Biofuels, Climate Change and Industrial Development: Can the Tropical South Build 2000 Bioreﬁ Neries in the Next Decade?

Perspective Biofuels, climate change and industrial development: can the tropical South build 2000 bioreﬁ neries in the next decade?

John A. Mathews, Macquarie University, Sydney, Australia

Received December 20, 2007; revised version received January 11, 2008; accepted January 11, 2008 Published online February 20, 2008 in Wiley InterScience (www.interscience.wiley.com); DOI: 10.1002/bbb.63; Biofuels, Bioprod. Bioref. 2:103–125 (2008)

Abstract: Biofuels are important because they span three of the greatest issues of our time – world industrial development; energy security and the transition to a bioeconomy; and global warming. Biofuels have something important to contribute as a solution in each of these three areas – without being a ‘magic bullet’ or the whole of the solution in any of them. Indeed, biofuels may be a transitory solution that will phase out after two or three decades as new electric-powered transport systems take over. But in the meantime, biofuels have the potential to bring together North and South in a new Biopact of transcendent signifi cance, promising to allow countries of the South to lift themselves out of poverty through biofuel cultivation, processing and export; and countries of the North to solve their transport and global warming problems by opening up to biofuels produced sustainably and responsibly from the tropical South. A goal of 2000 biorefi neries over the course of the next decade is entirely realistic: their output would be of the order of 400 billion liters of ethanol and/or biodiesel, or about one fi fth of OECD countries’ current transport fuel requirements. The investment required would be of the order of US$240 billion over a decade – compared with the more than $470 billion expected by the International Energy Agency (IEA) to be invested in the oil and gas industry in a single year by 2010. In this light, the investment required is modest. Such an investment can only be undertaken if markets in the North are guaranteed. The best means of achieving such an investment- grade guarantee is through a comprehensive global trade agreement. But the prospects for such an agreement are vitiated by the cacophony of opposition to biofuels raised in the North, by non-governmental organizations (NGOs) and vested interests, who are raising hysterical concerns over the transition from fossil fuels to biofuels, and stand accused of seeking industrial protection under the guise of environmental concerns. © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd

Correspondence to: John A. Mathews, Professor of Strategic Management, Macquarie Graduate School of Management,

Macquarie University, Sydney, NSW 2109, Australia. E-mail: [email protected]

‘Ethanol produced in Brazil, even when it is imported to Europe [taking into account the energy needed to transport the fuel across the Atlantic] makes sense. If the United States and Europe are serious about biofuels, they must turn to the South for their supplies.’ Claude Mandil, Director General International Energy Agency, October 2006

‘The production of biofuels was responsible for a massive increase in hunger. The use of arable land for the production of biofuels led to unaffordable food and water prices and increasing competition over land and forests, resulting in forced evictions.’ UN General Assembly, Summary record of 18th meeting of Human Rights Council, Geneva, September 26, 2007

‘Much of the current debate on bioenergy […] obscures the sector’s huge potential to reduce hunger and poverty … If we get it right, bioenergy provides us with a historic chance to fast-forward growth in many of the world’s poorest countries, to bring about an agricultural renaissance and to supply modern energy to a third of the world’s population.’ Jacques Diouf, Director-General, UN Food and Agriculture Organisation

Keywords: biofuels; climate change; biopact

Introduction Instead a perspective on fi rst-generation biofuels is sought, seen from the vantage point of the likely situation a decade his Perspective article is concerned with the potential from now, when biofuels from the South will have estab- of fi rst-generation biofuels grown and processed in lished themselves, when imports to the North will have T countries of the South to reduce their dependence become much more common, and when transport and on oil, to kickstart their industrial development, and at the other industrial systems will have become more ‘biofuel same time to help solve the fuel problems of countries of friendly’.b the North, and reduce the world’s greenhouse gas (GHG) emissions. Biofuels are important because they span all of a these issues. Th ey have something to contribute to the solu- The comments of three anonymous referees have been very helpful in finally shaping this paper. The arguments have been developed in numerous seminars tion of each of the problems, which have so far proven to be and presentations, including at the OECD in Paris (December 2006); Penn State intractable – namely extending industrial development and University’s Biomass Energy Center (February 2007); BioEnergy Outlook 2007 reducing poverty, enhancing energy security, and reducing (Singapore March 2007); Global BioEnergy Forum, Rosario, Argentina (October the sources of global warming. Th e issue is to ensure that 2007); and the PENSA VI Conference, Ribeirao Preto, Brazil (October 2007). This biofuels live up to their potential, and do not simply result perspective should be read in conjunction with earlier publications.1–5 It updates in a further consolidation of North-South polarization and the ‘Biofuels Manifesto’ that is currently carried on the Biopact webpage, at: in further extensions of deforestation and land degradation. http://www.biopact.com/site/manifestofirst.html Th is perspective proposes a global framework in which all bThe idea of substitution of petrofuels by biofuels has been advocated by the the issues to do with biofuels can be addressed. industry. For example, in January 2008, General Motors CEO Wagoner declared that the end of the petrol-driven car was imminent, and that the automotive in- In this perspective, I attempt to provide a grounding, an dustry has to start making preparations for the post-fossil fuel era now. GM has evaluation of ‘where we are at’ with biofuels.a It is not a anno unced its long-term strategic alliance with the biofuel company Coskata, booster document, but aims to take objections to biofuels which in turn has announced plans to produce biofuels from a wide variety of seriously (and some of them certainly have to be taken biomass feedstocks. See the report available at http://www.autobloggreen. very seriously). Neither is it a polemical document, simply com/2008/01/13/gm-and-coskata-announce-worldwide-cellulosic-ethanol- seeking to engage with the polemical documents of others. partnership/

104 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

From such a perspective, biofuel usage will likely be seen South America and South and Southeast Asia; by statements as simply the fi rst wave (and therefore a controversial wave) of goals for biofuels to constitute up to 20% of fuel consump- of the coming transition from a fossil-fuel driven industrial tion by 2020 by the EU as well as by individual US states such system to a bioenergy- (biomass and biofuel) driven system, as California; and not least by the cacophony of opposition which over coming decades will almost certainly phase out to biofuels – particularly to biodiesel from tropical countries the short historical ‘blip’ represented by fossil fuel depend- dubbed pejoratively as ‘deforestation diesel’. Planting biofuels ence. For this is the fi rst substantial point to make: much of has become an extremely controversial matter – from being the fear and loathing generated by the topic of biofuels is actu- seen as saviour of the planet to planting them being seen as ally a response to an imagined but unrealistic future, where a ‘crime against humanity’.c For all these reasons, and many oceans of sugarcane are imagined as taking over from dense more, biofuels call for a steady and evolving evaluation. rainforests, and agribusiness methods of intense cultivation – When President George W. Bush delivered his State of the with all its associated soil depletion, intensive pesticide and Union address in January 2007, he challenged America with herbicide use, wasteful use of water and toxic runoff – is his ‘20 in 10’ proposal, under which Americans would replace imagined as ousting all other approaches. 20% of their gasoline use with biofuels within 10 years. Th e Surely it is such a fear that drives the hysteria of such NGOs President called for supply of 35 billion gallons of ‘renewable like Biofuelwatch, who would have us believe that biodiesel and alternative fuels’ (meaning biofuels as well as alternatives from Southeast Asia is actually worse than continued use such as natural gas and LPG) by 2017 – but he did not specify of fossil fuels and all the energy insecurity, pollution and that they all had to be produced within the USA. He left the GHG emissions associated with them; and that ‘we’ in door open to imports being able to make their contribution: Europe cannot hope to match ‘their’ productivity (farmers ‘Global production of alternative fuels helps us reach our goal in the South) and so ‘we’ should block ‘their’ exports to our and increase our energy security’ was how he put the matter.d markets. But in answer to such fears, it has to be stated that Th us the ground is being prepared for an historic accommo- fi rst-generation biofuels are simply a transitional phenom- dation between the USA and other OECD (Organisation for enon, a phase on the way to a very diff erent transport and Economic Co-operation and Development) countries and the industrial system. People opposed to biofuels are doubtless countries of the South where biofuels can be produced effi - guided by a fear that we are simply creating ‘biofuelled traffi c ciently, cheaply and without the threat of terrorism.6 Th e US jams’ of tomorrow, not just in the North but also in the mega goal of ‘20 in 10’ can indeed be met by promoting the crea- cities of the South. If biofuels were treated as an issue on their tion of many Brazils in the South. Th is is an attractive vision own, these fears would be entirely justifi ed. But when we look for both North and South to embrace. at the bigger picture, and see the current transition as one Likewise the EU has committed itself to ambitious goals involving changes in energy mix; in the design of cities; in for substitution of petrofuels by biofuels, and in some cases the historic completion of the industrialization of the South made explicit recognition of the fact that such fuels could be and a possible ‘fi nal solution’ to the problems of worldwide produced most effi ciently in the South.e Similarly ambitious poverty, then a diff erent frame of reference is appropriate. Such is the approach I take in this perspective. cFor Jean Ziegler’s remarks, see ‘UN expert calls biofuels “crime against humanity” available at: http://www.livescience.com/environment/071027-ap-biofuel- The biofuels/bioenergy revolution crime.html; for the column in The Guardian by George Monbiot, see: http://www. monbiot.com/archives/2007/11/06/an-agricultural-crime-against-humanity/ Biofuels have burst onto the public stage in recent years. dSee the ‘Twenty in Ten’ statement at the White House website: http://www. Th eir arrival has been ‘fuelled’ as it were by references to whitehouse.gov/stateoftheunion/2007/initiatives/energy.html

ethanol by George W. Bush in his last two State of the Union eThe EU conference on ‘Harvesting sustainable energy’ was convened in Brus- addresses; by the widely recognized rise of Brazil as a biofuels sels in July 2007; for the conference speeches, and other materials, see the EU superpower; by a steady stream of announcements of new President’s website: http://ec.europa.eu/commission_barroso/president/focus/ investments in biofuels, particularly in Africa, Central and biofuels/index_en.htm On EU experience with biofuels, see the report by CEC.7

