Environmental credentials are called into question

By Fiona Harvey, Environment Correspondent
Published: June 30 2008 03:00

Biofuels may be made from plants, but are they actually "green"?
At a time of rising oil prices, making fuel from plants has helped managed to subsitute some oil, slightly damping the price.
But the rising cost of fuel has also inflated the price of food - and that has brought the sustainability of biofuels into question, as they compete with food crops for fertile land.
The question of whether biofuels can be produced in a manner that does not send food prices shooting up, and brings an environmental benefit, is crucial to the future of the entire nascent biofuels industry.
The answer is likely to be yes, but only in small amounts; or yes, but not for some years.
Biofuel production has grown rapidly from almost nothing outside Brazil, where sugar cane has been turned to alcohol to fuel cars for years. The US Energy Information Administration has forecast that global biofuels production will rise from 1.3m barrels a day in 2010 to 2.7m in 2030.
A push by President George W Bush to wean the US off its "addiction to oil" by replacing some imports with plant-derived fuels has made a big difference, and the European Union has encouraged production by proposing to derive 10 per cent of transport fuels from biomass by 2020.
The result is that a fifth of the US corn crop is now devoted to biofuels, and that is set to increase under government policies. More than 30 per cent of the US maize harvest this year will be diverted to ethanol distilleries, according to the UN Food and Agriculture Organisation.
The US accounts for about 40 per cent of the global corn harvest, and about a quarter of world grain exports. Other biofuel industries are smaller, but growing.
Biofuels have been blamed for record rises in the price of food and grains and some oils rise, leading to rioting in some developing countries.
However, it is clear that they are not the main factor.
Several recent analyses from the International Energy Agency, the International Monetary Fund and smaller research companies have shown that the biggest factors underpinning food price rises are familiar from classical economics: higher input prices, rising demand and constraints on supply.
Demand for grain and meat from China and India has increased strongly, as those countries have become richer and the growing middle classes have sought to improve their diet. Rising demand for meat has been a particular issue, as grain is used as animal feed.
At the same time, poor harvests, resulting from droughts in Australia and parts of the US and Ukraine, and last summer's floods in parts of Europe, have reduced the grain available.
Meanwhile, higher oil prices have pushed up the proce of the two biggest agricultural inputs in the developed world: energy and fertiliser.
Biofuels have exacerbated food price rises, but the extent to which they have done so is debatable.
Greg Manuel, international energy co-ordinator at the US state department, says biofuel production there has contributed about 3 percentage points to the global food price rise. Most observers consider that figure on the low side. The IEA puts the figure at about 20 per cent.
The environmental credentials of the fuels have also been called into question. The plants from which biofuels are made absorb carbon dioxide as they grow, balancing the carbon they produce when burned.
But the energy required to distil ethanol from grains or sugar means that biofuels, at best, can reduce carbon by about 60 per cent compared with fossil fuels. At worst,they can produce more carbon than conventional fuels.
Biofuels companies now face several problems. They are blamed for products that are raising food prices with little environmental benefit.
The political will to institute the subsidies needed to persuade investors into the sector may be diminishing as a result.
High food prices are also bad news for biofuels companies, as they mean high input prices.
And although high oil prices mean biofuels companies can charge more for their products, they are also a problem - most biofuels companies require a substantial input of fossil fuels to produce ethanol.
Some biofuels companies are fighting back. Ensus, a UK-based company, for instance, argues that the EU could produce enough cereal to meet its biofuels targets by bringing the productivity of land in eastern Europe to the levels of western Europe, and bringing uncultivated land into production.
The company also points out that high-protein animal feed is an important byproduct of ethanol production, and means that imports of soy can be reduced.
Biofuels could thereby provide a small proportion of transport fuels, although it would be foolish to attempt to make them a main source.
Others have focused on the potential for "second-generation" biofuels - those made from waste products such as straw, waste wood, sewage or other organic material.
This is the "holy grail" of the industry - probably the most environmentally sound method of fuel production possible.
Scores of companies are working on methods to achieve this. Some rely on enzymes, such as Novozyme of Denmark, which is building a demonstration factory for enzymes that, it says, will be able to convert waste to ethanol within three to four years.
"We understand the processes now. We don't need a miracle breakthrough. We can see clearly the development path," says Steen Riisgaard, chief executive.
Shell and BP are also exploring the possibilities of second-generation biofuels, the latter in partnership with the chemicals company DuPont.
Charles Holliday, DuPont's chief executive, says he expects to start commercial production of second-generation biofuels by 2012.
Others have turned to more exotic forms of biofuels. Eco-Solutions, a second-generation biofuels company, is cultivating lipidproducing algae that it says should be able to produce biodiesel at a yield of 30,000 litres per hectare of land per year, compared with biodiesel from plant sources, such as soybean or rapeseed, which have yields of 500 to 1,200 litres per hectare per year respectively.
Most second-generation biofuels companies say they are confident of production on a commercial scale within two to five years. None has yet produced such biofuels in any usable volume outside the laboratory, however.
Copyright The Financial Times Limited 2008