozone and photochemical smog pollution. Spreen and Kass et al tests showed that mixed fuel with ethanol and diesel would reduce the nitrogen oxides by 0 to 4% -5%. HU Zhiyuan16 drew in the cycle assessment of mixed fuel that the nitrogen oxides discharged from the mixed fuel burning is more than pure gasoline except E10. Emission of nitrogen oxides have increased significantly in the burning of mixed fuel with diesel and ethanol. But the nitrogen oxide emission will be impacted by the ratio of air and fuel and other factors, the impact to nitrogen oxides by introduction of ethanol is not clear. Impact on greenhouse gas emission: The ethanol combustion process is the release of CO2 which is deposited in the plant. More fuel C / H, greater the release of CO2 by unit’s heat. Mixing some ethanol in the burning can reduce C / H and CO2 emissions, thus alleviate global warming. HU Zhiyuan drew in the cycle assessment of mixed fuel that E10 replace gasoline will reduce the CO2 emissions by 7%. Some research indicate that the production and use of ethanol gasoline will reduce 0.54-0.57 kg CO2 emission, that is 90%17 of CO2 emission in petrol combustion. Impact on other harmful gas emissions: The burning of ethanol mixed fuel will impact the emission of PM, CO, NOx, SO2, CO2, hydrocarbons, benzene, toluene, xylene, formaldehyde, acetaldehyde, methanol, ethanol, ethylene, acetone and other matters in different levels, most of which are positive, some are negative. Different researchers came to the conclusion differently, it is mainly because the emissions data will be impacted by a variety of factors, such as the determination technology of locomotive fuel, various control technologies, test procedures, test conditions and the model differences and so on. The other hand, the different addition proportion of ethanol will impact the emissions are not identically. Impact on soil and underground water: Leakage of ethanol will increase the permeability of clay, and once contact with groundwater or surface water will increase solubility of gasoline harmful substances. The ethanol will get priority for microbial degradation, microbial and environmental conditions to adapt to the degradation of ethanol, thereby suppressing petrol pollutants especially xylene biodegradation. It will impact the natural self-restoration ability and increase the load the surrounding environment. The calculation shows that in cassava ethanol fuel life-cycle process, the largest environmental impact is produced in “burning / vehicle use” and occupied 51. 82% of which is produced in entire life-cycle. The secondly environmental impact is produced in “fuel production”, occupied 41. 32%. Which is produced in “material production” only occupied 6.86%.18 7.3.1.4 Conclusion (1) The use of fuel ethanol will reduce the emission of many pollutants, but also will increase some gas emissions. It should take the necessary measures to control the pollution. Different mixed ratios have different impacts to the air. It should be treated differently. (2) Adding ethanol to fuel will increase the risk of corrosion of containers, increasing the solubility of pollutants, impeding the biodegradable pollutants, thereby increasing the risks of soil and groundwater pollution. It needs to pay more attention to regulate storage containers to prevent leakage. (3) Adding ethanol to fuel will increase heat efficiency of fuel. In the life cycle evaluation, the net energy value changed as production and technological progress and innovation, and the energy efficiency will continue to improve. It should be tested to find the best line to play with the greatest efficiency of ethanol fuel burning thermal efficiency.

15 Correa SM, Martins EM, Arbilla G. Formaldehyde and acetaldehyde in a high traffic street of Rio de Janeiro, Atmos Enviorn 2003: 37: 23-9 16 Hu Zhiyuan, Lou Diming. Impact assessment in life cycle of fuel ethanol. Gas engine transaction. 2005,3(23) 17 Macedo L G. Greenhouse gas emissions and bioethanol production and utilization in Brazil. Biomass and Bioenergy. 18 Hu Zhiyuan, Lou Diming. Impact assessment in life cycle of fuel ethanol. Gas engine transaction. 2005,3(23)

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7.3.2 Bio-diesel According to the requests of this project, here we choose rape as the raw material for the bio-diesel. 7.3.2.1 Crops production Energy crops of bio-diesel, such as rape, can be grown on marginal land. It can change the eco-system of local area, increase the ratio of land cover and reduce the uncover area of land surface. Rape growing combined with other crops can be good for the soil and prevention of crop diseases and pests. Rape’s leaves fall to the ground when the rape gets ripe, which can increase the content of organic matter in the soil by 10%. But using marginal land (as wet land and natural forests) to plant energy crops can cause the loss of and the biodiversity of the area, as well as the loss of the basic function of eco-system. It can also lead to the reduction of woods and the degradation of peatland and carbon sink of soil, as a result of which the green house gas emission will increase. The water pollution during the procedure of expansion of agriculture and biomass conversion brings more water use, which can also cause the loss of biodiversity. In addition, growing energy crops on marginal land needs to use a lot of phosphorus fertilizer and nitrogen fertilizer which can result in the physicochemical characters changes of soil and produce new green house gas (N2O). If growing energy crops cosmically, there will be impacts on other kinds of organisms. On 7th June 2007, the State Council made the decision to stop coal chemical projects already in construction and projects producing ethanol from edible crops. And it also stated that China would strongly pursue development of non-edible crop fuel ethanol with basic principles of not competing for arable land, not consuming edible food and not polluting environments. To clarify this policy, MoA issued the “Agricultural technology lecture document (2007) Nr. 10” concerning criteria for energy crops lands stated: marginal lands for energy crops means land unoccupied in winter and suitable free arable land utilizable to grow energy crops. Chinese related policies have directed the energy crops development orientations. Experiences from Amazon rain forest and others foreign areas reveal that unduly exploitation of energy crops increases the risk of land use changes including more conversion of forest, wetland and grassland to cultivation land as well as more fertilizers input, which will further the biodiversity loss and environmental degradation; bio-fuel could encroach food cultivation land and consequently increase the price of food and byproduct which will influence food security. In China, energy crops cultivation should be in accordance with government rules and regulations and comply to the principles of “Don’t compete with citizens for foods, don’t compete with foods for land”. We recommend that energy crops cultivation in China should be in areas where policy provides support and where food resources have priority. 7.3.2.2 Use of bio-diesel Bio-diesel is kind of reproducible fuel that is nontoxic and can be decomposed by organisms. Compared with fossil diesel, it has the potential to reduce the emission of diesel engine. Bio-diesel’s total particulate matters emission is less than conventional diesel’s, but it has more soluble organic fraction in particulate matters than fossil diesel does. Compare with conventional diesel, bio-diesel has a bigger cetane number and smaller content of sulfur and alkyl aromatic compound, and what’s more it is low volatility fuel with oxygen in its molecules. These essential characters decide that use of bio-diesel can reduce the production of CO2, HC and particulate matters. Carbon in bio-diesel comes from atmosphere but not fossil and the production of bio-diesel cost quite little energy, so bio-diesel can also contribute to the reduction of green house gas emission. For its low sulfur content, combustion of bio-diesel let quite less SO2 than that of fossil diesel does. Susan Bagly’s research19 on the diesel engine working underground shows that compared with American No.2 diesel, the use of bio-diesel can reduce the content of dry carbon in particulate matters, as well as the emission of Polycyclic Aromatic Hydrocarbons and 1-nitropyrene.

19 Bagly Susan T, Gratz Linda D, Johnson john H, et al. Effects of an oxidation catalytic converter and a biodiesel fuel on the chemical m mutagenic, and particle size characteristics of emissions from a diesel engine. Environmental Science and Technology. 1998,32:1183-1191.

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Wang W G’s 20 research on nine heavy trucks shows that with the same diesel engine, using fuel composed of 35% bio-diesel and 65% American 2 diesel, the fuel economy is similar, but the trucks using combined fuel let out much less particulate matters, the CO,HC emission reduced and the NOx remains the same. The environment benefit of bio-diesel not only shows in exhaust emission but also in less pollution to soil and river, because it is easier to break down by organism. So if used by machines in agriculture or forestry, or by the tourism ships on rivers or lakes, bio-diesel would be more beneficial to the environment.

Impacts on Green House Gas Emission: Combustion of bio-diesel can discharge CO2. The combined fuel (B20) composed of one part bio-diesel and four parts of conventional diesel can reduce the CO2 emission by 15.6% than pure conventional diesel, and the fuel with bio-diesel alone (B100) can reduce the CO2 emission by about 78.4% Impacts on Air Pollutants Emission: Air pollutants emissions include the emission of engine exhaust pipe and the emission of production procedure. The main pollutants are CO, NOx, PM, sulfide, CH4, NH3, CHO, acid, HF, benzene and so on. Using bio-diesel can reduce the emission of most air pollutants except NOx, HCl and THC. The CO is reduced by 34%; TPM is reduced by 32.41%; remarkably PM10 is reduced by 68%. PM10 is the main source of human respiratory diseases, so using bio-fuel instead of fossil fuel is a good choice to control the emission of TMP and PM10. Table 7-2: Pollutants emission of bio-diesel Emission Emission B100 less than fossil Emission B20 less than fossil diesel (by scale) diesel (by scale) HC 36.73% 7.35% CO 46.23% 9.25% PM 68.07% 13.61%

SO3（X） 100% 20% Polycyclic Aromatic nitride 80% 13% Polycyclic Aromatic Hydrocarbons 90% 50% Source: Jixing Doctor associate professor, China University of Petroleum (Beijing) 2004.2.13 7.4 Environmental Impact of Biogas Technology 7.4.1 Environmental pollution of animal husbandry and the environmental benefits of biogas technology Recently the livestock sector is undergoing rapid changes in china. Most of the production is expected to come from industrial, large scale production of pigs and poultry. The environmental issues will be Serious if the regulations for livestock production and related waste management and disposal are not well developed or not efficiently enforced. Livestock wastes represent one of the worst water pollution hazards in the country. Recent studies have suggested that the total organic load (as measured by the quantity of Chemical Oxygen Demand (COD) produced) from intensive livestock production enterprises already exceeds the combined total COD load from municipal and industrial sources and the imbalance will only increase as the intensive livestock production sector continues its meteoric growth. The environmental benefits of biogas are shown in the following aspects: (1) a large amount of livestock wastes have been treated properly (2) the harmful wastes have been disposed (3) bacterial has been removed. The demonstration and practice has shown the sanitary conditions and the environment has improved greatly. According to the objectives of the large scale biogas plants, they have been defined into two categories: energy ecological and energy environment.

20 Ibid.

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Table 7-3: Environmental impacts indicators of biogas plants Construction period Operation period Civil Waste Solid Installation Emissions Noise engineering water waste Surface water -1SP +3LW Ground water -1SP +2LP Air -1SP -2SP +2LP Sound environment -1SP -1SP -1SP -1LP Soil -1SP +1LW Ecological environment -1SP +2LW Industry +1LW Agriculture +2LW Public health -1SP -2SP -1SP +1LW Life quality -1SP -2SP -1SP +1LW Notes:+,-respectively indicated the benefits and cost of the plants Affecting degree:1-monor,2-general,3-significant;affecting period :S-short term, L-long term; affecting scope :P-local ,W-large scale; Other: the changes before and after the plants 7.4.2 Biogas plant with Energy—ecological model Energy--ecological biogas engineering utilize the sufficient farmland, fish pond and vegetable pond in the surroundings to dispose the liquid wastes and solid wastes after the digestion. Energy--ecological biogas engineering can integrate the livestock production and cultivation to reduce the cost of the treatment of digester wastes and promote the development of eco farm. Manure can be used as good natural fertilizer. After treated in digesters, manure wastes can be directly applied to the land to improve the ecological balance. The field experiments showed that the content of organic matter, total N of the soil has increased respectively 0.39% and 0.05% after the continuous application of digester wastes as fertilizer. And the soil density decreased with the increase of porosity in 6.6%. The feeds planted with the digester wastes as fertilizer could also decrease the opportunities of illness of livestock. The investigation of certain farm indicated that the pigs have not infected with FMD for long years with the decrease of mortality from the previous 5－6％ to the current 0.6％. The statistics indicated after digested, the BOD5 and CODcr of pig manure have been removed 88% and 87%.The TSP and NH4-N have been removed 98% and 83%.With regard to the sanitary conditions, the parasites, E.coli and the bacterial have been killed 90.6%, 99.9% and 99.6%. 7.4.3 Biogas plant with Energy—environment model If there is not enough land in the surrounding s of the energy environment biogas engineering, the digester wastes will be produced as the commercial fertilizers and the liquid wastes will meet the national discharge standards with the treatment of the aerobic fermentation. For instance, The Xizi livestock production farm is located in the rural northeast of Hangzhou city. The farm produced pigs 10,000 heads per year, with the discharge of liquid manure at 100 ton every day. As the content of COD is 25,000 mg/l of the liquid manure, the farm could produce the total 2,500 kg of COD every day. The treated waste water could meet the national standards, and the indicators are as follows: CODcr ≤200mg/l; BOD5 ≤80 mg/l; SS≤200mg/l; PH=6-9.

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The removal rate of anaerobic fermentation is above 85%. Then the treated water was transported to the floatation pool to separate the liquid and the solid. And the sludge entered into the digesters by pump to keep the enough batteries. The liquid wastes could be applied to the vegetable & fruits planting, grasslands and the fishpond. The excessive liquid entered to the aeration to remove the COD and BOD, and then met the standards after the biological treatment. The removal rate of COD of the overall energy environment system could reach above 99%, and effectively controlled the water pollution from manure.

Table 7-4: Treatment effects of the energy--environment biogas engineering in Hangzhou Xizi livestock production farm Conditional Separation Biological Process Digester SBR Pool machine reactor water/m3 100 100 100 50-100 50-100 HRT/d 1 - 5 3 30 COD content /mg.L-1 25,000 20,000 3,000 400 200 BOD content /mg.L-1 13,000 10,400 800 140 60 pH 6-6.5 6-6.5 7-7.5 7-9 7-8 Removal of CODcr /% - 20 85 87 50 Digester wastes - Solid:2.8(t /d) Biogas:500(m3 /d) - - Source: Proceedings of international forum of rural eco environment and energy engineering 2003

Biogas plants reduce the emissions of CO2 by the replacement of coal by biogas. Generally, the biogas could replace coal with 0.24 t in every cubic meter digester. The total reduction of emissions of CO2 is 1.517 multiplied by 0.24 equals 0.364 t.

Every year the total reduction of emissions of CH4 is 4.18 multiplied by 20 equals 83.6lkg with the manure of 20 heads pigs in every cubic meter digester.

Energy environment biogas plant utilizes the anaerobic fermentation process with the 25-35℃ temperature. At this condition, the most bacteria and parasites could be killed. The sum of e-coli is 10- 8 in the liquid wastes. 7.4.4 Household biogas The manure and agricultural reside could be utilized for biogas in rural areas. It could supply the low cost energy, increase the economic benefits of farmers and improve the local environment. The affecting indicators of household biogas could be identified with direct currency method, comparative method and CVM. The negative impacts could be divided into 5 levels that are serious (-4), high (-3), medium (-2), low (-1), none (0). The positive impacts could be divided into 5 levels that are very high (4), high (3), medium (2), low (1), none (0). Table 7-5 shows the Environmental impacts indicators by the investigation of nearly 800 households in Jiangsu province.

Table 7-5: Environmental impacts indicators of household biogas Fertility 1 Land soil Compaction 1 Air Air 0 Natural Water quality 0 environment Water Fishing 0 Pig industry 3 Animal resources agriculture 1

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Living environment mosquito 3 Social convenient 3 Living conditions environment comfort ability 3 Heath of farmers Medical care cost 1

7.5 Environmental impacts of crop residues utilization technologies 7.5.1 Direct combustion for electricity The heat produced from 2 tons of crop residues equals to that produced from 1 ton coal equivalent (TCE), and its heat value is 85%-90% that of coal. The average sulfur content of crop residues is 0.38%, which is lower than average sulfur content in coal. Compared with the same scale coal-fired power plant with a capacity of 1.38GW/year, crop residues power plant can save more than 100,000 tons of coal and reduce 400 tons of SO2 emission. There are no harmful gases in the waste gas from residues burning; therefore, it’s unnecessary to carry out desulphurization and denitrification treatment. There is no water-soluble component in smoke and dust, so the discharged wastewater needs no special treatment except filtering away suspended this kind of power plant. However, crop residues burning for electricity requires that a great amount of biomass be centralized in certain areas. Considering the large-scale gathering and transporting of biomass, the cost would be high. Crop residues are very seasonal, and it can also generate CO2, which causes pollution. So it’s more suitable for modern farm or big processing plant to develop this technology. 7.5.2 Crop residue gasification

Gas generated by crop residue gasification mainly contains CO, H2 and CH4. This kind of fuel gas can be directly used as fuel in boiler for heat supply. It can also provide centralized gas supply for residents or as a driven force for gas turbine generator and oil electric engine after dust removal, tar removal, and cooling etc. For centralized gas supply system, there is a secondary pollution problem: harmful substances such as tar exist in fuel gas, which is usually purified through washing. Thus the washing process would produce lots of waste water with tar and fuel dust. It’s going to cause serious pollution on soil and groundwater if dumped freely. For purified fuel gas, its tar content is relatively high, which affects the long-term stable operating and using in utilization process. Providing equal energy, the amount of Sulfur and NOx discharge are 7 times and 1.15 times by using coal than by crop residues. Every 10,000 tons of crop residues can reduce 14,000 tons of CO2, 40 tons of SO2, and 100 tons of smoke and dust, given it’s utilized rationally. It’s urgent to make use of crop residues for improving environment. Gasification, together with crop residue retaining, feed and other technologies, contributes to the rural eco-environment development.

Table 7-6: Environmental indices of crop residue gasification furnace Item Determination value National standard Discharge concentration of smoke and dust 28-39mg/Nm3 120mg/Nm3 Average discharge velocity of smoke and dust average 0.009kg/N 0.096kg/N 3 3 SO2 discharge concentration 10-14mg/Nm 550mg/Nm

SO2 discharge velocity 0.003kg/N 0.739kg/N NOx discharge concentration 30-38mg/Nm3 240mg/Nm3 NOx average heat discharge velocity 0.008kg/N 0.219kg/N Source :China Spark Science and Technology Information Net

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Impacts on water: the discharge water contains small amounts of suspended solid and tar, which would bring adverse effects to water. If suspended solid and tar are separated through precipitation, water can be recycled and tar can be used as raw materials for chemical industry. Impacts on soil and crops: A small quantity of cinders can be generated through crop residue gasification, that’s 4-5 kilograms of cinder per 100 crop residues. The cinder is high-quality potassium fertilizer, which can improve soil when used in farmland, and good for crops production. 7.5.3 Pellet fuel technology

Compared with coal-fuel power plant, pellet-fuel power plant has a lower discharge amount in CO2, SO2, dust and smoke, and cinders. It can also provide farmers with organic fertilizer. 100,000 tons of biomass pellet-fuel can substitute 70,000 tons of coal calculated by heat value. Taken burning and utilization efficiency into account, the number of coal being substituted can be higher. For example, 0.7MV automatic burning biomass pellet-fuel water heater can replace 400 tons coal equivalence (TCE) each year; smoke and dust net emission reduction 340 ton/year, green house gas such as CO2 110,000 ton/year, SO2 emission reduction close to 800 ton/year, and consumes 70,000 tons of crop residues. 7.6 Comparative analysis of environmental impacts

Biomass energy technologies are compared and analyzed based on the above environmental impact assessment. 7.6.1 Fuel ethanol and bio-diesel The life cycle: For bio-fuels production and use of the total emission reduction potential is still controversial, and studies have different conclusion. The Table 7-7 summarizes the characteristics of the bio-fuels for the life cycle.

Table 7-7: Characteristic of bio-fuels Fuel CO The net balance of energy 2 Bio-fuels production conservation Resource consumption output b a(L/ha) (%) Corn grain ~3000 1.25 12d Hill et al.,2006 ethanol 1.03 (worst condition) 32 De Oliveira et al.,2005 1.12 (best condition) Shapouri and McAloon.2004 1.67 (including by-products) N/A WI and GTZ.2006 1.06 (not including by-products) ~1.5 N/A Sugar cane ~6000 3.14 (worst condition) 67 De Oliveira et al.,2005 ethanol 3.87 (best condition) Sadones,2006 5.82 72to75 WI and GTZ,2006 ~8 N/A Sugar beet ~5000 1.25 31 Sadones,2006 ethanol ~2 N/A WI and GTZ.2006 Cellulose N/D 2.36 N/A WI and GTZ.2006 ethanol Rapeseed ~1100 2.23 68 Sadones,2006 diesel ~2.5 N/A WI and GTZ.2006 a. resource: WI and GTZ, 2006. b. biofuels contained energy and the production of biofuels used in the non-renewable energy ratio. c. with the same energy equivalent of gasoline compared to the percentage of emission reduction. d. crop gain from the land which was used for production (that is not the natural habitat for conversion) e. N/A: not available, N/D: Not yet determined Raw materials plantation: The environmental impact of planting materials focused on the cultivation of energy crops, including grain crops and non-grain crops. It has significant positive benefits for the region’s ecological environment and land coverage. But the use of marginal land to cultivate will break the condition of habitat and the biodiversity or basic services will lose. Forest decline and soil

TA-4180 PRC – Final Report Page 111 National Strategy for Rural Biomass Energy Development Environmental Impact Assessment degradation will increase the Green House Gas emissions. Expansion of energy crops and biomass conversion process will increase water consumption and the loss of biodiversity. In the process of planting, phosphorus and nitrogen fertilizer utilization will change the physical and chemical properties of soil, and generate new greenhouse gas (N2O). Fuel use: The environmental impact in the use of bio-fuels mainly concentrated in the discharge of pollutants, such as nitrogen oxides, PM, CO. The pollutant reduction which occurred in the use of ethanol and bio-diesel contrast to the process of petrol, diesel were summarized in the following table. We can see from the table, many pollutants have a significant reduction, especially in the high mixed ratios of bio- fuels. Generally speaking, use of fuel ethanol and the use of biodiesel have advantages respectively in pollutants discharge, such as the reduction f PM with fuel ethanol is higher than it with biodiesel in same mixing ratio by a few percentages.

Table 7-8: Pollutant discharge in the using of biodiesel and fuel ethanol Pollutant discharging Fuel ethanol (compare with gasoline) Bio-diesel (compare with gasoline) PM Reduce 20%-27% (E10) Reduce 13.61% (B20) Reduce 30%-41% (E15) Reduce 68.07% (B100) Aldehyde 100%-200% (E10) Not available Nitrogen oxides Reduce 0%-5% (E10) NPAH reduce 50% (B20) NPAH reduce 90% (B100) CO Reduce 26% (E10) Reduce 9.25% (B20) Reduce 46.23% (B100) CH Reduce 15% (E10) Reduce 7.35% (B20) Reduce 36.73% (B100)

CO2 Reduce 7% (E10) Reduce 15.6% (B20) Reduce 78.4% (B100) SOx Not available Reduce 20% (B20) Reduce 100% (B100)

7.7 Conclusion

(1) The main environmental benefits of developing biomass energy are: providing a solution to the problem that fossil energy would exhaust someday; improving the regional air condition (by reducing the air pollutants emission); renewing the regional natural environment; reducing secondary environmental problems; bringing down the green house gas emission. (2) Biomass energy has negative impacts on the environment. Although burning ethanol can reduce the emission of most pollutants, but some kinds of gas emission will increase; burning fuel added with ethanol increases the risk of eroding containers, aggrandizes the solubility of pollutants, blocks the organic decomposing process of pollutants, and thereby enhances the risk of soil and underground water pollution; centralized gas supply of crop residue gasification system still has secondary pollution. (3) The environmental impact assessment of kinds of rural biomass energy technologies is shown in Table 7-9.