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 105 J Mathews Perspective: Biofuels, climate change and industrial development

goals have been stated by China, by India and by Japan. And expanded production of biofuels create, and which demand there is very active international cooperation, such as the a response, include: putting pressure on land and other formation of the International Biofuels Forum, launched in resources, particularly water; threatening to intensify use New York in March 2007, bringing together six major players – of agrimonocultures and with them fertilizers and pesti- the USA, the EU, Brazil, India, China and South Africa – for cides; putting food production under pressure; promoting mutual discussions on joint promotion of bioenergy.f Th ese deforestation and land degradation; and raising social and many other initiatives indicate that biofuels and bioenergy concerns such as the potential spread of large plantations generally constitute a global issue of prime signifi cance.8–13 and corporate agribusiness models at the expense of small- Current concerns over biofuels are focused on the fi rst- scale farming. All of these issues are serious and demand generation technologies and processes, involving either a response. It is to be argued in this perspective that the fermentation of sugar-rich crops such as sugar-cane or best way of meeting the concerns is for the countries of the starch-rich crops such as corn, grain or cassava (in the North to negotiate a comprehensive trade agreement on tropics); or involving use of oilseeds and technologies based biofuels with countries of the South – an agreement that on transesterifi cation to produce biodiesel. Second-genera- could be called a Biopact. tion technologies, where a much wider range of biomass will I attempt to place these issues in a fresh perspective; I off er be available, and processes will involve a smaller ecological an evaluation of biofuels, one that seeks to meet the objec- footprint, are expected to moderate the concerns dramati- tions raised so far and off ers practical and realistic solutions cally. But these are still several years off . In the meantime, to them, but one that is also alive to the enormous potential fi rst-generation technologies are being applied in the North, unleashed by biofuels for sustainable and responsible indus- buttressed by substantial subsidies, and in the South, where trial development in the South. success has triggered a quite astonishing wave of hostility. Let us start in a very concrete fashion by looking at an Much of the fear and loathing unleashed in the Western African country plagued by poverty and famine and desper- press and blogosphere against biofuels can be explained by ately low-productivity agriculture. In this setting let us eval- simple misunderstandings and failures to comprehend the uate what a diff erence a single, modern biorefi nery built in reality of growing new biofuel crops in the South as opposed such a country could accomplish. To be even more concrete, to the diffi culties they would encounter in the North. Much let us consider the case of Zambia. of the concern is also well-founded, and if biofuel crops were allowed to grow unchecked in the South, at the expense of Impact of a 200 megaliter bioreﬁ nery in an rainforests and eco-diversity and by taking over the best African country and most fertile land that could be used for food crops, then Zambia is a landlocked East African country in the territory there would indeed be major cause for concern. formerly called Northern Rhodesia. It has a population of Th e benefi ts that such a program would bring for devel- around 7 million in a large area of 752 000 square kilometers. oping countries are numerous. Th ey would include: building Once one of colonial Africa’s success stories, Zambia started rural incomes and abolishing poverty; kick-starting indus- its slide into poverty with the falling of copper prices in the trial development; generating fossil fuel import independ- 1970s; this was exacerbated by indebtedness in the 1980s. Life ence; improving health through cleaner air in cities; creating expectancy is now less than 40 years. In 2002, there was a industrial development value chains and export revenues; crop failure, with a wheat harvest of less than 800 000 tonnes and reducing GHG emissions through the spread of carbon- against anticipated consumption of 1.4 million tonnes – a neutral and even carbon-negative biofuels. drastic shortfall calling for food aid and resulting in famine. Th ese benefi ts could be bought at a heavy cost, if Th ere has been widespread unemployment across the area appropriate policies are not put in place. Th e issues that known as the copperbelt, now the site of severe land degrada-

f See the press release issued by the United Nations at the group’s founding: tion. Zambia, then, is a typical African country with what http://www.un.org/News/briefings/docs/2007/070302_Biofuels.doc.htm appear to be overwhelming problems.

106 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

Consider a biorefi nery built in Zambia with an annual income generated by the biorefi nery to the producers of the output of 200 million liters (200 megaliters, or ML) – the feedstock – whether this is sugarcane or other starchy crops now standard modular version, as developed for example by for ethanol, or oilseeds for biodiesel. the advanced US fi rm Cilion. If Zambia plays its cards right, If the biorefi nery is producing mainly ethanol, then it it should be able to build the very latest integrated biodiesel will be conjuring up feedstock in the form of sugarcane, and ethanol biorefi nery that is now available and being put or cassava, or sweet sorghum, or any combination of these onto drawing boards in the USA (e.g. by consultants such as (preferably a combination, to minimize monoculture eff ects) Ascendant Partners) and by engineering service fi rms, such to be planted in the vicinity. At a yield of 4000 liters per as Dedini (Brazil) or Praj (India). Bear in mind that it is the hectare (slightly below the yields currently achieved in latecomer’s advantage to be able to combine the very latest in Brazil) the biorefi nery would draw on 50 000 hectares of technology with low costs and plentiful resources – exactly sugarcane fi elds, or a larger area of cassava or sweet sorghum the situation that applies in Zambia.14–16 cultivation. If there is some social management of the First, the annual output of 200ML: it could be sold on program (as there should be) then the Zambian Government the domestic market, allowing a price of $1 per liter, thus would ensure that there is land reform that enables land- making an annual saving on oil imports of $200 million. less peasants or unemployed industrial workers to farm the Or it could be exported, thus pulling in $200 million in plots that will produce this feedstock. Assuming that each foreign exchange earnings, each year. Compare this with family secures a grant of 10 hectares of land (a generous what the country gets in terms of food aid. Zambia’s Food assumption) then a single biorefi nery could provide attrac- Reserve Agency (FRA) was in fact appealing to the interna- tive employment for 5000 laborers and their families, or tional community in 2007 for assistance in reconditioning for perhaps 25 000 people. Th ese are people who would be the country’s dilapidated grain silos. Much of the 2006 working the land to raise the feedstock, and receiving an harvest was lost because grain was stored in stacks of jute annual income of around $10,250 for the output from their bags covered in tarpaulins, and the grain rotted. Th e FRA 10-hectare plot (assuming a proportion of 26% of the retail appealed for $6 million to undertake the necessary repairs in price of ethanol at the pump, as per McKinsey). Since their 2007 to stave off famine. Th is is a sum that could be earned wages are pretty much their only source of expenditure, by a single biorefi nery in less than a week. relying as they do on tropical rains for water and on recy- What about the benefi ts accruing to Zambia in the value cling vegetable waste for fertilizer, they would retain most chain leading up to the biorefi nery? Here we can make use of this $10,250 income – depending on the land-leasing of a study published by McKinsey, where the value chain for arrangements negotiated by the Government. Th is income is, Brazilian ethanol is displayed (carried forward to the year obviously, a lot more than they would receive from food aid. 2020).g From this study, we can prudently allocate 26% of the If the biorefi nery is producing mainly biodiesel, then it will conjure up quite diff erent, oilseed-bearing crops in gVicente Assis, Heinz-Peter Elstrodt and Claudio F.C. Silva, ‘Positioning Brazil its vicinity. Th ese might be fi elds of Jatropha curcas, or for biofuels success’, The McKinsey Quarterly, 2007 special edition: Shaping cottonseed, or linseed – all non-edibles that do not compete a new agenda for Latin America, available (restricted access) at: http://www. directly with food supplies. Or they might be soya or oil mckinseyquarterly.com/article_abstract_visitor.aspx?ar=1950&L2=3 palm, or some local species that happens to do well in the For a final price of 73 cents per liter paid in Europe (compared with $1.60 in Europe today) the value chain allocates 19 cents to the feedstock producer; 16 vicinity (as the people in the Niger Delta are discovering in h cents to the refinery operator; 3 cents for supplies and licensing of IPR-pro- relation to the mangrove Nypa palm). tected enzymes; 5 cents for transport and logistics; 20 cents for import tariffs; If there is some form of international regulatory oversight 8 cents for blending and distribution in Europe; and 1 cent for other contingen- of the process (such as through a Biopact), then the Zambian cies. Scaling this up to a final price paid of $1 per liter in Europe (a more realis- Government can be involved in determining where the tic target price today), we find the feedstock producer can command 26 cents, biorefi nery is to be located, and to ensure that its feedstocks and the refinery operator 22 cents, with the rest being distributed through supplies and logistics, import tariffs, blending and distribution etc. hSee Nypa palm profile: http://www.bioenergywiki.net/index.php/Nypa_palm

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 107 J Mathews Perspective: Biofuels, climate change and industrial development

will not infringe on any existing rainforest. Th ere is enough Given the favorable prospects for biofuels from a wide potentially arable land in Zambia for this to be done real- variety of feedstocks, there is no reason why Zambia could istically, since the country suff ers from a high level of land not canvass international support to build one new biore- degradation associated with very poor farming practices and fi nery each year for the next 10 years. Investment of $2000 the past ravages of the copper mining industry. million, or $2 billion, would be called for over the decade, Where, in fact, will the land in Zambia come from? most of which would come from international investors. Th e According to the UN Food and Agriculture Organization combined 10 biorefi neries, once built and operational, would (FAO), Zambia has just over 40 million hectares of arable generate income of $2 billion per year from consumers in land, of which only 9% is under cultivation. So, in that case, the advanced countries, or if used for domestic purposes, 10 biorefi neries in Zambia would call on 500 000 hectares – a saving of $2 billion in oil imports. Let us say that it is or just one-eightieth of the country’s potentially arable 50:50 – so that the biorefi neries pull in $1 billion from the land.i Zambia could appeal to the World Bank and build 10 advanced world as well as save $1 billion in oil imports. Th ey biorefi neries each year over the next decade, and expand the will draw feedstocks from half a million hectares of land (if land under cultivation with biofuel feedstock to 0.5 million using ultra-effi cient sugarcane) and a larger area – perhaps hectares, from the present level of 3.6 million hectares being a million hectares – of mixed starch crops (for ethanol) and used to produce food, and still be way under the potentially oilseeds (for biodiesel) and provide employment potentially arable limit of 40 million hectares. for 250 000 people who would otherwise be on the brink of What does such a modern biorefi nery cost? In the USA, the starvation and in need of food aid. new biofuels company Cilion is investing $80 million in each Th is is the real deal on food vs fuel. Th ere is no contest in a such 200 ML biorefi nery. Th is is a good price that refl ects the country like Zambia. Numerous studies have demonstrated fact that Cilion is in the market as a large purchaser, and that that Zambia is poor because its agriculture is of such low skilled labor and materials are on hand, due to the current productivity, linked to the fact that farmers have poor equip- boom in building ethanol plants in the USA. In a devel- ment, poor materials and poor tenure over their tiny plots oping country like Zambia, my industry contacts inform of land.18 Every hectare reclaimed from degraded land and me that a more realistic price would be $120 million for a used for growing biofuels to be sold commercially (locally 200 ML biorefi nery – a capital project cost of $0.60c a liter as or through export) will be creating an income generator that compared with Cilion’s cost of $0.40c a liter. Add a further can be used by people to feed themselves and to lift them- $0.40c a liter for costs of capital, amortization and other selves out of poverty. And technologically, the biorefi neries charges, so that the total real costs would be $200 million. will act as powerful propagators of advanced technology Th ere would, of course, also be further costs incurred by the and effi cient management – two features sorely needed in a need for infrastructure, ports, roads and possibly pipelines. country like Zambia. Zambia would no doubt call on an investment consortium We can see what is possible by comparing the situation in to build such a biorefi nery and infrastructure, calling on Zambia with the small miracle that has occurred over the foreign investors as well as local entrepreneurs and (if the last three years in its neighboring country, Malawi. Malawi government is smart) maintaining 51% local control over the has for years adhered to the World Bank and USAID stric- process. In fact this is exactly what is happening in Zambia tures to liberalize agriculture and eliminate subsidies for right now, with a plant being commissioned by the UK fi rm inputs such as fertilizer – despite the rich countries paying D1 Oils, together with local Zambian partners. their own farmers billions in subsidies that grossly distort agricultural markets. But aft er a terrible harvest in 2005,

