7 June 2006

Report: Biofuels Poised to Displace Oil

WASHINGTON, D.C.—Biofuels can significantly reduce global dependence on oil, according to a new report by the Worldwatch Institute, released in collaboration with the German Agencies for Technical Cooperation (GTZ) and Renewable Resources (FNR).

Last year, world biofuel production surpassed 670,000 barrels per day, the equivalent of about 1 percent of the global transport fuel market. Although oil still accounts for more than 96 percent of transport fuel use, biofuel production has doubled since 2001 and is poised for even stronger growth as the industry responds to higher fuel prices and supportive government policies. "Coordinated action to expand biofuel markets and advance new technologies could relieve pressure on oil prices while strengthening agricultural economies and reducing climate-altering emissions," says Worldwatch Institute President
Christopher Flavin.

The new report, Biofuels for Transportation: Global Potential and Implications for Sustainable Agriculture and Energy in the 21st Century, sponsored by the German Federal Ministry of Food, Agriculture and Consumer Protection (BMELV), is a comprehensive assessment of the opportunities and risks associated with the large-scale international development of biofuels. It includes information from existing country
studies on biofuel use in Brazil, China, Germany, India, and Tanzania.

Brazil is the world's biofuel leader, with half of its sugar cane crop providing more than 40 percent of its non-diesel transport fuel. In the United States, where 15 percent of the corn crop provides about 2 percent of the non-diesel transport fuel, ethanol production is growing even more rapidly. This surging growth may allow the U.S. to overtake Brazil as the world's biofuel leader this year. Both countries are now estimated to be producing ethanol at less than the current cost of gasoline.

Figures cited in the report reveal that biofuels could provide 37 percent of U.S. transport fuel within the next 25 years, and up to 75 percent if automobile fuel economy doubles. Biofuels could replace 20-30 percent of the oil used in European Union countries during the same time frame.

As the first-ever global assessment of the potential social and environmental impacts of biofuels, Biofuels for Transportation warns that the large-scale use of biofuels carries significant agricultural and ecological risks. "It is essential that government incentives be
used to minimize competition between food and fuel crops and to discourage expansion onto ecologically valuable lands," says Worldwatch Biofuels Project Manager Suzanne Hunt. However, the report also finds that biofuels have the potential to increase energy security, create new economic opportunities in rural areas, and reduce local pollution and emissions of greenhouse gases.

The long-term potential of biofuels is in the use of non-food feedstock that include agricultural, municipal, and forestry wastes as well as fast-growing, cellulose-rich energy crops such as switchgrass. It is expected that the combination of cellulosic biomass resources and "next-generation" biofuel conversion technologies--including ethanol production using enzymes, or synthetic diesel production via gasification/Fischer-Tropsch synthesis--will compete with conventional gasoline and diesel fuel without subsidies in the medium term.

The report recommends policies to accelerate the development of biofuels, while maximizing the benefits and minimizing the risks.
Recommendations include:

* Strengthen the Market. Biofuel policies should focus on market
development, based on sound fiscal incentives and support for private
investment, infrastructure development, and the building of
transportation fleets that are able to use the new fuels.

* Speed the Transition to Next-Generation Technologies. It is critical
to expedite the transition to the next generation of biofuel feedstock
and technologies, which will allow for dramatically increased production
at lower cost, while minimizing environmental impacts.

* Protect the Resource Base. Maintaining soil productivity, water
quality, and myriad other ecosystem services is essential. National and
international environmental sustainability principles and certification
systems are important for protecting resources as well as maintaining
public trust in the merits of biofuels.

* Facilitate Sustainable International Biofuel Trade. Continued rapid
growth of biofuels will require the development of a true international
market in these fuels, unimpeded by the trade restrictions in place
today. Freer movement of biofuels around the world should be coupled
with social and environmental standards and a credible system to certify
compliance.

The report's findings were discussed today at a conference on Capitol
Hill hosted by Worldwatch President Christopher Flavin and GTZ Director
General Peter Conze. Participants included policymakers and
representatives of the private sector, governments, international
agencies, and nongovernmental organizations.

