EU aide defends biofuel against food price rise

Rising prices of corn and edible oils cannot be entirely blamed on increased bio-fuel production, according to Robert Vierhout, secretary-general of the European Bio-ethanol Fuel Association, or eBio.

Rise in bio-fuel production will have an impact on the environment, but not necessarily a negative one. However, he felt that the negative impact of its production growth needs to be considered and hedged.

eBio is a representative body of ethanol producers in the European Union. Its objectives are to promote European policies and initiatives that lead to the increased production and use of bio-ethanol fuel.

Vierhout endorsed sustainable and responsible farming by saying, "Bio-diversity needs to be respected. If we are going to sacrifice bio-diversity for having bio-fuels, we are doing something basically wrong."

He also clarified that although bio-fuel production currently involves the use of fossil fuels and fertilisers, studies have revealed that despite the use of fossil energy, bio-fuels still deliver net energy and greenhouse gas savings.

The fact that bio-fuels are made out of edible crops has no real impact on the food market, compared with bio-fuels made from dedicated energy plants such as jatropha in

India. The real competition is not for edible crops, but for arable land.

"One possible way forward to reconcile food and fuel production would be to increase the yield of crops, so that one hectare of land can feed more people and fuel our energy needs," the eBio head said.

He feels the recent rise in food prices is due to higher living standards in Asia, which have resulted in increased demand for meat, and in turn cereals.

Also, drought conditions which have led to low harvests, and increased speculation in the futures markets, combined with higher demand from bio-fuel producers have fuelled price rise.

"We do need to keep in mind that even though the population is increasing, farm output has always maintained pace with this growth" he said.

There is no reason to believe that the farming community is unable to keep pace with the increased demand due to bio-fuels," he said.

"When you take into account the fact that now there is a growing volume of crude oil, or unconventional oil extracted from tar sand or deep-sea offshore installations, the cost and environmental benefits from bio-fuels become more apparent," Vierhout said.

Bio-ethanol made out of Brazilian sugar cane is commercially viable with the crude oil price at around $35 a barrel. The US corn-based ethanol can compete with oil prices at around $45 a barrel.

In the European Union, the competitiveness of ethanol depends on the feedstock used, but on an average, a break-even situation should be achieved if the cost of oil hits $90 a barrel.

"The difference in the competitiveness is due to the raw material used, its cost and yield, as well as the difference in the cost per unit of labour, environmental standards, and investment costs in production facilities," said Vierhout.

He feels that the Organisation of Petroleum Exporting Countries'statement, that the policy to promote alternative fuels may lead to a fall in investment in the oil sector is unfounded and unjustified.

He also pointed out that oil companies are seeing potential in bio-fuel production.

He forecast that within 10 years, every oil major will be a shareholder in bio-fuel production, as the mandatory blending policy gains prevalence.

Shell is one of the main shareholders of Canadian IOGEN (produces ethanol from straw) and last month, BP announced an investment in a 420 million litre plant in the UK, along with DuPont and ABF.

In 2005 and 2006, the European Union had witnessed an increase in bio-ethanol production by 74 per cent and 71 per cent, respectively.

Vierhout expects the trend to continue even if the growth rate is not so impressive.

In 2007, eBio projects an increase in ethanol production by around 50 per cent, accompanied by a constant rise in the share of bio-fuels in the transport sector.

He expects dependence on traditional feedstock to continue until 2010, and then a shift in feedstock towards the so-called 'second generation bio-fuels' around 2015. This will open manifold possibilities of further increase in production capacities.

Since the major factors driving bio-fuel promotion are concerns about climate change and energy security, the policy on bio-fuels is unlikely to change in the near future.

"eBIO expects clear political decisions, paving the way to sustainable energy production from renewable sources," Vierhout said.

He sees the European Union playing an important role in global bio-fuel development due to stronger political backing from its members.

During the European Council's spring summit, the European heads of state decided to introduce a mandatory usage target of 10 per cent by 2020. Secondly, this year, all member states need to indicate their target for 2010.

An overwhelming majority has set the target at 5.75 per cent, as agreed in the Bio-fuels Directive.

However, he feels that the European Union must put its money where its mouth is, in order to keep pace with the US research programme.

The US has allocated $1 billion for bio-fuel research in 2007. The European Union lags desperately behind, compared with the US, with around 50 million euros for research in bio-fuels in the 6th Framework Programme for 2002-06.