Table 7-9: Environmental impact assessment of rural biomass energy technologies Resource Technology Assessment low energy efficiency, Direct combustion Crop serious air and soil pollution. residue higher energy efficiency than direct combustion Stove still has pollution to the environment

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Resource Technology Assessment Pellet technology high energy efficiency high energy efficiency Village-scale gasification less pollution compare with coal-fired power generation, less Gasification power generation pollution still have secondary pollution like tar. less pollution Direct-firing power generation emission of gas like CO2 Co-firing power generation less pollution less pollution Household bio-digesters Animal more energy use wastes Medium to large scale anaerobic digesters remarkably reduce the pollution of water, air and soil Sorghum to ethanol N/A reduce the green house gas emission Cassava to ethanol has both positive and negative impacts on environment Energy (such as air and biodiversity). crops Compare with fossil fuel, less green house gas and Bio-diesel（rape） other pollutants emission Affect ecological problems like biodiversity

Generally speaking, rural biomass energy use has good impacts on the environment. The use of Methane and crop residue gasification reduces the environment pollution and has more environment benefit. Fuel ethanol, bio-diesel and energy crop technology can also reduce the environment pollution and the shortage of energy, which are brought by the use of fossil fuel. Direct-firing power generation causes little pollution, but the engineering requirements are too strict. The general environment impacts of each technology are presented in Table 7-10.

Table 7-10: Environment impacts of biomass energy technology Reduction SOx NOx Bio- Technology of GHG PM Soil Water Overall (g/kg) emission (g/kg) diversity

Direct CO2 combustion reduction 0.45* 1.1** serious N/A N/A N/A 2 of straw 62%*

CO2 Stove reduction N/A N/A N/A N/A N/A N/A 6 90%* Pellet CO 2 2.7*** N/A reduction N/A N/A N/A 4 technology reduction

Village- CO2 scale reduction a little N/A a little N/A N/A N/A 8 gasification 82-84%*

CO2 gasification reduction 2.4*** N/A a little tar pollution tar pollution N/A 4 66-81%* CO Direct-firing 2 reduction N/A N/A N/A N/A N/A 6 reduction CO Co-firing 2 reduction N/A N/A N/A N/A N/A 6 reduction

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Reduction SOx NOx Bio- Technology of GHG PM Soil Water Overall (g/kg) emission (g/kg) diversity BOD5 removal rate≈88% Household Soil CODcr bio- 0.516t/HH N/A N/A N/A N/A 10 improvement removal digesters rate≈87% SS removal rate≈98% CODcr Medium to ≤200mg/l large scale Soil BOD5 ≤80 0.364t/m3 N/A N/A N/A N/A 10 anaerobic improvement mg/l digesters SS≤200mg/l pH=6-9 Sorghum to Soil meet the reduction reduction N/A N/A 6 ethanol improvement standard reduce by 20%- remain Cassava to 27% the ethanol reduce by (E10) Soil meet the Loss of reduction same or 7 (compared 7% (E10) improvement standard biodiversity increase reduce with petrol) a little by 30%- 41% (E15) reduce reduce by reduce by 15.6% by 20% remain 13.61% Change Bio-diesel the Biodiversity & (B20) (B20), (B20) Loss of (compared same or soil 8 biodiversity with diesel) reduce by reduce increase reduce physicochemical 78.4% by 100% a little by characters (B100) (B100) 68.07% (B100) *compared with coal-firing engine **source: Cao Guoliang. Inventory of atmospheric pollutants discharged from biomass burning in China continent. China Environmental Science, 2005, 25 (4): 389~393 ***calculated by the formula: production=crop residue comsumption×sulfur content*combustion rate. The data stand for the SO2 emission without any desulfuration technologies. ****The value stands for the priority of development, the larger number, the higher priority in development. Considering the environment impacts, large amount of animal waste and sewage discharged from farms that breeding and farming livestock cause serious pollution of ground water, underground water and soil. Actions to strengthen the governance must be taken, so the technology of methane production and use come to be the first choice. The shortage of non-renewable energy and disadvantages of its use like green house gas emission, call for the use of renewable energy instead to control the environmental pressure. Developing the fuel ethanol and bio-diesel can be a very important way to achieve the goal. Deposit and combustion of crop residue cause great environmental cost day by day, so the technology of crop residue use, such as crop residue gasification and firing power generation with crop residue, should also be considered first. They can reduce the emission of harmful gas as providing energy, so the environmental benefit is also significant. (4) macroscopic environmental benefit by utilizing biomass energy

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According to the detail and specific analysis in above and national strategies in other chapters, some assumptive environmental benefit could be summarized. • The environmental benefit of biogas production As estimated, by 2020, the total annual biogas production will be 25 billion m3 from household level and 5 billion m3 from mid-to-large biogas plant, Utilization of such amount biogas can replace 1.561 billion ton standard coal (calculate by heat value) which could relieve lots of energy demand pressure. Generally, Therefore, environmental problems caused by this 0.5 billion ton animal waste will be removed. According to prediction of situation in 2002, 0.5 billion ton animal waste treatment could reduce the pollutant N 4.62 million tons, P 1.05 million tons, COD 18.50 million tons and BOD 15.60 million tons. • The environmental benefit of biomass-based utilization of straw Utilization of straw is regarded as an efficient measure to deal with the GHG emission, because fossil energy is a serious contributor to global warming. As the national strategy shows by 2020, 50 million ton straw pullet will be used and 6 GW electricity will be produced by materials as straw. Therefore, at that time at least 25.264 million tons standard coal will be saved. By saving 25.264 million tons standard coals, 63.16 million tons CO2, 0.25 million tons SO2 and 0.177 million tons NOx will be reduced. • The environmental impact of bio fuel utilization The environmental benefit of utilization of bio fuel is also regarded as the approach to reduce the air pollutants. Generally speaking, comparing with traditional gasoline utilization of bio-fuels can reduce the pollutants such as PM, NOx, COx SO2 and so on. By 2020, China plans to produce 4.94 million L bio ethanol and 16.9 million L bio diesel. If all 4.94 million L bio ethanol is used to produce E10, 49.4 million L E10 will be produced, which can reduce 0.052 million tons NOx, 2.17 million tons CO and 0.115 million tons CO2. If the 16.9 million L bio diesel is used to produce B20, 84.5 million B20 will be got, which can reduce pollutant such as NOx 1.875 million tons, CO2 0.0585 million tons, CO 0.211 million tons and SO2 0.0548 tons. If the 16.9 million L bio diesel is used to produce B100, 16.9 million L bio diesel will be got, which can reduce pollutant such as NOx 0.675 million tons, CO 0.21 million tons, CO2 0.0588 million tons and SO2 0.0548 million tones.

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8. Social Impacts Assessment on Rural Biomass Technologies

8.1 Methodologies and Steps

• Review, collect and summarize current literatures on the social and poverty impacts of biomass energy in order to obtain useful data and information; • Participate to seminars and workshops relevant to rural biomass energy development; obtain different ideas and opinions; scope and define issues, subjects and all stakeholders involved; • Interview, discuss and engage with various stakeholders through field missions (Beijing suburb, Hubei Province, Jiangsu Province and Gansu Province), better understand the practices and operational modalities and corresponding social-economic consequences of different technologies; • Apply results of the social beneficiary assessment of ADB Loan Project for Efficient Utilization of Agricultural Wastes (PRC-1924) supported by the Socio-Economic Development Specialist; • Apply valuable findings of the international technical assistance on Special Study A Viability and Sustainability of Biogas Digester and Biomass Gasification Technologies, Special Study B Integration of household and farm-scale biodigester system with eco-farming and animal waste treatment and Special Study D Crop Straw Utilization for Rural Energy Needs. Results and findings of these reports were expected to provide direct references to ADTA 4810-PRC to avoid duplication of work; • Develop example case studies, drawing on the data and information from field missions, outcomes of beneficiary assessment through questionnaires and interview protocols of ADB Loan project and special study A, B and D; • Undertake social and economic impact assessments, employment estimation and affordability analysis on end-use product of these biomass technologies.

Table 8-1: Social Impact of Biomass Technology- Analytical Framework Area of Social Impact Issues Economic Development Increase income and assets of rural households, improve community infrastructure, and Poverty Reduction and reduce on-farm living expenses, level of participation of the poor in particular the absolute poor, mode of technical promotion, land use and transfer and the requirements of sustainable rural development. Human Resources and Employment training for labors, work safety and standard, labor mobility and transfer, Employment skills in applying bio-technology and attitude to technology, employment opportunity and estimates. Gender and ethnic Income and employment opportunities of women and ethnic minorities, changes in minority development workload and hours, women and ethnic minority’s access to resources, women in decision making and women’s access to training opportunities. Participation and Good Management of public/community investment and assets, community decision Governance making, farmers’ organizations, participatory rights of beneficiaries in terms of bio- mass industrial planning, project planning, execution and monitoring, operation of various biomass energy projects and the definition of ownership. Environment and Health Community environment, natural resources, advocacy for environmental protection and awareness of environment protection among farmers, health and hygiene, indoor pollution and diseases. Participation of the Private Conditions for private sector participation and incentive schemes, public investment Sector loan, participation of the private sector and outsourcing contract of manufacturer and logistical service arrangement, role of middle-man in the industrial chains, cooperation between public sector and the private sector.

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8.2 Social Impacts Assessment on Biogas Technology

Core stakeholders of social and economic impacts of rural biogas programmes: • Government implementation and execution agencies: rural energy and resource offices of the Ministry of Agriculture at central and county levels; • Rural grassroots coordinating and organizing agents: township governments and village committees; • Major beneficiaries: participation households and mid- and large-scale livestock and poultry breeding farms; • Special interest groups: rural biogas technicians, women and ethnic minorities; • Technology extension institutes: biogas research institutions and associations; • Biogas engineering design: biomass energy consultancy companies; • Rural biogas service providers: biogas engineering construction companies, fittings production and service enterprises. 8.2.1 Economic Development and Poverty Reduction Changes in rural household income: Household biogas is calculated by biogas obtained in a year: a breeding pigsty with 3-5 pigs can produce fermentation material for a biogas digester of 6-8m3, producing 350 m3 bio-gas and saving 1,000 Yuan from cooking, lighting and washing. At project level, the ADB Loan Project PRC1924 showed a case of 3 typical rural households in Henan Province (data source: Special Study B, April 2007. Savings on fuel or organic fertilizer from biogas residue presented significant incremental economic profit of each household over 5,000 Yuan annually. Changes in Profits in large and middle scale plants: In general terms, mid-scale biogas plant produces 750-1000 m3 biogas per day, generating electric value of 300,000 Yuan per year, 200,000 value of biogas liquid and 100,000-150,000 value of organic fertilizer. If the investment depreciation is not considered, the annual net returns amounts to over 300,000 Yuan. Poverty reduction results: According to our beneficiary assessment conducted with CIAD, China Agricultural University in four provinces of the ADB Loan Project for Efficient Utilization of Agricultural Wastes (PRC-1924), we first made a classification of households based on their income level. Households with income per capita less than RMB1,000 or RMB 1,200 were considered as poor households; households with income per capita ranges between RMB 8,000-10,000 were considered as typical wealthy households; and for those ranged in between were considered as average households. We gave a comprehensive statistical analysis based on this classification above, which is illustrated by Table 8-2.

Table 8-2: Distribution between the rich and the poor in 4 project provinces (N=499) Household status No. of Households Percentage（%） Wealthy 93 18.64 Average 294 58.92 Poor 112 22.44 Total 499 100

Secondly, we made a comparison of the household incomes before and after the utilization of biogas against the range of income. The proportion of absolute poor households that have an annual per capita net income less than RMB 700 reduced from 27.5% to 9.3%; proportion of low-income households, namely those per capita net income less than 2,000, reduced from 57.7% to 35.8%. Comparatively, households with annual per capita income above 5000 Yuan have significantly increased, rising from 69 households to 111 households or an increase of 8.8% against total households. See 8-3 for details. (for

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Details, see CIAD Beneficiary Assessment on the ADB Loan Project for Efficient Utilization of Agricultural Wastes (PRC-1924)

Table 8-3: Changes in per capita net income before and after the utilization of biogas Before biogas After biogas utilization Utilization (N=487) (N=483)

Percentage Percentage households Total (%) households Total (%) (%) (%) 0-700 134 27.5 27.5 45 9.3 9.3 701-1,000 44 9.0 36.6 34 7.0 16.4 1,001-2,000 103 21.1 57.7 94 19.5 35.8 2,001-average 33 6.8 64.5 123 25.5 61.3 average-5,000 104 21.4 85.8 76 15.7 77.0 5,001-10,000 55 11.3 97.1 86 17.8 94.8 above10,000 14 2.9 100 25 5.2 100 Total 487 100 483 100

8.2.2 Human Capital and Employment Opportunity Professional access criteria introduced in China for biogas production require many training programs. Up to now, 150,000 farmer technicians have received professional certificate for biogas production issued by the Ministry of Agriculture. At present, the issue of common concern is how to efficiently integrate the biogas systems with the breeding and planting systems in terms of the design and operation of biogas system, in particular the practical instructions and guidelines on the integration of biogas effluent and agricultural production. Job opportunity created by biogas development mainly comes from digester unit construction and biogas- related enterprises. See employment estimates in section 8.8. 8.2.3 Gender, Ethnic Minority and Development According to our assessment with CIAD of China Agricultural University on women beneficiaries of the ADB Loan Project for Efficient Utilization of Agricultural Wastes (PRC-1924), the average time consumed for cooking has considerably reduced from 62 minutes to 37 minutes. Time consumed in water boiling per household has reduced from 24 minutes to 14 minutes on average. This has, to a great extent, reduced the time consumed on family chores. Among the 166 women interviewed by this project, 80% of women interviewees believed that more time could be saved for other production activities after they were liberated from family chores. Cases of biogas project beneficiaries in Sichuan, Shaanxi and Inner Mongolia can be used to analyze the changes in timing allocation (measured by time consumed on each activities after biogas utilization to that after biogas utilization%) shown in Table 8-4.

Table 8-4: Time on each activity after biogas utilization to that before biogas utilization% Activities Average Sichuan Shaanxi Inner Mongolia Cooking and eating 73 72 70 79 Work in the field 106 109 106 103 Leisure time and time 117 115 129 100 spend on watching TV Sleeping 103 105 100 102 House cleaning and 103 104 100 100 washing clothes Others 102 81 133 120

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Two important conclusions could be made from the analysis above: there is a 27% reduction of time spent on family obligations such as cooking and eating on average; saved time has been allocated to other activities such as entertainment, working in the fields, house clean-up/washing clothes etc., 2) women’s heath situation could be improved after they are liberated from the inefficient traditional ways of cooking with coal and firewood as the main source of fuel. This has also increased the opportunity for them to undertake other activities such as entertainment and production. In addition, the Chinese agriculture is typically feminized today and is scattered with small farming plots and households, employing over 70% women laborers as the major consequence of farm men migration to work in cities. They can potentially be the key recipients of applied knowledge and technology in both household bio- gas development and farming activities. Development programs for women in common request could include service and loans for livelihood activities. Weather condition in southwest China is suitable for the development of biogas, where many ethnic minority people locate. The State Ethnic Affairs Commission has also been an active promoter of biogas in ethnic minority regions. It is not easy to change the traditional life styles of ethnic minority people in a short-term. This is especially true for Southeast China regions where firing practice has important cultural expression and significance. Somehow, the high efficient firewood saving stoves promoted by the government could be more relevant in these regions. 8.2.4 Household Participation and Good Governance Household biogas and mid-and large scale biogas programs are supported by government subsidies together with funds shared by enterprises and individual households. Management of such funds requires a high degree of transparency in the decision making processes. Some key issues are listed below: (1) household and enterprise selection processes. (2) frequent assessments and sound monitoring system for results; (3) service network. In terms of the willingness of participation, our survey conducted in 499 project households in four ADB project provinces (ADB Loan Project for Efficient Utilization of Agricultural Wastes: PRC-1924) indicated that among the 499 households interviewed, 79.6% were self-registered, 27.4 were assigned by village cadres and 19.6% were selected by project staff after the on spot investigations. Senior managers of each individual biogas plants we interviewed during our field missions expressed a high level of enthusiasm to invest and operate biogas plants. The Gansu Holstein Cow Breeding Centre at Huazhuang Town of Honggu Area of Lanzhou Municipality and the Chuantian Cow Breeding Farm in Jiangning District of Nanjing Municipality were willing to invest whether government subsidy was provided or not. Environmental pollution from the farms was a major cause of social conflict with surrounding villages and the government has also been levying pollution tax. Operation of such bio-gas digesters realized harmonious development and eased the conflicts. 8.2.5 Environment and Health Impacts on community living environment: Utilization of biogas clean energy reduced emission of poisoning gases such as SO2 and CO2 and improved the air condition. Such harmful gases from firewood and coal burning post health risks to housewives who are usually users and will damage the health of women and other family members. According to survey studies (ADB Loan Project for Efficient Utilization of Agricultural Wastes: PRC-1924), consumption of 158kg crop straw, 24kg firewood and 23.1kg coal was reduced per year for individual household, which is conducive to the reduction of air pollution and the improvement of air quality. Purification ratio of COD, BOD and SS is above 80% through anaerobic processing of waste water of the animal feces, which has significantly reduced water pollution of the surrounding regions. The biogas digester digests the feces of human, animal and wasted water as fermentation material, which can improve the unclear, disordered and low-quality environment of the rural areas. In addition, utilization of biogas digester eliminates the breeding venues of flies and mosquitoes and thus reduces the spreading and transmission of harmful diseases, purifying the environment and avoiding pollution of underground waters.

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8.2.6 Private Sector’s Participation There are several issues related to the private sector’s participation: 1) the beneficiaries, mid-and large- scale breeding farms can expect significant economic benefits, social benefits and environmental benefits. However the government is unclear on its tax reduction regulations. Incentive schemes related to separate financial accounting of gas generating costs, revenue from gas supply to surrounding community, revenue from electricity generation and biogas effluent and associated favorable tax remission can be important measures attracting the participation and investment from the private sector. Meanwhile, government subsidy for mid-and large scale bio-gas digesters can become a huge burden for the government. In this circumstance, national development bank and commercial banks should be encouraged to provide subsidized loans instead of government grants to the breeding farms; 2) favorable tax policies should be granted to consulting firms for the design and implementation of biogas programs; 3) a sound logistical service providing system is currently lacking in rural areas. The Ministry of Agriculture should cooperate with consulting companies and provide suggestions and guidelines on the establishment of possible logistical service systems. 8.3 Social Impact Assessment on Pellet/Briquette Fuel Production

Major stakeholders in biomass pellet/briquette fuel development: • Local rural energy offices: provide subsidies on behalf of the government, establish experimental sites, promote and advocate for project implementation; • Enterprises: R&D on major technologies, production of pellet fuel, installation of stoves, technical instruction and after-sale services; • Village committee: support advocating and promotion efforts of the energy offices; deliver pellet/briquette fuels to farmers and give support to maintenance work of energy enterprises. Village committee plays a key role in overall coordination of program implementation. Reputation of a village committee among rural residents and its working efficiency are key factors for the successful promotion; • Middle-men: They collects raw materials from rural households and sell to pellet/briquette fuel processing factories; • Rural households: They provide crop straws as raw materials for processing and are users of pellet/briquette fuels. They will provide feedbacks on technical problems in using the stoves and pellet/briquette fuels to the village committee and technical task forces. 8.3.1 Economic development and Poverty reduction Economic benefits will be assessed from the perspective of the following two main production organizations: • Profit driven enterprises in pellet fuel business. They are concerned to price and profit margin of pellet/briquette fuel production; • Village collectives process pellet/briquette fuels. Production activities within the collective economy are normally organized by the village committees. They are concerned to the possible maximum of rural living energy substitution and changes in family energy consumption after the use of pellet/briquette fuels. The cases of Yangsong Town Processing Factory in Huairou County of Beijing affiliated with Huiyuan Biomass Energy Development Ltd. (Wang Gehua, 2007) and a pellet processing factory in Shandong Province (Ministry of Agriculture – ADB Loan Project PRC1924 Report on Special Study D, 2007) were used to compare the profits of pellet fuel enterprises. The financial results indicated that, it is economically unprofitable to produce solid biomass fuel in regions such as the suburb of Beijing because of high labor costs and collecting prices of crop straws. If environmental and social benefits are considered, on the one hand, the government should provide subsidies to compensate the difference of production costs and revenues. In order to promote pellet fuel, Yangsong Town processing factory sells

TA-4180 PRC – Final Report Page 120 National Strategy for Rural Biomass Energy Development Social Impact Assessment its pellet fuel to village households for a price of 300yuan/ton, which is well below the production cost. The up-limit price accepted by farmers is also fairly below the production cost. If calculated by calorific value, the production cost is higher than the cost of coal; on the other hand, the factories should modify their use of raw materials (Yangsong factory used mainly saw-dust as raw material) and collection methods. In regard to cost-benefit of the biomass fuel, we use a community case of crop straw pellet fuel processing in Heze, Shandong Province (ADB Loan Project PRC1924 Report on Special Study D, 2007) to elaborate. Agricultural activities in the village mainly include wheat, corn, cotton and vegetable. Yield of crop straw is around 2000-2500 ton per year. Except for feed and fodder, about 60% of the crop straw is used as living fuel mainly through direct combustion in traditional firewood cooking stoves. Each household consumed about 2 ton crop straw fuels per year supplemented by firewood, coal or liquid petrol gas. The following presents changes in household energy composition after using straw pellet fuel. Each household saved up to 600 kg straw after using the new biomass pellet fuel. 360 tons of straw was saved by 600 households in the village. 15,000 Yuan was saved per year or a 25 Yuan reduction of annual expenses of each household. Provided that a government subsidy is available (100yuan/ton in this case), we can now come to the conclusion that small scale production is more economically viable than large scale production. Farmers are also suppliers of raw materials, the development of pellet fuel will increase their direct household revenue. Collection price of raw materials by Beijing Yangsong Town Processing Factory is averaged at 210 Yuan/ton of sawdust and 170 Yuan/ton of crop straw. Expenses on raw materials in the Shandong case is averaged at 160 Yuan/ton of crop straw. If the sale reaches certain scale, there will be considerable economic benefits to rural households. A manufacturer of stove equipment can sell 100 heating stoves and 300 cooking stoves in a market with the capacity of 420 tons of pellet fuel (Yangsong case). Average price of a heating stove is 300 Yuan and average price of a cooking stove is 600 Yuan. Total sales of 100 heating stoves and 300 cooking stoves are 480,000 Yuan. The development of pellet fuel industry does not have the potential of becoming a pro-poor economic means of poverty reduction through income generation for poor households other than in the area of fuel consumption subsidies and job creation specially targeting poor households by government. 8.3.2 Human Resources and Employment Job opportunities come mainly from production of pellet/briquette fuel, manufacturing of pellet fuelled stove equipment and collection of raw materials. See estimates in section 8.8 8.3.3 Gender, Ethnic Minorities and Development The industry presents no distinct gender feature. However, it can help employment for many male workers considering the characteristics of processing production line and raw material collection. Meanwhile, it can also provide peripheral job opportunities for female employees such as quality control and assurances, packaging, storage, sales, etc. Utilization of pellet/briquette fuel can save time for housewives. In regard to cooking: changes in time consumption in cooking is remarkable if the household use firewood stoves previously. According to investigation findings indicated that 50-60 minutes could be saved per day by using pellet fuel for cooking. Compared with firewood stoves that took one hour for cooking a meal, the pellet fuelled stoves took 40 minutes only. However, if the household used coal stoves or liquid petrol gas, the difference in time consumption would not be significant. The industry has no significant impact on ethnic minorities. However, promotion of crop straw pellet/briquette fuel in the pastoral areas will compel the herdsmen to give up the traditional life style of burning cow feces and grass. This would be especially true in the Tibetan areas of Tibet, Sichuan, Yunnan and Qinghai.