Speakers at the opening session included World Bank President Paul
Wolfowitz; Thomas Dorr, Under Secretary at the U.S. Department of
Agriculture; and German Ambassador to the United States, Klaus
Scharioth. Other conference speakers include R. James Woolsey, Vice
President of Booz Allen Hamilton and former Director of Central
Intelligence; John Podesta, President and CEO of the Center for American
Progress; and representatives from DaimlerChrysler AG, Iogen
Corporation, and CHOREN Industries, as well as Suzanne Hunt and other
contributors to the biofuels report.


Biofuels for Transportation: Global Potential and Implications for
Sustainable Agriculture and Energy in the 21st Century

-Selected Trends and Facts-

* In 2005, Brazil produced 16.5 billion liters of fuel ethanol (45.2
percent of the world's total) with the United States a close second at
16.2 billion liters, or 44.5 percent of the total. Ethanol provides
roughly 40 percent of Brazil's non-diesel fuel and 2-3 percent of U.S.
non-diesel fuel.

* Sugar cane is the most important crop for producing biofuels today and
the feedstock for more than 40 percent of all fuel ethanol. Corn ranks a
close second: the primary source for biofuel production in the U.S., it
supplies nearly the same share of world fuel ethanol as sugar cane.

* Biodiesel, produced mainly from rapeseed or sunflower seed, comprises
80 percent of Europe's total biofuel production. The EU accounted for
nearly 89 percent of all biodiesel production worldwide in 2005. Germany
produced 1.9 billion liters, or more than half the world total.

* Global ethanol production more than doubled between 2000 and 2005,
while production of biodiesel, starting from a much smaller base,
expanded nearly fourfold. In contrast, oil production increased by only
7 percent over this period.

* In 2005, ethanol comprised about 1.2 percent of the world's gasoline
supply by volume and about 0.8 percent by transport distance traveled
(due to its lower energy content).

* From 2002-04, world oil demand increased by 5.3 percent. China's
consumption alone increased by 26.4 percent, while consumption in the
United States rose by 4.9 percent; Canada 10.2 percent; and the United
Kingdom 6.3 percent. Demand in Germany and Japan, meanwhile, dropped by
1 percent and 2.6 percent respectively.

* Of the world's 47 poorest countries, 38 are net oil importers, and 25
of these import all of their oil. Yet many of these countries have
substantial agricultural bases and are well-positioned to grow highly
productive energy crops.

* Roughly 80 percent of the world's conventional oil reserves are under
state control and off limits to private investment.

* The World Bank reports that biofuel industries require about 100 times
more workers per unit of energy produced than the fossil fuel industry.
The ethanol industry is credited with providing more than 200,000 jobs
in the United States and half a million direct jobs in Brazil.

* Transportation, including emissions from the production of transport
fuels, is responsible for about one-quarter of energy-related greenhouse
gas (GHG) emissions, and that share is rising.

* The GHG balance of biofuels varies dramatically depending on such
factors as feedstock choice, associated land use changes, feedstock
production system, and the type of processing energy used. In general,
most currently produced biofuels have a solidly positive GHG balance.
The greatest GHG benefits will be achieved with cellulosic inputs, such
as dedicated energy crops and waste residues.

* Energy crops have the potential to reduce GHG emissions by more than
100 percent (relative to petroleum fuels) because such crops can also
sequester carbon in the soil as they grow. Estimated GHG reductions for
biofuel feedstock include: fibers (switchgrass, poplar) 70-110 percent;
wastes (waste oil, harvest residues, sewage) 65-100 percent; sugars
(sugar cane, sugar beet) 40-90 percent; vegetable oils (rapeseed,
sunflower seed, soybeans) 45-75 percent; and starches (corn, wheat)
15-40 percent.

* Despite controversy about the energy balance of biofuels, there is an
emerging consensus that all common biofuels contain more useful energy
than is required to produce them. Corn ethanol has been particularly
controversial, but its average energy balance now clearly exceeds one,
thanks to improved energy efficiency in both agriculture and ethanol
refining. In the future, the type of processing energy used will be more
relevant: a biofuel plant that uses biomass energy will contribute far
more to reducing GHG emissions than one that uses coal energy.