iThis assumes a productivity of 4000 liters per hectare (less than is obtained Malawi’s President, Bingu wa Mutharika, fi nally did as the today in Brazil) and an annual output from each biorefinery of 200ML, or 400ML rich countries acted, not as they preached. His government for the two refineries. Hence the area needed to sustain such an output for the reinstated fertilizer subsidies and seed subsidies. Th e results:

two biorefineries would be 50 000 hectares each, or 100 000 for the two. On record-breaking crops in 2006 and again in 2007. Corn biorefinery costings, see Bohlmann.17 production leapt from 1.2 million tons in 2005 to 2.7 million

108 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

in 2006 and 3.4 million in 2007. In 2006, roughly half the group then notes the terrible suff ering caused by famine in country’s farming families received coupons entitling them Zambia. But the famine is not caused by growing biofuels – to purchase two 50kg bags of fertilizer for $15 – or one-third none are being produced in Zambia as yet. Th e famine is of the market price. Th is was enough to fertilize nearly half caused by desperate poverty and desperately low agricultural a hectare of land. Th ey also received subsidized seed to plant productivity – both matters that can be improved by turning a quarter of a hectare. Th ese tiny subsidies were suffi cient to to biofuels and subsidizing fertilizer inputs, as in Malawi. generate a leap in agricultural productivity, and turn Malawi And then Biofuelwatch veers off and seems to assume that from a basket case to a breadbasket, selling more corn to biofuel production would be at the expense of food produc- the United Nations World Food Program than any other tion, and that biofuels would be literally taking food out country in sub-Saharan Africa.j the mouths of starving people. But as we have seen, biofuel If all countries in Africa followed this Malawi example, production would be in addition to whatever low-produc- obviously the potential for producing fuel to substitute for tivity food production is going on, and would actually raise oil imports, and to generate fuel exports, would be enor- the productivity of food production overall. With sound mous. Th e issue is to get the process of transition started.k management from the government, it would take place on Th e IEA’s Bioenergy Task 40 researchers have estimated land not already under cultivation, such as on degraded Africa’s potential as being able to generate seven times the land from mining in the copperbelt, and would involve entire energy currently consumed as oil throughout the cultivation of non-edible crops like jatropha so that there world.l In fact Africa’s agricultural potential is vast, and it can be no question of any competition being forced between can be tapped only when investments are made in the rele- food and fuel. A sensible land reform program such as has vant inputs, including fertilizer, improved seeds, infrastruc- been driven through in Brazil under the biodiesel program ture such as roads and ports, and above all in the skills of would ensure that the principal benefi ciaries would be land- the farmers themselves, who need to know about the choices less laborers. As a fi nal swipe, the group states that the fuel available to them. produced is destined ‘for cars in Europe and possibly other Now compare this with what an NGO like Biofuelwatch rich countries’ – as if such a destination is immoral in a has to say on the topic of biofuels to be grown in Malawi country where people are starving. But the reality is that and Zambia.m Th e group notes fi rst that global warming will biofuels exported to the North would be a magic wand to make agriculture more diffi cult in such a country – a general pull in income from the North – substantial income of $1 statement that is true enough but which applies to the planet billion per year (far exceeding what is granted by food aid). rather than to Zambia specifi cally. It implies that more And this income would be precisely what is needed to solve advanced agricultural techniques might be needed – Zambia’s hunger problem and kick-start a process of indus- something that biofuel production would address. Th e trial development. Far from growing biofuels in Africa being seen as a ‘crime against humanity’ the real crime is to stunt jSee the story ‘Ending famine, simply by ignoring the experts’ by Celia Dugger Africa’s potential as an agricultural producer of food, fi ber (New York Times, December 2, 2007) at: http://www.nytimes.com/2007/12/02/ and fuel, and preventing countries from choosing a policy world/africa/02malawi.html. to kick-start their industrialization through the use of their kSee the story by Kimani Chege, ‘Biofuel: Africa’s new oil?’ at SciDev, Decem- abundant resources. ber 5, 2007: http://www.scidev.net/dossiers/index.cfm?fuseaction=dossierre aditem&dossier=4&type=2&itemid=667&language=1; as well as the article by Building 2000 bioreﬁ neries in the South Marguerite Culot on prospects for biofuels in Africa (Culot 2007). over the next decade lSee the Biopact report ‘Malawi’s super harvest proves biofuel critics wrong – or, how to beat hunger and produce more oil than OPEC’, available at: http:// Let’s scale up the role play for Zambia and consider an biopact.com/2007/12/malawis-super-harvest-proves-anti.html overarching goal for the South as a whole of building 200

mSee ‘Country study #1: Jatropha plantations in Malawi and Zambia’ in Almuth biorefi neries each year over the course of the next decade, Ernsting, Biofuels: Renewable Energy or Environmental Disaster in the Making?, resulting in 2000 such biorefi neries by the end of the Biofuelwatch, available at: http://www.biofuelwatch.org.uk/biofuel_paper.pdf decade. Is such a goal feasible? What could such a program

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 109 J Mathews Perspective: Biofuels, climate change and industrial development

accomplish? Again let us assume that latecomer advantages Egypt. Obviously, such an area can be found without diffi - are being captured, and that the biorefi neries are technically culty in Africa, South Asia and Latin America. For example, advanced, being able to produce ethanol from starch-based according to the FAO, this cropland is already available in feedstocks or sugarcane, as well as biodiesel from a variety just one African country, namely the Democratic Republic of oilseeds.19 of the Congo (DRC) – torn by civil war for the past four If the refi neries match the current modular variety being decades. According to Dr Josef Schmidhuber, senior econo- invested in by Cilion, and have an annual production mist at the FAO, the DRC has between 80 and 115 million capacity of 200ML of ethanol, then their combined output hectares of arable land – excluding forested land; only 5% of aft er all are constructed over the course of a decade would this land is currently utilized for food production.n be 400 billion liters of ethanol. Compared with current In overall terms it is easy to see why this is a feasible Brazilian output of just under 20 billion liters in 2006, this is proposition for the South, but quite impossible for the an increase of 20 times what Brazil can currently achieve. North – at least, using fi rst-generation technology that Is there a market in the North for such an output? ferments ethanol from high-sugar or high-starch feedstocks Certainly there is. Th is is the energy contained in 7 million like sugarcane, or cassava. As the world moves to second- barrels of ethanol per day, or 5 million barrels of oil equiva- generation biofuel production, utilizing a huge variety of lent per day (because ethanol has a slightly lower energy much more abundant and cheaper biomass (such as tops content than gasoline). It amounts to about one-fi ft h of and crushed remains of sugarcane in the South, or wood OECD countries’ current transport fuel requirements. So residues, grasses or municipal waste in the North), then the it could accommodate the whole of the OECD moving to situation changes. But that is a decade away. We are talking an E20 blend, which is in line with current mandates being about the possibilities available now. promulgated by the EU, by the USA and by individual states In terms of investment required, most of which would such as California. be mobilized in the North, if we take $200 million as the Let us assume, for the moment, that such a goal is achiev- benchmark (based on the amount invested by Cilion in each able. What would be the output and input implications? On of its biorefi neries plus a risk mark-up as well as costs of the output side, 400 billion liters of ethanol produced in the capital) then a total of $400 billion would be needed over 10 South could be sold in the North (assuming a price of $1 per years, or on average $40 billion per year.o liter) for $400 billion. Alternatively this output could be used Is this a feasible fi nancial goal? Actually it is entirely domestically to off set imports of oil and their damaging feasible, by making some quick comparisons. Th e global eff ects on balance of payments, in this case by $400 billion. oil industry invested just over $50 billion in new refi ning Again let us assume 50:50, and agree that 2000 biorefi neries capacity in 2005, up from $34 billion in 2000, according to would earn the South $200 billion in hard currency, and the IEA’s World Energy Outlook 2006. So biorefi ning in the save the South $200 billion in expenditure on imports of oil. South would, by these calculations, still be attracting less Th ese sums dwarf current aid fl ows, debt forgiveness and than the investment that is currently going into oil refi ning. the current World Bank Global Environment Facility that In fact, the oil and gas industry anticipates investing a total stands at just over $1 billion. Th ese sums, in other words, of $470 billion in just a single year, by 2010 – again, accor- start to make a real impact on the industrial development ding to estimates from the IEA. Th is fi gure encompasses all prospects of the South. On the input side, each biorefi nery would draw on 50 000 nDr Schmidhuber made his comments to Reuters in January 2008; see ‘Bright hectares of cropland (calculated as the most effi cient energy future for biofuels in Congo, UN says’, available at: http://africa.reuters.com/ producer, sugarcane), so 2000 such refi neries would draw on business/news/usnBAN747406.html

100 million hectares of extra cropland devoted to biofuels, oFor simplicity, these figures are given without Discounted Cash Flow cor- over and above what is allocated to food production. Th is is rections; obviously in any serious investment plan, the DCF factors would be an area of 1 million square kilometers, or an area the size of included.