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8.3.4 Participation, Organization and Management The government: Because the development of pellet fuel remains at the initial stage of small scale demonstration and farmers’ capacity of consumption is low, the selling price is low than the market price. The government should provide subsidies and favorable policies for enterprises. The government should also be responsible for monitoring the operation and implementation of energy projects and the construction of demonstration sites. Before the industrialization and commercialization of the pellet fuel, the government has committed to supporting and playing a bigger role the development of this new fuel. Enterprises: in the long term, enterprises would be the main player in the market. Consequently, it is of high importance to understand the enthusiasm and further operational strategy of potential enterprises engaged in the pellet fuel business. Due to the increase in production cost, it is difficult for these enterprises to make profits in a short term. Rural households: rural households are both the suppliers of raw biomass materials and consumers of pellet/briquette fuel. They are thus playing an important role in operational mechanism. Feedback from rural households towards the nature and quality of pellet fuel has been highly positive. They consider the new type of fuel as convenient and clean. Rural residents feel that the pellet fuel has improved not only family hygienic conditions but also that of the village as a whole compared with previous times when coal was the main source of heating fuel. Village committee: village committees play a major role in the promotion and coordination of pellet/briquette fuel utilization. Field mission studies indicated that village committees are highly satisfied with the utilization status of pellet fuel. The village committees consider pellet fuel a very clean and efficient type of fuel convenient for cooking and are highly supportive to the promotion and extension of pellet fuel utilization to households. They are willing to facilitate the government and concerned enterprises to promote. 8.3.5 Environment and health issues According to the relevant tests /check-ups, the air qualities of the rural households that stoves using biomass pellet as the fuel are reasonably better than that of the stoves using coal as main fuel. The amount of PM10, SO2, NH3, CO in biomass pellet-heated households is the lowest, accounting for only 1/10，3/5，1/2 and 1/5 of the households using traditional heating. It follows that biomass pellet stoves are very effective in improving the indoor air quality of rural households. Besides, SO2 is hardly detectable from the biomass pellet-heated households’ kitchen chimney and the emission of CO is far lower than the firewood and coal stoves. This means that biomass pellets as cooking fuel contribute greatly to reducing the discharge of SO2 and the fuel burns fully. It is concluded that biomass pellet stoves for heating and cooking accord with the heating and cooking practices in northern China and are very effective in reducing the consumption of coal. This application can at the same time reduce pollution and the outbreaks of respiratory diseases. 8.3.6 SMEs Development Although the biomass pellets and developed fuel technologies are still in the initial promotion stage, its production scale and investment can vary significantly. As long as machinery wear-out and other technology-related problems can be solved, crop straw pellet/briquette will become the ideal fuel in the future. The current subsidies for enterprises and households will be partially replaced by commercialized mechanisms. The following are the key points for SMEs to engage and develop in this industry: (1) In terms of the financing mechanism, how can enterprises get external financing in addition to government subsidies? (2) In terms of technology innovation: further support could be in area of venture capitals, joint venture with R&D institutes to reduce the bottle-neck for SMEs in terms of accessing external financing for R&D activities; (3) Outsourced processing scheme is a practical arrangement when the industry remains at its initial demonstration and extension stage. The market of heating and cooking stoves will remain at a small scale. By 2010, the country is estimated to produce 1 million tons of biomass pellet/briquette fuel; there is a market for only 600 processing factories similar to that currently in operation in Huanrou (240,000 heating stoves and 720,000 cooking stoves). It means that there will be only 720,000 rural household customers across the nation by 2010. Production modes of heating/cooking

TA-4180 PRC – Final Report Page 122 National Strategy for Rural Biomass Energy Development Social Impact Assessment stoves through outsourced processing contracts with enterprises that produce boilers, solar energy and heating/cooking stoves will greatly reduce the investment and processing costs. 8.4 Social Impact Assessment on Crop Straw Gasification

Major stakeholders of biomass pellet/briquette fuel development: • Local rural energy offices: approval of gasification projects, provide subsidies on behalf of the government, establish experimental sites, promote and advocate for project implementation; • Village committee: mobilize required community fund to building the station, support advocating and promotion efforts of the energy offices for household participation; running and maintenance of the gasification stations as well as distribution of gas to households through pipeline; • Rural households: as direct beneficiaries, they provide crop straws as raw materials for gasification and they are users of the gas generated. They will provide feedbacks on technical problems emerged from using the gas and stoves to the village committee and technical task forces; • Local NDRCs and electricity supply corporate: in case electricity generated through the gasification stations will be sent to state electrical network, local NDRCs and electricity supply corporate will be involved for connectivity and pricing. 8.4.1 Economic Impact and Poverty Reduction Taking the example of Dazhuang village gas station at Tongshan County in Jiangsu Province, the total investment for the station is 900,000 RMB Yuan (with 400,000 RMB Yuan provincial fiscal subsidies, 40,000 RMB Yuan fiscal subsidies of the city government, 200,000 RMB Yuan matching fund of the county government and 260,000 RMB Yuan of villagers’ contribution). The station generates gas for 300 households 365 days a year with a total gas production volume of 400 m3/hour, four hours/per day. The annual gas production reaches 547,500 m3. On average each rural household will earn 91.25 RMB Yuan from crop straw sales, saving 480 RMB Yuan compared with the former use of coal as fuel. Such gas stations operate well in the eastern developed provinces along the middle and lower reaches of the Yangtze River, which enjoys better rural community management under collective economy model. However, the operation is less desirable in the central and western regions. The biomass gasification technology usually follows an inclusive approach of whole-village progress, with fewer specific pro-poor measures to the poor households, unless special subsidies are available for them or lower gas fees to them. If the benchmark for gas pricing is set according to the average household income, then the lower-income family will have more difficulty to afford. This may lead to insufficient participation of households. Another case is that the village funds are contributed and shared by households, leaving the poor families unable to afford it. This could be especially the case in central and western regions. 8.4.2 Human Resource and Employment As mentioned above, biomass gasification stations are set up in villages, which lack experience and experienced personnel in managing such infrastructure. Compared with plants of bio-digester system, the biomass gasification stations face more challenges in O&M. Thus, tailored training programs for high quality youth should be provided prior to project implementation and operation. The trainees should be permanent village residents instead of floating migrant workers from the villages. Job opportunity of a biomass gasification station is similar to that of a plant of bio-digester system. With the construction period lasting from 3 to 4 months, an estimated job opportunity is 2,460 person days. The normal operation of such a station needs one manager and two O&M workers on daily basis. 8.4.3 Gender, Ethnic Minorities and Development Biomass gasification technology has similar effects on women as the bio-digester system. However, given its lower calorific value, crop straw gas as fuel will not reduce women’s cooking hours but more beneficial

TA-4180 PRC – Final Report Page 123 National Strategy for Rural Biomass Energy Development Social Impact Assessment for women’s health. Women’s direct participation in biomass gasification projects is lower than bio- digester systems which enjoy the participation of women in farming and animal breeding. Women thus receive less training in biomass gasification projects. The biomass gasification projects have limited impacts on ethnic minorities, because they are in the mountainous and remote areas, not suitable for such biomass gasification technology. 8.4.4 Household Participation and Good Governance ‘Participation’ and ‘ownership’ are the key issues in promoting biomass gasification technology. It is unlike the household-based bio-digesters and medium/large bio-digester systems on breeding farms which have clear ownership - either belonging to individual households or to the breeding farms. A biomass gasification plant is jointly funded by the government and a village, villagers thus have a collective ownership on the plant. It is a key of full participation of every household. In villages having poor collective management or incompetent village cadres, the biomass gasification plants are more possible not performing due to missing of clear ownership and duty holders, participation of households are not encouraged. 8.4.5 Environment and Health Our field missions found that rural households, especially women, welcomed the biomass gasification technology. They considered that the gas is clean and convenient, solving environmental problems caused by burning crop straws and also reducing the indoor air pollution. Meanwhile, we found that the biomass gasification technology is still in its infancy stage, with no established industry standards. Safety is a key factor in this regard, because Chinese village communities have no experience of storing huge gas tanks and installing village-wide gas pipeline. Operational skills, managerial capacity and awareness of safety were observed generally weak on pilot villages. Therefore, training programs for managers and operators of the biomass gasification plants in villages must be enhanced. The managers and operators must have the skills to handle emergencies. During the field missions, we also found that the storage of tar produced in the plants was poorly managed, provoking a concern of safety and health to the community and nearby households. 8.4.6 Private Sector’s Participation The lump-sum subsidy by the government lowers the threshold cost for setting up a biomass gasification plant, but has little effect on long-term fixed and operational costs. Such preferential policies will stimulate those projects only that can generate profits but lack initial funds. A biomass gasification plant requires large investment which is beyond the reach of large number of villages and households. Therefore, the government should adjust funding policies by establishing multi-channel financing mechanism of government investment, banking loans, private sector financing and village collective contributions. The biomass gasification technology is an option to provide a village with clean energy but it is unrealistic to commercialize this technology due to its low economic benefits and its status as a quasi public infrastructure of a village. The introduction of a commercial operational model will witness pilots in eastern China that has high rural commercialization and government support to SMEs. On the other hand, such commercial pilot may start from property management services to a biomass gasification plant, which might prove much easier than the commercialization of a biomass gasification plant itself. 8.5 Social Impact Assessment on Biomass Power Plant Technologies

The major stakeholders of power generation by crop straw: • The government: NDRC represents the government to examine and approve biomass power plant projects, electricity pricing and cost-share mechanism of biomass electricity; • Provincial-level companies of stat electricity grid: Biomass power generation on grid, charge of biomass electrical price affixation to electricity users, and reimbursement electrical price subsidy to biomass power plants; • Biomass power plants: Buy crop straws from rural communities, power generation through direct combustion of crop straws or mixed combustion of crop straws with coal, sell biomass to state electricity corporate or other local users;

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• Middlemen: due to large collection radius of crop straws, a new kind of profession of middlemen will probably emerge. They will assist biomass power plants to buy crop straws from rural households; • Township government and village committee: They may play an important role in the supply chain of crop straws, help the middlemen or biomass power plants organize crop straw collection; • Farmers: They are the direct benefactors. They provide crop straws to biomass power plants. They may also be local consumers of electricity generated by the power plants. When farmers face large scale biomass power plants, their benefits could be elaborated from the performance of such plants directly. We must give up our conventional practice of corporate cash flow analysis. Our focus is now on how one of the key stakeholders - small farmers/households and their community at grassroots would benefit from the interactive relations between these stakeholders above, as they are the most vulnerable and scattered in the entire production and supply chain of biomass power generation. 8.5.1 Economic Impacts and Poverty Alleviation The power generation expert has already made an estimate on the economic benefits of direct and mixed combustion power generations. A 25 MW direct biomass combustion power plant will require a total 147,500 tons of crop straws at a purchase price of 300 RMB Yuan/ton delivered to the plant. If a 10% of middlemen costs and transportation costs are deducted, the farmer threshold price is 270 RMB Yuan/ton. According to the average biomass resource 725 kg per capita in the Yellow River and the Huai River area (between the average amount of Northeast China and lower reaches of the Yangtze River) and 80% of crop straw collecting ratio assumed, a household with four family members will have an average revenue of 626 RMB Yuan from crop straw sales, which is significant to a low income household. Farmers’ profit margin increases from crop plantation. This will create incentive to local plantation of related crops around the power plants. However, due to limited geographical coverage of such power plants in regional and sub-regional levels, the crop prices may not be influenced. According to distribution density of crop straw resources, 380.53 tons / square kilometer in the Yellow River and the Huai River are, a power plant with such scale will cover 484.56 square kilometers for raw material collection, indicating a collect radius of 25 kilometers; while it could cover an area of 1,524.60 square kilometers and a collection radius within 40 kilometers in Northeast China. In the Yangtze River region, it could cover an area of 968.22 square kilometers and a collect radius within 30 kilometers. It covers approximately an administrative county scale and probably 75,430 households. Farmers’ revenue of crop straw sales to the biomass power plants is very considerable. The collect radius of crop straws nearly covers a half or an entire administrative county. The economic impacts will be significant to those poverty stricken agricultural counties in northeast China, the Yellow River and Haul River area and Xinjiang where the biomass is rich for power plants. It is believed by the development community that such direct economic interventions are more attractive and sustainable for poverty alleviation than those poverty targeting programs with poverty funds. 8.5.2 Human resources / cost and employment No doubt these large biomass power plants will play an important role in stipulate the local economy and industrial development. Especially they will help change local farmers’ way of managing their land and their household economy. They will also create employment opportunity to the young groups and also affects their way of living. The employment opportunity will mainly come from the power plants and the collection of crop straws in the surrounding areas of the plants. According to the international standard of biomass power generation, one million KWh biomass electricity generated may create a 0.275 job (1,650 jobs per million standard oil, Zhang Xiliang et.2006). 8.5.3 Gender, Ethnic Minority and Development Biomass power plant will not create special employment opportunity to women. In the power plants and the collection of crop straws, the majority of employees will possibly be men. The biomass power plants are mainly located in Northeast China, the Yellow River and the Huai River Plain, the Yangtze River delta,

TA-4180 PRC – Final Report Page 125 National Strategy for Rural Biomass Energy Development Social Impact Assessment the Dongting Lake Plain and the Boyang Lake Plain. However, the minorities mainly live in mountainous and remote areas, the biomass power plants would not bring much direct benefit to such communities. Nevertheless the ethnics in the major cotton growing areas of Xinjiang would benefit from it. 8.5.4 Farmers’ Participation Biomass power generation is characterized by an industrial pattern of ‘concentrated production and concentrated consumption”, while the supply of raw materials scatters. Based on our estimate of the collect radius and scale, participation of households in raw material supply could be potentially very high but it relies on the organizational form among farmers and between the farmers and a power plant. This power sector is yet in its infancy stage of development, there is no a proved model to follow. While two following patterns may be prevalent: • The “company + household” model: Power plant directly signs agreement with rural households on annual supply of crop straws, and the power plant purchases the raw materials according to the contract signed. In this pattern, the plant ‘s operating costs of personnel and transportation may increase; • The “middlemen” model: This model will possibly be more prevalent. It has been adopted in raw material supply chain for biomass pellet and briquette fuel processing. As the raw material collection of biomass power plant generally covers a collect radius of more or less within a county (may be even more in some cases), the county government will play an important role (of crop straw pricing) as a facilitator and of a mediator between the interest of power plants and rural households on crop straw supply. Since the market mechanism with equal competition has not been completely formed in areas with new pilot power plants, small and scattered rural households stand at inferior position in raw material market competition. Some local government emphasizes the benefit of farming households fairly; others would give their preference to the enterprise in the view of generating more local GDP and tax. Therefore, it would be necessary to establish a tripartite union between the local (county) government, power plants, and households in the form of a Crop Straw Pricing Consultation Board (CSPCB). The fundamental purpose of the CSPCB is to make the pricing mechanism more transparent, and to some extension, secure the interests of poor farmers facing existing and/potential monopoly of large power plants in some incomplete competitive markets. 8.5.5 Environment, Health and Safety The operation of a biomass power plant can reduce significantly crop straw burning in rural areas so as to solve thoroughly the air pollution and effectively improve rural environment. In HSE practices, there will be a serious safety concern about the high frequent transportation of crop straws on the countryside roads. For example, a power plant of 25 MW would purchase 147,500 tons of crop straws. If 3 ton-loaded trucks are used three times a day to transport within a 20-30 km collection radius between villages and the power plants, the transportation workload will be 16,389 times within one year. The characteristic of crop straws is little density with big loading volume and tends to cause traffic accidents. Therefore, traffic safety should be given enough attention. Procedure and regulations should be established for transportation workers and divers. 8.5.6 SMEs and the Private Sector The willingness of the private sector’s participation will depend upon mainly the following factors: (1) Pricing for electricity generated by biomass power plants, cost subsidy for electricity generation and its integration into the State Power Grid; (2) Accessibility to subsidized loan for projects on the National Guiding Catalog for Renewable Energy; (3) Possible support from the local governments (including county and township government as well as village committee) and possible mostly economic arrangements with middlemen and rural households on collection, storage and transportation of raw materials within a collection radius the power plant covers. 8.6 Social Impact Assessment on Biomass Liquid Fuel Development

Major stakeholders of energy crop and bio-fuel development:

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• Government: The Ministry of Agriculture (MOA) is responsible for organizing, planning, guiding the planting of energy crops, and also reimbursing government subsidy to farmers. The National Development and Reform Commission (NDRC) is responsible for organizing, examining and approval of bio-fuel projects, guidance and approval of the price of bio ethanol and bio-diesel; • Energy corporate: They include petroleum fuel suppliers and their network of gas stations; • Bio-fuel producers: They buy energy crops from rural households or middlemen to produce fuel ethanol or bio-diesel, and sell the bio-fuels to energy corporate other fuel users; • Middlemen: They help bio-fuel producers to collect energy crops. Due to large scale of energy crop plantation, another kind of profession of middlemen or plantation sub-contractors will probably emerge as well for scale plantation; • Township government and village committee: They help to organize plantation and collect energy crops for middlemen or bio-fuel producers. Current practices in rural China show that some of them may potentially become middlemen and sub-contractors as well; • Rural households: They are the direct beneficiaries, selling energy crops to middlemen or directly to bio-fuel producers. They could also be the labor to work for the sub-contractors. It is the same as when we analyze the potential social impact of biomass power technology development, our focus here is on how one of the key stakeholders - small farmers/households and their community at grassroots would benefit from the interactive relations between these stakeholders above, as they are the most vulnerable and scattered in the entire production and supply chain of energy crops. 8.6.1 Economic Impact and Poverty Alleviation The energy crops for producing bio-ethanol are mainly sweet sorghum, cassava, sweet potato and sugarcane etc. The first hand data to support the comparison of opportunity costs and net incomes of planting these energy crops are not available at present. We therefore could not make forecasts on farmers’ benefits from energy crop plantations. Government and enterprises should assure farmers having better information flows on price of each crop so that they could make a comparison of opportunity costs between crops and select their planting activities. Referring to a survey results we conducted for 140,000 hectares of eucalypts plantation in Guangxi Zhuang Ethnic Minority Region (UNDP, 2005), we found that farmers lack an advocate in plantation to help them make decisions and consider the longer term implications. The top down system in China is such that local governments have incentive to promote the benefits of a plantation to farmers rather than help them carefully consider the alternatives and opportunity costs. At that time, the net income from eucalypt plantation was 179 RMB Yuan per mu. In addition, the subsidy for converting farmland to forests was 230 RMB Yuan per mu. Therefore a total net benefit from eucalypt plantation was 409 RMB Yuan per mu; while net income from sugarcane was 521 RMB Yuan per mu, and 396 RMB Yuan for cassava. In the 244 farmer households we interviewed, 102 households have decided to convert sugarcane plantation to eucalypts. In general, farmers lack rational expectation for their choice when information is insufficient to them. The major raw material for bio-diesel production is rapeseed. According to survey data from The Energy Crop Research Institute of China Academy of Agricultural Sciences based in Wuhan (Source: field survey in Ezhou, Hubei province, 2007), a comparison on net incomes was made between three example households which plant rape, wheat and rice respectively. We found their net incomes were 153 RMB yuan per mu for wheat and 306 RMB Yuan per mu for rice and only 67 RMB Yuan per mu for rape, among which wheat and rice also enjoyed a government subsidy of 10 RMB Yuan and 20 RMB Yuan per mu respectively. While rape belongs to industrial crops, it does not have government subsidy. This simple comparison indicates that the opportunity cost of rape plantation is too high. In general, net income from rape is the lowest, well below 100 RMB Yuan per mu in a range normally between 60 RMB Yuan to 90 RMB Yuan in the Yangtze River Delta, It is attributed to the high cost of labor. Rape plantation has no government subsidy, and no guaranteed floor price set by the government. Meanwhile, the machinery operation and farmer’s planting techniques do not catch up with rape plantation and reaping. These have contributed to the low yield of rape plantation.

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Our conclusion is that farmers could hardly make any profits in the comparison of current crop prices. Rape plantation is rather an expedient measure to make full use of their vacant paddy field and labor force in the winter season. Therefore, to stipulate rape plantation, the government and bio-diesel producers must reconsider their policies related to government subsidy and rapeseed pricing to assure farmers earn average net income from rape plantation. The subsidy of 80-100 RMB Yuan per mu can balance its opportunity cost of winter wheat plantation. 8.6.2 Human Resource and Employment Job opportunity of bio-fuel development will mainly come from energy crop plantation, raw material collection and bio-fuel process. See section 8.8 8.6.3 Gender, Ethnic Minority and Development The impact on women will occur mainly in rural areas with plantation of these energy crops. These plantation activities have no distinct gender trend. However, because large numbers of male farmers have left their home as migrant workers in cities, presenting a considerable trend of feminized agriculture in rural China as we indicated in the section of rural bio-gas development. This leaves more job opportunities to female, especially for rape plantation on vacant farmland in winter. Some women, especially those with children and elders, do not want to out-migrant for work and appreciate flexible opportunities to work nearby their homes. When they earn more income for their homes, and they are thus empowered to make more decisions at home as well. Meanwhile, women that are not working before experience lengthened days and higher work burdens. According to one of our surveys with participation of 1000 households in Guangxi Zhuang Ethnic Minority Region (UNDP, 2005), we found women’s workload in agriculture and house work are consistent across groups, ranging from 7.2 hours to 8.1 hours per day, while 2.4 hours to 3.3 hours spent on housework only. Without substitutes to replace them for their usual household chores, any new work will increase their work burdens while generating incomes to them. Planting activities of energy crops will not involve many of the ethnic minorities expect for possible large scale of sweet sorghum plantation in Xinjiang. 8.6.4 Farmers’ Participation and Good Governance The participation of farmers in bio-fuel industry will be dominated in energy crop plantation. Government and bio-fuel producers will face the following challenges: • Firstly, net income from energy crop plantation will have to be guaranteed not lower than other crops that competes for using the same land to assure good “will” of farmers for high participation; • Secondly, the development of bio-fuel industry will inevitably results in larger scale of land operations through rental and sub-contracts, in particular for household farmland and collective boundary land. Land rental is a sensitive area to have good management and arrangement. • Thirdly, a kind of new middlemen group will appear. They help bio-fuel producers to collect energy crops. Due to large scale of energy crop plantation, another kind of profession of middlemen or plantation sub-contractors will probably emerge as well for scale plantation. Farmers’ interests concerning price of energy crops, land rental rate and contracts, labor practices, salary standards and regulations should be given special attention. 8.6.5 Environment and Health These energy crops will largely be planted on marginal land. Special attention should be paid to following issues: • Misuse of chemical fertilizer and pesticide may contribute to N2O emission, to exacerbate pollution of environment and water, and thus affect lives of surrounding rural community and residents;

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• The marginal land receives less mankind interferers than farmland. Therefore, bio-diversity on such land is considered much richer. Monoculture of the energy crops with pesticides on large scale of marginal land will certainly have direct impacts on biodiversity at the genetic and species level; • In areas with serious biological , over cultivation will cause a series of environmental problem, especially serious soil erosion. The mid-low reaches of the Yangtze River are potential plantation base for energy crops. While, frequent floods in the Yangtze River Delta were caused by reclaiming land from lakes in the region. Therefore, the government should well plan and coordinate in these key areas to balance the land use, remind an important consideration in sustainability for all plantations and sufficient marginal land. The impacts of bio-fuel development on human health will be positive but mostly indirect. Compared with fossil diesel fuel, bio-diesel could reduce 90% of the air toxicity since bio-diesel contains much oxygen and exhausts little emission. The CO emission is 10% less than fossil diesel, discharge of PM10 is low as well. These all together contribute to lower rate of respiratory system diseases among the public. 8.6.6 Private Sector’ Participation The private sector’s willingness to participate in bio-fuel development will mainly be determined by the following factors: • Market prices of raw materials and bio-fuels; • Accessibility to subsidized loan for projects on the National Guiding Catalog for Renewable Energy; • Possible support from the local governments (including county and township government as well as village committee) and the most economic arrangements with middlemen and rural households on plantation, collection, storage and transportation of raw materials. The bio-fuel producers will be much concerned about two risks they may face: 1) price float between bio- fuels and their competitive substitutes; 2) availability of energy crops which is very much related to farmers’ incentive to plant and to natural disasters. 8.7 Employment Estimates of Biomass Renewable Energy Technologies

In this section, we forecast employment opportunities which could be created by various biomass renewable energy technologies. These simple quantitative predictions are built on the basis of some job opportunities from project cases and of national/international industry standards, so they might not be so accurate. Estimation on flexible seasonal employment will be made by per person per day or per person per month and at last it will be converted into full time employment. One year is calculated on the basis of 12 months and 360 days. All parameters for these estimates refer to Table 8-5. For details, see Part Four of the socio-economist’s report on Social Impact Assessment on Rural Biomass Renewable Energy Technologies.