* Even with subsidies, the economic savings with biofuels from avoided
oil imports can be considerable: between 1975 and 1987, ethanol saved
Brazil $10.4 billion in foreign exchange while costing the government $9
billion in subsidies. This investment paid off even more in subsequent
years: studies show that from 1976-2004, Brazil's ethanol production
substituted for oil imports worth $60.7 billion--or as much as $121.3
billion including the avoided interest that would have been paid on
foreign debt (based on debt previously incurred importing oil).

Recent Developments in the Biofuel Industry (as cited in report):

* In the United States, high oil prices and agricultural lobbying
prompted passage in 2005 of Renewable Fuels Standard (RFS) that will
require the use of 28.4 billion liters (7.5 billion gallons) of biofuels
for transportation by 2012. Under new guidelines implementing the Energy
Policy Act of 1992, many government fleet vehicles that run on diesel
fuel are now required to use B20 (20 percent biodiesel) blends. Many in
the industry believe that these targets represent a floor, rather than a
limit, to biofuel production.

* In Brazil, the government hopes to build on the success of the
Proálcool ethanol program by expanding the production of biodiesel. All
diesel fuel must contain 2 percent biodiesel by 2008, increasing to 5
percent by 2013, and the government hopes to ensure that poor farmers in
the north and northeast receive a fair share of the economic benefits of
biodiesel production.

* As of early 2006, Columbia mandates the use of 10 percent ethanol in
all gasoline sold in cities with populations exceeding 500,000. In
Venezuela, the state oil company is supporting the construction of 15
sugar cane distilleries over the next five years, as the government
phases in a national E10 (10 percent ethanol) blending mandate. In
Bolivia, 15 distilleries are being constructed, and the government is
considering authorizing blends of E25. Costa Rica and Guatemala are also
in the trial stages for expanding production of sugar cane fuel ethanol.
Argentina, Mexico, Paraguay, and Peru are all considering biofuel
programs as well. Many of these countries have learned from the
experience of Brazil, the world leader in fuel ethanol.

* A European Union directive, prompted by the desire for greater energy
security as well as the requirements of the Kyoto Protocol, has set the
goal of obtaining 5.75 percent of transportation fuel needs from
biofuels by 2010 in all member states. In February 2006, the EU adopted
an ambitious Strategy for Biofuels with a range of potential
market-based, legislative, and research measures to increase the
production and use of biofuels. Germany and France, in particular, have
announced plans to rapidly expand both ethanol and biodiesel production,
with the aim of reaching the EU targets before the deadline.

* In Japan, the government has permitted low-level ethanol blends in
preparation for a possible blending mandate, with the long-term
intention of replacing 20 percent of the nation's oil demand with
biofuels or gas-to-liquid (GTL) fuels by 2030.

* In Canada, the government aims for 45 percent of the country's
gasoline consumption to contain 10 percent ethanol by 2010. Ontario will
be the center of the ethanol program, where the government expects all
fuel to be a 5 percent blend of ethanol by 2007.

* In Southeast Asia, Thailand, eager to reduce the cost of oil imports
while supporting domestic sugar and cassava growers, has mandated an
ambitious 10 percent ethanol mix in gasoline starting in 2007. For
similar reasons, the Philippines will soon mandate 2 percent biodiesel
to support coconut growers, and 5 percent ethanol, likely beginning in
2007. The palm oil industry plans to supply an increasing portion of
national diesel fuel requirements in Malaysia and Indonesia.

* Chinese and Indian planners have also sought to expand the national
supply of ethanol and biodiesel. In India, a rejuvenated sugar ethanol
program calls for E5 blends throughout most of the country; the
government plans soon, depending on ethanol availability, to raise this
requirement to E10 and then E20. In China, the government is making E10
blends mandatory in five provinces that account for 16 percent of the
nation's passenger cars.

* In Africa, efforts to expand biofuels production and use are being
initiated or are under way in numerous countries, including Benin,
Ethiopia, Ghana, Guinea Bissau, Kenya, Malawi, Mozambique, Nigeria,
Senegal, South Africa, and Zimbabwe.

Worldwatch Institute
www.worldwatch.org