BIOFUELS - AT WHAT COST ? Government support for ethanol and biodiesel in China November 2008 Prepared by : the Global Subsidies Initiative of the International Institute for Sustainable Development Based on a report commissioned by the GSI from the Energy Research Institute of the National Development and Reform Commission Biofuels – At What Cost? Government support for ethanol and biodiesel in China November 2008 Prepared by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) Geneva, Switzerland Based on a report commissioned by GSI from the Energy Research Institute of the National Development and Reform Commission, Beijing, China i | i Biofuels – At What Cost? Government support for ethanol and biodiesel in China November 2008 Prepared by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD) Geneva, Switzerland Based on a report commissioned by GSI from the Energy Research Institute of the National Development and Reform Commission, Beijing, China i | i © 2008, International Institute for Sustainable Development Acknowledgments The International Institute for Sustainable Development (IISD) contributes to sustainable development by advancing policy recommendations on international trade and investment, This report is based on an original study commissioned by the Global Subsidies Initiative economic policy, climate change and energy, measurement and assessment, and sustainable (GSI) from the Energy Research Institute (ERI) of the National Development and Reform natural resources management. Through the Internet, we report on international Commission (NDRC), China. The original report can be found at www.globalsubsidies.org. negotiations and share knowledge gained through collaborative projects with global partners, The ERI report was substantially expanded by Emma Cole, a private consultant, based in resulting in more rigorous research, capacity building in developing countries and better Canberra, Australia. The GSI is grateful to Ms. Cole for her expert and meticulous dialogue between North and South. development of the paper. The GSI also wishes to thank Mr. Ronald Steenblik, former GSI Director of Research, for his guidance on the project during its early stages, and his IISD’s vision is better living for all—sustainably. Its mission is to champion innovation, subsequent comments on various drafts. Several GSI staff also contributed to the project, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada including Tara Laan, Chris Charles and Charles Tsai. and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency A number of individuals were generous with their time and advice in peer-reviewing an (CIDA), the International Development Research Centre (IDRC) and Environment Canada; earlier version of this report. In particular, we thank: and from the Province of Manitoba. The Institute receives project funding from numerous Bryan Lohmar (Economic Research Service, U.S. Department of Agriculture, governments inside and outside Canada, United Nations agencies, foundations and the Washington D.C.); private sector. Charice Wang (Independent Consultant, London); International Institute for Sustainable Development Huihui Zhang (International Institute for Sustainable Development, Winnipeg); Lew Fulton (International Energy Agency, Paris) Head Office 161 Portage Avenue East, 6th Floor Masami Kojima (The World Bank, Washington, D.C.); and Winnipeg, Manitoba Peishen Wang (Independent consultant on China environmental issues, Winnipeg). Canada R3B 0Y4 Tel: +1 (204) 958-7700 The comments and insights of these experts helped to greatly improve the final version. Fax: +1 (204) 958-7710 However, the report should not be interpreted as necessarily representing their views. And, Web site: www.iisd.org as is always the case, any remaining errors or inaccuracies remain the responsibility of the authors. International Institute for Sustainable Development Finally, this effort and the other work of the GSI could not have been undertaken without Global Subsidies Initiative the generous support for the GSI provided by the governments of Denmark, the International Environment House 2 Netherlands, New Zealand and Sweden, and the William and Flora Hewlett Foundation. 