The exponential rise in energy prices over the last 10 years is seen as the beginning of a new era in which energy prices will remain high for an extended period. Several factors have driven this trend, including the rapid growth in demand for energy in developing countries such as China and India; the depletion of easily accessible supplies of oil; and the higher cost of extracting oil from deep oceans, remote areas, and politically unstable regions.
Within this context, a renewed interest in biofuels as an alternative and renewable supply of transport fuels as well as policies in many countries that encourage production and mandate consumption of biofuels have become increasingly more important.
Concerns over global climate change have also contributed to the renewed interest in biofuels as a way of reducing greenhouse gas emissions, as have other factors such as the desire for increased energy security and the desire to support the rural sector.
The effect of expanded biofuel production on the rural sector will be substantial.
Biofuels will not only provide opportunities for farmers to grow new cash crops, but will also cause the relative prices of all agricultural commodities to rise because of the increased competition for resources.
The latter is expected to break the decades-long trend of declining real prices for agricultural commodities. African countries can participate in this new era as both producers of traditional agricultural commodities and as producers of biofuels to meet domestic and export demand.
The global demand for ethanol and biodiesel is expected to grow rapidly until at least 2020 because of consumption mandates and high energy prices. Most of the growth is expected to come from the United States and the European Union (EU) because both have mandated large increases in biofuel consumption.
However, many other countries have also mandated consumption of biofuels and will contribute to global demand growth. The EU has mandated that 10 percent of transport fuels come from renewable sources by 2020, and that mandate requires almost tripling the approximately 15 billion liters of biofuels consumed in 2009.
The United States has mandated that 36 billion gallons (136 billion liters) of biofuels be consumed by 2022, which requires more than tripling the 11.1 billion gallons (42 billion liters) of biofuels consumed in 2009.
Most of the increase in U.S. biofuel consumption will be for ethanol because that is the dominant transport fuel in the United States, and the mandate for biodiesel consumption is comparatively small at 1.0 billion gallons (3.8 billion liters). The EU demand for biofuels to meet the consumption mandate will also require larger increases in ethanol than in biodiesel because current biodiesel production is larger and therefore nearer the mandated consumption than ethanol.
The rapid increase in the global demand for biofuels, especially ethanol, over the next decade or more will provide opportunities for African exporters because neither the EU nor the United States is expected to be able to meet its consumption mandates completely from domestic production.
The EU ethanol market is especially attractive for African biofuel producers because of duty-free access afforded most African countries under various preferential trade agreements and the high EU tariff on ethanol imports.
The U.S. ethanol market also gives African exporters preferential access, but it has lower tariffs and is not expected to be the target market for African producers. Biodiesel exports offer less of an opportunity for African producers because EU and U.S. import duties are lower and duty-free access offers less of an advantage over low-cost Southeast Asian producers.
Ethanol production for export will need to be large scale to reduce production costs and will most likely be from sugarcane because that proven technology can be adapted to African conditions. Smallholders will be able to participate as out growers, but they will need government assistance to establish their sugarcane fields.
Large-scale biodiesel production for export is less attractive for African producers because production costs are expected to be higher than for Southeast Asian producers and tariff advantages to the EU or U.S. markets are low and do not offset higher production costs. However, smallholders may be able to produce biofuel feed-stocks, such as jatropha seeds, for export to the EU for processing into biodiesel, taking advantage of the EU’s already established large-scale processing capacity.
The domestic market for biofuels is also expected to be attractive in many African countries because of high fuel prices and rapid demand growth, and it may offer better opportunities for smallholder participation in producing biofuel crops. The prices of fuel in sub-Saharan African countries are about double those in the most competitive markets, and landlocked countries face even higher prices.
Demand for transport fuels is projected to grow by more than 5.0 percent per year in sub-Saharan African countries during 2005–20, and that growth will provide opportunities for domestic use of biofuels. Household cooking is another potentially large and important market in Africa, where biofuels can replace charcoal and wood fuels in urban areas. The demand for such fuels is expected to increase as populations and incomes grow and supplies of traditional cooking fuels become more costly because of depletion of forests near urban centers. In addition to the environmental benefit of biofuels from replacing charcoal and wood fuels, a substantial health benefit could accrue as clean-burning biofuels and vegetable oils replace traditional biomass and reduce indoor air pollution, which contributes to respiratory illness.
A third opportunity for biofuel use in domestic markets is as straight vegetable oil (SVO) to fuel stationary power plants and provide power to rural communities not connected to the national grid. Such use already exists in several countries, and it provides both a market for local biofuel feed-stocks and electricity for rural communities. Heavy industry in rural areas, such as mining, provides yet another marketing opportunity, where biofuels can replace imported diesel fuel in remote areas.
Most of the increase in demand for biofuels over the next decade will need to be met from first-generation technology unless second-generation technology develops more rapidly than expected. First-generation technology includes producing ethanol from sugar crops, such as sugarcane or sweet sorghum, and from starchy crops, such as cassava, and producing biodiesel from animal fats or vegetable oils. This technology is mature, and large increases in efficiency are not expected. Second-generation technology uses a different process and can use waste from food crops and feedstocks, such as agricultural residue, timber waste, and specialty crops including fast-growing grasses or trees. The basic conversion technologies of second-generation technology are not new, and their commercial development has been pursued for many years. The main reason they are not used commercially is that the necessary conversion technology from feedstock to finished fuel is not technically proven at commercial scale. Second-generation technologies are not expected to contribute significantly to biofuel production for at least a decade, and that means food crops will remain the dominant feed-stocks for biofuels.
Third-generation biofuels are still at the research and development stage; they include a group of technologies described as “advanced biofuels.” Algae are perhaps the best known of these, and certain species can store large amounts of carbohydrates or oil. Algae oil yields per hectare are much higher than those of vegetable oils and require much less water.
However, production of large volumes of oil from algae requires large ponds and large capital investments, which increase production costs.
African countries are well placed to benefit from the increased demand for biofuels because many have large areas of land suitable for producing biofuels as well as abundant labor.
Sub-Saharan Africa has more than 1 billion hectares of land with potential for rain-fed crop production according to the Food and Agriculture Organization of the United Nations, of which less than one-quarter is being cultivated. Biofuels offer the prospects of a new cash crop for farmers, increased employment in rural areas, reduced fuel import costs, and foreign exchange earnings.
Lee-Roy Chetty holds a masters degree in media studies from the University of Cape Town and the University of Massachusetts, Amherst. A two-time recipient of the National Research Fund Scholarship, he is currently completing his PhD at UCT and an economics degree with Unisa.
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