1 biofuels : policy options agri outlook 2006 26 & 27 october 2006, csir conference centre,...
TRANSCRIPT
1
Biofuels : Policy Options
AGRI OUTLOOK 2006
26 & 27 OCTOBER 2006, CSIR CONFERENCE CENTRE, PRETORIA,
GAUTENG
Raoul GoosenSustainable Progressive Solutions
2
Biofuels• Agricultural crops converted to petrol or diesel substitutes• Ethanol
– same as regular alcohol– made by fermentation of sugar & starch crops – used as petrol blend (10% called E10, max limit accepted by Vehicle
Manufacturers)
• Bio-diesel– modified cooking/vegetable oils– made by extracting oil from seeds (typically 25 %)– mainly sunflower, Soya beans, olive, palm & canola/rape– used as diesel blend (5% called B5, max limit accepted by vehicle
manufacturers)
• Future technologies (2nd Generation) based on grasses, trees (wood), waste, etc.– but >5 years away
3
Why the interest?
• Peak Oil
• Oil Prices
• Global warming
• Emissions
4
Shell expects that globally, over the next 20 years, bio-fuels will grow to >7% of Shell’s road-transport fuel volume
Bio-Gasoline 4%
Bio-Diesel 3%
XTL Diesel 4%
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
2005 2010 2015 2020 2025
KBPDShell Global Road Transport Fuel
Volume Base Case
Diesel 45%
Gasoline 44% Conventional gasoline and diesel = 89%
Bio-fuels: ~ 7 %
CO2 reduction from bio-fuel:
~ 3 MT 2005~ 17 MT 2025
Source: IEA, PX, DXF
5
The 5 ways to reduce Oil usage : Greenhouse gas & Cost
1. Switch to less greenhouse gas-intensive transportation modes
2. Switch to less greenhouse gas-intensive fuels – eg.Biofuels
3. Increase vehicle efficiency4. Decrease travel distance5. Increase occupancy of vehicles
6
Drivers of Alternate Energy worldwide:
• environmental benefits • renewable source of energy• job creation• energy security • utilisation of agricultural surpluses and biomass
resources• state invention through tax incentives and regulatory
measures
7
Agriculture Process Plants Fuel Blending Fuel Market
Role Provides feedstock, & gets co-products (animal feed)
Converts feedstock to quality bio-fuel
Blends bio-fuel with mineral fuel
Consumes petrol or diesel
Share of value
$ 40/bbl to pay to grow crops
(65 % of value & more of incentives here)
$ 10/bbl for capital
$ 15/bbl for operating costs
(35 % of value)
Blending - cover costs
Pay BFP (import parity price)
Pays same price as for mineral equivalent
Drivers If price too low stop growing, or grow something else
Must pay farmers going market price for maize, Soya etc
Mandatory blending?
(Infant Industry)
Oil price fixes & fluctuates.
Massive demand
Not regulated Regulation needed? Regulated
Bio-fuels industry value chain summary
8
R bil pa change % pa
Imported
%
Employees
thousand
SA GDP,2005
1500(20 % to
households)
+ 4.5 28But balanced
12,000
Large Scale Agriculture
52(21 % is
field crops)
-10 8 (exports) 614(95 % primary education)
Petrol & Diesel, ex refinery
75 +3.5+ oil price
> 90 3
Auto industrymanufacturing
30 + 10 50 50
Job intensity (Jobs per Rand) for Agriculture is >100x Oil Refining
Forex effect of “growing own fuel” : 85 c better for R1 expense
Bio-fuels industry sectors
9
Bio-fuels as substitutes
SA petrol usage
SA diesel usage
10
Global biodiesel trend
11
Global ethanol fuel usage trend
12
ETHANOL OPPORTUNITY
SA petrol
13
SA Crop Yield Data - absolute maximumsSA Crop Yield Data - absolute maximums
Land
Mil ha
Yield mil tpa Oil production
Mil l pa% of SA Diesel (B) or Petrol (E)
Soya 3.0 4.1 820 B11
Sunflower 8.1 12.9 3500 B50
Maize 4.7 22.5 5800 E35
Grain Sorghum 9.86 47.4 18000 E100
Sugar beet 0.8 35.5 2300 E14
Sugar cane 1.5 48.1 3000 E18
14
What will make bio-fuels in SA work?
