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    Spanish company Ferry Group is to invest €42/US$55.2 million in a project for the production of biomass fuel pellets in Bulgaria. The 3-year project consists of establishing plantations of paulownia trees near the city of Tran. Paulownia is a fast-growing tree used for the commercial production of fuel pellets. Dnevnik - Feb. 20, 2007.

    Hungary's BHD Hõerõmû Zrt. is to build a 35 billion Forint (€138/US$182 million) commercial biomass-fired power plant with a maximum output of 49.9 MW in Szerencs (northeast Hungary). Portfolio.hu - Feb. 20, 2007.

    Tonight at 9pm, BBC Two will be showing a program on geo-engineering techniques to 'save' the planet from global warming. Five of the world's top scientists propose five radical scientific inventions which could stop climate change dead in its tracks. The ideas include: a giant sunshade in space to filter out the sun's rays and help cool us down; forests of artificial trees that would breath in carbon dioxide and stop the green house effect and a fleet futuristic yachts that will shoot salt water into the clouds thickening them and cooling the planet. BBC News - Feb. 19, 2007.

    Archer Daniels Midland, the largest U.S. ethanol producer, is planning to open a biodiesel plant in Indonesia with Wilmar International Ltd. this year and a wholly owned biodiesel plant in Brazil before July, the Wall Street Journal reported on Thursday. The Brazil plant is expected to be the nation's largest, the paper said. Worldwide, the company projects a fourfold rise in biodiesel production over the next five years. ADM was not immediately available to comment. Reuters - Feb. 16, 2007.

    Finnish engineering firm Pöyry Oyj has been awarded contracts by San Carlos Bioenergy Inc. to provide services for the first bioethanol plant in the Philippines. The aggregate contract value is EUR 10 million. The plant is to be build in the Province of San Carlos on the north-eastern tip of Negros Island. The plant is expected to deliver 120,000 liters/day of bioethanol and 4 MW of excess power to the grid. Kauppalehti Online - Feb. 15, 2007.

    In order to reduce fuel costs, a Mukono-based flower farm which exports to Europe, is building its own biodiesel plant, based on using Jatropha curcas seeds. It estimates the fuel will cut production costs by up to 20%. New Vision (Kampala, Uganda) - Feb. 12, 2007.

    The Tokyo Metropolitan Government has decided to use 10% biodiesel in its fleet of public buses. The world's largest city is served by the Toei Bus System, which is used by some 570,000 people daily. Digital World Tokyo - Feb. 12, 2007.

    Fearing lack of electricity supply in South Africa and a price tag on CO2, WSP Group SA is investing in a biomass power plant that will replace coal in the Letaba Citrus juicing plant which is located in Tzaneen. Mining Weekly - Feb. 8, 2007.

    In what it calls an important addition to its global R&D capabilities, Archer Daniels Midland (ADM) is to build a new bioenergy research center in Hamburg, Germany. World Grain - Feb. 5, 2007.

    EthaBlog's Henrique Oliveira interviews leading Brazilian biofuels consultant Marcelo Coelho who offers insights into the (foreign) investment dynamics in the sector, the history of Brazilian ethanol and the relationship between oil price trends and biofuels. EthaBlog - Feb. 2, 2007.

    The government of Taiwan has announced its renewable energy target: 12% of all energy should come from renewables by 2020. The plan is expected to revitalise Taiwan's agricultural sector and to boost its nascent biomass industry. China Post - Feb. 2, 2007.

    Production at Cantarell, the world's second biggest oil field, declined by 500,000 barrels or 25% last year. This virtual collapse is unfolding much faster than projections from Mexico's state-run oil giant Petroleos Mexicanos. Wall Street Journal - Jan. 30, 2007.

    Dubai-based and AIM listed Teejori Ltd. has entered into an agreement to invest €6 million to acquire a 16.7% interest in Bekon, which developed two proprietary technologies enabling dry-fermentation of biomass. Both technologies allow it to design, establish and operate biogas plants in a highly efficient way. Dry-Fermentation offers significant advantages to the existing widely used wet fermentation process of converting biomass to biogas. Ame Info - Jan. 22, 2007.

    Hindustan Petroleum Corporation Limited is to build a biofuel production plant in the tribal belt of Banswara, Rajasthan, India. The petroleum company has acquired 20,000 hectares of low value land in the district, which it plans to commit to growing jatropha and other biofuel crops. The company's chairman said HPCL was also looking for similar wasteland in the state of Chhattisgarh. Zee News - Jan. 15, 2007.

    The Zimbabwean national police begins planting jatropha for a pilot project that must result in a daily production of 1000 liters of biodiesel. The Herald (Harare), Via AllAfrica - Jan. 12, 2007.

    In order to meet its Kyoto obligations and to cut dependence on oil, Japan has started importing biofuels from Brazil and elsewhere. And even though the country has limited local bioenergy potential, its Agriculture Ministry will begin a search for natural resources, including farm products and their residues, that can be used to make biofuels in Japan. To this end, studies will be conducted at 900 locations nationwide over a three-year period. The Japan Times - Jan. 12, 2007.