110 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

investments, in exploration, acquiring new leases, purchasing In much of the literature, this is discussed in an unbal- rigs and ships, building pipelines, and so on. As the biofuels anced way, attributing to biofuels development perverse industry becomes a serious global entity, a similar scale of outcomes that merely refl ect the current fears related to investment will be called for. But right now, it can be seen practices in the North. We are not talking about expanding that $400 billion over 10 years is a modest goal for fuels that ergocultural output in the North, but in the South. Other- the North wants and needs.p wise very smart commentators, who go on debating the For a diff erent kind of comparison, consider global energy yield of corn-based ethanol production in temperate Foreign Direct Investment (FDI) fl ows from developed to climates – as if it really mattered –still do not grasp this. developing countries, which amounted to $334 billion for Th e point is that the yield of corn-based ethanol will never just the single year 2005 (UNCTAD 2006).20 If this were match that of tropical cane-based ethanol, or cassava-based repeated over the course of a decade, the cumulative FDI ethanol, and so the debate over the merits of the corn-based of $3,340 billion would exceed by tenfold the investment variety should cease forthwith. needed for biorefi neries.q Th e second misunderstanding is that people argue whether Indeed the entire enterprise could be funded by the oil biofuels could substitute entirely for the present level of industry. Profi ts of the global oil industry in 2005/2006 petrofuel consumption – which stands at over 80 million were $140 billion, and profi ts of Exxon-Mobil, the largest oil barrels of oil per day.r But this will never happen, and will company, were $35 billion in 2005 and $40 billion in 2006. never need to happen. Apart from the fact that improved So Exxon-Mobil on its own could fi nance the entire biofuels fuel effi ciency standards will doubtless be enforced all program in the South over a 10-year period, thereby trans- over the world, including in laggards such as the USA and forming itself from being the world’s largest oil company to Australia, the real reason why biofuels need only make up the world’s largest biofuels company. But this is extremely for up to a fi ft h of current levels of consumption is that unlikely, partly because the oil giants of the West are transport systems – once weaned off the tyranny of fossil extremely slow to move into new investments, but mainly fuels – will rapidly fi nd new and more energy-effi cient because there is a fl ood of new investment being attracted forms of propulsion than burning carbon-based fuel in a into biofuels. tank. Electric vehicles of various kinds, as were produced by GM and Ford in the 1990s before they hastily closed down Issues and concerns raised by expansion the whole operation,s and equipped with vastly improved of biofuels – and how to deal with them batteries for storing energy, and green power from utilities sourcing their power generation from renewable sources Th e issues raised by the building of 2000 biorefi neries in the (including biomass) for charging the batteries, will take over South to produce one-fi ft h of the fuel needs of the North, are within a matter of a few years – perhaps by 2020 or therea- several. Every one of them is important. Let us go through bouts or even earlier.t Biofuels will have served their purpose these issues, in an attempt to forestall genuine concerns and lay down a set of criteria that would be needed if biofuels

production in the South is to be sustainable and non-climate rThis is the misunderstanding that underpins the otherwise excellent Editorial in threatening. The Independent, ‘A switch to biofuels will not save the planet’, March 17, 2007.

sSee the documentary ‘Who killed the electric car?’, written and directed by

pThe special study in the IEA 2006 report, on ‘Current trends in oil and gas Chris Paine, where the case that GM sabotaged its own EV1 car in order to investment’, the planned investment by the oil and gas industry in the five years focus instead on SUVs; see official movie website at: http://us.imdb.com/title/ from 2005 to 2010 would rise from $340 billion in 2005 to $470 billion in 2010 – tt0489037/combined but allowing for inflation adjustments, this is no more than a 5% increase. tFor a report on progress with the ‘smart’ electric car, the ‘Think City’ due to be

qThese figures revise those published in an earlier article of mine,1 where a produced in Norway in 2008, see the report ‘Have you driven a Fjord lately?’, higher investment level of US$1 is assumed for every liter of ethanol produced available at: http://money.cnn.com/magazines/business2/business2_ar- per year. chive/2007/08/01/100138830/index.htm

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 111 J Mathews Perspective: Biofuels, climate change and industrial development

in weaning the world off petrofuels and greening our trans- will be vastly expanded and reduced in cost, as leaves, grass port systems. But even more signifi cantly, they will have and woody materials become available to second-generation served the extremely valuable function of giving the under- bioconversion processes. So fi rst-generation processes that developed world one last shot at catching up with the West require extensive hectarage will give way to second-generation and abolishing poverty. processes, which will not call for such intensive land usage, As noted above, the principal concerns raised by the even while productivity improves. Even with the extensive expansion of biofuels in the South are these: hectarage required, the resources in developing regions, particularly Africa, are certainly available – as mentioned • Pressure on land and other resources, particularly water; above with regard to the DCR. Th is vast country, larger than • Th reat of more intensive agricultural techniques, Western Europe, could easily accommodate the biofuel needs resulting in greater use of pesticides and fertilizers, and of Europe. more intensive monoculture; But the best answer to the concern over resources is for • Food production to be put under pressure; developing countries to adopt the best available agricul- • Deforestation to create monocultures; and tural practices, and in particular to adopt biochar amend- • Social concerns such as the potential spread of large ment to soils, which will lower the costs of producing crops, plantations and corporate agribusiness models at the lower the resource intensity of production, and above all, expense of small-scale farming. make the biofuels produced carbon negative. How is this possible? Over-extension of resources and non-sustainable culture Th is is the dominant concern from which much else derives. Carbon-negative biofuels People fear an unstoppable process that will start with seas Th e best answer to concerns over the spoliation of soil and of sugarcane in Brazil and extend to oceans of sugarcane possible intensifi cation of nitrogen oxide emissions is for in other tropical countries, covering Latin and Central the South to promote carbon-negative biofuel activities – America, Africa and Southeast Asia, destroying rainforests, again, with full support from the North. Biofuels are wrecking ecosystems, leaching the soil, creating fertilizer carbon neutral, in principle, because they return carbon and pesticide runoff s that will poison the oceans – and all to the atmosphere that was removed by the growing plants for fuels that will simply keep the world’s SUV drivers in through photosynthesis. But what if less carbon is emitted their cars for a few more years before they are forced to to the atmosphere than was removed by growing biomass? change their destructive habits. Th at just about sums up the Th en we have a case of carbon negativity – a case where sense of the objections made so far. carbon is being removed from the atmosphere. It can be As with many other controversial issues, there is an unde- achieved simply by, for example, converting part of the niable element of truth to these concerns. Untrammelled biomass to charcoal (biochar) and then returning this growth in biofuel feedstocks driven solely by market forces biochar to the soil, where it is securely (bio-)sequestered. would undoubtedly lead to many of these fears being real- Biochar is produced by a process of slow burning biomass ized, depending on prices of oil and of vegetable food oils. in the absence of oxygen (slow pyrolysis). Th ere is an alter- Much of this concern stems from a misunderstanding that native of ‘fast pyrolysis’ where biomass is exposed to a extrapolates production of a few million liters of biofuel high temperature (in excess of 500ºC) for a few seconds; today to billions and billions of liters tomorrow. But it can but this has largely been focused on production of gases safely be assumed that the scale of 2000 biorefi neries using or liquids as fuels, rather than on biochar.21 Either way, fi rst-generation bioconversion technologies will never have it is the addition of black carbon to soil that provides the to be exceeded. Th ere is no prospect of fi rst-generation means of permanently sequestering the carbon. But this bioconversion technologies being dominant for much more process turns out to have an array of benefi cial eff ects that than a decade or at most two. Aft er that, biomass feedstocks are now being discussed in a growing and lively literature

112 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

that refl ects current experimental validation of biochar’s federal support towards biochar initiatives.v It is high time eff ects.22–26 that similar legislative initiatives were taken in the coun- It turns out that biochar increases the fertility of the soil, tries of the South – starting with Brazil itself, where biochar not in the form of organic carbon, but in the way that a amendment of soil was discovered centuries ago. coral reef increases the nutrients available to biota in the sea. Microorganisms that fi x nitrogen, for example, are Fear of more intensive agricultural techniques encouraged by the addition of biochar, and it has a quite Experience with bad land-conservation practices, over-use of spectacular impact on reducing release of other GHGs, such chemicals and non-sustainable monoculture in the agricul- as nitrous oxide.27 Th us soils that are being impoverished by tural systems of many developing countries does not inspire conventional fertilizer-driven agriculture have the chance confi dence that biofuels will fare any better. Yet the impo- to be regenerated through production of biofuels combined sition of sustainability standards, for example as part of a with biochar amendment to the soils. comprehensive Biopact, could have decisive impact – because Th ere is everything to be gained by developing countries tropical developing countries can aff ord to grow biofuels taking an initiative from the South and setting biochar stand- sustainably, and indeed have to do so in order to main- ards such that all biofuels grown and produced in the South tain the claim that their eff orts are leading to an improved are ‘carbon negative’. Th is would not only greatly enhance global environment. More to the point, many have already the soil, and reduce the impact of GHG emissions (particu- demonstrated their capacity to do so. Repeated studies of larly those emanating from nitrogen oxides) but would rebut biofuel production in Brazil demonstrate how bioethanol, for much of the negative press that dogs biofuels in the North. example, produced from sugarcane, can be produced with And in so doing, the countries of the South would be making chemical inputs lower than in countries of the North, with a connection with their own history. It is now known and water inputs lower than in the North, and with energy output understood that the fertile soil of the Amazon, called terra much higher (eight times higher) than in the North. preta (black soil) by the Portuguese colonists, is due to I have myself visited a biorefi nery and associated sugar- hundreds of years of cumulative addition of charcoal to the cane plantation that operates entirely on organic principles, soil. Th us biochar amendment of soil is a pre-Columbian with zero chemicals input, and recycling all organic mate- technology that has only now been rediscovered in the North. rials within the growing system. Th is sets a benchmark that It is only fi tting that it be applied fi rst on a large scale by the could be achieved – with some standard setting by a global tropical countries of the South. trade agreement – in countries growing biofuels throughout I have argued that producers of biofuels can make a stra- the tropics.w tegic choice as to how much of the biomass they raise into Again, carbon-negative biofuels provide the key to a solu- production of fuel and how much into carbon sequestration – tion on this issue, since biochar amendment to the soil such as through production of biochar and its permanent reduces the need for conventional fertilizers, reduces water sequestration of carbon in the soil.4–5,u

In terms of atmospheric carbon sequestration, scholars vThe Bill introduced by Rep. Salazar is the Salazar Harvesting Energy Act 2007. such as Lehmann and others believe that gigatonnes of The content of the Bill can be found here: http://www.biochar-international. carbon can be removed through biochar amendment of org/images/S.1884_Salazar_Harvesting_Energy_Act_of_2007.pdf soils – up to 4 Gt per year, or as much as the carbon fl ux For commentary on its biochar provisions, see: http://www.biochar-interna- currently created through burning of all fossil fuels. Th ere is tional.org/policyintheus.html already a legislative initiative in the US Congress to channel wThe sugarcane plantation and associated sugar and alcohol biorefinery is the San Francisco refinery (Usina Sao Francesco) operated by the Balbo family and

uFowles depicts the choice between biofuels and biochar as an either/or located in the heart of the Brazilian cane growing province of Ribeirao Preto.