Table 8-5: Estimates Job Opportunities from Biomass Technologies 2010 2020 Annual BRE Technologies Parameters for employment estimates Annual Employment Employment (1,000 people) (1,000 people) The proportion of rural technicians against household digesters is 1:50; each technician is normally assigned with three assistant workers. Per 10,000 digesters require 800 technicians and Household biogas 436.60 527.90 assistant workers. There are 1,128 bio-digester manufacturers in 2005 with a 5% annual increase in numbers; An average of employees 50-60 is assumed for a manufacturer.

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2010 2020 Annual BRE Technologies Parameters for employment estimates Annual Employment Employment (1,000 people) (1,000 people) Three months of construction period is in practice, Medium and larger job opportunities of 2,460 person days to complete bio-digester one plant construction; One manager and two full 14.30 31.90 systems on time O&M workers to run the plant on full time breeding farms basis. Three months of construction period is in practice, job opportunities of 2,460 person days to complete Gasification plants one plant construction; One manager and two full 0.40 3.90 of crop straws time O&M workers to run the plant on full time basis. Production of 1,680 tons of pellet/briquette fuel requires 252 person months; production of 100 heating stoves and 300 cooking stoves needs 90 Biomass person months, labor allocation between heating Pellets/Briquette stoves and cooking stoves is 5:1; truck of 3 tons 36.50 1636.20 Fuel is used three times a day to transport within a 20-30 km collection radius between villages and the factories. Each vehicle is assigned with a driver and a loader. Per million KWh electricity generation will create 0.4125 job opportunity; 25MW power plant can generate 72 jobs, which also demands 147,500 Biomass plants of tons of crops straws. For crop straw collection, truck 19.60 39.10 power generation of 3 tons carrying capacity is used three times a day to transport within a 20-30 km collection radius between villages and the factories. Each vehicle is assigned with a driver and a loader. 12 person days of labor input per mu are assumed for sweet sorghum plantation per day, 15 person days for sweet potato and cassava respectively; truck of 5 tons carrying capacity is used three times Fuel ethanol a day to transport within a 20-30 km collection 656.80 1721.50 radius between villages and the factories. Each vehicle is assigned with a driver and two loaders; a plant with 100,000 tons of bio-fuel production capacity will provide 230 job opportunities. 17 person days of labor input per mu are assumed for rape plantation; truck of 3 tons carrying capacity is used three times a day to transport within a 20-30 Bio-diesel km collection radius between villages and the 1199.70 2064.90 factories. Each vehicle is assigned with a driver and two loaders; a plant with 100,000 tons of bio-diesel production capacity will offer 230 job opportunities. Grand Total 2183.40 5472.60

Two target years are applied here, year 2010 and year 2020. 2.18 million jobs can be created in 2010; and 5.47 million jobs in 2020. The development of ethanol fuel, bio-diesel, crop straw pellet/briquette fuel, household biogas is of critical importance in terms of job creation. Cultivation, collection and transportation of energy crops will bring considerable job opportunities for rural households. Note that the farming of rape is more labor intensive compared with those energy crops for bio-ethanol processing.

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8.8 Key Findings and Conclusions

The Social Impact Assessment has been undertaken at a micro level based on project/program examples and case studies to understand emerging and future potential social economic impacts of various biomass renewable energy technologies. The impacts of these technologies are ranked by criteria of their contribution to economic development and poverty reduction, end-product affordability, human resource and employment, opportunities for ethnic minority and gender development, participation and good governance, environment and health, as well as participation of the private sector and SMEs development, See Table 8-5 for details. We concluded a technical roadmap in consideration of these social impacts: bio-fuel and energy crop plantation (4.55/5.00), household bio-digester and large bio- digester systems on breeding farms (4.05/5.00), biomass pellet/briquette fuel (3.73/5.00), biomass power plants (3.33/5.00), and biomass gasification (2.34/5.00). Our key conclusions and suggestions are as follows: • Firstly, bio-fuel industry will stipulate the growth of energy crop plantation. According to our estimates, the development of this industry will have a significant impact on rural employment and poverty reduction. It will be the most critical biomass technology for rural household income generation, Opportunities for ethnic minority and gender development given the considerable trend of feminized agriculture in China; • Secondly, in terms of advancing the new countryside development, and social development, the rural bio-digester systems both household system and large bio-digester system on breeding farms have considerable multiple impacts on rural energy development, rural environment and rural poverty reduction and in particular its impacts on gender development. It is a important means to support efforts in resolving San-Nong Issues (countryside, agriculture and farmers); • Thirdly, biomass pellet/briquette fuel will possibly be the most important clean energy to substitute coal for heating in northern China in the near future. The production of biomass pellet/briquette fuel and the manufacturing of stoves will have considerable impacts on rural employment, rural household income (from sales of crop straws) and change traditional habits of household energy use; • Fourthly, the biomass power plants will benefit rural areas and rural households in two folders: first, income generated from sales of crop straws covered by the power plant collect radium and job opportunities provided by collect activities of crop straws and direct employment in the power plants; the second is possible access of local households near the plants to electricity generated, while this depend upon pricing and subsidy mechanism related to biomass power generation as well as whether the electricity generated will be connected to state grid. In area covered by a biomass power plant, the social and economic impact is significant but the overall impact will depend on the scale and number of investment projects. On the other hand, if the scale and number of such power plants are not well regulated, the current trend of using more coal as major living fuel could be further stipulated as the crop straw is sold to the plants for power generation; • Lastly, biomass gasification in village is an option of quasi-public infrastructure to supply energy to households. While, due to its low economic benefits and poor management under collective ownership, its normal operation is under risks. It cannot be compared with large bio-digester systems operated by enterprises we should not expect a very good profit margin and short paybacks. It should be well acceptable if a gasification plant can cover its O&M costs by revenue. In any case, it is believed that biomass gasification technology will not be a major source of clean energy in rural China. The government should further introduce and pilot them mainly in eastern China with focus on commercialization. We want to address that the national program of efficient and energy-saving stoves has an extensive coverage in the country and has been recognized as the most successful stove improvement program in the world. However, the current trend of using coal as major living fuel is getting more influential and obvious, offsetting the positive impacts and potential benefits of firewood saving stoves and other clean energy. We suggest the government to further cooperate with stove manufacturers to promote coal saving stoves as options to supplement these technologies above. For details of the social impact

TA-4180 PRC – Final Report Page 131 National Strategy for Rural Biomass Energy Development Social Impact Assessment assessment on the national program of high efficient energy saving stoves, please refer to the consultant’s section report on social impact assessment of various rural biomass energies.. Another conclusion we could make in the perspective of rural energy consumption, is that cooking and heating will continually be the main daily life energy-consumption of rural households in China. Cooking and heating will consume renewable end-energy products mainly from the following technologies: 1) bio- digester systems including both household system and large bio-digester system; 2) village biomass gasification plants; and 3) biomass pellet/briquette fuel. These technologies will have impacts to rural households from both production and consumption side. Again, high efficient energy saving stoves promoted by the Chinese government has been successful options to household cooking and heating as well. While, bio-fuel industry and biomass power plant will possibly not provide energies to rural households, therefore their impacts will mainly be from the production side by using raw materials supplied by rural households and rural community and by offering job opportunities. Our social impact analysis here follows technology models in logical sound presentation flows and structure while it did cover production-consumption mechanisms and institutional measures to ensure positive impacts and mitigate risks in Chapter 10 of this overall report. Focus has been given on how to organize the “process” of converting each technology to a production-consumption model.

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Table 8-6: Overall Evaluation and Conclusions on Impacts of Rural Biomass Technologies Econ. Afford. Job Private Types of Dev to Gender Participation Environ. Overall oppor- Sector Conclusions and recommendations Technology and energy Minorities Governance Health Score tunities SMEs PA products • Technology of biogas engineering projects is mature. Biogas projects should be used as a breakthrough of new energy for rural households • Ownership of household biogas and biogas for breeding farms clearly defined and easy to promote; Household and • Household biogas digester is a driver for large bio- 4.0 4.5 3.5 4.5 4.5 4.5 2.5 4.05 income generation, women’s participation, and digester poverty reduction., pro-western region systems measures should be further considered for poverty reduction • Government subsidy should gradually be shifted to the provision of financial service- micro finance • Test various biogas logistic management modalities • Will become the most important type of clean energy for heating in rural areas of northern China and substitute coal as living fuel • Considerable contribution for employment; release pressure in urban areas by migrant workers Biomass pellet/briquette 3.5 3.0 4.0 4.0 3.5 4.5 3.5 3.73 • Various patterns and modalities to be fuel demonstrated and piloted concerning arrangement between households and fuel factories for raw material collection • Middlemen have major role after the technology is scaled up. Supply agreement and contracts have to be established between factories , middlemen and farmers

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Econ. Afford. Job Private Types of Dev to Gender Participation Environ. Overall oppor- Sector Conclusions and recommendations Technology and energy Minorities Governance Health Score tunities SMEs PA products • Community based character is a distinct feature of village gasification plants. The key is high degree of farmers’ participation • Problems exist such as lacking qualified personnel and technicians and collective ownership making difficult to decide service Biomass provider for logistical management and O&M gasification 1.5 4.0 1.0 4.0 3.7 4.0 2.0 2.34 activities plants • Do not expecting very good profit and short paybacks. It should be well acceptable if a gasification pant can cover its O&M costs by revenue • Gasification of crop straws not a major biomass energy in rural areas • Benefits for rural areas and rural households will be income generated by raw material collection and job opportunities provided • In area covered by power plants, the social and economic contribution will be significant but the overall impact will depend on the scale Biomass Power and number of investment projects 4.5 2.5 3.5 1.0 3.0 2.5 4.0 3.33 plants • Most of such operations are connected with state electricity grid and will possibly not directly benefit rural communities • Issues of pricing of power generation, subsidies to production cost and to guarantee normal operation of these plants are key to assure local community benefits as well

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Econ. Afford. Job Private Types of Dev to Gender Participation Environ. Overall oppor- Sector Conclusions and recommendations Technology and energy Minorities Governance Health Score tunities SMEs PA products • Biomass fuels have most significant impacts on efficient use of rural land, rational structure of plantations, and farmers’ income and employment • Ethanol crops especially sweet sorghum mainly suitable for poor areas in northeast and northwest regions for poverty reduction, Biomass fuel • Significant impacts on employment from rape and energy 5.0 3.5 5.0 3.5 4.5 4.0 4.5 4.55 plantation in lower reach of Yangtze River crops Delta • Suggested the government considering liquid biomass fuel industry as the country’s strategic energy industry for socialist new countryside development • Detailed planning required from the perspectives of reasonable land use and protection of environment and eco-system Note: 1. Range of Scoring 5-score rating is applied (score 0 implies no positive impact; score 5 implies maximum positive impacts; (2) Criteria on weight allocation: Economic development and poverty reduction -30%, Human resources and employment -20%, Participation and good governance-20%, Gender, ethnic minorities and development-10%, Environment and health-10%, Private sector and development-5%, affordability to end-biomass energy products -5%.

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9. Technical Roadmap for Rural BRE Development

9.1 Introduction and Approach 9.1.1 Guiding Principles for the Biomass Technology Roadmap The following principals were developed with the support of the Advisory Committee to help guide the development of the biomass technology roadmap. These guiding principals were used in concert with the cost-benefit analysis to help select the overall technological pathways for the strategic development of the rural biomass renewable energy. The principals are summarized as follows: • Meeting the energy needs of rural households should be the highest priority to ensure the energy security in rural China; • Replacement of biomass fuels with fossil fuels should not be promoted in rural areas; • Current trends of rural China toward convenience and improved living standards should be supported; • Technology industrialization that generates social and economic benefits in rural areas should be promoted; • Domestic technology and equipment should be given priority where possible; • Energy crops must not compete with food production in terms of land use and biomass feedstock; • Water consumption must be factored into the assessment of potential energy crops.

9.1.2 Methodology This task is based on the studies by national experts in biomass resources, bioenergy technologies, economic analysis, and impacts of environmental and social aspects. These results are further analyzed which have been used as input data for constructing the roadmap by following steps: • Making a survey and reviewing previous international activities on the “Roadmap” development in energy areas to gather the experiences in the related topics; • Identifying and determining the requirements and indicators for the biomass energy roadmap for rural China; • Analyzing the interrelationship of the roadmap to the biomass resources, applications and technologies; • Providing requirements and characterization of the biomass energy conversion technologies; • Determining the technology candidates that will be included in the roadmap; • Estimating the performance of technologies in term of technology energy conversion efficiency, investment and operation costs, operation and maintenance (O&M), environmental and social impacts and other factors; • Developing the technology roadmap;

Figure 9-1 illustrates the relations among different steps for the biomass energy roadmap development. Clarification of requirements and indicators for the resource, utilization and needs for biomass energy are important because such information is essential as the input data for the selection of technologies.

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Figure 9-1: Steps to Develop the Biomass Energy

Survey and review of previous “Roadmap”: methodology, indicator, structure …

Requirements & indicators Determine technology candidates interrelationship resources, applications & technologies technologies; performance financial framework

characterization of the initial Final biomass energy technology Roadmap conversion roadmap technologies

9.2 Comprehensive Assessment on BRE Technology and Overall Roadmap 9.2.1 Comprehensive Assessment of Technology Candidates Table 9-1 summarizes the final selected technologies (total 15) that have been considered in this project for the biomass energy roadmap development in China. The technologies can be grouped into three categories based on the type of biomass resources. The products include heat (for cooking and heating) for farmers, electricity and biofuels.

Table 9-1: Selected Technologies for Biomass Resources Utilization Resources Technology Application Pellet and briquette technology Crop Residues Village-scale straw gasification Crop straw digestion Rural household cooking or heating Household bio-digesters Animal Waste Medium and large-sized bio-digesters Co-Generation from Medium and large-sized bio- digesters Power generation of crop straw gasification Crop Residues Power generation of direct crop straw combustion Supply of electricity or process heat Co-generation of coal and crop straw combustion Sweet sorghum producing fuel ethanol Cassava producing fuel ethanol Energy Crops Sugar cane producing fuel ethanol Liquid Fuel Rape seed producing bio diesel oil

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Integrating the results from chapter 4 to chapter 8 into Table 9-2. Based on the results of comprehensive/integrated assessment, the technologies are categorized 5 types： z First category (4 stars and 5 stars): the technologies which have very good performances in various aspect in the comprehensive assessment, include household biogas, Co-generation of coal and crop straw combustion, and Sweet sorghum producing fuel ethanol. z Second category (3 stars and 3.5 stars)： the technologies which have good performances in various aspect in the comprehensive assessment, include pellet and briquette technology, medium and large-sized bio-digesters, co-generation from medium and large-sized bio- digesters, power generation of crop straw gasification, power generation of direct crop straw combustion, cassava producing fuel ethanol, and sugar cane producing fuel ethanol z Third category (2 stars and 2.5 stars)： the technologies which have low assessment result due to some weakness, include crop residue gasification and Rape seed producing bio diesel oil. z Fourth category： the technology has good performance technically, but the comprehensive assessment did not been done due to lack of techno-economic data, e.g. crop straw digestion. z Fifth category： the technologies is under R&D stage, economic, environmental and social impacts can not be analyzed, include cellulose Hydrolysis, F-T Synthesis, fast pyrolysis.

It should be pointed out that the priorities would change with the technology progress, rural energy demand and other factors change.

Table 9-2 Comprehensive Assessment of Technology Application Technology Technical Economic Environmental Social Comprehensive Evaluation Assessment Impact Impact Result

Pellet and briquette ★★★★ ★★★★ ★★ ★★★★ ★★★☆ technology Village-scale straw ★ ★ ★★★★ ★★ ★★ Rural gasification household Crop straw ★★★★ ▲▲▲▲ cooking or digestion heating Household bio- ★★★★★ ★★★★★ ★★★★★ ★★★★★ ★★★★★ digesters Medium and large- ★★★★ ★ ★★★★★ ★★★ ★★★ sized bio-digesters Co-Generation ★★★★ ★★ ★★★★★ ★★★ ★★★☆ from Medium and large-sized bio- digesters Power generation ★★★ ★★★★ ★★ ★★★★ ★★★ Supply of of crop straw electricity gasification or process Power generation heat ★★★★ ★★★ ★★★ ★★★★ ★★★☆ of direct crop straw combustion Co-generation of ★★★★★ ★★★★★ ★★★ ★★★ ★★★★ coal and crop straw

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combustion Sweet sorghum ★★★★ ★★★ ★★★ ★★★★★ ★★★★ producing fuel ethanol Cassava producing ★★★★ ★ ★★★★ ★★★★★ ★★★☆ fuel ethanol Sugar cane ★★★★ ★ ★★★★ ★★★★★ ★★★☆ producing fuel ethanol

Liquid Fuel Rape seed ★★★★ ★ ★★★★ ★★★★ ★★☆ producing bio diesel oil

Cellulose Hydrolysis ★★ ▲▲

F-T Synthesis ★★ ▲▲

Fast pyrolysis ★ ▲

9.2.2 Overall Road Map The overall development road of biomass development in rural China should follow the principle of ”3 preferences”： priority to promote rural economic and social development, priority to utilize biomass energy in rural area, priority to develop liquid fuel comparing to power generation. Therefore, based on the result of comprehensive assessment, the development road map is as follow： z Priority develop the technologies that provide high quality cooking and heating fuel direct to rural households, supporting new socialist countryside construction. The technologies priority ranking is: household biogas, crop straw digestion, pellet/briquette, medium and large scale biogas plant and village scale crop straw gasification. z Emphasis developing energy crops to achieve the goals both increasing farmer income and developing oil substitute fuel. The technologies priority ranking is： sweet sorghum producing fuel ethanol, cassava producing fuel ethanol, sugar cane producing fuel ethanol, rape seed producing bio diesel oil. z In the cases of with rich crop straw and no competition to rural household fuel, power generation from crop straw can be developed, the technologies priority ranking is: co-generation of coal and crop straw combustion, power generation of direct crop straw combustion, co-generation from Medium and large-sized bio-digesters, Power generation of crop straw gasification.

The overall road map is shown in figure 9-2.

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Figure 9-2: Priorities by category based on comprehensive assessment

9.3 Roadmap by Development Stage

It should be pointed out that the priority ranking of these technologies is likely to change over time, due to many factors, including the rate of technology development and changes in rural energy needs. However, given the information at hand, Figure 9-3 provides our assessment of the likely changes of technology priority between now to 2020. For example: z Household biogas technology has developed very well, it has very good benefits from economic, environmental and social impacts, is under the scaled dissemination stage, so the R&D is at lower priority. z Pellet/briquette technology has good integrated performance, but it still needs more R&D to make well, therefore it should be done by pilot and demonstration in near future, when the key technology issue has been solved, it will be disseminated gradually.

Table 9-3 presents the status of technologies that are changing with the time summarized by this study. This might be used for the recommendation of technology development. The trends of technology

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development are towards to modern energy production for electricity and biofuels rather than the conventional heating use for cooking and heating. Scaled Household biogas dissemination Medium-large biogas Straw digester Demon Pellet/briquette dissemination Sweet sorghum ethanol Cassava ethanol Sugar cane ethanol Direct combust. power Pilot demon Biogas power Gasification power

Village straw gasification

Coal/straw power

Rape seed biodiesel

R&D Cellulose hydrolysis F-T Synthesis Fast pyrolysis 阶段 2006-2010 2010-2015 2015-2020

Figure 9-3: Development road by stage

Table 9-3: Priority Activities at Each Technology Development Stage Technology R&D Demonstration Early deployment Commercialization Energy • Develop. more efficient • Demonstrate • Education and • Promote poverty- Efficient and robust stoves and furnace promotion to based incentives Stoves furnaces applications expand deployment Pellets and • Fund component • Fund community- • Promote • Promote Briquettes development to create based technology incentives to community-based more efficient demonstrations suppliers and incentives technologies applicable consumers for • Demonstrate market to more residue types community-based based business pellet fuel models systems Straw • Resolve issues of • Evaluate existing • Fund community- • Promote Digesters sodium contents in technical based community-based digested residues demonstrations commercial incentives • Develop more effective • Fund new demonstrations pretreatment and technology explore co-digestion of demonstrations straw with animal wastes Household • Explore co-digestion of • Fund technology • Expand • Promote poverty- Biogas animal wastes with service center successful based incentives crop straws demonstrations national program • Explore the benefits of to more counties bio-fertilizers

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Medium to • Fund anaerobic • Demonstrate • Promote • Promote enterprise- large-scale digester technology improved digester integrated eco- based incentives to Biogas improvement technologies agricultural ensure • Optimize design and • Demonstrate systems to environmental performance optimal eco- promote optimal compliance and requirements for eco- agricultural use of land and capture eco- agricultural system systems support strong agriculture benefits rural communities • Combine the energy and GHG reduction benefits by CDM Power • Assess performance • Fund technical • Promote early • Monitor and verify Generation and environmental demonstration of commercial co-firing impacts of biomass co- biomass co-firing biomass co-firing • Promote market firing in existing coal along with plants if acceptance of bio- plant rigorous demonstrations fuels • Fund improved monitoring and are successful combustion and verification • Fund bio-fuels gasification techniques poly-generation technologies • Fund bio-fuels systems if • Develop the multiple poly-generation successful fuel feedstock system demonstration Bio-ethanol • Develop new enzymes • Demonstrate • Promote current • Promote and processes for advanced technologies agricultural-based cellulosic fermentation technologies on a where most incentives regional basis economically viable Bio-diesel • Develop new bio-oil • Demonstrate • Promote current • Promote processing techniques advanced technologies agricultural-based technologies on a where most incentives regional basis economically viable

9.4 Considerations of Regional Aspects for Bioenergy Development

Different regions in China have different characteristics in land use, agriculture products, economic development and use of agriculture residues. Thus the bioenergy development roadmap shall also pay attention to the regional aspects regarding the quantity and types of agriculture residues. With considerations of the biomass resources and density of the rural area as well as the economic development status, priorities of bioenergy development in eight different regions (not including Hong Kong, Marco and Taiwan) in mainland of China are discussed and presented as follows: • North-East Region (Heilongjiang, Jilin, and Liaoning): The total inhabitants of the region are 107.53 million while rural population is 48.23 million (45%). Rural income is 3,416 per family. The region has high density of crop residues per farmer (+64% than the national average). The heating demand is high in the winter due to the cold weather. Thus the household biogas technology may have some drawbacks in this region due to the short operation time. Biomass pellets technology shall be considered as high priority for the region for rural cooking and heating applications. Due to the high density of agriculture residues, it is also recommended to develop direct combustion for power generation in the region. • North China (Beijing, Tianjin, Hebei, Henan, Shandong): The total inhabitants of the region are 280.33 million while rural population is 163.55 million (58%). Rural income is 4,642 per family. The region is the main agricultural production with high density of agricultural population. The region has high density of crop residues per farmer (+13% higher than national average). The high priority of the bioenergy technologies are household biogas, biomass pellets and crop residues-based biogas production. In addition, the mid and large biogas plants are suitable for the livestock farms.