    Chrysler's chief economist Van Jolissaint has launched an arrogant attack on "quasi-hysterical Europeans" and their attitudes to global warming, calling the Stern Review 'dubious'. The remarks illustrate the yawning gap between opinions on climate change among Europeans and Americans, but they also strengthen the view that announcements by US car makers and legislators about the development of green vehicles are nothing more than window dressing. Today, the EU announced its comprehensive energy policy for the 21st century, with climate change at the center of it. BBC News - Jan. 10, 2007.

    The new Canadian government is investing $840,000 into BioMatera Inc. a biotech company that develops industrial biopolymers (such as PHA) that have wide-scale applications in the plastics, farmaceutical and cosmetics industries. Plant-based biopolymers such as PHA are biodegradable and renewable. Government of Canada - Jan. 9, 2007.

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Thursday, October 05, 2006

A Biofuels Manifesto - why green fuels should be priority number one for developing countries

We are currently writing a 'little green book' on biofuels and development in the South, a samizdat pamphlet of sorts, in which we describe the principles of our 'green energy pact'. While doing so, ally John Mathews, professor of Strategic Management at the Graduate School of Management (Macquarie University), published a powerful 'Biofuels Manifesto', which comes very close to our own text (prof Mathews refers to Biopact). We think such a collection of arguments is necessary, given the many hostile voices against green fuels in the South.

In his manifesto Mathews speaks of the urgency and importance of the matter: biofuels can form the basis of a post-fossil fuel development strategy that can result in energy independence and geopolitical power for countries that have always been 'weak' actors on the international scene. Energy access and security form the core of the productive capacities of societies, the engine which drives economic and (geo)political strength. Therefor biofuels and bioenergy are not just an agricultural matter, they point to much more fundamental issues: globalization and inequality, trade and power, geopolitics, development paradigms and global social justice. At this crucial time in history, developing nations can leapfrog away from the petroleum paradigm and the relations of inequality and dependence it creates, and into a sustainable, secure, autonomous and independent future. With a green development strategy they can reduce their economic, cultural and political dependence on the West.

We present Mathews' 10 core arguments below. They can be seen as reference points in the great debate that is currently raging around bioenergy and biofuels. The arguments in favor of developing countries moving vigorously towards promotion of biofuels industries center around the following issues:
1. Energy security and the peaking of oil supplies globally;
2. Biofuels as tested substitutes for fossil fuels;
3. Abundance of land for producing energy crops in tropical countries;
4. Biofuels’ potential to reduce fuel import bills and fossil fuel dependence;
5. Biofuels production is a rural industry and can promote social inclusion;
6. Countries with even low levels of science and technology can get a start in biofuels, and they can create thereby a ‘development bloc’ that can drive industrial development;
7. Biofuels are greenhouse gas neutral and can earn countries carbon credits;
8. Developing countries can develop their own distinctive latecomer institutional innovations to capture benefits
9. Biofuels promote South-South cooperation; and
10. Biofuels represent simply the first step on a clean technology development trajectory
Conventional wisdom has it that the developing countries will have to replicate the energy steps of the developed world. The conventional wisdom has always been that the developing countries would eventually catch-up with the developed world, through emulating their pathways of development. This implied that China and India, for example, would be forced to follow in the footsteps of the developed world. But as they did so, they would create planetary problems of pollution and resource depletion that the sustainability of the system as a whole was placed in question. This was the ‘Limits to Growth’ nightmare, usually translated into implicit or even explicit threats against the developing countries that promised to upset things with their energy demands and the exhausts of their activities. But what the conventional wisdom failed to foresee was that perhaps India and China would find an alternative pathway – one not based on fossil fuels and extreme dependence on oil imports, but on a different trajectory, namely one of energy independence and in particular independence from fossil fuels. Unlike Russia, which is playing strategic games with its vast oil and gas reserves, Brazil, India and China (the countries we can christen the ‘BICs’) are strategizing around how they can build energy independence through a variety of renewable fuels and energy sources – starting with liquid biofuels, since this is where their vulnerability to balance of payments disasters caused by rising oil import bills would be most pronounced.

1. Energy security and the peaking of oil supplies globally
The relentlessly rising costs of oil, which exceeded $70 per barrel in 2006, and which in inflation-adjusted terms is approaching the all-time high of the mid-1970s, now poses a major brake on industrializing efforts by developing countries:

:: :: :: :: :: :: :: :: :: :: :: :: :: :: ::

The price is one effect; the other is the possibility of being held to ransom by either Middle Eastern oil regimes or by oil companies looking to allocate ever scarcer supplies. In the developing world, only Brazil has achieved oil independence; when its national oil company, Petrobras, opened a new off-shore rig, the P-50, in April 2006. Petrobras said the huge P-50 rig would boost national oil production to an average of 1.9 million barrels a day in 2006, more than average consumption of 1.85 million barrels a day – thus making Brazil completely independent of fossil fuel imports. Contrast this with the situation in the 1970s, Brazil had to import 85% of its oil needs, and it was badly rocked by the 1973 OPEC oil price increase. Petrobras forecasts that by 2010, its production will exceed Brazil's needs by 300,000 barrels a day.

Looking at the global picture, we see a relentless buildup of production; but the discovery of new fields is in steep decline. Indeed new discoveries peaked in the 1960s. Production must fall following these declines; but of course everyone keeps showing mindless predictions of ever-rising production to keep up with ever-rising consumption. But a gap has to open – as shown in Chart 5.