choice,28 but it is more instructive to view these as end-points in a strategic con- For a discussion of the enterprise, and its ‘Native’ brand of organic products, tinuum. As argued in this contribution, there is every reason to expect farmers to see ‘Brazilian mill makes profitable switch to organic’, available at: http://www.

produce both biofuels and biochar. caudillweb.com/triplestandards/en/Article.aspx?id=26

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 113 J Mathews Perspective: Biofuels, climate change and industrial development

needs and water run-off , and generally reduces drastically the is clearly the case in Malawi and Zambia. So in this case, a ecological footprint of agricultural activities. Th is can only switch from poor agricultural yields in food crops to higher be to the benefi t of farmers in the developing countries. Th e agricultural yields with biofuels (through South – South tech- other major agricultural revolution just waiting to happen is nology transfer, for example) could raise technological stand- that involving perennial crops rather than annuals, even for ards generally and raise incomes for the poor, which would grain-bearing crops. Th is is another revolution that could enable them to purchase food (or make the time to grow their well be triggered in developing countries through growing own food at higher yields) and purchase self-sustaining serv- biofuels, where deep-rooted, carbon-conserving approaches ices as well – such as education for their children and better will be seen to carry powerful advantages over Western health care. In other words, in the South increasing returns fossil-fuel-driven monoculture approaches.29 are possible: the same inputs can yield greater outputs than in the North. Food vs fuel Of course, a pure market-driven transition to a transport Th e other clear concern expressed by numerous authors system of the North with partial biofuel substitution will fearful of biofuels is that they will put further pressure on lead to food vs fuel distortions and price shift s that might be already stretched agricultural activities, resulting in food damaging to the poor, as well as to consumers in the North. shortages and possible famines in the South. Of course this Th is is yet another reason why a regulated transition is so is a possibility if biofuels production is allowed to expand in desirable, one that is regulated under the rules of world trade a totally uncontrolled fashion and with big Northern agri- and the World Trade Organisation (WTO). business companies entering markets in the South to create Th e Chinese recognize this problem better than most, vast monoculture plantations. Th is is one model of develop- since they have a history of dealing with periodic famines. ment of a global biofuel industry, and one that has history on Th ey experienced a recent spurt in ethanol production that its side – as verifi ed by looking at how all previous resource- could be traced to the existence of a surplus in grain and based industries from copper to cocoa have developed, with corn production. But in years of shortage, the Chinese have Western multinational corporations in control. But with no intention of allowing fuel ethanol to be produced at the biofuels there is a chance of doing things diff erently. expense of grain needed for food. Th e National Develop- In fact, as argued above, the food vs fuel debate is entirely ment and Reform Commission (NDRC) is reported to be wrong-headed as presented by NGOs and vested interests. We mulling regulations that would phase out use of food crops have to make the clearest possible distinction between food for production of fi rst-generation ethanol.x If the rest of vs fuel in the North, and the quite diff erent circumstances the world followed the Chinese example, and legislated to that apply in the South. In the North, wealthy farmers and ensure that corn and grain would only be used for biofuel agribusinesses are producing more or less on the technical production if there are excess supplies, then the problem effi ciency margin, where perfect substitutability prevails. A would vanish. Alternatively there exist a host of crops little less corn here, and a little more wheat there, or alfalfa, or and feedstocks that do not compete directly as foods, and whatever, is the norm. And in the North, where agricultural which should be favored for biofuel initiatives – and would effi ciency is near-maximum, a large-scale diversion of food be favored if policy prescribed such an outcome. Again, crops to fuel crops would have predictable impact on food a comprehensive trade Biopact could concern itself with prices, and not just at the end of the food chain but at every ensuring such an outcome. step along it, on feed prices for livestock for example. Th is is all perfectly predictable using neoclassical microeconomics. Deforestation In the South, very diff erent conditions apply. Agriculture Biofuels produced in the South could exacerbate trends in general is not carried out at maximal effi ciencies, so that toward global warming, such as through increased perfect substitutability does not prevail. On the contrary, a

lot of agriculture in the South is well below maximal effi cien- xSee ‘China mulls banning food in ethanol fuel production’, available at: http:// cies, and sometimes a very long way below such levels – as news.xinhuanet.com/english/2007-06/11/content_6224333.htm

114 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

carbon dioxide emissions through loss of tropical rainforest carbon emissions. Yet there are currently no mechanisms in cover or burning of peatlands in Southeast Asia; or through place to off er tropical developing countries any incentive for irresponsible agricultural runoff s that are high in nitrogen preserving these important carbon sinks. Th e Kyoto Protocol and add nitrogen oxides to the planet’s GHGs. Irresponsible excludes deforestation issues, even from the Clean Develop- and unrestrained expansion of the biofuels sector in the ment Mechanism, whereas re-aff orestation aft er clearing is South could indeed lead to these calamitous outcomes. It is rewarded in the form of carbon credits. Th e perversity of the fear of such outcomes that drives much of the opposition such a situation scarcely needs underlining – as discussed by to biofuels, no matter how or where produced. the Stern report.33 Th e principal source of concern is the uncontrolled While some proposals from developed countries have burning of the rainforest in the Amazon and in Southeast canvassed the possibility of exchanging debt relief for Asia, such as in Sarawak and Borneo. Th is is a clear source forest conservation, two serious proposals have emerged of concern to any rational person, and some way has to from tropical developing countries themselves. One from be found to stop it. Th e way that is currently favored is for Brazil involves the allocation of off sets against Kyoto NGOs in the North to brand palm oil from Southeast Asia Protocol targets while a more ambitious proposal has been as ‘deforestation diesel’ and take direct political action to advanced by the Coalition for Rainforest Nations (led by block its entry into the markets of the North. But this is New Guinea and Costa Rica) that envisages carbon credits simply disguised protectionism and hand-wringing. A far exchangeable in international carbon markets being allo- more eff ective approach lies in the negotiation of a trade pact cated to such countries.34 Th is latter proposal, by applying where one of the principal clauses would be an uncondi- to the country as a whole, gets around the feared ‘loophole’ tional ban on sourcing biofuels from newly deforested lands, that would see compensated projects simply being substi- with an adequate tracing mechanism (probably involving tuted by new projects in the same country. Such carbon satellite monitoring) to ensure that it can be enforced. Th is credits could generate fi nancial owsfl that would off er could be combined with transfer payments made to such serious compensation to countries for denying themselves countries in return for keeping their rainforests intact.3,30–32 the short-term benefi ts fl owing from forest clearing, and Th e fact is that in almost all tropical countries of the provide them with the international backing needed to South there is an abundance of degraded land that would stop illegal deforestation – a policy proposal supported by be suitable for biofuel cultivation without placing any pres- Stiglitz (2007)35 amongst others. Th is proposal of the Rain- sure on rainforests in itself. But it has to be recognized that forest Coalition is the best defence yet proposed to protect so far, most of the pressure on rainforests has come from rainforests as carbon sinks rather than see them converted logging concerns and agribusinesses interested in growing to food or fuel crops.y It is heartening that the Bali Confer- food crops such as palm oil and soya. Th e possibility of ence of the Parties in December 2007 fi nally put deforesta- growing biofuels has only emerged recently. Th e fact that it tion issues on the Kyoto negotiating table, in the form of a is of recent origin means that it could eff ectively be stopped, statement on REDD: Reduced emissions from deforestation and stopped immediately. Th e governments in the countries and degradation.z concerned are for the most part only too willing to join forces with the North to curb the illegal deforestation. yFor a representative discussion of ‘avoided deforestation’ or what is termed Tropical developing countries preserve for the Earth as a more formally Reduced Emissions from Deforestation and Degradation (REDD) whole a vast public resource in the form of conserved rain- see ‘Can carbon trading save our ecosystems?’ available at: http://wrmbul- forest which acts as a powerful carbon sink. According to the letin.wordpress.com/2007/08/06/%E2%80%98reduced-emissions-from- United Nations Framework for Climate Change Convention deforestation%E2%80%99-redd-can-carbon-trading-save-our-ecosystems/

(UNFCCC), if this rainforest is cleared (which is happening zUNFCCC statement on deforestation, Bali COP 13, ‘Reducing emissions now at a rate of 1–2% per year) then it releases carbon emis- from deforestation in developing countries: Approaches to stimulate action’ sions (from loss of carbon sink as well as release of carbon (December 17, 2007), available at: http://unfccc.int/files/meetings/cop_13/ap- through burning) amounting to 25% of total planetary plication/pdf/cp_redd.pdf

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 115 J Mathews Perspective: Biofuels, climate change and industrial development

Social concerns – driving small-holders off the land Agricultural Council (CAS: Consejo Agropeduario del Sur) Brazil has led the world in the development of biofuels agreed on a program of action to promote biofuel and bioen- industry and energy independence, and in its latest guise, ergy activities, taking full account of the social, technical, promoting a biodiesel program, it deals directly with the economic and environmental issues involved. Th e Decla- social issues of land-holders – so let us review the meas- ration of the Ministers (meeting in Asuncion, Paraguay) ures that Brazil has put in place, to evaluate prospects for stated that: propagating them across to the entire tropical South. Th e ‘We stress the importance of bioenergy for the CAS 30-year saga of Brazil’s development of an ethanol industry member states and take account of the social, techno- is well known.36 Under the Lula administration it is now political and environmental implications of the sector. applying its own lessons from this experience in devel- From now on we consider bioenergy to be a priority oping a biodiesel industry, a program begun in 2005. Th is for the CAS, as it can contribute to local and territorial latest biofuel initiative from Brazil shows just what can be development.’aa achieved by a developing country that focuses its institu- Th is statement really stands for the position that could and tional innovations on capturing its latecomer eff ects (Box 1.) should be adopted universally throughout the South. Th e infl uence of the Brazilian experience is being propa-

gated through Latin America (and beyond). For example, aaSee the statement, and commentary, at Biopact: http://biopact.com/2007/12/ in December 2007, the member countries of the Southern south-american-countries-develop-joint.html

