High Gas Prices Spur Global Biofuel Production

High prices for conventional motor fuels, combined with government content mandates, has spurred biofuel production around the world, says Washington-based Worldwatch Institute.

“Global production of biofuels increased 17 per cent in 2010 to reach an all-time high of 105 billion litres, up from 90 billion litres in 2009,” the institute reports. “High oil prices, a global economic rebound, and new laws and mandates in Argentina, Brazil, Canada, China, and the United States, among other countries, are all factors behind the surge in production,” says the institute, based on climate and energy research.

The U.S. and Brazil remain the two largest producers of ethanol. In 2010, the United States generated 49 billion litres, or 57 per cent of global output, and Brazil produced 28 billion litres, or 33 per cent of the total. Corn is the primary feedstock for U.S. ethanol, and sugar cane is the dominant source of ethanol in Brazil.

“Due to unsteady ethanol production in Brazil in 2010, the U.S. became a net exporter of the fuel for the first time, sending a record 1.3 billion litres abroad, a 300 per cent increase over 2009,” the report pointed out.

The largest biodiesel producer is the European Union, which generated 53 per cent of total production in 2010. “However, we may see some European countries switch from biodiesel to ethanol because a recent report from the European Commission states that ethanol crops have a higher energy content than biodiesel crops, making them more efficient sources of fuel.”

In the U.S., several large fuel companies, including Sunoco, have entered the ethanol industry because of higher ethanol prices, the report said.

Canada along with Argentina, Brazil and China have boosted their biofuel industries with content mandates. Canada requires five per cent ethanol and two per cent biodiesel. Argentina, which has favourable conditions for growing soybeans, has a seven per cent biodiesel requirement. Biodiesel producers there are investing heavily in facilities to increase production.

The Amer ican biofuel industry is under a cloud as Congress considers proposals to slash its subsidies. And the Environmental Protection Agency has cut the proposed target for cellulosic ethanol, which can be made from woody plants or crop waste. Cellulosic faces difficult technical challenges and high startup costs. It’s considered superior to conventional ethanol because it’s easier to produce and generates less greenhouse gas emissions.

“The EPA’s target reduction reflects the technical challenges and high costs of commercializing so-called second-generation biofuels,” the report said. “Instead of the 950 million litres required initially under the 2007 Energy Independence and Security Act, the final target will be a much smaller 25 million litres.”

Proposed legislation in the U.S. Senate would cut current ethanol production subsidies while maintaining tax credits for related infrastructure such as refilling stations. “Eliminating the 54-cents-a-gallon import tariff and the 45-cents-a-gallon blenders’ credit would reduce the ethanol industry’s profits by seven per cent and its margins by 20 per cent,” the report adds, citing research by the University of Missouri’s Food and Agricultural Policy Research Institute.

“If supports like subsidies and tariffs are removed in the United States, sugar cane ethanol from Brazil will likely become more prevalent. Although sugar cane ethanol has the benefit of being cheaper and more efficient to produce, there are concerns that increased production will speed deforestation in Brazil as more land is cleared for feedstock cultivation.”

Canada is a major market for U.S. ethanol and is a significant biodiesel supplier to Europe.

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