Here we see how the US peaked in 1970; then Russia emerged as a source, now declining; and how Europe – largely through the North Sea – also had its time in the sun, now rapidly fading. Other sources such as in Latin America, West Africa and now Central Asia have also come to play a role – but they will see steep decline even as early as 2010. The Middle East has reached the limit of its capacity, and is already embarked on an inexorable decline. The immediate impact will be that Saudi Arabia will no longer be able to play the role of swing producer – producer of last resort. Non-conventional sources of oil and gas – such as tar sands -- will simply not be able to pick up the slack, because of high costs, or technical difficulties, or political resistance, as in the case of drilling in Arctic areas. Thus there is no alternative to renewable energy options, especially for developing countries where rising oil import prices would wreck industrialization plans.

As an indication of the plausibility of the peaking of oil supplies, the world’s largest user of fossil fuels, the US Armed Forces, is in process of switching to biofuels. In July 2006, the Defense Advanced Research Projects Agency (DARPA) released a solicitation calling for the exploration of energy alternatives and fuel efficiency efforts in a bid to reduce the military’s reliance on traditional fuel for aircraft. DARPA announced that it is looking for processes that will efficiently produce alternative non- petroleum based military jet fuel from agriculture or aquaculture crops. Current commercial processes do not produce alternative fuels that meet the higher energy density and wide operating temperature range necessary for military aviation uses. The program is currently outlined in a recently issued broad agency announcement and is known as The BioFuels program.

2. Biofuels as tested substitutes for fossil fuels
There is a conventional wisdom based on developed country perspectives that biofuels cannot possibly pick up the full burden of transport fuel supplies. As noted in the epigraph above, the opinion of Professor Hoffert and his colleagues, writing in the premier journal Science, is that “All renewables suffer from low areal densities.” Hoffert et al go on to comment: “… photosynthesis has too low a power density (0.6 W/m2) for biofuels to contribute significantly to climate stabilization. PV and wind energy (15 W/m2) need less land, but other materials can be limiting” (2002: 984).

These illustrious authors, having dismissed so cavalierly in a couple of lines the terrestrial efforts to make up for fossil fuel deficiencies with biofuels, solar and wind energy, then go on to devote paragraphs to an untried and speculative description of a space-based solar array as part of a star wars initiative. The reality is rather different, especially for developing countries where sunshine and desolate landscapes are not in short supply. In India for example there are now several major investment programs underway in ethanol and biodiesel production, utilizing vast areas of degraded or under-utilized land. These projects can also capture latecomer advantages through utilizing the latest in biorefinery technology – as recognized in a more recent article in Science.

While the issue may be posed in terms of land for food vs. land for fuel in the developed world, this is most definitely not the case in developing countries. There are vast tracts of degraded and semi-arid land that can be utilized for fuel crops such as sugar cane, cassava or castor beans (for biodiesel) – not to mention the prospects for semi-arid cultivation of Jatropha curcus. China has vast wastelands in the Yellow River and Huaihe River basins that would be suitable for biofuel cultivation.

There is a huge literature hostile to biofuels, accusing them of being energy- intensive in cultivation; taking land from food crops; and enhancing monoculture. But these are largely arguments stemming from developed countries and describing developed country conditions – particularly in US and northern Europe. But the situation in developing countries is quite different. Brazil produces ethanol with an energy gain of up to 8:1, because of the favorable conditions in which the fuel is produced.

All the technologies needed by developing countries already exist. They only have to be harnessed and put to use. Brazil is closely focused in its R&D efforts on improving yields and efficiency of ethanol production. The Cane Technology Centre has developed some 140 varieties of sugar, which has helped to drive costs down by 1% a year. Other improvements include using remains of processed cane (bagasse) to power the sugar/ethanol plants (making them energy independent) and using industrial waste from ethanol production (vinasse) as fertilizer for cane fields. The Centre is using satellite imagery to map the location of all cane fields in the country (largely concentrated in the SE, in the state of Sao Paulo) to help researchers discover which varieties grow best in which localities. These improvements mean a dramatic increase in the productivity of Brazilian sugar cane: 1 hectare which used to produce 2,000 litres of ethanol now produces three times that amount, or 6,000 litres.

There is a role for both very large and for very small firms in developing countries in building biofuels industries. In Brazil for example, Petrobras is already leading the way to becoming a biofuel company over and above its efforts to make Brazil independent of oil imports. Petrobras is now emerging as an energy company in its own right; in December 2005 the company announced that it was forming a JV in Japan, to be called Brazil-Japan Ethanol, which will have as its main object the creation of an ethanol market in Japan through supplies from Brazil. In neighboring Venezuela, the country’s State-owned oil company has recently embarked on ethanol production, through a tie-up with Brazilian equipment supplier, Dedini – as mentioned below.