THE BRAZILIAN BIODIESEL PROGRAM

Th e Brazilian biodiesel program, which is now two years old, is well craft ed and executed. Th ere are at least four latecomer institutional features to the program that have not been widely recognized. First, it is a carefully incremental program, moving through three phases that have been widely discussed in Brazil – a fi rst, voluntary phase, bringing the country up to a level of 2% biodiesel when blended (following the example of the Proalcool program). By 2008, this 2% minimum becomes mandatory, and rises to 5% minimum blend by 2013. (Th e success of the program in its fi rst 18 months means that it is widely anticipated that the mandatory 5% blend (B5) will take eff ect at an earlier date, possibly as early as 2010.) Th us the country as a whole is being brought to a position where by 2010 at the latest (brought forward from the earlier goal of 2013) it will be producing 5% of all diesel requirements from vegetable oils, placing it in a position comparable to earlier European leaders. Th e program is overseen by the Ministry of Mines and Energy. Second, the capacity of the country is being ramped up in the initial, voluntary stage, by the smart expedient of staging national auctions for biodiesel – and thus creating a market for biodiesel. Four such auctions have been staged so far, by the National Petroleum Agency (ANP), the agency responsible for motor fuel standards. Th ese auctions have encouraged bids from potential suppliers who are thereby induced into the market. Th e auctions have also served as a means of setting guide- line prices for biodiesel, with each auction setting a lower price at which quantities of biodiesel are sold. Th e state-owned oil company, Petrobras, acts as the buyer of last resort, thereby ensuring that the auctions bear some relationship to market reality. Th ird, there is a distinct and explicit social goal to the biodiesel program – again, learning from the experience of the pro- alcohol program. Th e Ministry of Agrarian Development (which is pro small farmers) has shaped the biodiesel program with its ‘seal of social responsibility’ meaning that small farmers have to contribute over 50% to a large trader’s or distribu- tor’s biodiesel. It is only with such a seal that large companies receive tax credits and are allowed to bid at the auctions. Th e impact has been dramatic, even in just two years. Th e President, Lula, who backs this program as the central initiative of his presidency, claims that 100 000 jobs have been created in Brazil’s impoverished north east through growing oilseeds (mainly castor oil).Th is is backed by data from the Ministry (MDA) showing that since the launch of the program, just over 200 000

116 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

small family-owned farms have been induced into growing oilseeds. Moreover the favored oilseeds are castor oilseed (Port: Manona) and palm oil (from a variety of native Brazilian species), rather than soybeans that are grown in the center and south east of the country. (Th is is in addition to the 500 000 rural jobs maintained by the Proalcool program, plus the 500 000 jobs indirectly linked to rural alcohol production.) Fourth, Brazil is backing a wide variety of oilseeds in these early stages of the program, to see which ones turn out to be best in a tropical country (and bearing in mind that European experience is confi ned exclusively to rapeseed and the US experience to soybean). Certainly output is currently dominated by soybean and palm-oil, but cottonseed and castor oil are also picking up, under the infl uence of the MDA’s social inclusion or rural smallholder development strategies. New candi- dates are coming on to the scene, such as the wonder oilseed Jatropha curcas, widely utilized for biodiesel in India (it grows under harsh conditions; it is a perennial that can be harvested regularly; and above all it is inedible, meaning that its cultivation will never be seen as a threat to food supplies). Th ere are, as well, conventional but under-utilized sources such as beef tallow, obtained from slaughterhouses. Th e broader Brazil’s scope of oilseed culture, the more it is able to take advantage of changes in world prices for these vegetable oil commodities, switching between one and the other. Th us it is a smart latecomer strategy to invest in variety at this early stage of the biodiesel industry. Th ese four central features of the program are driven by four ministries, all in the pursuit of highly creative latecomer strategies – the Ministry of Mines and Energy, backing renewable energies generally; the ANP, to safeguard standards and conduct the auctions; the MDA, which is essentially launching a new land reform program with the biodiesel projects, in its direct appeal to ‘social inclusion’ as a national goal of the program; and the Ministry of Agriculture, which is promoting a wide variety of oilseed crops and not just soybean. Th e success of the program to date indicates also successful collaboration between these four ministries.

What building 2000 bioreﬁ neries in the environment sphere but in terms of industrial development. South could accomplish Leaving aside the spurious rhetorical jibes about ‘fi lling an SUV tank’ before poor people’s stomachs, the fact of the Given that it is feasible to discuss a vast expansion of biofuels matter is that biofuels are one kind of crop that poor farmers potential in the South, let us now enumerate the benefi ts can grow, for a cash return, and that the sooner they start of such a large-scale biorefi nery investment program. Th e to organize to be able to grow such crops in abundance, the benefi ts that such a program would bring are numerous, sooner they will escape the poverty trap laid for them by above all for the countries initiating such a program, Western aid agencies.11,20,37,38 provided the program was placed under social control. As outlined above, they include: Kick-starting industrial development Smart countries will ensure that biofuel development • Building rural incomes and abolishing poverty goes hand in hand with the building of rural industrial • Kick-starting industrial development capacity. As in the case of Malawi, government subsidies • Generating fossil fuel import independence will be provided to ensure that agricultural productivity • Reducing pollution and generating cleaner air in cities is enhanced. In this way a development program can be • Creating development bloc and export revenues started, grounded – as it should be in Africa – in agricul- • Reduced GHG emissions through spread of carbon- tural activities. And in the case of biofuels, the curse that has neutral biofuels. blighted agricultural exports from the tropical South, namely Northern agricultural subsidies and market access barriers, Building rural incomes and abolishing poverty will not be applied for much longer – because the countries of Th e primary benefi t of a concerted drive to build biofuels the North need the fuels and will have to face up to the fact capacity in the South would be felt neither in the energy nor that they cannot produce these fuels themselves.

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 117 J Mathews Perspective: Biofuels, climate change and industrial development

Biofuels development can also help developing countries Production of crude oil (mn tonnes of oil equivalent) avoid the other trap which was the export of unprocessed Consumption of crude oil (mn tonnes) 400 primary commodities. Biofuels by contrast have to be proce- 350 ssed locally – and the building of biorefi neries as described 300

above can be expected to have repercussions all the way along 250 Net Imports the value chain. A third element favoring biofuels as a means 200

of promoting industrial development is that farmers can start 150

at a relatively low technological level while processors can 100

leapfrog to the most advanced biorefi nery technologies. Th e 50 two pathways can run in parallel. 0

197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006 Generating fossil fuel import independence Brazil has estimated the savings on its fuel import bills since Figure 1. China’s oil production and consumption, 1977–2006. the launch of the Proalcool program to be of the order of $50

billion per year – which is far larger than the country has Production of crude oil (mn tonnes of oil equivalent) spent in promoting ethanol. Likewise the savings for China Consumption of crude oil (mn tonnes) and India in foregone oil imports would be of the order 140 of hundreds of billions of dollars – the diff erence between 120 success and catastrophe in their development eff orts. Since 100 indebtedness problems are a major barrier to industrializa- 80 Net Imports tion, the relief of debt through displacement of fossil fuel 60

imports represents a major strategic shift . Some countries in 40

Africa are already taking steps to mandate blending of fossil 20

fuels with biofuels; Uganda is reported to be introducing 0 bb such a step. 197719781979198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006 China’s domestic supplies of oil peaked in the early 1990s, and so the country became dependent on oil imports – just Figure 2. India’s oil production and consumption, 1977–2006. like the USA 20 years before. Th e imports of oil needed by China have been rising inexorably ever since – as revealed highest priority. For the wealthy countries (OECD non-oil in Fig. 1. Th e situation is even worse in India, as shown in producing countries) oil imports represent around 2% of Fig. 2, where imports are expected to exceed 75% of the GDP. But for poor non-oil producing countries, the propor- country’s requirements by 2010. Th is is why an alternative tion is closer to 10%: the poor countries are fi ve times as energy foundation for their economies has to be put in place vulnerable.39 by these countries. What better way to reduce oil dependence and the crushing Th e poorer the country, the greater its dependence on burden of oil imports than to grow your own fuel? For the fossil fuel imports, and the greater its vulnerability to oil case of Malawi, with its newfound food exports in 2006/2007, price increases. Th is is the untold story concerning oil price the levels of food grown in surplus through the application of rises: while they may represent a boon for biofuel producers, fertilizers would have been suffi cient – if turned into fuel – to they represent a catastrophe for most developing countries. provide the country with all its oil imports, which currently Hence there is need for such countries to move to alterna- run at the level of 5500 barrels of oil per day.cc tive fuels, and in particular biofuels, as a matter of the ccSee ‘Malawi’s super harvest proves biofuel critics wrong – or, how to beat

bbSee ‘Country to blend fuel with ethanol’, The East African (Nairobi), September hunger and produce more oil than OPEC’, Biopact, December 4, 2007, available 26, 2006, available at: http://allafrica.com/stories/printable/200609260048.html at: http://biopact.com/12/malawis-super-harvest-proves-anti.html

118 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

Reducing pollution and generating cleaner air in agricultural inputs in the fi rst instance, including seed varie- cities ties, and cultivation techniques optimized for local, tropical One of the great but hidden costs of burning fossil fuels is development. In Brazil, for example, a massive research and the degradation of the air quality in cities – and one of the development (R&D) eff ort has been devoted to unlocking the great benefi ts of switching to biofuels is that they burn more biological secrets of sugar and ethanol. At the Centro de Tecn- cleanly. Technically, this is because they are oxygenated ologia Canavieira (Cane Technology Centre), an R&D facility fuels – alcohols like ethanol have oxygen in their struc- funded largely by the sugarcane industry, the genome of ture, as opposed to the long-chain hydrocarbons that make sugarcane Saccharum offi cinarum has been decoded, and used up petrofuels. For a graphic illustration of the diff erence, to select varieties that are more resistant to drought and pests observe a Bunsen burner on a laboratory bench: with the and that yield higher sugar content. Th e Centre has developed air vent open, the fl ame burns clear and blue; with the vent some 140 varieties of sugar, which has helped to drive costs closed the fl ame turns dirty and yellow. Th is is how we are down by 1% a year.41 As the industry expands, so it would burning petrofuels and why the air quality in cities is dete- be expected to form backward linkages to equipment and riorating so rapidly. Th e health costs associated with partly technology suppliers, and forward linkages to fuel distribu- combusted fuels (e.g. the build-up in carcinogenic poly- tion sectors. Th us the complexity and productivity-enhancing cyclic aromatic hydrocarbons (PAHs), in volatile organic potential of the developing economy would be enhanced. compounds (VOCs) and in particulate matter (PM) are now starting to be recognized; indeed Dr Ray Kearney at the Reduced GHG emissions University of Sydney brands fossil fuels as the ‘new asbestos’. Th e great attraction of biofuels is that they are, in principle, dd Author Terry Tamminen, former environmental adviser to GHG neutral: every molecule of carbon burnt and emitted Governor Arnold Schwarzenegger, puts it in his very eff ective into the atmosphere is replacing one that has been extracted text, Lives per Gallon: from the atmosphere by a growing plant in the process of ‘Aft er more than a hundred years of research, many of the photosynthesis. Of course, this is not always achieved in health eff ects of smog are well understood, yet they are practice. Th e more that fossil fuel inputs are needed along still very much out of control, both in the United States the value chain, the greater the ‘ecological footprint’ of the 40 and in a growing number of cities around the globe.’ biofuel. Debate rages in the USA because the plants utilized, Again it is developing countries that have the worst air and their treatment, ensures that the GHG emission reduc- pollution in cities, and have the most to gain from switching tions are marginal at best. fuels to biofuels that demonstrably burn more cleanly. But Again, taking a perspective from the South, we see that the eff ect will doubtless be moderated by the fact that people the ecological footprint of biofuels in the South is smaller drive older and less-well-maintained vehicles in developing than in the North, given the lower level of fossil fuel inputs countries. needed to produce energy in the South. Th is fact is never alluded to when discussing the contribution of developing Creating development bloc and export revenues countries to GHG emissions. Th e real problem arises when As mentioned above, the attractive feature of biofuels and discussing deforestation and clearing of wetlands. Insofar as bioenergy generally for developing countries is that the sector the spread of biofuels results in these developments, then it encourages development of complementary activities, even- is a source of planetary concern – and calls for a planetary tually encompassing an entire value chain. For the case of solution. biofuels, the development bloc would include plantations and