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• Loess Plateau (Shanxi, Shaaxi, and Gangsu): The total inhabitants of the region are 96.62 million while rural population is 60.88 million (63%). Rural income is 2308 per family. The region has low density of crop residues per farmer (-23% than the national average). The region is poor in economic compared to other region. The crop residues are limited while there is high demand for feeds for livestock sector. Thus, high efficient stoves shall be in high priority to promote. • Middle and Lower Reaches of Yangtze River (Shanghai, Jiangsu, Zhejiang, Anhui, Jiangxi, Hubei and Hunan): The total inhabitants of the region are 365.88 million while rural population is 191.01 million (52%). Rural income is 4,596 per family. The region has low density of crop residues per farmer (-13% than the national average). The climate conditions are suitable for household as well as mid/large biogas technologies. The biomass gasification technology could be considered as one of the high priority technologies for this region if the technical and institutional issues were properly addressed. • South-China (Fujian, Guangdong, Guangxi, Hainan): The total inhabitants of the region are 181.98 million while rural population is 90.16 million (50%). Rural income is 3,660 per family. The region has low density of crop residues per farmer (- 30% than the national average). Biogas technologies including both household and mid/large scale are the best region for the development with considerations of the climate conditions. • Southwest (Chongqing, Sichuan, Guizhou, Yunnan): The total inhabitants of the region are 191.72 million while rural population is 128.88 million (67%). Rural income is 2383 per family. The region has low density of crop residues per farmer (- 17% than the national average). The farmers in this region mostly live in mountain areas with relative poor condition in transportation and economic development. The rural energy is in the state of shortage. The high priority of technology development includes household biogas, biomass pellets. The biomass gasification technology could be considered as one of the high priority technologies for this region if the technical and institutional issues were properly addressed. • Qinghai-Tibet Plateau (Qinghai and Tibet): The total inhabitants of the region are 8.19 million while rural population is 5.32 million (64%). Rural income is 2,115 per family. The region has lowest density of crop residues per farmer (-30% than the national average). This region is the main pasturing area in China. It is important to consider the ecological balance between agriculture sector and livestock sector. High efficient stoves shall be considered as high priority of the technology development in this region. • Inner Mongolia and Xingjian: The total inhabitants of the region are 49.89 million while rural population is 28.65 million (57%). Rural income is 2,660 per family. The region has highest density of crop residues per farmer (+237% than the national average). This region is the main posturing area and agriculture area in China. Under the government’s initiative and policy of “the recovery of grass land”, crop residues will be used main feeds. Because of the low density of the farmers in this region, the high priority of bioenergy technology includes biomass pellets, which might be integrated with household solar energy use. The biomass gasification technology could be considered as one of the high priority technologies for this region if the technical and institutional issues were properly addressed. 9.5 R&D Needs for Biomass Energy Technologies

By this study, following topics are necessary to be conducted in the further studies which can be significant for the future development of rural biomass energy in China: • Demonstration of technologies in pellets and briquette technologies: The demonstration of the technologies including the whole chain of processes from biomass resources, feedstock handling, feeding and production, and distribution of products are important for the successful market penetration of the technologies. The technological standard of the technologies shall be established. • Policy incentive and monitoring methodology on co-firing technologies: co-firing of biomass and coal in power plant is one of the most economic technology solution to make the biomass in mass

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and modern utilization for energy production. However, it has the difficult to be verified as “pure” renewable energy application which can be credited for the green electricity price. Thus, development of monitoring methodology which can enhance the application of this technology is necessary. • Studies on investment cost reduction in biomass power generation and economic collection distance of biomass resources especially for straw resources: the collection distance of biomass residues has strongly impacts on the economic performance of the large biomass power plants (also cogeneration plants). Since the distribution of biomass straw is also geologically different, this will make this issue even complicated. Thus a study on the economic distance of the collection of biomass in related to large power plants will provide important data for the decision making for determination of the installation of new biomass plant. • Geological distribution of straw biomass resources: The biomass resources are mainly analyzed by the crop production which is province-based. However, more detailed information is necessary because development of both biomass power plant and pellets and briquette technology is necessary to understand the distribution of biomass resources sounding the plants. • The land use of energy crops and total energy balance for energy crops for biofuels: The land use in terms of type and also the nutrition requirements for energy crops is necessary to be further investigated. The energy needed for the energy crops and further bio-fuel production needs to be further studied with the whole life cycle. • LCA of whole biomass energy production chain: The biomass for energy production is a complex process with many components. A life cycle assessment of the whole production process is necessary to analyze the environmental impacts as well as the cost issues related to each component of the process. • Evaluation of the existing power generation: the biomass power plants based on direct combustion have been quickly installed in recent years. An evaluation of the plants in terms of technical, economic, social and environmental aspects is necessary. The evaluation results would be valuable for the future biomass development. The near-term and long-term key areas are as following. – Near-term key areas • Improvement and retrofitting of key equipment for straw pellet fuel production, including the development of molding machines and auxiliary equipment for different kinds of straws. • Development of a series of stoves for straw pellet fuel to meet the requirements of different end users. • Development of key technologies for anaerobic digestion of straws, including zymogen cultivation and production, process optimization and special mechanical equipments. • Development of ethanol synthesis process from non-food crops, including selection and optimization of enzymes, and special mechanical equipments. – Long-term key areas • Selection and cultivation of new energy crop species. • Novel processes for synthesis of ethanol from cellulous. • Other new technologies.

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10. Recommended National Strategy for Rural BRE Development

10.1 Principles and Strategic Objectives 10.1.1 Principles for Development of Rural Biomass Energy China’s rural biomass energy situation is characterized by a large number of geographically diversified resources, and multiple but small-scale conversion technologies. The strategic objectives of China’s rural biomass energy development are established within the context of strategic need to alleviate the supply- demand stress in rural areas, optimize the energy consumption structure and ensure energy supply security, especially in the rural area, all in accordance with the strategy aims of Social New Rural Construction – improving the rural living standard and increasing the farmers’ income. The following principles should be obeyed at every development phase of rural biomass energy in China: 1. The principal goal of development of rural biomass energy is to meet the demand of the Social New Rural Construction for high-grade fuel. We should realize the revolution in the sector of living fuel in rural area via deployment of modern conversion measures of biomass energy, to improve both the cleanness of rural living fuel and living standards of farmers. 2. The principle featured with lowest cost and maximized effect, and rational arrangement of different diversified resources. We should insist on the basic route featured with 1) providing service for rural areas; 2) accordance with local situation; 3) local development and deployment; and 4) local utilization, to contribute to the alleviation of the stress between supply and demand of national commercial energy. 3. The principle that addresses the coordination among energy utilization and environment protection as well as the social aspects, and maximizes the benefits of biomass energy. 4. The principle of the harmony relation between development of rural biomass energy and rural social economic development, to improve the new job opportunity and income of farmers. 5. The principle featured with policy incentive measures and market mechanism as both drivers. The government should support the development of rural biomass energy via supporting policy, certain financial measures, and certain operation mechanisms that trigger the motivation of farmers via market means. 10.1.2 Strategic Objectives By 2020, the primary goals of rural biomass energy development include: 1. With assumption that the rural living energy demand will rise to 300 Mtce in 2020, in which the demands of cooking, hot water and space heating will occupy more than 90%. To meet the demands of cooking, hot water and space heating, the modern biomass energy technologies will contribute and play an important role. 2. To achieve the goal of socialism new village construction, the rural energy should be improved by modernization, quality upgrading and cleanness improvement. That is, the clean energy should exceed 50% in rural energy demand, within which 30% supplied by clean biomass energy. 3. Providing fuel ethanol and bio-diesel from high-product energy crop and supporting the national goal of 10 million ton of alternative fuel product by 2020 10.2 Strategic Tasks

Several strategic tasks should be performed to achieve the above-listed objectives, including: 10.2.1 Utilization of Crop Straw – Rural Living Energy 10.2.1.1 Straw briquette/pellet fuel Straw briquette/pellet fuel is especially suitable in Northern China, as fuel for cooking, hot water and space heating. As another main approach for modernizing and improving the cleanness of residential fuel in rural area, straw briquette/pellet fuel has a broad range of applicability and can be supplementary to

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biogas for cooking applications. The production and distribution capacity of straw briquette/pellet fuel will reach 50 million ton by 2020, serving more than 10 million households. As a result, 50,000 villages will be supplied via straw briquette/pellet fuel, and the consumption ratio of clean and high-quality household fuel will increase 10 percentage points. 10.2.1.2 Village gas supply plants via straw gasification This technology was not selected for the roadmap because it has seen very poor performance both technically and institutionally over the past 10 years. However, there are currently new plants being built in Liaoning province, the Beijing suburb, and a few other locations. These projects should be evaluated carefully to see if the technical and institutional challenges are being addressed, but dramatic improvement in these areas is not anticipated, and this strategy does not call for further dissemination of this technology. 10.2.1.3 Straw biogas Straw biogas plants will be gradually carried out on the basis of maturing technologies and accumulated demonstration experience, so that 1000 such plants will supply gas for 200,000 rural households by 2020. 10.2.1.4 Utilization of Crop Straw – Power Generation / Heat Supply Based on the analysis above about 100 million rural households will use modern biomass energy (in which the amount of straw is about 60 million ton) for cooking and hot water, about 35% of the total (100 million hhs/ 225 million hhs ×80%). The rest of the demand (65%×280Mtce=182Mtce) will be met by commercial fossil fuel like coal and LPG, and traditional biomass. According to the analysis result of the national energy demand supply, by 2020, the amount of commercial fossil fuels (coal and petroleum) for rural areas will be 100Mtce. In this way, about 164 million ton of straw (equivalent to 82Mtce) will be consumed via direct combustion. To sum all the above up, about 224 million ton of straw will be consumed by rural household, and about 76 million ton will be available for scale-up and/or power generation and heat supply. Power generation and combined heat & power (CHP) systems are an efficient and clean approach for large-scale utilization of straw resources, and an effective solution for unmanaged burning and piling of straw waste. The main obstacles confronting straw-to-power include securing a stable and long-term straw residue supply and managing the variations in the heat load demand for CHP systems. The siting of these power plants should be decided after comprehensive consideration of the availability of the straw. According to the resource situation of straw, the total power generation capacity from straw will reach 11 GW by 2020. 10.2.2 Utilization of Livestock and Poultry Waste – Rural Living Energy 10.2.2.1 Rural household biogas systems The rural household biogas has undergone rapid development via support of central and local governments. The development of household biogas will continue to be the main approach for upgrading and improving the cleanness of residential cooking fuel and improving rural household sanitation and will be the principal area for utilization of rural biomass energy by 2020. The installed number of household biogas digesters will reach 80 million, accounting for more than 50% of the total number of capable and viable households, and about 1/3 of total number of rural households. Annual consumption of biogas will reach 25 billion cubic meters, with more than 300 cubic meters per household, to meet more than 80% of the cooking requirement. In this way, the consumption ratio of clean and high-quality household fuel will increase by 20 percentage points. Key areas for development of household biogas include Mid-, West- and part of East-China. 10.2.2.2 Mid-to -large biogas plants Anaerobic digestion technology (biogas) will be adopted to utilize manure waste from intensive livestock production at medium to large scale facilities, and 10,000 plants will be constructed by 2020, with annual output of 5 billion cubic meters, supporting 5 million households for cooking and hot water. In this way, the proportion of clean and high-grade living fuel will increase by 5 percent points.

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10.2.3 Energy crops China is short of arable land, so the development of energy crops should avoid competition with growing of such strategic goods as food and cotton, in accordance with the principle “no competition of land with food, and no competition of food with human”. Marginal lands, including desolated hills and slopes, river- basin flood areas and winter idle lands, will be the most suitable for growing energy crops. To achieve the alternative liquid fuel goal of 10 million ton by 2020, 50 million mu (1 mu = 1/15 of a hectare) will be planted with energy crops, including abandoned land 45 million mu and winter idle land 5 million mu. The energy crops include sweet sorghum 25 million mu, cassava 3 million mu, sugar cane 10 million mu, sweet potato 7 million mu, and cole 5 million mu (winter idle land). 10.2.4 Summary

Table 10-1: Strategic Goals for Rural Biomass Energy Development 2010 2020 Rural household biogas 40 million households 80 million households Mid-to-large biogas plants 4000 plants 10000 plants Straw briquette/pellet fuel 1 million ton 50 million ton Straw biogas 100 plants 1000 plants Power generation from straw 3 GW 6 GW Energy crop planting area 25 million mu 50 million mu

10.3 Macro Management Mechanisms

The rural biomass energy development tasks cover multiple sectors, each having special contents and features. A harmonious and effective implementation mechanism is very necessary for meeting the strategic goals. The strategic tasks can be classified into four groups according to the types of fuel production and consumption, namely: distributed production and distributed consumption, centralized production and distributed consumption, distributed production and centralized consumption, and centralized production and centralized consumption. The tasks can also be divided to three categories according to the maturity degree of the pertinent technologies, namely: pilot test technology, demonstration and deployment technology, and large-scale deployment technology. The categories are shown in Table 10-2.

Table 10-2: Categories of rural biomass energy development tasks R&D, Pilot Demonstration and Initial Large-Scale Technology Plants Technology Deployment Deployment Decentralized Production Rural household biogas and Decentralized Consumption Centralized Production and Straw pellet fuel Central gas supply projects via Mid-to-large biogas projects Decentralized Consumption Straw biogas straw gasification Decentralized Production Energy crop plantation and Centralized Consumption Centralized Production and Power generation from straw Centralized Consumption Fuel ethanol Bio-diesel

The implementation of the rural biomass energy development strategy will involve several governmental agencies, including the National Development and Reform Commission (NDRC), the Ministry of Finance (MOF), the Ministry of Agriculture (MOA), the Ministry of Science and Technology (MOST), and the

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Ministry of Environment Protection (MEP), etc. The inter-relationship between the agencies is shown in Figure 10-1. There is currently a lot of discussion regarding the creation of a new Ministry of Energy in China. This is likely to be beneficial if the new Ministry of Energy will have a division dedicated to rural biomass energy development. At national level, we may classify the key institutions into planning, policy implementation and enforcement organs for biomass renewable energy development and those non direct functionary departments/ministries. 10.3.1 Horizontal coordination of planning, implementation and enforcement institutions at national level The implementation of rural biomass energy development strategy depends on coordination of several government agencies. The responsibilities of these agencies can be classified to 3 categories: • Policy and planning by the MOF and the NDRC; • Implementation and administration by the MOA, MOST and NDRC; and • Enforcement of environment protection policies by the MEP (formerly SEPA). An effective operation mechanism should be developed with purpose of close communication and cooperation.

Figure 10-1: The implementation mechanism for rural biomass energy

The responsibilities of each governmental agency in the development of rural biomass energy National Energy Leading MOF: NDRC: ¾ Financial policy ¾ Strategic planning Group ¾ Financial support ¾ Industrialization

MOA: ¾ Pilot demon. MOST: SEPA: ¾ Deployment ¾ R & D ¾ Environ. policy ¾ Commercialization ¾ Pilot test ¾ Environ. monitor Strategic Tasks

• Straw pellet fuel • Household biogas • Straw biogas • Power from straw • Mid-to-large biogas • Energy crop • Fuel ethanol • Straw gasification • Bio-diesel

10.3.1.1 Development strategy Ministry of Finance: Establishment of financial incentive policies favorable to biomass energy development in rural areas, development of a policy framework integrating financial investment, subsidy, price and taxation, full support for pertinent technology R&D, pilot testing, demonstration and commercialization.

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National Development and Reform Commission: Integration of the strategic goals and tasks for rural biomass energy development into the Long Term Plan of National Renewable Energy Development, publishing of guideline for biomass energy industry development in rural areas, enforcement of pertinent industry development policies, guiding and monitoring local government to implement the tasks, implementation of such industrialization projects in areas of straw-to-power, fuel ethanol and bio-diesel, etc. Ministry of Agriculture: the main implementing and administrative agency, is responsible for: • Managing large-scale deployment of household biogas systems in rural areas, • Planning and implementation of intensive livestock farm biogas projects, • Demonstration and deployment of centralized gas plants via straw gasification, • Together with the Ministry of Science and Technology, management of – Species seed selection and cultivation studies, – Research, development and pilot demonstration of straw pellet fuel production, – Research, development and pilot demonstration of straw biogas technology. • With the maturing of the technologies, management of energy crop base construction, deployment of straw pellet fuel production and distribution in rural areas, and demonstrative deployment of straw biogas projects. Ministry of Science and Technology: Technological supporting agency; in charge of national research plan in rural biomass energy development and joint implementation of research, development, and pilot projects together with the Ministry of Agriculture. Ministry of Environment Protection (formerly State Environment Protection Agency): Establishing environmental protection regulations and policies, monitoring the implementation and enforcement of policies and regulations, supporting rural biomass energy development from the aspect of environment- friendly and sustainable development. Inter-agency coordination: • Coordination in macro level policy and planning, etc. to establish comprehensive investment, taxation and industrial policy framework and establish development goals. • Coordination between the macro and the executive levels: the macro level should be clear with the problems confronting the implementation and accordingly devise effective and viable policy measures, and the executive level should be clear with the fulfillment and implementation of all the policy measures. • Coordination between the agencies in executive levels: – The MOST and the MOA should closely cooperate to ensure the technologically advancement of the research plan, the accordance with the strategic tasks for rural biomass energy development, and the achievement of expected results in pilot test. – The MOA and the NDRC should strength coordination in the sector of industrialization. The straw-to-power projects should be considered in combination with the situation and development of agriculture and the construction of energy crop base should be organically integrated with liquid fuel production plant. • Comprehensive coordination via the National Energy Leading Group. 10.3.2 Coordination with non-direct functionary institutions at national level These non-direct functionary departments are as follows:

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Leading Group Office for Poverty Alleviation of the State Council (LGOP): Planning for participatory model of the 148,000 poverty villages nationwide; Ministry of Civil Affairs (MOCA): Establish minimum social securities for rural society; Ministry of Construction (MOC): Examining entity of project implementing accreditations concerning civil works; Ministry of Health (MOH): Controlling fluorosis due to coal combustion and respiratory diseases in the countryside; Agricultural Bank of China (ABC) and Rural Commercial Banks (RCBs): Providing subsidized loans and micro credits to enterprises and rural households; National Statistics Bureau (NSB): Monitoring the all-rounds Xiaokang society and China’s rural poverty alleviation. Coordination between Key Functionary Ministries and the Non-functionary Departments The key functionary ministries should have full cooperation with the non-functionary departments with interest in action-oriented plans for the rural biomass energy development, especially in identifying pilot projects, demonstration and extension bases, targeted beneficiary groups, and project implementation in details. • Cooperation with LGOP and SEAC etc. in poverty alleviation projects to have integrated results by joining the package with the central poverty alleviation special fund, food for work program, agricultural subsidized loans etc. meanwhile, the BRE programs could refer to their experiences in targeting the beneficiaries of rural households; • Women’s Federations at various levels all play an extremely important role to mobilize woman’s participation in all the regions where the rural energy demonstration and promotion are well conducted. Their function is not to implement projects themselves, and it lies in their coordination role among various stakeholders and their mobility and rallying point to women. National and local initiatives of household bio-gas system and energy crop plantation are particular areas for the support of the women’s federation at all levels. • Coordination and cooperation with the Ministry of Health and again All China Women’s Federation to reduce women’s vulnerability reduce the cases of respiratory diseases caused by indoor pollution from coal and firewood in cooking and heating activities. • Cooperation with banking institutions, especially with Agricultural Bank of China and the State Development Bank for preferential loans to enterprises with BRE projects. Only when investments are in place can the projects boost and provide employment opportunities. Cooperation with the rural commercial banks can help rural households to receive financial service of microfinance to support crop cultivation and livestock activities related to household biogas projects. 10.4 Micro Development Mechanism – Industrial Development Mode

All the established strategic tasks for rural biomass energy development will be achieved by commercialization of various technologies. For each category of rural biomass energy (Table 10-2), different industry scales, supply chains, and market development models should be adopted. 10.4.1 Decentralized Production and Decentralized Consumption Operational Models of household biogas China has been successful in deployment of rural household biogas. This production and consumption are scattered acts of each of the rural households. The rural households usually set up bio-digesters in their home yards to form such a courtyard economy comprising such as the “pig-digester-fruit” livestock- biogas digester-cultivation activities. A relatively complete industry framework has been established including:

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• Construction of biogas digester: organized at the level of county and dependent on trained technicians and small-scale industries for construction. • Supply of auxiliary products (e.g., stoves): mainly depending on mid-to-large stove industries, and their distribution and maintenance depending on the technical service support system.

Figure 10-2: Household biogas operational model

Women, children and minority groups

Rural Households: HH biogas

Agencies for biogas Technology extension County rural energy office: guidance, Biogas & stove demonstration & service providers promotion Rural biogas technicians & assistants

Township government & village committee: Organizing construction Publicity & mobilization

We provide following suggestions: (1) The government and civil societies play key roles in designing and implementing participatory project planning for projects at communities. Since such programs are of special significance to women, children and ethnic groups, we need methods of sensitivity to special groups, featuring participatory, humane and interactive approaches. We need consultancy and service from sociologists; (2) In terms of poverty subsidy, it is suggested that we reform the subsidy to rural households in the current biogas development programs supported by the government security bonds, which is based on regional differences to determine the subsidy level. Instead, we base the subsidy on project subsidy targeting methods, which take the household as basis of standards according to their household income classifications in communities; (3) This pattern is not well followed by after-construction service systems; so many rural households have halted the use of biogas. A tertiary service network at the levels of county, township and village should be set up. 10.4.2 Centralized production and decentralized consumption The industry chain of straw pellet fuel, straw biogas, and central gas supply plants via straw gasification and mid-to-large biogas plants all fall in this category. Their common feature is a centralized plant that supplies fuel gas (or pellet fuel) using biomass as the feedstock, and the gas is distributed via a pipeline network to households while pellet fuel has to be distributed by the producer an agent. The industry supply chain is shown in Figure 10-3.