3. Abundance of land for producing energy crops in tropical countries
Tropical developing countries are not as limited in their choice of feedstocks as temperate, developed countries. They have the options of using sugar cane itself, as well as a variety of starchy inputs such as cassava and, for biodiesel, any of a variety of oilseeds that have traditionally been viewed purely as foodstuffs. Indeed many of the oilseeds now being cultivated for biodiesel are in fact inedible – such as castor oil and, in India, the wonder oilseed, Jatropha (that is also being investigated in Brazil – and so there is no question of their competing with food supplies. Indeed one of the most intensive areas for R&D in biofuels in developing countries needs to be an investigation of the potential of existing and little known plants for biofuel production. These options are being explored by Chinese, Indian and Brazilian ethanol and energy producers in tropical countries. For example, China National Offshore Oil Corp (CNOOC) signed a memorandum of understanding with Malaysia's Bio Sweet Sdn Bhd to develop palm oil-based biodiesel plants in Hainan Island, Shanghai, Guangzhou and Malaysia. The agreement was signed in July 2006 between CNOOC's subsidiary, Oil Base Group Ltd, and Bio Sweet Sdn Bhd of Malaysia which specializes in biodiesel research and development.

The pattern of development of renewable energy sources in developing countries will follow its own ‘latecomer effect’ logic. While in the developed world, dependence on biofuels is an expensive option (because of intensive land use and need for fertilizers for fuel crops) in the developing world, such as Brazil, biofuels can be produced at much lower unit costs. And the developing countries have much larger land resources to devote to raising energy – from biofuels, from sun (PV cells) and from wind. The developing world can adopt an ‘agricultural model’ to cultivating renewable energy sources – or what might be called an ergocultural model. The 21st century is likely to see major scientific and technical advances in both use of land for food (agriculture) and for energy (ergoculture), with the developing world taking the lead in both.

But of course land can be misused in the pursuit of biofuel crops, and clearances of rain forest in the Amazon and in SouthEast Asia (e.g. in Borneo and Sarawak) represent the front line of such concerns. Countries that allow unchecked clearances are defeating the very conditions that give them a developmental advantage – and creating opportunities for the promotion of global scandals such as the fear that the habitat of apes such as the orang-utan are being threatened.

And if developed countries can be given an excuse to block imports of biodiesel from tropical countries on the grounds that it is derived from mass clearance of rainforest, then clearly the whole biodiesel enterprise is imperilled.

4. Biofuels’ potential to reduce fuel import bills and fossil fuel dependence
For a developing country, it is all the more perverse to neglect the biofuel option while imports of oil are placing an ever-increasing burden on the country’s balance of payments. Brazil has estimated the savings on its fuel import bills since the launch of the Proalcool program to be of the order of $50 billion per year – which is far larger than the country has spent in promoting ethanol. Likewise the savings for China and India in foregone oil imports will be of the order of hundreds of billions of dollars – the difference between success and catastrophe in their development efforts. Since indebtedness problems are a major barrier to industrialization, the relief of debt through displacement of fossil fuel imports represents a major strategic shift.

China’s own domestic supplies of oil peaked in the early 1990s, and so the country became dependent on oil imports – just like the USA 20 years before. The imports of oil needed by China have been rising inexorably ever since – as revealed in Chart 6. The situation is even worse in India, as shown in Table 2, where imports are expected to reach 75% of the country’s requirements by 2005. This is why an alternative solution has to be put in place by these countries/

5. Biofuels production is a rural industry and can promote social inclusion
Brazil sees biofuels production as a way to promote rural industry and to curb the flight to the cities from the countryside. Biodiesel produced from castor beans in Brazil’s arid northeast sertao, for example, is promoted not just for the biodiesel but also for the fact that it creates thousands of jobs in this otherwise impoverished region.

Promotion is through fiscal incentives, such as tax breaks offered to families producing the raw materials needed for biodiesel production. The more the production of castor beans for biodiesel and sugar cane for ethanol production spreads, the greater are the rural employment generating possibilities, which help to curb migration to the big cities. In India the production of biodiesel from Jatropha is also explicitly promoted as a rural industry capable of generating village-based enterprises and local employment. Indian national firms like Reliance Industries, already a player in the oil business, are now moving into production of biodiesel from plantations established in Andhra Pradesh.

6. Countries with even low levels of science and technology can get a start in
biofuels – and go on to build biofuel ‘development blocs’

Biofuels in tropical countries can be grown with scarcely more input than seed, land, sunshine – and labour. If the country has a comparative advantage in low costs, then it can start at a low level of sophistication – and move up from there. Brazil is demonstrating how this can be done, through its ethanol program involving sugar cane, and now its biodiesel program involving vegetable oil seeds such as castor and soybean crops. In the words of the country’s president, Luiz Inacio Lula da Silva (‘Lula’) this program had by July 2006 already generated 100,000 new jobs in growing soybeans and other oil crops in the NorthEast of Brazil. The president made the claim that the biodiesel program has been designed as much with social goals as with fuel supply goals.

The point is that a country in Africa can emulate this example, and devote large tracts of land to fuel crop production. Domestic consumption can provide an initial market, since the fuel produced can displace expensive oil imports. As sophistication is acquired, and export markets are opened up, so the agricultural practices can be improved, and advanced distillation systems installed, and technological knowhow in the country can be enhanced. This will then have spillover effects in other sectors.
As a biofuel industry becomes established, so it will drive industrial development through linkages and complementarities. Biofuels and renewable energies sector promises to play the role of a critical ‘development bloc’ for Brazil, India and China in the first instance, and for wider swathes of developing countries through the tropics more generally. The category of development bloc was introduced and defined by the Swedish development economist, Erik Dahmén in 1950, based on his studies of entrepreneurship in the Swedish economy.