Investments in the South ddDr Ray Kearney, Associate professor at Sydney University’s Department of Infectious Diseases and Immunology. See his ‘Fossil fuels – the new “asbestos”’ Th ere are by now many examples of positive investment

in Opinion Online, November 23, 2005, available at: http://www.onlineopinion. strategies by fi rms originating in the North and engaging com.au/view.asp?article=3861 in investment in the South, in such a way that these general

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 119 J Mathews Perspective: Biofuels, climate change and industrial development

advantages can be seen to be captured. Th ree such examples smoothing the path for biofuels investments and transform are discussed in Box 2. themselves in the process into active agents driving industry Adecoagro, Brenco and BeCCo are just three of many new towards a new, bioenergetic and sustainable foundation. biofuels companies to emerge to take advantage of the new opportunities, raising fi nance in the North and investing Prospects for development heavily in refi ning and infrastructure in the South. A goal For developing countries looking to lift themselves out of of 2000 biorefi neries in the South over the course of the next poverty, the place to start is to build a biorefi nery, prefer- decade is one that is likely to be easily met by such pioneer ably one at the technological cutting edge that can handle investors, provided the business conditions are allowed to ethanol fermentation as well as oil extraction to produce remain favorable. Th is is where multilateral institutions biodiesel. Th e building of a biorefi nery in an impover- such as the World Bank and other regional lending institu- ished country is like building a superhighway through it; tions such as the InterAmerican Development Bank (IADB), it creates many opportunities for associated development. the Asian Development Bank and the Bank for African Th ese include local suppliers of equipment, providers of Development could make their mark.ee Th ey could focus on maintenance services, housing and health and educational services for those in the new biofuels industry – each such step ratcheting up the standards for the country as a whole. eeIn fact, the IADB is already taking steps to be an active partner in the development of a biofuels industry in the American hemisphere, through such initiatives But the principal eff ect of building a biorefi nery is to create as the InterAmerican Ethanol Commission. See ‘Florida’s Jeb Bush joins a demand for locally produced feedstock – whether it be Brazil in promoting ethanol in the Americas’, Brazzilmag, December 18, 2006, sugarcane, or cassava, or sweet sorghum, or (as discovered available at: http://www.brazzilmag.com/index2.php?option=com_content&do_ recently in the Niger Delta) the juice from the Nypa palm pdf=1&id=7687 which grows in mangrove swamps. And if the biorefi nery

BIOFUELS INVESTMENTS IN THE SOUTH: THE BRENCO, BECCO AND ADECOAGRO CASES

Brenco is an example of an investment company founded in Brazil by US investors who include Vinod Khosla, co-founder of the US ethanol producer Cilion. Brenco raised $200 million in a private placement in March 2007 organized by Goldman Sachs. Khosla’s co-backers include supermarket heir Ron Burkle, ex-World Bank president James Wolfensohn, fi lm producer Steven Bing, and AOL founder Steve Case. Th e fi rm expects further rounds of fi nancing to bring it to a level of $2 billion, which will be invested in biorefi neries in Brazil and elsewhere in the developing world. Th e new company will be headed by Philippe Reichstuhl, former head of Brazil’s state-owned oil company Petrobras, which itself is now becoming a signifi cant player in biofuels markets.kk Another such example is BeCCo, which also has goals of becoming one of the world’s largest biofuels companies. BeCCo is an interesting example of just how a company can link the USA and Europe to the developing South through an innovative biofuels business model. BeCCo is a start-up founded in 2005 and now has operations in Spain, Germany, Hungary, Israel, China, Brazil and Ethiopia. By 2010, the company plans to operate a dozen biorefi neries around the world producing 1.5 million tonnes of biodiesel per year, largely from jatropha and castor oilseed. Its strategy is to be vertically integrated, from leasing its own land, contracting with local farmers to grow the crops, crushing the seeds and refi ning the oil to biodiesel, and then negotiating long-term offt ake contracts with petroleum companies to take and distribute the product. If these plans are fulfi lled, BeCCo would emerge as one of the largest specialist biodiesel producers in the world. In China, BeCCo has secured leases over 200 000 hectares of land in the interior province of Sichuan where 3000 local farmers are now planting jatropha. It was in Sichuan that BeCCo made its fi rst major deal in China, signing an agreement with the local authorities to develop its biodiesel business. Th e plans call for construction of a biodiesel refi nery near Sichuan’s

120 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

capital, Panzhihua, with an initial capacity of 30 000 tonnes per year, and an initial investment of US$10 million, with expansion to 300 000 tonnes per year capacity. Th is deal opened the door to others, in Henan and Inner Mongolia provinces. BeCCo has secured a 10-year offt ake agreement with PetroChina to take the product. (Th is is a ‘take or pay’ contract.) It buys the seeds from small farmers through an agreement negotiated with China’s Bureau of Forestry. (Note the similarity of this arrangement with Brazil’s Ministry of Agricultural Development. Note also that BeCCo is not receiving any subsidies from the Chinese state authorities.) BeCCo’s competitive advantage lies in being fully integrated – from growing their own crops, to crushing the seeds and refi ning the oil to produce biodiesel. In China, BeCCo has developed an innovative hybrid of Jatropha curcas that is ready for harvest within months of planting – compared with the regular variety that requires three years from planting to harvest. A company director, Mr Shlomo Palas, told ReFocus (October 2006)42 that the new crop is capable of yielding four to six tonnes of fruit per hectare instead of two tonnes from the regular crop. A third example of innovative investments in the South is provided by Adecoagro. Th is company was founded in September 2002 and rapidly became one of the most important food and renewable energy producers in South America. It owns over 225 000 hectares of land with farms distributed throughout Argentina, Brazil and Uruguay, having main production activities that include crop, sugar, ethanol, coff ee, beef and dairy production. In June 2006, 6000 hectares of fi eld were bought in Venado Tuerto, where they will invest between $250 to $300 million to install a closed loop integrated production plant to produce ethanol from corn. Th e project is expected to achieve high levels of effi ciency by combining a dairy operation with a bioethanol plant. Th e striking feature is that because the ethanol is produced as a byproduct of other integrated activities, its marginal costs are zero. Th e fi rst dairy module was to be operational by the end of 2007 with a starting capacity of 1200 cows. Th e whole project calls for 500 000 tonnes per year of corn to produce 210 million liters of ethanol and suffi - cient byproducts to feed 45 000 cows. Animals are fed mixed rations of grain and silage, and produce dairy products in the form of almost 50 000 tonnes of powdered milk and cheeses. In the process, a million tonnes of manure will be biodigested to produce 37 million cubic meters of biogas, which can then fi re an advanced electric boiler, making the entire operation self-suffi cient in energy. Byproducts of carbon dioxide and biofertilizers can be marketed.ll Adecoagro is also developing its bioethanol interests in other countries of the South American cone, notably in Brazil.mm

produces biodiesel as well, then it will create a demand for kkSee ‘Brazilian ethanol startup to be called Brenco raises $200M towards $2B vegetable oils such as those from non-edible Jatropha, or goal’, available at: http://www.thealarmclock.com/mt/archives/2007/03/brazil- cottonseed, or linseed, as the Brazilians are demonstrating. ian_ethan.html ll Source: Integration of Anaerobic Digestion in Producers System (Integración How this demand is met will depend entirely on the de la digestión anaerobia en sistema de los productores) Available in Spanish institutional and policy framework created by the national only. Alejandro Lopez, Adecoagro 2007, available at: http://www.methane- government. If the government follows the Brazil (and tomarkets.org/events/2007/ag/docs/14may07_lopez_integration_of_ad_in_pro- Malawi) examples, it will create institutions for providing ducers_systems.pdf subsidized inputs, such as fertilizers; for establishing and mm Soros, one of the stars of the World Ethanol Summit 2007 Sao Paulo – Brazil, enforcing standards in the quality of the biofuels produced. is investing US$900 (€666) million in Brazil – in three sugarcane distilleries in It will create a national land reform commission to oversee the central-western state of Mato Grosso do Sul. The Hungarian-born billionaire the leasing of plots of land to currently landless peasants is putting his capital in a 150 00 hectare (370 500 acres) ethanol production who will be able to grow the feedstock and sell it to the project in the south-eastern state of Minas Gerais and Mato Grosso do Sul , biorefi nery operators. (Indeed the refi nery may be oper- which will be one of the largest mill complexes in Brazil. Soros’s Adecoagro will ated by an ergocultural cooperative.) It will create a market build three ethanol refineries in a first stage. He is also the largest investor in Brazil’s thriving sugarcane-based ethanol industry according to Marcos JANK, for the biofuels produced (e.g. through mandating biofuel [President of the Institute for International Trade Negotiations ( ICONE), Brazil]. levels) so that domestic imports of petrofuels are reduced or New investment will increase annual income of the group from the present $125 eliminated, prior to exporting excess biofuels. It may create million to $600 million in eight years. a national champion for this purpose, modelled on the

