South Africa threads carefully with biofuels: sector must benefit smallholders

South Africa is threading carefully towards a biofueled future. More thorough policy work and consultation are underway to ensure that the sector benefits smallholders first and that regulation is based on a realistic assessment of South Africa's (relatively small) technical potential. The country's Science and Technology Minister, Mosibudi Mangena, said legislation will not be finalized by the end of this year.

The idea that biofuels may serve as an engine of rural development combinded with the prospect of 'peak oil' have made the case for biofuels all the stronger though. South Africa now has one of the most ambitious proposed targets, wanting 75 percent of its renewable energy needs by 2013 covered by biofuels as it seeks to create new markets for its ailing agricultural sector.

Meanwhile, the debate over whether to promote sugarcane over maize as ethanol feedstock continues. And importantly, it has become apparent that South Africa is unlikely to introduce subsidies to support biofuel producers. The country's farming sector underwent a massive cut in state subsidies in the post-apartheid era which is why subsidizing biofuels producers would spark an outcry from farmers.

Mangena was speaking at the 26th annual International Society of Sugarcane Technologists' congress in Durban. The minister said that the contribution of carbon emissions from the combustion of fossil fuels and the fact that global demand for crude oil was consistently outstripping its supply meant that alternative supplies for the world's fuel needs would have to be found.

Small farmers first
The government has suggested that the biofuels industry would be considered as a market for subsistence farmers who would produce feedstock to produce bioethanol. Mangena acknowledged, however, that South Africa is a water-stressed country and the use of valuable land for fuel feedstock production would have to be carefully weighed against food security.

The biofuels industry in South Africa currently remains small, although the country exports about 45% of its sugar crop, which is a potential source of ethol. The South African sugar industry produces roughly 2.5 million tons of sugar a year:
energy :: sustainability :: ethanol :: biodiesel :: biomass :: bioenergy :: cellulosic biofuels :: subsidies :: rural development :: South Africa ::

Until now, the government's focus in agricultural development was largely on transformation through agrarian reform. In this the sugar industry had contributed widely by helping to establishing communities of small growers. However, Mangena was not yet able to comment on the degree of support the government was considering providing to emerging and subsistence farmers for the production of biofuel feedstock. He said various stakeholders from the departments of minerals and energy, agriculture and land affairs, and from environment and tourism were still making inputs. The parliamentary subcommittees on biofuels were expected to report by the end of the year.

Peak oil
Earlier in the congress, which is being held under the auspices of the South African Sugar Association, biologist and biofuel entrepreneur Paul Zorner said that recent year-on-year demand for crude oil had been growing at 2,2% against a historical demand of 1,6%. The demand for transport fuel was expected to be 50% greater by 2030 that what it was today:

Zorner quoted Jeffrey Currie of U.S. financial services consultancy Goldman Sachs as saying that a price of $95 a barrel of crude was likely this year, unless the Opec oil cartel unexpectedly lifted production. 'Oil production is past its peak, though', said Zorner.

Apart from fuel prices, the economic viability of a biofuels industry would depend on the cost and availability of raw feedstock, government regulation and the efficiency of conversion technology. Zorner said that at an oil price of $40 a barrel (a price not seen for years), biofuel market penetration of 10% could be expected. At $50 a barrel the penetration of 30% could be expected. "However, a price of more than $60 a barrel for the next three decades is likely."

Zorner said the U.S., which was by far the world's biggest fuel consumer, had passed legislation last month that would see the use of ethanol for transport fuel increase sevenfold. That would increase world consumption of ethanol three times.

Maize versus sugarcane
Mangena said officials had started to question the wisdom of using maize as a major source for renewable energy. Land officials offered biofuels as part of a rescue plan for maize farmers two years ago when a surplus maize harvest pushed prices to four-year lows. But since then, prices have picked up and for the second consecutive season, South Africa faces a poor maize harvest, raising fears of food security, Mangena said.

Zorner added that biofuel produced from maize provided no carbon dioxide mitigation relative to that of petrol. However, cellulosic and sugar-cane based ethanol reduced carbon dioxide emissions 80% relative to petrol.

The debate about whether SA should favour maize-ethanol production over sugar-ethanol production was not settled, Mangena said. Maize ethanol was considered as an option because of its accessibility to small and subsistence farmers.

Ethanol has been presented as one of several alternative fuels that would reduce the world's carbon emissions, which are largely deemed responsible for global warming and an expected climate change.

Zorner proposed the production of sugar cane for its biomass qualities, rather than for sugar, to produce ethanol from cellulose. This would require a high level of technology, using enzymes to break down cellulose.

He said that in biomass production, sugar cane was the most productive crop on the planet which, through indirect fermentation using enzymes produced by termites, for example, could be converted into energy. Zorner said the technology to transform biomass into fuel existed and that it was about six to eight years away from commercial viability.

Although none of the economic models Zorner developed for this production process depended on subsidies, it would require "heavy global investment" to drive innovation. The biggest hurdle was financing the initial large refineries, he said.

Subsidies unlikely
South Africa's biofuels programme may become a lifeline for the struggling farming sector, but Mangena said that it is unlikely that subsidies will be introduced.

The Southern African Biofuels Association says it needs between 2 billion rand and five billion rand a year from the government to get a capital intensive industry off the ground. Mangena said lending support to the renewable energy industry might spark an outcry from farmers, whose fortunes have waned after a massive cut in state subsidies in post-apartheid South Africa.

My suspicion is government will not give support but will give guidance as to what is desirable and what is not desirable. [...] In the South African environment there are all sorts of factors to be considered. For example... the farming community has been asking for subsidies for quite a while now and you know there are no subsidies. - Mosibudi Mangena, Science and Technology Minister

The minister's statements square with broader free-market economic policies that have taken hold under President Thabo Mbeki, who has also made a tight fiscus the hallmark of his rule since 1999.

Picture: sugar cane fields in Kwazulu Natal.

References:
All Africa: Government Seeking Biofuels Clarity - Mangena - July 31, 2007.

Reuters: S.Africa biofuel subsidy unlikely, says minister - July 30, 2007.