He defined it as “sequences of complementarities which by way of a series of structural tensions, i.e. disequilibria, may result in a balanced situation” (1989: 111).
Such a suprafirm system provides a striking description of how firms may collectively strategize in the context of a disequilibrium economy, and build on each others’ efforts to improve their own prospects. Carlsson and Eliasson (2003) have taken up the concept and renamed it competence bloc – to emphasize that such a collective capability is needed to support and sustain technological innovation.

If the technological system represents the supply side of industrial dynamics, then the development bloc or competence bloc represents the demand side. The competence bloc captures the notion that if new technologies are to be taken up, or absorbed, then firms must have the requisite capabilities, and the product ranges, to be able to make use of the technologies. It is the blockages due to such inadequacies and bottlenecks that accounts for poor uptake of new technologies, rather than unwillingness or conservatism on the part of managements. Thus a development bloc represents the systemic counterpart to the consideration of market demand as well as supplier competence in the microdynamics of technological trajectories. It generates the forward and backward linkages that can drive industrial development.

7. Biofuels are greenhouse gas neutral and can earn countries carbon credits
Biofuels like ethanol are greenhouse gas neutral, in the sense that every carbon atom burned is simply replacing a carbon atom taken by the plant during photosynthesis. This is by far their most appealing feature from a long-term environmental perspective. Of course this neutrality has to be qualified by the fact that fossil fuels are consumed along the value chain producing the ethanol – but again much of the concern that is voiced on this issue emanates from a developed country perspective and is much less relevant in a developing country. For example the Washington Post ran a story in July 2006 captioned “The false hope of biofuels” in which the main charge was that the energy gain is little after deducting amounts involved in fertilizer, harvesting, transport, processing etc.

These considerations change dramatically when considered in the context of a low-cost developing country, where input resources including land and sunshine are abundant. The greenhouse gas emission abatements can then serve to generate carbon credits under the Kyoto protocol.

But again indiscriminate clearance of forest to plant energy crops defeats the gains in greenhouse gas emissions that are potentially there for the taking. It is to curb such behavior and hold governments to a standard of accountability that is one of the principal arguments for global institutions like the World Bank to become more directly involved in promotion (and to some extent regulation) of the development of biofuels.

8. Developing countries can create their own distinctive latecomer institutional innovations to capture benefits
Brazil had to do it the hard way – but having accomplished a successful biofuels industry, it shows other countries how it can be done. In the 1970s it suffered under a military dictatorship, but out of that experience came an understanding as to how the country could benefit from its comparative advantages in sugar cane growing and
processing, turning these into competitive advantages. In the most recent period, Brazil has seen its use of biofuels leap ahead under the twin impact of FFVs (flex-fuel vehicles) and the mandated provision by fuel companies of ethanol blends (from E25 to E85) all across the country.

Other developing countries can learn from this example, without having to go through all the painful episodes of Brazil’s history of the past 40 years. They can accelerate their uptake of biofuels, with all the advantages that this can bring (in terms of energy security, savings from oil imports avoided, rural development and cleaner city air), to create new and vibrant export industries, simply through the double expedient of:

1) mandating supply of flex-fuel vehicles (directed at the automotive industry); and
2) mandating provision of ethanol-petrol blends (starting with E10 and moving to E25) within a few years.

It is predictable, based on Brazil’s experience, that these two measures will have the desired effect of putting the developing country on a new energy trajectory, leading away from dependence on fossil fuels. The billionaire venture capitalist, Vinod Khosla, has proposed these two measures as being sufficient to take the US similarly onto an ethanol-based new energy trajectory. He adds, for good measure, a third, namely a “contingent tax” which comes into play only if the price of oil drops below $40 a barrel. Khosla adds this third provision in the full knowledge that in some parts of the world, the oil industry giants might try to undermine an ethanol program by drastically lowering oil prices, even to below cost (think of Enron and the manipulation of the California electricity market). The contingent tax would be a way of guaranteeing a floor price for fuels for investors in ethanol production and
distribution systems, and thus a way of ensuring that finance will be made available for such ventures.

The key: demand-side initiatives
So much of the discussion of the past decade on renewable fuels has been driven by supply-side considerations – namely costs and technologies. But the key to getting these new industries off the ground – as in every successful case of deliberate industry creation – is to influence demand – in this case, the demand from the automotive industry for cars that run on ethanol blends, and demand from the motoring public for such ethanol blends.

As noted above, the key to the Brazilian success has been an institutional innovation riding on the back of a simple technological innovation. The key is flex-fuel vehicles, introduced in Brazil in 2003 and whose sales have increased dramatically since, by 585% in 2005, so that the share of flex-fuel vehicles (FFVs) in the total vehicle fleet reached 22% in 2004, and is expected to reach 60% in 2006.

So any developing country today can benefit from this experience, and move to establish a biofuels industry with relative certainty as to the outcomes. The key is to start with ethanol blends (‘gasohol’) rather than seeking to jump straight into pure ethanol or other biofuels, and to do so at a measured pace, building demand for the ethanol blend by drawing the automotive sector and oil sector along with the program.