Feedstock for plants sufficient critical mass input price versus oil price
Mills & fermentation plant - investment needed
– existing converted (debt for equity) – few jobs– New – more job creation
Government support/framework for a bio-fuels market - it has forex & job benefits better than alternatives
Technology Funding – if viable, will be available;
longer term Fit with existing sectors Maize, Sugar, Oil
15
Conclusions for biofuels in SA
• Economics require oil price of US$ 50 per barrel plus – with current 40 % fuel tax exemption
• Volatility of oil & feedstock prices make investment risky
• Price trends (if continues to decrease for food; increase for oil) makes it sustainable in future
• Fuel market is huge and can use excess growing capacity for feedstocks – opportunity for Southern African region
• Socio-eco-enviro benefits warrant Govt support • Level of Government support?
acknowledgement :acknowledgement : Dr Brian Purchase, Presentation to Fossil Fuel Foundation 14 June 2005 Dr Brian Purchase, Presentation to Fossil Fuel Foundation 14 June 2005
16
Brazil - 40 % of local petrol (1.5x SA’s) & growing• 1970’s driven by mandate for Forex & Independence reasons• now viable & macro-economic benefits (at high oil prices)
• Similar to Sasol Secunda - had floor & ceiling tariff protection
USA - 3 % of petrol (1.5x SA’s) & growing• driven by oxygenate mandate for air pollution• farm subsidies – political/votes• supply & demand subsidies on top 100 SA cpl federal & 100 SA cpl import duty
EU - 1 % biofuels• driven by GHG, voluntary targets and massive tax incentives - fuel levy exemption (450 SA cpl)– Germany at 2 % (mainly biodiesel – 1.5 bil l pa) now reducing incentives as too costly (R 10 bil lost to fiscus, & by 2010 : R100 bil)– Consider move from massive incentives to mandate– Feedstock - cannot compete with Developing (South America, Africa)– No common trade position – eg. import from Brazil etc, then duties of ca. 50 SA cpl
International Experience
17
Australia - high GHG emitter (like SA) - stop-start programme due to perceptions (Oil coy negativity)India - droughts hampered, but high oil price : E5 by Oct 2006China - E10 in 20 % of petrol – regionalIndonesia - 2 % by 2010 & 5 % by 2025Thailand - E10 available widely South Korea - B5 programme started
Malaysia, New Zealand - early stages
Most have 100 % fuel levy reductions (initially)Most have 100 % fuel levy reductions (initially) Mainly “leap before look” (or superficial examination and/or Mainly “leap before look” (or superficial examination and/or lobbyist lead)lobbyist lead)
More detailed studies by Japan (5 year study – but land issue, so More detailed studies by Japan (5 year study – but land issue, so uncertainty), Jamaica, Costa Ricauncertainty), Jamaica, Costa Rica
Quality and perception issues arise and riskQuality and perception issues arise and risk Boom with recent high oil pricesBoom with recent high oil prices
International Experience cont…
18
19
INTERNATIONAL LESSONS - Comments
20
Consider the evidence or facts
… Analysis of impacts for SA
- EnvironmentEnvironment
- SocialSocial
- Economics- Economics
21
Environment • GHG reduction contributes to national renewable target :
= E-12 or B-15
• Improved local air quality by reduced CO, HC and hence less
smog
– particularly for non catcon vehicles (majority in SA)
• Biodegradable, hence low risk for water and aquifer
Positive!
22
CO2 Emission reductions compared to crude oil products
23
Social – Job provider 100 times more jobs than for oil refining (per liter)
1 % biofuel in SA petrol and diesel (ca. 200 mil liters pa) results in ca. 6000 jobs – mainly (90 %) for growing feedstock
Compares very favourably to: ca. 3000 jobs in SA’s 4 crude oil refineries & 2 syncrude refineries* at Secunda
and Mosselbay that produce 100 % of SA petrol plus diesel, Jet Fuel/IP, LPG etc
Fuel levy cost of job of R 12 000 pa is 10 times lower than average SA job
Cappex R 100k per job is 2.5 times lower than IDC target
Jobs can facilitate land reform, transformation & rural upliftment (eg. Co-op type approach)* Excludes production of syncrude, ie. coal mining, off-shore gas,
methane reforming and/or gasification and FT process
25
Scale Significance CommentJobs
(Social)
55 000 1.3 % reduced unemployment
90 % of jobs in rural areas
Renewable Energy
(Environment)
75 % of Target for RE by 2013
Major (for a small target)
Sustainable, basis for future expansion
Supply Security & Diversity
4.5 % of Liquid Fuels use
Minor, as market growth is 3-5 % pa
Little impact on oil supply
Economic Impact R2 bil pa added to GDP
6% of AsgiSA target of 2 % additional economic growth
60% into Agriculture,
3-7 % sector growth supported
Macroeconomic impacts summary for 4.5 % biofuels
26
Macro-economic impacts for 4.5 % Biofuels
• Based on a Realistic scenario without excessive support or harming food security
• Achievement of 75 % of total Renewable Target 2013– 8% bio-ethanol blend (50% maize, 50% sugar cane)
– 2% biodiesel blend (mainly Soya)
• Supply security of liquid fuels increased by 4.5 %– Currently 35% (Sasol, PetroSA, own crude)
• Emission & GHG benefits (R100 mil @ $10/ton CO2)
• Balance of Payments improved by R 3.7 billion pa
• Investment requirement is R6 billion, i.r.o 12 large biofuels plant, to achieve the 4.5% penetration
27
Eviro positiveSocio (jobs) positive
Economics varied….. (depends on Oil price mainly)
Conclusions Conclusions – – answer Sustainability analysis answer Sustainability analysis
28
Price of crude oil and alternative feedstocks for transport fuels
Prices: Maize, Sugar cane and Crude oil
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
1990 1992 1994 1996 1998 2000 2002 2004 2006
Pric
e, $
/ton
Crude oil, $/bbl Crude oil Maize Sugar Where to?