9 chemin de Balexert The views expressed in this study do not necessarily reflect those of the GSI’s funders, nor 1219 Châtelaine should they be attributed to them. Geneva, Switzerland Tel: +41 22 917-8373 Fax: +41 22 917-8054 Web site: www.globalsubsidies.org Biofuels – At What Cost? Government support for ethanol and biodiesel in China By the Global Subsidies Initiative November 2008 ISBN: 978-1-894784-24-5 ii iii | ii | iii © 2008, International Institute for Sustainable Development Acknowledgments The International Institute for Sustainable Development (IISD) contributes to sustainable development by advancing policy recommendations on international trade and investment, This report is based on an original study commissioned by the Global Subsidies Initiative economic policy, climate change and energy, measurement and assessment, and sustainable (GSI) from the Energy Research Institute (ERI) of the National Development and Reform natural resources management. Through the Internet, we report on international Commission (NDRC), China. The original report can be found at www.globalsubsidies.org. negotiations and share knowledge gained through collaborative projects with global partners, The ERI report was substantially expanded by Emma Cole, a private consultant, based in resulting in more rigorous research, capacity building in developing countries and better Canberra, Australia. The GSI is grateful to Ms. Cole for her expert and meticulous dialogue between North and South. development of the paper. The GSI also wishes to thank Mr. Ronald Steenblik, former GSI Director of Research, for his guidance on the project during its early stages, and his IISD’s vision is better living for all—sustainably. Its mission is to champion innovation, subsequent comments on various drafts. Several GSI staff also contributed to the project, enabling societies to live sustainably. IISD is registered as a charitable organization in Canada including Tara Laan, Chris Charles and Charles Tsai. and has 501(c)(3) status in the United States. IISD receives core operating support from the Government of Canada, provided through the Canadian International Development Agency A number of individuals were generous with their time and advice in peer-reviewing an (CIDA), the International Development Research Centre (IDRC) and Environment Canada; earlier version of this report. In particular, we thank: and from the Province of Manitoba. The Institute receives project funding from numerous Bryan Lohmar (Economic Research Service, U.S. Department of Agriculture, governments inside and outside Canada, United Nations agencies, foundations and the Washington D.C.); private sector. Charice Wang (Independent Consultant, London); International Institute for Sustainable Development Huihui Zhang (International Institute for Sustainable Development, Winnipeg); Lew Fulton (International Energy Agency, Paris) Head Office 161 Portage Avenue East, 6th Floor Masami Kojima (The World Bank, Washington, D.C.); and Winnipeg, Manitoba Peishen Wang (Independent consultant on China environmental issues, Winnipeg). Canada R3B 0Y4 Tel: +1 (204) 958-7700 The comments and insights of these experts helped to greatly improve the final version. Fax: +1 (204) 958-7710 However, the report should not be interpreted as necessarily representing their views. And, Web site: www.iisd.org as is always the case, any remaining errors or inaccuracies remain the responsibility of the authors. International Institute for Sustainable Development Finally, this effort and the other work of the GSI could not have been undertaken without Global Subsidies Initiative the generous support for the GSI provided by the governments of Denmark, the International Environment House 2 Netherlands, New Zealand and Sweden, and the William and Flora Hewlett Foundation. 9 chemin de Balexert The views expressed in this study do not necessarily reflect those of the GSI’s funders, nor 1219 Châtelaine should they be attributed to them. Geneva, Switzerland Tel: +41 22 917-8373 Fax: +41 22 917-8054 Web site: www.globalsubsidies.org Biofuels – At What Cost? Government support for ethanol and biodiesel in China By the Global Subsidies Initiative November 2008 ISBN: 978-1-894784-24-5 ii iii | ii | iii Table of contents 5.2 Biofuels and rural incomes 37 5.3 Biofuels and food prices 38 Acknowledgments iii 5.4 Potential displacement of livelihoods by cultivating “marginal” land 40 List of tables and figures vi 6 Environmental issues 42 Currency conversion note vii 6.1 Atmospheric pollution and greenhouse gas emissions 42 Abbreviations and acronyms vii 6.2 Impact of converting marginal land to biofuel feedstock production 43 Executive summary 1 6.2.1 Jatropha cultivation on marginal land in Southwest China 44 1 Introduction 6 6.2.2 Sweet sorghum production on marginal land in northern China 45 1.1 Biofuels in China 6 6.3 Industrial pollution 45 1.2 Outline of the report 6 6.4 Key government policies on environmental protection 45 1.3 Framework of the analysis 7 6.5 Forest management and illegal logging 47 2 China’s energy