The three steps advocated by Khosla are probably sufficient to get any developing country onto an alternative biofuel trajectory. But this unleashes a chain reaction of processes that make the trajectory sustainable and fuel the country’s further industrial development.

The institutions established to drive the uptake of biofuels will likely have a knock-on effect, facilitating the appearance of other industrial sectors, formed initially as support sectors for the biofuel industry. Good institutions develop during an economic activity. When a committed government engages in a partnership with a proactive private sector, they jointly begin to design and implement appropriate institutions. So while institutions are the key, the causation may be from the start of an activity in response to a government trigger (tax break for example), to the unfolding of institutions that help to trouble shoot as the process rolls along. Of course, the process will be highly inefficient in the beginning, as countries learn to make these institutions work more effectively. This is best illustrated in Brazil’s own follow-up to the ethanol program, namely its Biodiesel program.

Brazil’s biodiesel program – a successful latecomer strategy This latest biofuel initiative from Brazil shows just what can be achieved by a developing country that focuses its institutional innovations on capturing its latecomer effects. The Brazilian biodiesel program, which is now just 18 months old, is just phenomenally well crafted and executed. We can identify 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 first, 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. (Although the success of the program in its first 18 months means that it is widely anticipated that the mandatory 5% blend (B5) will take effect at an earlier date, possibly as early as 2010.) Thus the country as a whole is being brought to a position where by 2013 at the latest (and possibly as early as 2010) it will be producing 5% of all diesel requirements from vegetable oils, making it the world #1 by far. The program is overseen by the Ministry of Mines and Energy.

Secondly, the capacity of the country is being ramped up in the initial, voluntary stage, by the smart expedient of staging national auctions for biodiesel. Four such auctions have been staged so far, by the ANP, the motor fuel standards agency. These auctions have encouraged bids from potential suppliers who are thereby induced into the market. The auctions have also served as a means of setting guideline prices for biodiesel, with each auction setting a lower price at which quantities of biodiesel are sold. The state-owned oil company, Petrobras, acts as the buyer of last resort, thereby ensuring that the auctions bear some relationship to market reality.

Third, there is a distinct and explicit social goal to the biodiesel program - again, learning from the experience of the pro-alcohol program. The 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 distributor's biodiesel. It is only with such a seal that large companies receive tax credits and are allowed to bid at the auctions. The impact has been dramatic, even in just 18 months. The 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 NorthEast through growing oilseeds (mainly castor oil).This is backed by data from the Ministry (MDA) showing that since the launch of the program, just over 200,000 small family-owned farms have been induced into growing oilseeds. Moreover the favoured oilseeds are castor oilseed (Port: Manona) and palm oil (from a variety of native Brazilian species), rather than soybeans that are grown in the centre and southeast of the country. (This 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 confined exclusively to rapeseed and 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 influence of the MDA's social inclusion or rural smallholder development strategies. New candidates are coming on to the scene, such as the wonder oilseed Jatropha curcus, 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). There are as well conventional but under-utilized sources such as beef tallow, obtained from slaughterhouses. The 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. Thus it is a smart latecomer strategy to invest in variety at this early stage of the biodiesel industry.

Note that these 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. The success of the program to date indicates also successful collaboration between these four ministries.

9. Biofuels promote South-South cooperation
Brazil, India and China are already leading the world in the extent and depth of their cross-linkages driven by biofuels. These are all important examples of South-South cooperation. Amongst agreements reported recently, consider:

• India’s largest sugar corporation Bajaj Hindustan Ltd (BHL), announced in June 2006 that it was looking to invest somewhere between US$250 and 500 million in a Brazilian ethanol production facility, raising the company’s industrial alcohol capacity from 320 ML to 800 ML. This is just one of several India-Brazilian cooperation initiatives.
• A Chinese investment delegation visited Brazil in July 2006, specifically in the inland Goias state, to discuss ethanol and soybean-based biodiesel projects – the latest in a series of such visits. China’s Kuok, a diversified conglomerate, has a JV with Cosan, Brazil’s largest ethanol producer (operating 16 distillation plants).
• In July 2006 the Brazilian equipment maker Dedini SA Industrias de Base sold a complete ethanol plant with a capacity to produce 8.5 ML of ethanol a year to Venezuela’s state-owned oil firm Petroleos de Venezuela SA (PDVSA). The plant, to be set up in Tocuyo, will produce ethanol from molasses. Venezuela reported that it is currently experimenting with E-10 blends in the eastern part of the country, importing 1,000 barrels a day from Brazil.
• Strong ties are being established between Brazilian and African countries through the Biopact established between European and African countries. Much of this cooperation will take the form of technology assistance from Brazil to African countries, particularly those which share its Portuguese heritage such as Angola and Mozambique.
• Likewise ties are being established across Central America. For example, Jamaica announced in May 2006 that it would receive a US$100 million loan facility from Brazil to be used for purchase machinery and agricultural equipment to overhaul the country's sugar industry and to produce ethanol, official sources said. The Jamaican government revealed plans to introduce E-15 blends within the next five years, in imitation of the Brazilian success.
• Malaysia and Indonesia, world numbers #1 and 2 in the world in palm oil-production, announced an agreement in July 2006 in which 40 percent of their crude palm oil output would be dedicated to the biodiesel industry. "Both countries agreed to commit a targeted amount of six million tonnes of crude palm oil each annually as feedstock for the production of biofuels and biodiesel," the Plantation Industries and Commodities ministry said in a statement.