29
Stakeholders and their impacts
• Balance stakeholder (public/motorists, growers, plant/investors) interests in fair way
• Policies important to balance energy, trade, agriculture– Imported biofuels, eg. ethanol ex Brazil should have some tarriff
protects local jobs (farming /ethanol protected by producer countries)
SA currently has agricultural duties and controls on ethanol
– No reason why biofuel imports should be
controlled any greater than conventional fuel imports – in fact should be favoured, as greener & better for developing (agricultural)
economies via price support?
National orMotorist
Biofuels plant andGrowers
Govt. orRegulation
Increasing fuel levy exemption moves Govt to right, ie. favours biofuels plant investors & agriculture.
30
Government Support
3 generic mechanisms to apply
1. Direct mandates through regulation, eg. land use (push), blends (pull)
2. Market-based policy instruments eg. tax reductions (40 % of fuel levy for biodiesel), subsidies
3. Direct investment eg. in plants via Govt (parastatals), or capex tax incentives (has 50:30:20 accelerated depreciation)
31
• Cost Benefit Analysis– Compare to conventional and trade alternatives
– Macro-economic benefit calculations eg. Forex, GDP
– Social benefit estimate eg. Jobs, Rural upliftment, BEE
– Environmental benefits
• Regulatory Policy– Goal/target for biofuels
– Incentive level/schedule – once-off capital subsidies via tax, Fuel Levy 40% reduction
– Environmental “best practices” w/enforcement – EIA’s required
• Industry Partnership–stakeholder management needed
• International representation & collaboration (IEA membership;
bi-laterals, eg. Brazil; IBSA)
International Energy Agency Recommendation
Developing a National Strategy ex Government Policy & Action towards Biofuels by DR R Crompton at Fossil Fuel Foundation
14 June 2005
32
Biofuels Policy Considerations ex Shell
Financial instruments used to offset the additional cost of bio-fuel production and distribution.
Policy should clearly link the proven performance of individual bio-fuels to the delivery of well-to-wheel carbon dioxide emission reduction. A certification system for bio-fuel carbon dioxide production is required.
Targets should allow compliance to be achieved through the use of market mechanisms, applied across the aggregate fuels market and not specific fuel types. Targets should be phased Open and fair competition in the type of bio-fuel brought to
market Minimum standards for fuel specifications Not create a distortion in markets by cross-subsidising one sector
with another Aim to achieve a market-based mechanism, free of intervention
and subsidy in the medium to long term Public policy should support the development of the technology
and not simply subsidise the cost of the bio-fuel
33
Summary• Bio-fuels will play a growing role, but not major, in the road transport sector• Bio-fuels become part of existing fuel industry and be distributed within the existing fuel infrastructure• Oil Coys will purchase and distribute 1st Generation bio-fuels to meet legislative needs & capture commercial opportunities
– No Oil Coy investment in agriculture or in production assets likely– But purchase of biofuels that are economically competitive, sustainably produced and meet
stringent quality standards
• The development of bio-fuels will be within the framework of Sustainable Development initiative• Form of mandated offtake is necessary• Incentives needed based on oil price expectations• Incentives justified by environmental, social and macro-economic benefits compared to imported crude oil products
34
THANK YOU
Questions
35
First generation bio-fuels use food crops as feedstock; second generation bio-fuels will use residues….
Bio-fuel briefing ex Shell
Biomass to
Liquids
Biomass to
Liquids
Current Bio-fuels
Advanced Bio-fuels
Current Bio-fuels
Advanced Bio-fuels
Cel
lulo
se-E
than
ol
Biomass Residues