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Figure 10-3: Industry supply chain of straw pellet fuel, straw biogas, central gas supply plants

Local Energy Office Villagers’ Committee Gasification crop straw materials

Collection & Delivery Delivery & Collection Crop straw Households gas pipeline Animal wastes from Fuel farms to biogas-digester Biogas pipeline Processing & Households distribution Solid fuel distribution Households Gasification of crop straw materials Stove manufacture & Special Project design supply equipment & construction manufacture

In this pattern, rural households are usually at a disadvantage in receiving service and products and to accept the prices. It is a key issue to be addressed in this pattern. The technologies are associated with rural households’ crop straws as raw materials for fuel use (except for the mid-to-large biogas plants). There can be three alternatives: (1) Raw material of crop straw in exchange of gas or solid fuel; (2) Processing of delivered crop straw material with processing fees; and (3) Households to purchase gas or solid fuel directly from the station or processing unit. Feedstock collection and transportation, and gas production and delivery. Mid-to-large biogas projects constructed together with intensive livestock farms do not have the problem of feedstock collection and transportation. However, for straw-to-gas projects, collection, transportation and storage of straw are a significant activity. It is suggested that these projects adopt the same village-scale production and supply relationship as manufacturing of pellet fuel. However, the relationship between gas plant and its end user is relatively more complicated than that of a pellet fuel supplier. Once the gas pipeline network is established, the reliable operation of the gas plant is required to ensure effective gas supply and an institutional mechanism for regular collection of fees from the household consumers is very necessary. The manufacturing of the fuel processing machine will be undertaken by currently available industries. At the present, China is has excessive manufacturing capacity for mechanical equipment. So no new manufacturing plants are needed for this purpose. For all these centralized gas production plants, a professional group is necessary for engineering design and construction. China has accumulated abundant experience in this field, and has an industry profile with good capacity. The variety of equipment in centralized gas plants can be manufactured by the mechanical processing industry, and the same mature stove manufacturers that supply the distributed production area also supply this area. There is abundant successful experience in operation of centralized gas plants (but there are many more failures). Currently the main development obstacles are the very high initial investment, which is generally beyond the ability of a rural village to make, and the limited institutional, technical and management capacity that currently exists in the rural areas. The crop straw gasification and large and medium biogas projects normally adopts a whole village progress approach with few pro-poor measures other than subsidizing some selected poor households or selling the gas at low prices. “Participation” and “ownership” are the key issues in promoting biomass gasification technology. The government and the local community jointly fund the biomass gasification

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station. Villagers thus have a collective ownership on the station and the participation of each household is important, the ownership is not clear to many. The government needs to have institutional innovation between “ownership” and “property management” of the gasification systems. Currently crop straw gasification stations are considered as semi-public good of village collectives under government supports. An entry point for commercialization could be to start with logistics and distribution services. 10.4.3 Decentralized production and centralized consumption This mode (see Figure 10-4) is characterized by a wide distribution of farmers that produce the energy crops, while the consumers are large centralized liquid fuel production plants. The implementation difficulties include: organization of farmers’ production, and the coordination between the farmers and the fuel production industry. Although the core relationship is between the farmers and the industry, multiple stakeholders are involved. The “company rural households” contractual arrangement may organize scattered small farmers by means of the company’s “central” role. Mostly rural households participate in growing energy crops by means of signing “company+rural household” contract to supply raw materials to energy producers. Most of the rural households are not direct consumers of bio-ethanol and bio-diesel. Through the “company+rural households” contract, it unifies “centralized” energy crop use and “decentralized” rural households cultivation. MOA and the NDRC should promote a cooperative mode between the industrial processors and the farmers such that the farmers agree to plant the crops that the company wants and the company agrees to purchase these are an agreed upon price. The growing and producing of energy crops needs the technical support and guidance from agricultural agencies, but the sale of product crop depends on the liquid fuel producer. The construction of liquid fuel plants is in accordance to the NDRC’s plan, industrial policies and measures, and the demand for oil fuel. Since the growing of energy crop is at the upstream position, without support from the downstream liquid fuel industry it cannot make profit. In this way, it is very necessary for the MOA and the NDRC to communicate and cooperate closely, and then guide the farmers to coordinate energy crop growing in conjunction with the construction of fuel production plants.

Figure 10-4: Stakeholders in energy crop production and supply MOA: NDRC: Experimental demonstration Industrial planning Production guidance Project supervision & approval

Township govern ment & Seeds companies Villagers’ committee: Assisting in material collection Organizing plantation of crops

Rural Households: Bio-fuel industry: Energy crop plantation Production of liquid fuels

Middlemen: Agricultural material Petroleum Collecting companies companies: materials; Fuel sale Land leasing Gas stations

It is suggested that (1) A comparatively accurate assessment should be conducted on usable land grades, resources reserves, usable quantities and development scale allowed by the land law; (2) In

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energy crop development, the government should work out procedures for land transfer, contracting and lease, community democratic and transparent decision making processes on land leasing so that we have regulations to follow. The government should define the positions and roles of intermediaries and sub-contractors and restrict speculative acts. The government and financial institutions support enterprises with financial service and rural households with microfinance; (3) Establishing industrial risk funds; and (4) Establishing energy crop cultivation technology promotion systems consisting of the government, enterprises and rural households; (5) A supporting industry including middlemen and sub- contractors may also be necessary to conduct feedstock collection and transport. There are many possible cooperative mechanisms that could ensure the long-term stable supply of energy crops. Early commercial projects using different possible mechanisms should be supported in order to test and evaluate their effectiveness. 10.4.4 Centralized production and centralized consumption This mode fits the large-scale utilization of biomass energy resource, mainly for electric power production. With the guidance of national industrial policy, the mode can be conducted wholly via market mechanism, including financing, engineering, and operation, etc. Biomass power generation is characterized by an industrial pattern of ‘concentrated production and concentrated consumption”, while the supply of raw materials scatters. Based on our estimate of the collect radius and scale, participation of households in raw material supply with the radius shall be very high but it relies on the organizational form among farmers and between the farmers and a power plant. Large mixed-combustion power plants or crop straw direct combustion power plants generate electricity and dispatch it directly to the national grid or local grid. The nearby rural households are usually not direct users. A similar mode for the plants manufacturing fuel ethanol and bio-diesel is recommended here, See Figure 10-5.

Figure 10-5: Stakeholders for centralized production and centralized consumption mode

NDRC: MOA Rural Industrial planning energy office: Project supervision • monitoring use of & approval crop straws Electricity price County/township • Power generation government materials Villagers’ committee: Assisting in material collection Power Plants: Farmers: • Procurement of • Crop straw sales crop straw • Labor to power • Power station generation • Material shipment

Electric Grid Company: Middlemen: • Bio-power generation • Collect electricity fee Raw material • Price subsidy collection

Two following patterns may be prevalent: • The “company + household” model: Power plant directly signs agreement with rural households on annual supply of crop straws, and the power plant purchases the raw materials according to the contract signed. In this pattern, the plant ‘s operating costs of personnel and transportation may increase;

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• The “middlemen” model: This model will possibly be prevailing. It has been adopted in raw material supply chain for biomass pellet and briquette fuel processing. As the raw material collection of biomass power plant generally covers a collect radius of more or less within a county or even more in some cases, the county government will play an important role (of crop straw pricing). The “intermediary or middlemen” arrangements may be adopted more, too. Since the market mechanism with equal competition may not be completely formed in areas with power plants, small and scattered rural households are in a disadvantageous position in raw material market competition. It would be necessary to establish a tripartite union between the local (county) government, power plants, and households in the form of a Crop Straw Pricing Consultation Board (CSPCB). The fundamental purpose of the CSPCB is to make the pricing mechanism more transparent, and to some extent, secure the interests of poor farmers facing existing and/potential monopoly of large power plants in some incomplete competitive markets. 10.5 Technology Development

The achievement of the strategic goals for rural biomass energy development should be accompanied with the gradual development of pertinent technologies. The development of advanced technologies and products and their timely pilot demonstration and deployment are important components of the strategy. The technology should be developed in accordance with the strategic goals, the real-world demands during implementation, and the industry development roadmap. 10.5.1 Research and Development • Near-term key areas – Improvement and retrofitting of key equipment for straw pellet fuel production, including the development of molding machines and auxiliary equipment for different kinds of straws. – Development of a series of stoves for straw pellet fuel to meet the requirements of different end users. – Development of key technologies for anaerobic digestion of straws, including zymogen cultivation and production, process optimization and special mechanical equipments. – Development of ethanol synthesis process from non-food crops, including selection and optimization of enzymes, and special mechanical equipments. • Long-term key areas – Selection and cultivation of new energy crop species. – Novel processes for synthesis of ethanol from cellulous. – Other new technologies. 10.5.2 Pilot test and demonstration • Comprehensive test and demonstration for utilization of straw pellet fuel at the village level, including fuel manufacturing, delivery and end use, to explore compatible operation and management modes from feedstock collection and processing to fuel delivery and end use, and provide experience for large-scale deployment. • Demonstration of straw-to-biogas engineering project, together with further development of pertinent technologies, to optimize the enzymatic process and improve the compatible technologies, explore operation mode from investment to management, and accumulate experience for further deployment. • Expanded demonstration of centralized gas plants utilizing straw gasification, to explore the viability of feedstock security, local capacity to operate the process technologies, and appropriate modes for investment and management.

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• Demonstration of cultivation and production of energy crops, including different demonstration bases for different species at different locations, to provide feedback for technology development and operating experience for further deployment. 10.6 Framework of Policy Incentives 10.6.1 Obstacles to be Overcome With support from the government, significant progress in technology level and deployment scale has been achieved in recent years, especially in household biogas, and medium to large-scale biogas engineering. But apparent difference still lies between China and developed countries in terms of technology level, deployment scale and development speed, in biomass pellet fuel, biomass power generation and growing and producing biofuels from energy crop. The reasons for the situation include: 1) the relatively short development history of rural biomass energy development in China; 2) no clarification of China’s resources for biomass energy; 3) blurred relationship between demand and supply sides; 4) over-emphasis on the interests of different agencies and no coordinated policy in this area; and 5) insufficient recognition of the diversity, availability, economic and technical characteristics of biomass energy, leading to a low-level of development. A review of the successful experience of industrialized countries in this area shows that the lack of effective economic incentive policy is a major obstacle limiting further development of biomass energy in China. Biomass energy is an abundant and stable but diversified resource. Thorough recognition and common sense on biomass energy from every aspect of the society is essential for scaled and efficient utilization of this resource. We should try to cultivate pertinent markets during the industrialization and commercialization of biomass energy technology, and significantly improve the proportion of commercial biomass energy, but the premise of the prospect is an effective and active economic incentive policy. The Renewable Energy Law has been implemented for more than one year, but we still lack operable matching regulations, except the Renewable Energy Generated Electrical Pricing and Fee Sharing Management Rules, which regulates the price of electricity generated by biomass. The National Renewable Energy Industrial Development Guidance Catalogue published by the National Development and Reform Commission includes only 13 items regarding biomass energy, and has no concrete matching incentive measures. There is neither concrete implementation regulations nor supporting policy specifically for rural energy in both the Interim Measures on Special Fund Management for Development of Renewable Energy carried by the Ministry of Finance, and the Proposals for Implementation of Tax Support Policy on Development of Bio-energy and Bio-chemical Industry proposed by the Ministry of Finance, the National Development and Reform Commission, the Ministry and Agriculture, the State Administration of Taxation and the State Forestry Bureau. Compared with fossil fuels, the investment for rural biomass energy is significantly higher. For the example of power generation, the cost of electricity by biomass (e.g., biogas) is 1.5 times of that by coal, which significant weakens its competitiveness. In certain areas of Western and Mid China, the annual income of farmers is RMB 1500-2000/capita. Even with subsidy (generally RMB 800-1000), they still cannot afford the biomass project (like household biogas). In addition, limited production and management capacity do not ensure the long-term, efficient operation of the biogas digester, especially for those farmers living in the poorest areas. The potential area for rural biomass deployment is mainly remote and poor district. It has protruding social significance, but poor economic one, so the government incentive and support is very necessary. The potential of biomass energy in China is gigantic, and its development is at a critical phase. Focused policy is essential if a major increase in utilization is to be achieved in the next 5-15 years. From the aspect of resources, the rural biomass energy includes crop straw, animal manure and energy crops. From the viewpoint of energy conversion, the technologies include straw-to-power, pellet fuel, biomass gasification, bio-digester gas, fuel ethanol, bio-diesel and synthesized liquid fuel, etc. According to the industry chain for the rural biomass energy, the development of rural biomass energy favors policy support from four aspects, i.e. resources policy, R&D policy, technology dissemination policy, and industrial development policy.

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10.6.2 Resources Policy 1) Crop straw Crop straw is the by-product of agricultural production. Apart from those utilized as animal feed, industrial feedstock, cooking fuel and returned to the farming land, a large part of the straw is handled as waste, especially incinerated in the farming land leading to serious local environmental pollution. It is very necessary to enhance the effectiveness of the environmental protection policies to promote the conversion of agricultural straw to high-grade fuel. • Further complete and enhance the effectiveness of the policies forbidding straw incineration. 2) Animal manure Animal manures are conventionally utilized as fertilizer, but the situation is changing. With the scaling up of breeding industry and separation of breeding industry and planting industry, large amounts of manure cannot be used directly as fertilizer and lead to local pollution. The promotion of medium and large-scale biogas digester systems is an effective countermeasure for this problem. In addition to the improvement in technology, pertinent regulations should be established and their enforcement should be strengthened. • Standard of Preventing Pollution for Livestock and Poultry Breeding • Technical Standard of Preventing Pollution for Livestock and Poultry Breeding （GB18596- 2001） 3) Energy crops According to the principle “no competition of land with food, and no competition of food with human”, the marginal lands, including desolated hills and slopes, river-basin flood areas and winter idle lands, will be mostly suitable for growing of the energy crop. Certain investment is needed to retrofit the marginal lands into arable lands, and there are significant risks for growing energy crop on these lands. These situations lead to high investment but low output at the early phase, which is different from the investment pattern of conventional agricultural crops. Therefore, specific subsidies are very necessary. It is recommended that: • One-time subsidy for farmers or industry for reclamation of marginal lands • Production subsidy – free supply of seeds and fertilizers for a certain period, and a product subsidy before normal productivity is achieved. 10.6.3 Research and Development Policy The achievement of the strategic goals for rural biomass energy development should be accompanied with the gradual development of pertinent technologies. The development of advanced technologies and products and their timely pilot demonstration and deployment are important components of the strategy. The technology should be developed in accordance with the strategic goals, the real-world demands during implementation, and the industry development roadmap. Special-purposed funding should be established in this area. • Establishment of special-purposed funding for rural biomass energy technology for the following near-term and long-term key areas. – Near-term key areas • Improvement and retrofitting of key equipment for straw pellet fuel production, including the development of molding machines and auxiliary equipment for different kinds of straws. • Development of a series of stoves for straw pellet fuel to meet the requirements of different end users. • Development of key technologies for anaerobic digestion of straws, including zymogen cultivation and production, process optimization and special mechanical equipments.

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• Development of ethanol synthesis process from non-food crops, including selection and optimization of enzymes, and special mechanical equipments. – Long-term key areas • Selection and cultivation of new energy crop species. • Novel processes for synthesis of ethanol from cellulous. • Other new technologies. 10.6.4 Technology Dissemination Policy 1) Policy that promotes the deployment of biomass pellet fuel The current production and consumption costs of pellet fuel are relatively high for the economic level of China’s rural areas. So for a specific market development period an active policy is needed to boost the industry into a sustainable developing track. It is recommended that: • One-time equipment subsidy for village-level pellet fuel producers; • Stove subsidy for farmers utilizing pellet fuel; • Fuel subsidy for producers or end users, in an amount proportional to the price difference between pellet fuel and coal; 2) Policy favorable for biomass centralized gasification The strategy does not recommend that government provide financial subsidies for promotion of centralized biomass gasification plants for supply of village-level household cooking gas. However, there are potential process heat and captive power supply projects for TVE industries, especially agro- processors, where small-scale straw gasification plants can be beneficial. It is recommended that: • R&D be conducted on biomass gasification systems producing hot water, steam and hot air for TVE scale industrial process plants. 3) Policy that promotes power generation from biomass According to the Renewable Energy Law, the price of electricity generated by all biomass power plants will receive an additional tariff of 0.25 Yuan/kWh above the cost of electricity generated by local desulfurized coal-burning generators. Procedures to share fees have been established on the basis of the Renewable Energy Generated Electrical Pricing and Fee Sharing Management Rules, and the Management Regulations for Electricity Generation from Renewable Energy. These rules and regulations need to be strengthened and clearly extended to small-scale biomass power plants. It is recommended that: • Accelerate the process of implementing rules and establish strict enforcement procedures • Consult equipment suppliers, utilities, industry and villages to establish acceptable lower limits on small-scale biomass power plants that are guaranteed to be connected to the electric grid. 4) Policy for promotion of biomass liquid fuel from non-food feedstocks Financial support policy for non-food feedstock for biomass liquid fuel should be established, on the basis of the Proposals for Implementation of Tax Support Policy on Development of Bio-energy and Bio- chemical Industry. These are discussed in more detail below. • Near-term policy: – Incentives to promote land reclamation, energy crop planting and bio-fuel processing should be allocated for non-foodstuff production of bioethanol and biodiesel.

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– Establish a target or requirement that both gasoline and diesel fuel contain minimum amounts of biofuel - ethanol in gasoline and biodiesel in diesel fuel. The requirement should be set low initially (5%) and gradually increased over time. • Mid-term policy: – Flexible subsidies to cover enterprise losses, in accordance to the price of oil. 10.6.5 Policy for Biomass Industry Development The biomass energy industry produces clean energy from many materials that are currently considered waste, and their utilization produces significant environmental benefit in the form of avoided pollution from the disposal of the unused waste material. However, the current cost of manufacturing biomass energy equipment is relatively high since the technology has not been fully commercialized. If taxation is exerted in the same way as other common industries, the impacts include: 1) no tax credit at the sale of final product since no input tax has been charged on the feedstock; 2) narrow profit margins due to high production cost. It is recommended that: • Tax exemption for the sale of biomass energy products; • Tax exemption for investment in biomass energy processing equipment. 10.6.6 Summary of Policies for Development of Rural Biomass Energy Table 10-3 provides a summary of the policy framework for development of rural biomass energy that includes four aspects: 1) existing policies that should be better enforced; 2) policies that should be enhanced; 3) policies pertinent to industry; 4) new policies.

Table 10-3: Policy Framework for Rural Biomass Energy Existing policies that Policies that should be Policies pertinent to New policies should be better enhanced industry enforced • Subsidy policy for • Standard of • Subsidy policy for • Subsidy policy for planting of rural biogas Preventing Pollution fuel ethanol energy crop for Livestock and • Policies pertinent to • Policy for promotion of biomass Poultry Breeding pricing of biomass pellet fuel deployment • Technical Standard power generation • Policy for promotion of biogas of Preventing project in breeding industry Pollution for • Policy for development of Livestock and Poultry centralized biomass gasification Breeding project • Policy for research and development • Policy for biomass industry development

The first three columns show the existing policies and regulation, with the first column showing the policies that needs to be better enforced, the second column those policies that need to be enhanced in supervising, monitoring and enforcement, and the third column policies pertinent to industrial sectors. The fourth column lists the new policies for promotion of biomass energy development in rural areas, with details shown in Table 10-4.

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Table 10-4: Details of New Policies Areas Contents 1 Subsidy for planting of energy crop 1) Soil reclamation subsidy: one-action subsidy for soil reclamation for energy crop, according to the type and situation of local soil, average RMB 500/mu. 2) Planting subsidy: providing of seeds and fertilizer during certain time limit for grower of energy crop, and subsidy for product before normal productivity is achieved, RMB 200/mu for 3 years. 2 Policy for deployment of pellet fuel 1) One-time equipment subsidy for village-level pellet fuel industry, RMB 50,000/plant. 2) Stove subsidy for farmers utilizing pellet fuel, RMB 750/household. 3) Flexible fuel subsidy for plants or end users, the amount proportional to the difference between the prices of pellet fuel and coal. 3 Policy for development of rural biogas 1) Subsidy for biogas project in breeding plant, RMB 450,000/plant, project in breeding plant amounting to 30% of the total investment. or 2) Interest subsidy for biogas project in breeding plant 3) Subsidy for end-user installment, RMB 650/household. 4 Policy for industrial biomass 1) One-time subsidy for each biomass gasification plant, RMB gasification power systems 500,000/plant, or maximum 50% of the total investment. 5 Research and development policy 1) Establishment of special-purposed supporting program for rural biomass energy research and development, RMB 100 million/a. 6 Policy for biomass energy industry 1) Tax exemption for sale of biomass energy product; 2) Tax exemption for processing machine relative to biomass energy.

10.7 Investment Requirements and Financing Mechanisms 10.7.1 Finance demand The total investment necessary for achievement of the strategic goals of rural biomass energy development is RMB 413.5 billion, of which about 76.2% (RMB 315 billion) is directly related to the rural household, including biogas, pellet fuel and energy crop, etc., about 4.1% (RMB 17 billion) is for centralized gas plant projects, and the left 19.7% (RMB 81.5 billion) is for power generation and liquid fuel production. Details of the investment requirement are shown in Table 10-5. A further stream of finance with amount of RMB 1.5 billion is needed for research, development, demonstration and pilot test.

Table 10-5: Investment required for achieving the strategic goals of rural biomass energy development Demand, Investment/unit Scale RMB billion Household biogas RMB 3000 per household 80 million (60 million new) 180 Mid-to-large biogas plants RMB 2 million / plant 10,000 (6500 new) 13 • System installment • 1.5 million / plant 9.75 • End-user installment • 650 / household 5 million households 3.25 Straw pellet fuel 50 million ton 65 • Fuel distribution stations • 1 million / plant ¾ 50,000 50 • End users • 15 million / household ¾ 10 million households 15

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Demand, Investment/unit Scale RMB billion Industrial straw gasification 500,000 / plant 3000 plants 1.5 plants Centralized straw biogas plant 1000 1 • System installment • 870,000 / plant 0.87 • End-user installment • 650/household 200,000 households 0.13 Straw-to-power plant 7000/kW 6 GW 42 Energy crop 50 million mu 70 • Base construction • 800/mu 40 • Farmer growing • 300/mu Subsidy 200/mu for 3 years 30 Fuel ethanol 3500/ton (capacity) 10 million ton 35 Bio-diesel 9000/ton (capacity) 500,000 ton 4.5 Total 412

10.7.2 Financing mechanism There are two main sources of funds to meet this investment requirement: government investment and project financing. The government investment is especially necessary for the projects directly correlative to farmers. The government is also responsible for guidance and subsidy for some other types of projects, but project financing should be the main measure for finance source. The project financing includes cost-sharing by farmers and that from both domestic and international financing institutions. 10.7.2.1 Government investment: • Grant subsidies for construction of household biogas digesters, deployment of straw pellet fuel, and construction of energy crop base. • Grant subsidies and interest subsidies for mid-to-large biogas plants, centralized straw gasification plants and straw biogas plants. • Research and development depends mainly on government funds • Cost-shared investment (about 50%) in pilot plants and demonstration projects. 10.7.2.2 Project financing Project financing will be the main source of investment funds. Effective mechanism will be established to encourage the investment from industry owners, domestic and international financing institutions, international organization, foreign governments and industries, to form a sustainable financing framework. Figure 10-6 gives the detail.