These South-South investment tie-ups and joint ventures have a number of strategic advantages. They are taking place in advance of such JVs being put in place by the advanced countries. They facilitate the diffusion and uptake of ethanol and biodiesel technologies by developing countries in tropical parts of the world, independent of its uptake by the developed world. It encourages the formation of a global market for bioethanol and eventually biodiesel, which will make it harder for countries such as the US to defend its current tariff imposed against Brazilian ethanol imports. Development agencies such as UNCTAD can promote South-South investment, one of its major strategic goals, through support for biofuels.

Because Brazil, India and China have moved so far ahead, they are now in a position to engage in South-South transfers of technology from the BICs to other countries for the development of the biofuels industry, a phenomenon that has not taken off in technology adaptation thus far. This should be particularly appealing for countries that have strong agricultural sectors but weak industrial sectors.

10. Biofuels represent simply the first step on a clean technology development trajectory
Finally, the point needs to be made that biofuels are not an end in themselves, and will necessarily lead a country along a trajectory that will involve many more biofuel innovations and clean technologies. Brazil for example started with ethanol, and now since 2005 it has launched a biodiesel program that promises to rapidly take the country to world leadership in biodiesel. All developing countries can expect to pass through the same two phases, probably in more concentrated form. Within the next decade, a third phase can be expected to become significant, namely the use of biomass generally (such as through forest plantations, or municipal waste) as feedstock for general bioreactors. This phase will depend on the development of enzyme packages that are currently in the test stage in R&D companies such as Iogen.

But it is highly likely that this stage will be accelerated through innovations developed in Brazil, India and China, given their track record. The time for the developing countries to make their mark as leaders in biofuels may well be limited by looming technological developments. There are innovations pending such as the design of synthetic bacteria optimized for the production of ethanol, to be grown in bioreactors located next to power stations and fed carbon dioxide as raw material.

If such developments come to pass, they will impose crushing technological competition on the cultivation of energy crops by developing countries. Hence the urgency of these deliberations.

Professor Mathews continues by asking the crucial question: Will the developed world allow a global biofuels market to emerge?

He sketches the barriers the developed world might throw up to try to block the competitive South from entering the market. But he points at potential strategies to overcome this tactic.

The Manifesto further explains why developing nations must act now, before the West attempts to strike with counter-actions, and what the role of multilateral institutions can or should be.

The Biofuels Manifesto can be found at the following location:

John Mathews, A Biofuels Manifesto: Why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries, [*.pdf] Macquarie Graduate School of Management, Macquarie University, September 2, 2006

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Biofuels cooperation initiative in the Greater Mekong region

In South-East Asian cooperation speak, Thailand, southern China, Laos, Myanmar, Cambodia and Vietnam make up the so-called 'Greater Mekong' region. During a recent seminar on "Investment Opportunities in Bio-Fuel in the Greater Mekong Sub-region," two major international cooperation banks - the Export-Import Bank of Thailand (EXIM) and Japan's Bank for International Cooperation (JBIC) - jointly announced to support Thai private sector investments in biodiesel and ethanol production in the region.

EXIM Bank president Narongchai Akrasanee said the global energy crisis presents an opportunity for Thailand to invest in 'green energy,' and the two banks are particularly keen to support production of liquid biofuels derived from plants such as cassava and sugarcane. Laos and Myanmar are especially promising, he said, because they have ample unused land resources.

Land potential in the countries that make up the Greater Mekong can be read as follows (see Terrastat - potential arable land in hectares / percentage of this potential arable land that is actually in use for food, feed and fibre production):
  • Cambodia: 12,2 mio - 31.4%
  • Laos: 5.9 mio - 15.3%
  • Myanmar: 24.5 mio - 41.1%
  • Thailand: 32.2 mio - 64.6%
  • Vietnam: 11.6 mio - 60.2%
Thailand lacks the resources in terms of large plots of land and labour to farm the energy crops:
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This type of investment would also help to promote better relations among the GMS countries, Akrasanee added.

The EXIM Bank and JBIC look to support large-scale projects only, since interesting scale-advantages can be obtained but this would require intensive capital, technology and advanced management skills. Eligible applicants must therefor be able to cultivate on at least 1,000 rais (160 hectares/400 acres) of land, with a commitment to lease for a period of 50 years.

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Global Green to earn exclusive world rights for algae biofuel technology

Several companies have issued press releases about breakthroughs in algae biofuel production, these past few years (an example). None of them has begun wide-scale production though, and the many problems with costs remain (earlier post).
Today, Canadian company Global Green Solutions Inc. announced it has the right to earn the exclusive world rights to yet another algae biofuel technology known as 'Vertigro' from Valcent Products Inc. of El Paso, Texas.

Vertigro is a C02 sequestration system in high-density vertical bioreactors for the mass production of certain algae that consume up to 90% of their weight with C02 using sunlight as the energy source to drive photosynthesis. Approximately 50% of the dry weight of the algae is an oil suitable for biofuel blending with diesel and for other uses. Vertigro is designed as a continuous closed loop that uses little man made energy and nominal water. [Video of the reactor - no technical specifications or research results available; picture showing an experimental vertical photobioreactor developed at the University of Kiel, Germany].