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 121 J Mathews Perspective: Biofuels, climate change and industrial development

success of Petrobras in Brazil or Petronas in Malaysia. It will by state and federal government programs and tax breaks certainly wish to create, or contribute towards, an Ergocul- off ered to these producers.gg Strong as the case for disman- tural R&D Institute that will focus on raising productivity tling such trade barriers is, the USA and the EU still buckle and expanding the range of feedstocks available for the local under to fossil fuel and farm lobby pressures and block soil types and climate. And of course all of these institutions attempts to have them dismantled.hh then exert propagation or ripple eff ects through the rest of Th e range of issues raised by the prospect of the North the economy, lift ing incomes and wealth levels and deep- sourcing biofuels from the South is such that they would be ening the technological and industrial capacities and capa- unlikely to be resolved by market forces alone. A comprehen- bilities. Th is is what we call development. sive agreement, negotiated between the countries of the North A template is needed for such institutional developments, (i.e. the OECD) and countries of the South, as a trade agree- and this is already available, in the achievements of Brazil. ment to be certifi ed and registered with the WTO, presents But Brazil cannot be left alone to spread the gospel of itself as an optimal way forward. Th e diffi culties involved in biofuels. Multilateral institutions such as the World Bank, achieving such a trade agreement (or Biopact) should not be UNCTAD and UNIDO should also be getting behind such under-estimated. What makes the whole process politically an initiative, to promote the goal of 2000 biorefi neries in the feasible is the driving, objective necessity faced by the North South over the course of the next decade. in having to fi nd an alternative to petrofuels, and fi nd one that has an impact within the next decade.ii Creating a global framework for biofuels: Th e quid pro quo to be off ered by the countries of the South A global trade ‘Biopact’ is sustainable and certifi able biofuels production. Under a Th e key obstacle to the scenario painted here is the exist- comprehensive agreement, there could be well-formulated ence of trade barriers erected by the North that block the certifi cation procedures that would hold producers to stand- emergence of a global market for biofuels. Already there is ards of production that would not threaten deforestation, substantial momentum behind the enactment of subsidies or soil degradation, or water wastage. Th ere are, of course, to encourage production of ethanol in northern temperate existing certifi cation procedures in related areas, such as the climates – from corn in the USA and from sugar beet in Standard for Sustainable Agriculture (SSA) and the Forest Northern Europe – where the costs of producing the fi nal Stewardship Council’s forest certifi cation system. But these product are far higher (two to three times) than in India or have had only modest success so far, in the absence of a Brazil. It would make so much more sense for the developed comprehensive trade agreement. One initiative that could world to produce ethanol on a small scale for its own energy have a dramatic eff ect would be to build ‘proof of origin’ security, and import the bulk of its supplies from tropical certifi cation into biofuels traded on commodities exchanges. countries in Asia, Africa and Central and South America. gg Many of the OECD countries already have erected These subsidies are received largely by agro-industrial groups such as the privately owned giants, Cargill or Archer Daniels Midland (ADM). According to a trade barriers against biofuels from the South, in a mind- recent report from the European Global Subsidies Initiative, the subsidies paid to less expansion of tariff barriers against foodstuff s. Th e US ethanol producers currently amount to $5.1 billion per year (GSI/IISD 2006). USA, for example, operates a tariff of $0.54c per gallon hhFor example, the International Herald Tribune reported in November 2007 that against ethanol imports, at the behest of corn-belt ethanol the USA and the EU were blocking a Brazilian attempt to have biofuels classi- ff producers. In addition, there are substantial subsidies paid fied at the WTO as ‘environmental goods’ and thus subject to lower tariffs. See: http://www.iht.com/articles/ap/2007/11/05/business/EU-FIN-ECO-WTO-US- ffIt is worth noting that US Secretary of Agriculture, Sam Bodman, stated at the Biofuels.php Davos summit meeting in January 2007 that the USA ‘will need to have more iiThe idea of the Biopact has been endorsed, in principle, by many in the inter- imports of ethanol’ to meet the new US mandate to cut gasoline use. Speaking national organizations, notably by the Director-General of the United Nations to Dow Jones Newswires at the World Economic Forum, Bodman said he does agency FAO, writing in the Financial Times in August 2007: ‘Biofuels should not see subsidies to US farmers remaining in place beyond 2010 or import benefit the poor, not the rich’ August 15, 2007, available at: http://www.ft.com/ tariffs on ethanol beyond 2008. cms/s/0/963b5354-4ac7-11dc-95b5-0000779fd2ac.html?nclick_check=1

122 © 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb Perspective: Biofuels, climate change and industrial development J Mathews

Such certifi cation would represent only a modest extension sources such as wind, solar, geothermal or whatever. Th is of technical documentation already demanded by commodi- is a medium-term solution to the world’s global warming ties exchanges such as Brazil’s Commodities and Futures problem (it is zero carbon-emitting) and to the world’s Exchange. Th e point is that certifi cation as part of a commod- energy security issues (green power is sustainable and decen- ities futures contract is legally enforceable. A Biopact could tralized and not beholden to any particular country or group then generalize this, making proof of origin a requirement of countries). It will come; indeed it is already on the way. for all biofuels traded under the agreement. With such strong But in the meantime there is a transitional issue and a backing, governments of countries in the South could clamp transitional hurdle to surmount, and time is needed to down hard on companies engaged in deforestation, putting adapt the world’s transport systems for alternative fuels perpetrators in jail. Strong measures are needed to stamp out and alternative power sources. Th e stranglehold of fossil unacceptable practices, and there should be no hesitation in fuels (as evidenced in the US Energy Bill that emerged in advocating and enforcing them.43–44 watered down form in the US Senate in December 2007) and Th e Biopact envisaged would have dramatic results in farm subsidies needs to be broken. And biofuels promise to both the North, where it would facilitate making countries break that stranglehold. In the process they will open up the biofuel-friendly (such as through promoting fl ex-fuel vehi- world’s transport and wider industries to new and regenera- cles and making biofuels widely available) and in the South, tive energy sources. Th is is their principal advantage and where the biofuels revolution could help drive industrial why they should be supported as a matter of urgency by development and spell an end to poverty. But the Biopact governments of the North and South as well as by global would not have to last forever. Within a decade, the advent institutions, such as the World Bank. of second-generation biofuels from a broad range of biomass Ethanol is a near-perfect substitute for petrol (gasoline) inputs (forest products, municipal waste, grasses) would in the transport sector because it has close to the energy make the countries of the North more self-suffi cient in content of gasoline while burning more cleanly (less pollu- biofuels, and the countries of the South more technologi- tion and untoward health eff ects) and being safer for the cally sophisticated. For both sets of countries the benefi ts of environment. Biodiesel is a near-perfect substitute for a Biopact are considerable. petrodiesel. Both these biofuels can be accommodated by existing infrastructure without the upheavals associated Concluding remarks with the introduction of a hydrogen economy. Both ethanol Th e twin pressures associated with energy security (peaking and methanol are near-perfect for fossil fuels substitutes of oil supplies) and the recognition of global warming because of their energy characteristics. Ethanol has around with its associated necessity for GHG emissions reduction, 64% of the energy content of gasoline, meaning that a car provide the context for the current discussion over biofuels. fuelled by ethanol will drive 64 km for every 100 km driven Under these circumstances continued increases in use of on gasoline. A huge amount of negative publicity was gener- petrofuels is no longer an option. ated against ethanol by virtue of this one fact alone – yet the Options such as the hydrogen economy and running elec- obvious point that 64% is a very high energy level was studi- tric vehicles through electricity supplied by nuclear reac- ously ignored, until recently. Now we hear almost nothing tors are just too far off to be of use in solving the present on this point from NGOs campaigning against biofuels. problem. A more immediate, transitional option is needed. Th e point is that production of biofuels in the Northern Th e keyword here is ‘transitional’. No-one expects that a countries including the USA and Japan, and indeed Europe, future regenerative and sustainable transport system will cannot reach the scale of production required to make a run on biofuels alone. Th e long-term solution is clearly meaningful contribution to fuel substitution, because of the electric vehicles (perhaps as hybrids, like the present Toyota untoward energetics, land-use issues, and competition with Prius) and electric public transport systems, where the elec- foodstuff s. Th ere are simply too many factors working against tric power is itself produced as ‘green power’ from renewable production of biofuels on the scale required, in the North.

© 2008 Society of Chemical Industry and John Wiley & Sons, Ltd | Biofuels, Bioprod. Bioref. 2:103–125 (2008); DOI: 10.1002/bbb 123 J Mathews Perspective: Biofuels, climate change and industrial development

Th ese factors work in the reverse direction in the tropical Th e prospect of biofuels consumed in the North and countries of the South. Production of both ethanol and sourced from the South represents a possibly enormous biodiesel on the scale required can be accommodated in the contribution to reducing GHG emissions if implemented in South. Th e land is available, as is the rainfall, particularly in a sensible manner. It represents a post-Kyoto way forward, the tropical countries, and much of the cultivation of biofuel bringing developing countries to the climate negotiating crops can be conducted on a sustainable basis, for example, table and reducing the infl uence of fossil fuel lobbies that by recycling wastes from bioreactors back to the fi elds. have so far stymied US involvement in the Kyoto and post- But the countries of the South, in Africa, Latin America Kyoto process. Th e Biopact would in all probability help to and South and Southeast Asia, need assurances and assist- pave the way for a post-Kyoto treaty arrangement that binds ance in mounting such a huge eff ort. Th e assurances would all the major countries of the world in a renewed attack on be focused on securing access to the markets of the North, the global warming problem. while the assistance would be in the form of FDI to build the A global North-South Biopact would see real progress needed biorefi neries without necessarily maintaining total in the accomplishment of energy security and curbing of ownership of these facilities. GHG emission goals. And it would give a boost to indus- With suitable guarantees and assistance, the South can trial development in countries of the South, particularly provide the biofuels that the North needs. Th is is the in Africa, that would dwarf anything made available globally rational solution. By sourcing biofuels from the hit herto through offi cial aid channels. Th is complements South, the North can solve both its energy security prob- the argument for a renewed focus on prospects for develop- lems and GHG emission problems. It would not be a matter ment of the poorest countries (inhabited by the ‘Bottom of substituting oil dependence on the Middle East for Billion’) made persuasively by former World Bank econo- biofuel dependence on Brazil, since the range of countries mist Paul Collier.45 Th is is the last chance for Africa to concerned would be wide; they would have no interest in enter the mainstream of world development. It must not be cutting off supplies; and the countries of the North would missed. maintain their own modest biofuel production capabilities as an insurance. But to reap these benefi ts, the countries References of the North need to open up their markets, which means 1. 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