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Figure 10-6: Financing Mechanism Framework

Investment Requirement

Government investment Project financing

Investment Interest subsidy Domestic Overseas

Financi Govern Organiz Industry Industry Bank ng inst. ments ations owner loan

10.7.3 Constitution of the Finance According to the finance demand and the financing mechanism analyzed above, Table 10-6 presents the details of the investment. The total government investment is RMB 150 billion, accounting for 36% of the total, the rest RMB 262 billion will be collected via project financing, in which RMB 118 billion comes from industry owners and farmers, and the remaining RMB 144 billion (28% of the total) comes from financing agencies.

Table 10-6: Preliminary Investment Breakdown Government Project financing Sum investment billion RMB Billion RMB billion RMB Industry owner Other sources Household biogas 60 60 60 180 Mid-to-large biogas plants 6.2 2.9 3.9 13 • System installment 2.95 2.9 3.9 9.75 • End-user installment 3.25 3.25 Straw pellet fuel 32.5 20 12.5 65 • Fuel delivery system 25 12.5 12.5 50 • End-user installment 7.5 7.5 15 Gas plants via gasification 0.75 0.375 0.375 1.5 Straw biogas central plants 0.57 0.21 0.22 1 System installment 0.44 0.21 0.22 0.87 End-user installment 0.13 0.13 Straw-to-power plants 12.6 29.4 42 Energy crop 50 10 10 70 Planting base 20 10 10 40 Farmer planting 30 30 Fuel ethanol 10.5 24.5 35 Bio-diesel 1.4 3.1 4.5 Sum 150.02 117.98 144.0 412.0

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10.8 Resource Distribution

This section presents the future possible changes and trends of resources distribution in terms of applications and technologies in year 2005, 2010, 1015, and 2020. Figure 10-7 gives the principle of the trends of biomass resources utilization with consideration of the different time scale. The detailed results shall be further analyzed with consideration of the energy resources that have been applied into different technologies.

Figure 10-7: Future trends of crop residues utilization

1000.00

900.00

800.00 Power generation St raw Bio gas 700.00 So lid fuel 600.00 high Stove Tranditional straw 500.00 Fungus production 400.00 Paper prodction

Straw( Million tons) Million Straw( Soil conditioning 300.00 Animal food 200.00 Non collectable

100.00

0.00 2005 2010 2015 2020 Year

Figure 10-8 gives the scenario of animal wastes which can be utilized in household or mid-and-large scale biogas production. It shows that the mid or large scale biogas production is still relative small though the potential can be large in the future.

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Figure 10-8: Future trends of Animal Waste utilization for energy purpose

450.0 400.0 350.0 300.0 Mid-to-large biogas plants 250.0 Rural Household biogas 200.0 Waste 150.0 Non usage 100.0 Animal Waste( Mtce) 50.0 0.0 2005 2010 2015 2020 Year

Further analysis will be conducted and analyzed so that the results will give an overview of the different technologies with respect to the resources allocations. 10.8.1 Biomass Resources Breakdown by Technologies Table 10-7 gives the total biomass potential for energy uses in agriculture sector.

Table 10-7: Biomass Resources Distribution among Technologies 2005 2010 2015 2020 Technologies % Mtce % Mtce % Mtce % Mtce Traditional stove/furnace 30% 102 20% 64 12% 36 8% 24 High Efficient Energy Saving Stove 5% 17 8% 25.6 13% 39 16% 48 Pellet and Briquette technology 1% 3.4 5% 16 10% 30 15% 45 Village-scale straw gasification 1% 3.4 2% 6.4 4% 12 5% 15 Household bio-digesters 1% 1.08 10% 11.4 15% 18 20% 25.4 Medium and Large-sized Bio- 1% 1.08 10% 11.4 15% 18 20% 25.4 digesters

High Efficient Energy Saving Furnace 1.00% 3.4 2% 6.4 5% 15 6% 18 Pellet and Briquette technology 0.00% 0 3% 9.6 6% 18 8% 24

Power Generation of Crop Straw 1.00% 3.4 3% 9.6 6% 18 8% 24 Gasification Power Generation of Direct Crop 1.00% 3.4 5% 16 8% 24 10% 30 Straw Combustion Co-Generation of Coal and Crop 0.00% 0 3% 9.6 8% 24 12% 36 Straw Combustion Medium and Large-sized Bio- 2.00% 2.16 15% 17.1 25% 30 30% 38.1 digesters

Biofuels 15% 1.935 25% 4.85 45% 11.475

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It should be pointed out that the suggested percentages of the biomass resources as shown in Table 10-7 have been made based on the technology assessments which are arbitrary to some extent. The input data may further verified by consultation to more experts. However, with consideration of the results of technologies assessments as shown in Table 10-7 and other future possible changes in energy use and policy incentives, a resource distribution among different technologies can be further analyzed by the same method. Based on the results in Table 10-7, the biomass used for energy production to the total biomass energy potential is shown in Figure 10-9 and Figure 10-10.

Figure 10-9: Modern Energy Used Energy for Straw, Biogas, and Biofuels

35.0

e 30.0

25.0 Straw 20.0 Animal Wsate 15.0 Biofuel 10.0

5.0 Energy Usage( Million tc Energy Million Usage(

0.0 2005 2010 2015 2020 Year

Figure 10-10: Potential of Potential Energy for Straw, Biogas, and Biofuels (Not including Traditional Stove)

a 45.0% 40.0% 35.0% 30.0% Straw 25.0% Animal Wsate

energy 20.0% Biofuel 15.0% 10.0% 5.0%

Precent of the energy used to the tot energy the usedto the of Precent 0.0% 2005 2015 2015 2020 Year

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Figure 10-11 presents the overall future energy distribution produced from rural biomass by different modern biomass conversion technologies considered in this project. It shall be noted that the traditional biomass combustion has not be included in the figure. It can be found, based on the current data and technologies evaluation, rural household biogas, straw briquette or pellet fuels, and bio-ethanol fuel have the large potential in the future bio-energy development.

Figure 10-11: Biomass Resources Breakdown by Technologies (Not including Traditional Stove)

80

70

60 Biodiesel Ethanol 50 Power generation from straw Mid-to-large biogas plants 40 Rural household biogas

30 Straw biogas Straw briquette/pellet fuel 20 High Stove Biomass energy production( Mtce) production( energy Biomass

10

0 2005 2010 2015 2020 Year

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11. Recommended Partnership Framework

11.1 Objectives and Approach

One of the major objectives of the TA has been the development of a partnership framework, under which the government and international financial institutions agree to cooperatively promote the technology roadmap and national strategy for rural BRE development. This framework for a Sino-International Bio- energy Partnership presented in this section builds on the Research and Assessment tasks, the Policy Analysis tasks and the Strategy Development tasks as illustrated in the Figure 11-1.

Figure 11-1: Overview of Policy Framework Development Research and Policy Strategy Assessment Analysis Development

1. International 7. Technical 4. Financing and Experience in Rural Roadmap for Rural Investment BioEnergy BioEnergy Incentives Development Development

5. Environmental 8. National Strategy 2. Biomass Resource Policy and for Rural BioEnergy Update Regulatory Development Enhancements

9. Framework for 3. Rural BioEnergy 6. Social, Poverty International Technology Cost- and Institutional BioEnergy Benefit Improvements Partnership

The approach used to develop the partnership framework is illustrated in Figure 11-2. It starts with an assumption that the recommended policies incentives and technology development programs identified in the Section 10, National Strategy for Biomass Rural Energy Development will be implemented by government as a part of an agreement between government and the participating international financial institutions. This Policy Foundation will enable a long-term, coordinated set of funding programs that will strategically promote and support achievement of the goals identified in the national strategy. The approach to the partnership framework also assumes that the international financial institutions sign a Partnership Framework Agreement to fund portions national strategy that are most consistent with the priorities and past programs of those organizations. Finally, the Partnership approach assumes that government will commit to strengthening the institutional structures that currently support biomass energy utilization and rural economic development.

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Figure 11-2: Outline Approach to Development of the Partnership Framework

Implementation of Priorities and National Targets for Commitment to Effective Policies Programs of Rural BioEnergy Sustainable Institutional and Incentives Financial Partners Investment Structures

Task 9: Partnership Framework for Rural BioEnergy Development

Goals for Local and Financing Plan Partnership Monitoring and Global Environmental Integrating Domestic Coordination Evaluation Plan Benefits and External Sources Mechanisms

As part of establishing the Partnership Framework Agreement, it is expected that the implementation objectives of the national strategy for biomass rural energy development will be translated into framework goals for local and global environmental benefits that can be measured and monitored. The operational element of the partnership framework agreement will be the establishment of an integrated financing plan, the adoption of partnership coordination mechanisms, and the creation of monitoring and evaluation mechanisms. The remainder of this section will describe these elements of the proposed partnership framework. 11.2 Rural BioEnergy Finance and Investment Partnership

The following mission, vision, and principals are proposed for the Rural BioEnergy Finance and Investment Partnership. Mission: Fulfill China’s strategic need to alleviate the supply-demand stress in rural areas, optimize the rural energy consumption structure and ensure energy supply security to rural communities, all in accordance with the strategic goals of the New Rural Social Countryside to improve the rural living standard and increase farmers’ incomes. Vision: The deployment and continued improvement of modern conversion technologies for biomass resources will meet a significant portion of rural household energy needs with improved cleanness, convenience, and affordability. Principals: These guiding principals were used in concert with the cost-benefit analysis to help select the overall technological pathways for the strategic development of the rural biomass renewable energy. The principals are summarized as follows: 1. Using rural biomass resources to meet the energy needs of rural households should be the highest priority to ensure the energy security in rural China; 2. Replacement of biomass fuels with fossil fuels should not be promoted in rural areas; 3. Current trends of rural China toward convenience and improved living standards should be supported and accelerated; 4. Technology industrialization that generates social and economic benefits in rural areas should be promoted; 5. Energy crops must not compete with the production of food and biomass feedstocks/materials in terms of land use and water consumption;

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6. The scale of enterprise operations should match the scale of the local communities being served; 7. The economic well-being of the rural bio-energy enterprises should be in harmony with the rural communities in terms of economic and social development, job opportunities and environmental protection. 8. Government has the responsibility to implement policy incentives and market mechanisms that support the utilization of modern biomass energy technologies that will help meet the strategic goals of the New Rural Social Countryside. The proposed Framework for the Rural BioEnergy Finance and Investment Partnership has been constructed around the following four elements, which are summarized below and discussed in more detail in the following sections. • The Policy Foundation will support the programs funded under the partnership and facilitate achievement of the environmental and social goals. • The Integrated Financing Plan will coordinate the programs and funding levels of each partner’s planned programs and activities in the development of rural biomass energy. A major premise of the framework is that each partner will continue to support to those areas it considers a priority based on expertise and funding history. • Partnership Coordination Mechanisms will define the organizing structure and rules for operation of the Partnership. • A Monitoring and Evaluation Plan will establish goals for the partnership and describe the metrics and procedures for measuring and evaluating the effectiveness of the partnership. The proposed Partnership will be initiated and operated through a Partnership Framework Agreement, which will document the agreed upon form of the four partnership elements defined above, as well as describe role of each partner in terms of sharing of information, findings, lessons learned etc. within the partnership. The agreement will also establish funding channels (including ADB, Government and other partners) for management and implementation of the Partnership’s mission and vision. 11.3 Policy Foundation

There are two components to the policy foundation: promotional policies and incentives, and improvements in institutional structures. 11.3.1 Promotional policies and incentives As an incentive to the international financial institutions to participate in this partnership framework, the participating government ministries must commit to implement the recommended policies and incentives discussed in Section 10 and summarized in Table 10-3. Those recommended policies are presented in Table 11-1 according to the responsible ministry.

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Table 11-1: Recommended Policy Foundation MOA MOF NDRC MEP MOST • Better enforcement of • Policy for • Policies • Enhancement of • New programs the Subsidy policy for biomass pertinent to the Standard of and funding for rural biogas industry pricing of Preventing R&D on • Enhancement of the development biomass power Pollution for improved Technical Standard of • Dedicated generation Livestock and technologies for Preventing Pollution for funding for rural • New programs Poultry Breeding rural household Livestock and Poultry applications and funding for energy needs Breeding development • Implement policy for and promotion of biomass demonstration pellet fuel deployment of centralized biomass • Enhancement of the gasification Policy for promotion of projects biogas project in breeding industry • Implement subsidy policy for fuel ethanol • Implement subsidy policy for planting of energy crop

11.3.2 Commitment to Sustainable Institutional Structures The creation of new institutions is needed for sustainable utilization of rural bio-energy resources. The commitment of the various ministries to implement the necessary institutional changes, and the discussion of establishing a new Ministry of Energy in China may have significant impacts on the future biomass energy development. In particular, the MOA is the executive agency at the ministry level which is most closely linked to the final rural energy users. A leading role shall be played by the MOA on the issues related to both biomass utilization and resources planning. Recommendations for more sustainable institutional structures are made at three levels: (1) Central government institutions; (2) Local government organizations at various levels, and; (3) Micro-level stakeholders. 1) Central government • Standardization and coordination of policies in terms of policy execution procedures and resources configuration should try best to use the resources from various institutions in a package so as to attain an integrated effect in supporting the new countryside construction and set up a monitoring system for comprehensive achievements in rural biomass energy development, including social effects and economic returns. • The planning of demonstration and early commercial projects should be conducted with the full cooperation with related non-functionary departments in targeting beneficiary groups. Cooperation with LGOP and SEAC etc. in poverty alleviation projects will have integrated results by joining the package with the central poverty alleviation special fund, food for work program, agricultural subsidized loans etc. • All-China Women's Federation (ACWF) is critical to mobilizing women’s participation. The ACWF functions as a government arm to promote the advancement of women throughout China. ACWF conducts extensive educational activities at all national, provincial, and local levels, and its main focus has been on such areas as assisting women to escape poverty, reemployment and venture creation, elimination of illiteracy, protection of the rights of women.

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• Coordination and cooperation with the Ministry of Health and All China Women’s Federation should be improved to reduce the vulnerability of women to respiratory diseases caused by indoor pollution from coal and firewood in cooking and heating activities. • Cooperation with banking institutions, especially with Agricultural Bank of China and the State Development Bank, should be developed to expand preferential loans to enterprises with BRE projects. • Cooperation with the rural commercial banks and credit cooperatives should be pursued to help more rural households receive microfinance services to support crop cultivation and livestock activities related to household biogas projects. 2) Local institutional arrangements • The county-level institutions are best able to coordinate and integrate resources in rural areas. We recommend a reduction of involvement of unrelated regional/municipal administrations to avoid unnecessary layers of bureaucratic procedures and financial capital leakage. Project management should take one-step from the provincial government to the county, and the capital should take one-step directly to the village. • The village committee system is an experimental field of China’s democratic system, and it is considered that it can represent villagers’ interests and rights. The village committee plays an extremely crucial role in coordinating farmers and promoting biomass energy development. We recommend that the government increase its input at the village level in terms of human resources, physical inputs and financial support. 3) Micro-level Stakeholders: The micro-level arrangements between stakeholders depend on the type of production – consumption patterns used. • Decentralized production – centralized consumption pattern. This pattern mainly applies to energy crop cultivation and liquid bio-fuel production. We recommend that the following elements be included in “company – rural households” contracts: (1) An accurate assessment of usable land grades, resources reserves, usable quantities and development scale allowed by the land law; (2) Regulations for land transfer, contracting and lease; (3) Procedures for community democratic and transparent decision making processes; the roles and responsibilities of intermediaries and sub-contractors. The government should restrict speculative acts and support institutions providing enterprises with financial services and rural households with microfinance. • Decentralized production – decentralized consumption pattern. This pattern mainly applies to rural household biogas development. We recommend that: (1) Participatory project planning be implemented to ensure that the special needs of women, children and ethnic groups are included. (2) Poverty subsidies be based on targeting methods, which classify household in communities according to income standards; (3) After-construction service networks be set up at the county, township and village levels. • Centralized production – centralized consumption pattern. This pattern applies to crop straw power generation and industrial biomass gasification. An institutional arrangement is needed to protect rural households and ensure reliable feedstock supply to the power plant. The “company – farmers” pattern is an effective approach with “intermediary or middlemen” arrangements as needed. A pricing coordination committee among the three parties of farmers, power generation enterprises and the government can be set up at local level to ensure farmers’ participation in raw materials collection and prevent power generation enterprises from exercising monopoly prices. Based on our calculations of raw material collection radius, this institutional arrangement may be very effective in one administrative county or one region/prefecture/municipality. • Centralized production – decentralized consumption pattern. This pattern applies to central gas supply systems via large and medium biogas-digesters, crop straw digesters and biomass pellet fuel systems. “Participation” and “ownership” are the key issues. In the case of medium and

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large-scale bio-digester systems on breeding farms, the resource and gas supply ownership is clearly defined, and the rural households may need protection on gas supply pricing. 11.4 Integrated Financing Plan 11.4.1 National Targets for Rural BioEnergy Investment National implementation goals and investment targets for rural bio-energy development have been developed as described in Section 10, and summarized in Table 10-5, which is duplicated below.

Demand, Investment/unit Scale RMB billion Household biogas RMB 3000 per household 80 million (60 million new) 180 Mid-to-large biogas plants RMB 2 million / plant 10,000 (6500 new) 13 • System installment • 1.5 million / plant 9.75 • End-user installment • 650 / household 5 million households 3.25 Straw pellet fuel 50 million ton 65 • Fuel distribution stations • 1 million / plant • 50,000 50 • End users • 15 million / household • 10 million households 15 Industrial straw gasification 500,000 / plant 3000 plants 1.5 plants Centralized gas plants via 3000 plants 3 straw gasification • System installment • 870,000 / plant 2.61 • End-user installment • 650/household 600,000 households 0.39 Centralized straw biogas plant 1000 1 • System installment • 870,000 / plant 0.87 • End-user installment • 650/household 200,000 households 0.13 Straw-to-power plant 7000/kW 6 GW 42 Energy crop 50 million mu 70 • Base construction • 800/mu 40 • Farmer growing • 300/mu Subsidy 200/mu for 3 years 30 Fuel ethanol 3500/ton (capacity) 10 million ton 35 Bio-diesel 9000/ton (capacity) 500,000 ton 4.5 Total 413.5

11.4.2 Priorities and Programs of Potential Financing Partners A major premise of the partnership is that each partner will continue to support to those areas it considers a priority based on expertise and funding history. There is a long history of cooperation between international and Chinese agencies with many programs and projects in the areas of renewable energy, energy efficiency and climate change. A few of the most relevant of these programs are summarized in Table 11-2. However, funding for rural biomass energy development is a relatively recent activity undertaken by only a few multilateral and bilateral development agencies in cooperation with various ministries of the Chinese government. Table 11-3 provides a summary of the major rural biomass energy development projects over the past 5 years.

Table 11-2: Example Joint Programs in the Areas of Renewable Energy, Energy Efficiency and Climate Change Organization / Executing Financing Program / Project Priority Area Country Agency Amount

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Organization / Executing Financing Program / Project Priority Area Country Agency Amount World Bank and China Renewable SETC USD 8.5 million Grid-connected wind farms; Global Environmental Energy Development household photovoltaic Facility (GEF) Project systems in remote areas and technology upgrading World Bank and GEF China Renewable NDRC USD 100 million Biomass power, village Energy Scale-up hybrid systems, solar water Program heating, wind power UN Development Jilin Modern Biomass Jilin EPB USD 1.2 million Village-scale biomass Program and UN Utilization Project gasification combined Foundation cooking gas and power generation European Union EU-China Energy and NDRC EURO 20 Million Gasification, Biomass, Rural Environmental village power generation, Program Off-shore wind European Union China-EU Partnership MOST N/A Energy efficiency, renewable on Climate Change energy, clean coal and carbon dioxide capture and storage technologies, methane recovery and use, hydrogen energy and fuel cells, power generation, transmission and distribution United States U.S.-China Protocol MOST N/A Rural Energy Development for Cooperation in the (wind, solar, biogas), Wind, Fields of Energy Geothermal Efficiency and Renewable Energy Technology Development and Utilization Germany Sino-German NDRC N/A Solar, Wind, Small Technical Hydropower Cooperation, Renewable Energy in Rural Area Italy: Sino-Italian MEP (formerly USD 3.8 million N/A Cooperation Program SEPA) for Environmental Protection Canada Canada-China NDRC / CMA USD 5 million CDM Project Development Cooperation in Climate Change Australia Joint Declaration on NDRC N/A 11 new joint projects to Bilateral Cooperation reduce greenhouse gas on Climate Change emissions, assist adaptation to climate change, improve coal mine safety and enhance climate change expertise in both countries.

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Table 11-3: Summary of Rural Biomass Energy Programs Funding Levels Name of the Domestic International Dates (Domestic, Loan, Program/Project Proponent Funders (Start/Finish) Grant) Project Summary and Accomplishments Optimization of MOA & GTZ Planned for 3 million Euro The project will support three areas: 1) cross-sectoral policy Biomass Utilization in NDRC early 2008 development to promote biomass energy utilization, 2) China preparation of pilot investment projects and 3) capacity building to promote bioenergy production and effective project replication. Rural Energy and MOA ADB Pipeline entry: Total cost: about The project will efficiently utilize the wastes of the 300 animal Ecosystem March 2007 280 million USD. farms located in Henan, Heilongjiang, Jiangsu, Jiangxi, Rehabilitation Project ADB 100 million Shandong and Shanxi by generating biogas fuel, electric power USD and organic fertilizer, and by conducting eco-farming practices. The PPTA will be initiated at the end of 2007. Energy Crops TA MOA ADB Early 2008 Advisory assessment of environmentally sound approaches to expansion of energy crops for bio-fuels production. The TA has been approved and will be initiated in early 2008. Eco-farming Project MOA IBRD Pipeline entry: Total cost: about The project will make use of the World Bank loan and central March 2004 345 million USD. government T-bond program for counterpart funds. The project IBRD 120 million will support farmer households to develop ecological biogas USD; systems, such as pig-biogas-fruit, pig-biogas-vegetable, pig- Central biogas-grain, pig-biogas-tea, and pig-biogas-fish to realize government T- efficient utilization of water, soil, labor forces and ecological bond: about 49 resources, to achieve warmer and cleaner livelihood, efficient million USD. garden economy and harmless agricultural production. And in the end, ecological environment and production condition will be improved, ecological benefits, economy benefits and social benefits will be realized. There are five provinces in the project, Anhui, Chongqing, Guangxi, Hubei, and Hunan, involving 64 counties and 538,650 farmer households. It contains three components: integrated eco-farming system, local technical extension and biogas service system, project management, monitoring and evaluation. The appraisal is finished.