Valcent claims that its continuously operating test bed facility demonstrated that yields up to 4,000 barrels of oil per acre (10,000 barrels per hectare), per year, at an estimated cost of US$20 per barrel are achievable on a commercial scale. As a comparison, soybeans typically yield 1.5 barrels/acre (3b/ha) per year at considerably higher cost; palm oil, with highest yield of conventional sources, delivers approximately 15b/acre (35b/ha) per year.

After a demonstration pilot plant, slated for July 2007, is in operation, several production units that may total 1,000 acres may be built which would have the potential of producing approximately 4,000,000 barrels of oil per year with significant carbon dioxide green credits and other commercial products. At that rate of production, Vertigro will sequester approximately 2,700,000 tons C02 per year which will be sold as a green credit within the emerging green credit system within the USA and within the Kyoto Protocols:
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Global Green has agreed to fund a demonstration pilot plant at an estimated cost of $2,500,000. The Plant will be built on Valcent's lands located in the El Paso area by mid July of next year and in doing so Global Green will have earned the exclusive world rights for commercialization. On completing the pilot plant, Global Green will have earned a 70% joint venture interest, leaving Valcent with a 30% carried joint venture interest with both parties subject to 4.5% third party royalties. Under the terms of the Joint Venture, Valcent retained the right to carry Global Green for a 30% Joint Venture interest if Valcent elects to produce a model for the consumer markets.

Studies report the world market demand for alternate energy and bio-fuels will grow dramatically. The US Department of Agriculture believes that demand for biodiesel fuels will grow astronomically and account for 200 billion barrels produced by 2010. According to Frost and Sullivan, world leaders in technology research, there is a 25% annualized growth rate for bio-diesel fuels at this time in Europe. The U.S Department of Defense, the largest consumer of fuel in the world, requires 75% of the new vehicles it purchases to be alternate fuel users. In all countries, the drivers are the same: concern for global warming, rising cost of fossil fuels, and a desire to be independent from oil producing nations.

Doug Frater, CEO of Global Green, noted, "We are experiencing significant early interest for Vertigro from power utilities, oil and gas production and petrochemical companies as well as international government institutions. We are looking forward to working with Valcent's scientists during the commercialization proces." Glen Kertz, CEO of Valcent, also commented, "In addition to its obvious commercial advantages, we are gratified to be assisting in reducing greenhouse gas emissions while producing a secure source of energy within the USA. We are also proud to note that Vertigro plants will not be built on existing agricultural lands."

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Chevron and US Dept. of Energy form biofuels alliance to develop next generation fuels

Quicknote bioenergy research
When major oil companies are going the green route, we can be confident that they are seeing the future potential of biofuels and bioenergy. We must be realistic and admit that only big oil can pave the way to greater market penetration and acceptance of the green fuels. After all, they are involved in transporting and mixing fossil fuels with biofuels, and in distribution at the pump. The more they invest in it, the smoother market entry will be for biofuels made by energy farmers in the South.

Chevron Technology Ventures (CTV) , a subsidiary of Chevron, and the U.S. Department of Energy's (DOE) National Renewable Energy Laboratory (NREL) have formed a strategic research alliance to advance the development of renewable transportation fuels.

The five-year agreement will see researchers from CTV and NREL collaborating on projects to develop the next generation of process technologies that will convert cellulosic biomass, such as forestry and agricultural wastes, into biofuels such as ethanol and renewable diesel.

The alliance with NREL is the third biofuels research partnership launched by Chevron this year. Chevron recently formed a research initiative with the University of California at Davis and announced an agreement with the Georgia Institute of Technology focusing on cellulosic biofuels enabled by advanced manufacturing technologies for distributed energy production.

"Our goal is to further diversify the world's energy sources in order to help meet the growth in future energy demand," said Don Paul, vice president and chief technology officer, Chevron Corporation. "Through this public-private collaboration we hope to broaden the energy mix by accelerating the development of the next generation of process technologies that will convert cellulosic biomass into biofuels. Process efficiency and suitability for industrial-scale deployment, similar to today’s transportation infrastructure systems, are key success factors."

NREL’s participation in the alliance upholds the DOE’s mission to advance the national, economic and energy security of the United States and to promote scientific and technological innovation in support of that mission.
"Through this public-private collaboration we hope to broaden the energy mix by accelerating the development of the next generation of process technologies that will convert cellulosic biomass into biofuels. Process efficiency and suitability for industrial-scale deployment, similar to today’s transportation infrastructure systems, are key success factors."
Don Paul, vice president and chief technology officer, Chevron Corporation

"Increasing the amount of fuels we can make from America’s farms, forests and fields will greatly enhance the nation’s energy security and economy and help the environment. Agreements such as this will help us accomplish that."
Dan Arvizu, director, NREL
CTV also will fund research that complements DOE-sponsored work at NREL on bio-oil reforming, a process by which bio-oils derived from the decomposition of biological feedstocks are then converted into hydrogen. This research may expedite the development of a feed-flexible, distributed-reforming process for renewable hydrogen production as well as provide the hydrogen necessary in some potential biofuels conversion technologies [entry ends here].
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