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Funding Levels Name of the Domestic International Dates (Domestic, Loan, Program/Project Proponent Funders (Start/Finish) Grant) Project Summary and Accomplishments Renewable Energy Gansu ADB Aug, 2005 to Total cost: about The project is to provide biomass gas to farmers in Qidian for Poverty Province Dec, 2005 2 million RMB, Village and generate electric power through crop residue Reduction-Gansu half from ADB’s gasification and household fuel gas so as to reduce the poverty Province (ADB TA grant contribution by rural renewable energy development. No: 4309-PRC) The Project operated initially after equipment installation in March 2006, but was completely stopped after about one year due to continued technical and procedure problems, shortage of counterpart funding, and serious weakness of institutional capacity. China Renewable NRDC WB and GEF Phase I: GEF grant 40.22 The Renewable Energy Scale-up Program for China aims to Energy Scale-up Approval Date million USD; create a legal, regulatory, and institutional environment Program (CRESP) 16-JUN-2005; Phase I: Total conducive to large-scale, renewable-based electricity (Phase I: IBRD Closing Date 30- Project Cost generation, and to demonstrate early success in large-scale, P067828; SEP-2010. 228.82 million renewable energy development with participating local Follow-up of Phase I: Follow-up of USD; 87 million developers in two provinces. The Project has the following IBRD P096158) Phase I: USD from IBRD. components: The Institutional Development and Capacity Approval Date Follow-up of Building component was designed to meet national priorities 07-FEB-2006; Phase I: total cost and the needs of the pilot provinces to initiate the scale-up of 132.42 million renewable energy, and will include the following: Mandated Closing Date 30- Market Policy MMP research and implementation support; SEP-2010. USD; 86.33 million USD from technology improvement for wind and biomass; and long-term IBRD capacity building. Two subcomponents in Phase I: 1) A 100 MW wind farm at Changjiang’ao, Pingtan Island in Fujian Province, which will consist of wind turbines, associated civil and electrical works, an extension to an existing control room, a switchyard, and a 15 km, 110 kV transmission line from the wind farm to the Beicuo substation, which will be upgraded to meet the evacuation needs of the wind farm. 2) A 25 MW straw-fired biomass power plant at Mabei Village, Rudong County in Jiangsu province, which will consist of one 110 ton per hour, high-temperature, high-pressure straw-fired boiler, one 25 MW steam turbine, and associated mechanical, electrical, and civil works. The development objective of this follow up to the Renewable Energy Development Program is to demonstrate early success in large-scale renewable energy investments with participating local developers.

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Funding Levels Name of the Domestic International Dates (Domestic, Loan, Program/Project Proponent Funders (Start/Finish) Grant) Project Summary and Accomplishments Efficient Utilization of MOA ADB and GEF June 2003 to Total cost: 77.3 The project was designed to overcome barriers to widespread Agricultural Waste June 2008 million USD. adoption of biomass-based renewable energy systems, (ADB Loan: PRC ADB loan 33.1 improve the environment and promote economic growth in rural 1924) million USD, areas of Shanxi, Henan, Hubei and Jiangxi provinces. 6.36 million USD Approximately 19,500 household biogas systems will be from GEF implemented through loans to farmers that also supported increased economic productivity through effective utilization of the bio-digester slurry. Sixteen medium-scale biogas systems were also implemented and a pilot CDM project developed. At the end of 2006, 64% of the project tasks were finished; and the Project is very popular among project areas and farmers.

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11.4.3 Investment Plan Integrating Domestic and External Sources The preliminary investment plan presented in Section 10 and summarized in Table 10-6, which is duplicated below. This section of the report provides an example of how the partnership can arrive at an integrated financing plan to meet the goals of the national strategy for rural biomass energy development.

Government Project financing Sum investment billion RMB Billion RMB billion RMB Industry owner Other sources Household biogas 60 60 60 180 Mid-to-large biogas plants 6.2 2.9 3.9 13 System installment 2.95 2.9 3.9 9.75 End-user installment 3.25 3.25 Straw pellet fuel 32.5 20 12.5 65 Fuel delivery system 25 12.5 12.5 50 End-user installment 7.5 7.5 15 Gas plants via gasification 0.75 0.375 0.375 1.5

Straw biogas central plants 0.57 0.21 0.22 1 System installment 0.44 0.21 0.22 0.87 End-user installment 0.13 0.13 Straw-to-power plants 12.6 29.4 42 Energy crop 50 10 10 70 Planting base 20 10 10 40 Farmer planting 30 30 Fuel ethanol 10.5 24.5 35 Bio-diesel 1.4 3.1 4.5 Sum 150.02 117.98 144.0 412.0

The Integrated Financing Plan will not be an integrated fund and will not combine the funding available from any partner except for cooperative projects or programs. Each partner will continue to fund projects and programs through their current mechanisms, such as technical assistance grants, development loans, loan guarantees, public-private partnerships, private-sector loans, CDM implementation, etc. The objective of the integrated financing plan will be to organize and coordinate each partner’s project and program funding such that all elements of the national strategy receive the necessary levels of funding. The example integrated investment plan does not provide specifics regarding funding levels from the potential parties to the Rural BioEnergy Finance and Investment Partnership. What it does provide is preliminary division of responsibilities based on an assessment of the current priorities and programs of the potential international financial institutions and needs of the national strategy. The potential international partners to the framework include: ADB, World Bank, GEF, UNDP, EU, bilateral agencies from Germany (GTZ/KfW), Netherlands, Italy, Canada (CIDA), Australia, Sweden (SIDA), and the United States (USAID). Chinese partners in the framework include: MOA, NDRC, MOF, MOST, MEP and the State Council Leading Group Office of Poverty Alleviation and Development. Omission of any agency (domestic or international) is strictly due to lack of information on the part of the consultant team. It is not intended as an indication of a lack of interest or desire to exclude any group. The example matrix of potential responsibilities in an integrated financing plan is shown in Table 11-4

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Carbon finance, either in the form of initial up-front investments or payments over time on delivery of emission reduction certificates, will play an important role in supporting the specific projects that may be developed under this integrated financing plan. Larger projects will generally qualify for traditional CDM, while the smaller-scale activities may benefit from the new programmatic CDM approach. However, carbon finance will only supplement the policies, programs and incentives described in the national strategy. Without these fundamental supports for biomass rural energy utilization, carbon finance will not make a significant difference to its development.

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Table 11-4: Preliminary Outline of an Integrated Financing Plan World Partnership Activities MOA NDRC MEP OPAD GEF ADB UNDP EU Australia Canada Germany Italy US Bank Biomass

Resource/Technology* Household biogas X X X X Mid-to-large biogas X X X X X X plants Straw pellet fuel X X X X X X X Centralized gas plants X X X via straw gasification Centralized straw biogas X X X X plant Straw-to-power plant X X X X Energy crop X X X Fuel ethanol production X X X Bio-diesel production X X X X X Partnership Support Technical Assistance X X X X X X X X X X X Monitoring and X X X X X X X X X X Evaluation Capacity Building X X X X X X X X X X X

* Projects in this area may benefit from additional financing support through the Clean Development Mechanism.

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11.5 Partnership Coordination Mechanisms 11.5.1 Partnership Framework Agreement The coordinating committee for this ADB TA should convene a workshop involving the potential financial partners and the relevant Chinese ministries as the best mechanism to formalize an agreement among the parties to the Rural BioEnergy Finance and Investment Partnership. The workshop should present a draft Partnership Framework Agreement for review and discussion at the workshop leading to formal signatures on the Agreement. If possible, this workshop should be coordinated with the International BioEnergy Symposium being organized by MOA under ADB Loan-1924 PRC. An outline for the Partnership Framework Agreement, prepared from the materials presented in this section of the report, is provided in Annex 1 to this report, and can be used to prepare the draft Partnership Framework Agreement. 11.5.2 Steering Committee and Partnership Management Center A leadership group, in the form of a Steering Committee, will be formed under the Partnership Framework Agreement to oversee the partnership activities and to maintain the interest and commitment of the participating parties. All parties to the Partnership Framework Agreement get a seat on the Steering Committee, and the initial members will be selected at the Formation Workshop. Members of the Steering Committee should be at the Vice Minister level for Chinese agencies, and at the Vice Director level for the international agencies. The Steering Committee will provide overall guidance to the Partnership. The members of the Steering Committee will meet annually to provide policy guidance, coordinate funding resources, and approve the proposed project pipeline. A Partnership Management Center (PMC) will be implemented under the Steering Committee to perform periodic coordination operations, such as preparations for the Annual Coordination Workshops, design and maintenance of a partnership web site and information sharing database, scheduling of quarterly information exchanges, and other activities as agreed to by the Steering Committee. The PMC will primarily be staffed from the Chinese agencies participating in the partnership. At the determination and funding of the Steering Committee, short-term and long-term consultants can be hired to provide technical support to the PMC. 11.5.3 Annual Partnership Workshops A formal partnership workshop should be held annually to review the status of the partnership, get reports from all the programs and projects that are operational or under implementation, assess progress towards achieving the partnership goals and discuss lessons learned and approaches to improving partnership activities. The workshops will be organized by the PMC and should be open (by invitation) to agencies and individuals that can contribute to the workshop activities or benefit from the information that will be presented. 11.5.4 Quarterly Coordination Meetings Informal coordination meetings should be organized by the PMC and attended by representatives of the parties to the partnership framework agreement. The meetings will allow the parties to coordinate activities under the programs and projects that are under implementation through the partnership. 11.6 Monitoring and Evaluation Plan 11.6.1 Measures of Partnership Effectiveness To the degree possible, quantitative measures will be used to determine the effectiveness of the partnership in achieving specific local and global environmental goals. A preliminary set of evaluation categories are listed in Table 11-5, and several possible measures of effectiveness have been developed under each of the categories.

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Table 11-5: Measures of Partnership Effectiveness Category Metric Environmental improvement • Reductions in GHGs • Reductions in water pollution • Improvements in indoor air quality • Reductions in air pollution Economic development • Jobs created • Businesses/enterprises formed • Improvement in local standard of living • Increased community-level wealth Social impacts • Poverty reduction • Gender improvement • Job quality • Reduction of in-come gap between rural and urban Energy generation • New installed capacity for cooking, heating and power generation • Energy generated from new projects Investment effectiveness • Funds disbursed • Projects/programs implemented • Partner satisfaction Capacity Building • Training workshops • Study tours • Trade missions

As specific programs and projects are developed under the partnership framework, their contribution to achieving the goals of the national strategy for rural bio-energy development can be quantified according to the metrics identified in Table 1-5. The overall effectiveness of the partnership is the total contribution of all the individual programs and projects. 11.6.2 Measuring National Targets and Environmental Benefits Measuring the impacts of the partnership’s project activities should be performed in a consistent and accurate manner so that their impacts can be readily combined and the reasons for different levels of impact can be understood. Qualified national and international experts should be engaged by the PMC to implement specific monitoring and evaluation tasks and to compile monitoring and evaluation results from the various partnership programs and projects into a unified national perspective. 11.6.3 Capacity Building to Improve Investment Effectiveness Improving the effectiveness of the national activities that the partnership projects are supporting will require continued institutional strengthening, especially at the provincial and local levels. Project management and enterprise capacity building activities should be developed that both address the common capacity building requirements on partnership projects currently planned or under implementation as well as support long-term sustainability following project completion. Specific recommendations for common capacity building support activities can be developed by the partners at the Framework Formation Workshop. Potential activities include training workshops to: • Improve the quality of feasibility studies, preparation of bid-request documents, and evaluation of proposals • Develop improved equipment design standards and certification procedures • Implement improved procedures and techniques for monitoring and evaluation, and

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• Improve project management of large, multi-site, multi-party projects and programs Other activities could study tours to review policies, incentives and programs implemented in other countries, overseas training programs for PMC staff in the areas of project management, environmental assessments, financial accounting, etc. 11.7 Partnership Management Center Support

An active and effective PMC is critical to the success of the partnership. It is difficult to provide a specific level of funding for the PMC without knowing the approximate size of the partnership. However, as a rule of thumb, the PMC activities should be funded at a level of 6% to 8% of the total funding committed by the partners to the various partnership programs and projects. This level of funding should be split between government ministries and the international donors. An example breakdown in provided in Table 11-6

Table 11-6: Example Breakdown of PMC Funding PMC Activities Government International Donors Partnership Management 1% Technical Assistance 1.5% Monitoring and Evaluation 1% 1.5% Capacity Building 1% 1% Total 3% 4%

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Annex 1: Outline Framework Agreement for a Rural BioEnergy Finance and Investment Partnership

This outline Partnership Framework Agreement is intended to provide a starting point for development of a formal draft Partnership Framework Agreement that will be reviewed and revised by the interested partners to create a final legal agreement for implementing the objectives of the national strategy for biomass rural energy development. The following constitute the mission, vision, and principals of the Rural BioEnergy Finance and Investment Partnership. Mission: Fulfill China’s strategic need to alleviate the supply-demand stress in rural areas, optimize the rural energy consumption structure and ensure energy supply security to rural communities, all in accordance with the strategic goals of the New Rural Social Countryside to improve the rural living standard and increase farmers’ incomes. Vision: The deployment and continued improvement of modern conversion technologies for biomass resources will meet a significant portion of rural household energy needs with improved cleanness, convenience, and affordability. Principals: These guiding principals were used in concert with the cost-benefit analysis to help select the overall technological pathways for the strategic development of the rural biomass renewable energy. The principals are summarized as follows: 1. Using rural biomass resources to meet the energy needs of rural households should be the highest priority to ensure the energy security in rural China; 2. Replacement of biomass fuels with fossil fuels should not be promoted in rural areas; 3. Current trends of rural China toward convenience and improved living standards should be supported and accelerated; 4. Technology industrialization that generates social and economic benefits in rural areas should be promoted; 5. Energy crops must not compete with the production of food and biomass feedstocks/materials in terms of land use and water consumption; 6. The scale of enterprise operations should match the scale of the local communities being served; 7. The economic well-being of the rural bio-energy enterprises should be in harmony with the rural communities in terms of economic and social development, job opportunities and environmental protection. 8. Government has the responsibility to implement policy incentives and market mechanisms that support the utilization of modern biomass energy technologies that will help meet the strategic goals of the New Rural Social Countryside. This Partnership Framework Agreement has been constructed around the following four elements. • Policy Foundation • Integrated Financing Plan • Partnership Coordination Mechanisms • Monitoring and Evaluation Plan Policy Foundation

The parties to this agreement agree to support implementation of the policy foundation, which consists of two components: promotional policies and incentives, and improvements in institutional structures.

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Promotional policies and incentives The recommended promotional policies and incentives are presented in Table A1. The responsible ministries agree to actively work for implementation of these policies and incentives with the support of the international funding partners.

Table A1: Recommended Policy Foundation MOA MOF NDRC MEP MOST • Better enforcement of • Policy for • Policies • Enhancement of • New programs the Subsidy policy for biomass pertinent to the Standard of and funding for rural biogas industry pricing of Preventing R&D on • Enhancement of the development biomass power Pollution for improved Technical Standard of • Dedicated generation Livestock and technologies for Preventing Pollution for funding for rural • New programs Poultry Breeding rural household Livestock and Poultry applications and funding for energy needs Breeding development • Implement policy for and promotion of biomass demonstration pellet fuel deployment of centralized biomass • Enhancement of the gasification Policy for promotion of project biogas project in breeding industry • Implement subsidy policy for fuel ethanol • Implement subsidy policy for planting of energy crop

Commitment to Sustainable Institutional Structures The parties agree that the creation of new institutions is needed for sustainable utilization of rural bio- energy resources. The ministries that are party to this agreement commit to implement the necessary institutional changes, which are outlined below. In particular, the MOA is most closely linked to the rural energy users, and as such will a leading role on institutional issues related both biomass resource planning and utilization. 1) Central government • Standardization and coordination of policies in terms of policy execution procedures and resources configuration should try best to use the resources from various institutions in a package so as to attain an integrated effect in supporting the new countryside construction and set up a monitoring system for comprehensive achievements in rural biomass energy development, including social effects and economic returns. • The planning of demonstration and early commercial projects should be conducted with the full cooperation with related non-functionary departments in targeting beneficiary groups. Cooperation with LGOP and SEAC etc. in poverty alleviation projects will have integrated results by joining the package with the central poverty alleviation special fund, food for work program, agricultural subsidized loans etc. • Coordination and cooperation with the China Women’s Federation and the Ministry of Health should be improved to reduce the vulnerability of women to respiratory diseases caused by indoor pollution from coal and firewood in cooking and heating activities. • Cooperation with banking institutions, especially with Agricultural Bank of China and the State Development Bank, should be developed to expand preferential loans to enterprises with BRE projects.

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• Cooperation with the rural commercial banks and credit cooperatives should be pursued to help more rural households receive microfinance services to support crop cultivation and livestock activities related to household biogas projects. 2) Local institutional arrangements • The county-level institutions are best able to coordinate and integrate resources in rural areas. We recommend a reduction of involvement of unrelated regional/municipal administrations to avoid unnecessary layers of bureaucratic procedures and financial capital leakage. Project management should take one-step from the provincial government to the county, and the capital should take one-step directly to the village. • The village committee system is an experimental field of China’s democratic system, and it is considered that it can represent villagers’ interests and rights. The village committee plays an extremely crucial role in coordinating farmers and promoting biomass energy development. We recommend that the government increase its input at the village level in terms of human resources, physical inputs and financial support. 3) Micro-level Stakeholders: The micro-level arrangements between stakeholders depend on the type of production – consumption patterns used. • Distributed production – centralized consumption pattern. This pattern mainly applies to energy crop cultivation and liquid bio-fuel production. We recommend that the following elements be included in “company – rural households” contracts: (1) An accurate assessment of usable land grades, resources reserves, usable quantities and development scale allowed by the land law; (2) Regulations for land transfer, contracting and lease; (3) Procedures for community democratic and transparent decision making processes; the roles and responsibilities of intermediaries and sub-contractors. The government should restrict speculative acts and support institutions providing enterprises with financial services and rural households with microfinance. • Distributed production – distributed consumption pattern. This pattern mainly applies to rural household biogas development and the firewood-saving stove program in rural China. We recommend that: (1) Participatory project planning be implemented to ensure that the special needs of women, children and ethnic groups are included. (2) Poverty subsidies be based on targeting methods, which classify household in communities according to income standards; (3) After-construction service networks be set up at the county, township and village levels. • Centralized production – centralized consumption pattern. This pattern applies to crop straw power generation and industrial biomass gasification process heat. An institutional arrangement is needed to protect rural households and ensure reliable feedstock supply to the power plant. The “company – farmers” pattern is an effective approach with “intermediary or middlemen” arrangements as needed. A pricing coordination committee among the three parties of farmers, power generation enterprises and the government can be set up at local level to ensure farmers’ participation in raw materials collection and prevent power generation enterprises from exercising monopoly prices. Based on our calculations of raw material collection radius, this institutional arrangement may be very effective in one administrative county or one region/prefecture/municipality. • Centralized production – distributed consumption pattern. This pattern applies to central gas supply systems via large and medium biogas-digesters, crop straw digesters and biomass pellet fuel systems. “Participation” and “ownership” are the key issues. In the case of medium and large-scale bio-digester systems on breeding farms, the resource and gas supply ownership is clearly defined, and the rural households may need protection on gas supply pricing. Integrated Financing Plan

The parties to this agreement agree to work cooperatively to support the long-term implementation of the national strategy for rural bio-energy development. The national implementation goals and investment targets for rural bio-energy development are summarized in Table A2.

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Table A2: National Implementation Goals and Investment Targets for Rural Bio-Energy Development Demand, Investment/unit Scale RMB billion Household biogas RMB 3000 per household 80 million (60 million new) 180 Mid-to-large biogas plants RMB 2 million / plant 10,000 (6500 new) 13 • System installment • 1.5 million / plant 9.75 • End-user installment • 650 / household 5 million households 3.25 Straw pellet fuel 50 million ton 65 • Fuel distribution stations • 1 million / plant • 50,000 50 • End users • 15 million / household • 10 million households 15 Industrial straw gasification 500,000 / plant 3000 plants 1.5 plants Centralized gas plants via 3000 plants 3 straw gasification • System installment • 870,000 / plant 2.61 • End-user installment • 650/household 600,000 households 0.39 Centralized straw biogas plant 1000 1 • System installment • 870,000 / plant 0.87 • End-user installment • 650/household 200,000 households 0.13 Straw-to-power plant 7000/kW 6 GW 42 Energy crop 50 million mu 70 • Base construction • 800/mu 40 • Farmer growing • 300/mu Subsidy 200/mu for 3 years 30 Fuel ethanol 3500/ton (capacity) 10 million ton 35 Bio-diesel 9000/ton (capacity) 500,000 ton 4.5 Total 413.5

To achieve the long-term national implementation goals, the parties agree to develop an Integrated Financing Plan that will coordinate the programs and funding levels of each partner’s planned programs and activities in the development of rural biomass energy. The Integrated Financing Plan will not be a combine the funding available from any party except at the project or program level. Each party to the agreement will continue to fund projects and programs through their current mechanisms. The objective of the integrated financing plan will be to organize and coordinate each parties’ project and program funding such that all elements of the national strategy receive the necessary levels of funding. Partnership Coordination Mechanisms Steering Committee The parties to this agreement will establish a leadership group, in the form of a Steering Committee, to oversee the partnership activities and to maintain the interest and commitment of the partners. All parties to the Partnership Framework Agreement get a seat on the Steering Committee, and the initial members will be selected at the Formation Workshop. Members of the Steering Committee should be at the Vice Minister level for Chinese agencies, and at the Vice Director level for the international agencies. The Steering Committee will provide overall guidance to the Partnership. The members of the Steering Committee will meet annually to provide policy guidance, coordinate funding resources, and approve the proposed project pipeline. Membership on the Steering Committee can be adjusted annually at the Annual Partnership Workshops.

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Partnership Management Center Partnership Management Center (PMC) will be implemented under the Steering Committee to perform periodic coordination operations, such as preparations for the Annual Coordination Workshops, design and maintenance of a partnership web site and information sharing database, scheduling of quarterly information exchanges, and other activities as agreed to by the Steering Committee. The PMC will primarily be staffed from the Chinese agencies participating in the partnership. At the determination and funding of the Steering Committee, short-term and long-term consultants can be hired to provide technical support to the PMC. Annual Partnership Workshops A formal partnership workshop will be held annually to review the status of the partnership, get reports from all the programs and projects that are operational or under implementation, assess progress towards achieving the partnership goals and discuss lessons learned and approaches to improving partnership activities. The workshops will be organized by the PMC and should be open (by invitation) to agencies and individuals that can contribute to the workshop activities or benefit from the information that will be presented. Quarterly Coordination Meetings Informal coordination meetings should be organized by the PMC and attended by representatives of the parties to the partnership framework agreement. The meetings will allow the parties to coordinate activities under the programs and projects that are under implementation through the partnership. Monitoring and Evaluation Plan Measures of Partnership Effectiveness As specific programs and projects are developed under the partnership framework, their contribution to achieving the goals of the national strategy for rural bio-energy development will be quantified according to the metrics identified in Table A3. The overall effectiveness of the partnership is the total contribution of all the individual programs and projects.

Table A3: Measures of Partnership Effectiveness Category Metric Environmental improvement • Reductions in GHGs • Reductions in water pollution • Improvements in indoor air quality • Reductions in air pollution Economic development • Jobs created • Businesses/enterprises formed • Improvement in local standard of living • Increased community-level wealth Social impacts • Poverty reduction • Gender improvement • Job creation • Reduction of in-come gap between rural and urban Energy generation • New installed capacity for cooking, heating and power generation • Energy generated from new projects Investment effectiveness • Funds disbursed • Projects/programs implemented • Partner satisfaction

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Category Metric Capacity Building • Training workshops • Study tours • Trade missions

Measuring National Targets and Environmental Benefits Measuring the impacts of the partnership’s project activities should be performed in a consistent and accurate manner so that their impacts can be readily combined and the reasons for different levels of impact can be understood. Qualified national and international experts should be engaged by the PMC to implement specific monitoring and evaluation tasks. Capacity Building to Improve Investment Effectiveness The parties to this agreement will support a range of capacity building activities designed to improve the effectiveness of the activities that the partnership projects are supporting, especially at the provincial and local levels. These activities should included project management and enterprise capacity building activities that are common requirements on partnership projects currently planned or under implementation as well as support long-term sustainability following project completion. Specific recommendations for common capacity building support activities should be developed by the partners at the Framework Formation Workshop and at the Annual Partnership Workshops.

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