02.2008 - The future of biofuels

Investing in a winning proposition in a  highly promising sector

The media driven public opinion has recently been stressing policy makers to introduce renewable energy and biofuels in an effort to combat climate change. As most developed regions have implemented legislation, mandating bio-components to be blended in fossil fuels, the media is back  again, now with worries over highly unsustainable practices of some short sighted players, demanding an addendum of basic sustainability rules to complement the legislation in force.

Mandating the blending of biofuels with fossil fuels is a necessary move on the side of governments, including the USA  and the EU, in an effort to reduce the dependency on oil and gas from unstable  regions, in combination with growing concerns over climate change, which are making it inevitable to search for solutions in the renewable energy sector.

Although alternatives may come about on the long run, for the current on-road infrastructure and its hundreds of millions of vehicles, there are only few choices which can be considered viable on the short and middle long term. These are mainly bio-ethanol for gasoline and biodiesel for diesel engines which have  been prioritized under the first wave of pressure from the public opinion and the media.

As the policy makers mandate the blending of a certain percentage (5,75% in the EU) of a bio-component, little or no consideration was paid to some basic issues, resulting in a gold rush on precious feedstock for energy, some times at any cost. Governments failures to place the new biofuel business in a certain sustainability context with guidelines, policies and fiscal incentives in favor of contributing to the handling of the very problems, should be considered nothing more than a temporary shortcoming.

Did we get our 'eco' blends in gasoline and diesel at any costs?

The corn production in the US being used for large scale incentivized  bio-ethanol production, as well as other food crops which are being used for the production of biofuels, are causing the prices of vegetable oils, feedstock for animals, fertilizers, as well as the land itself, increase as never before.

For the profit, some parties started to cut Malaysian rain forest on a large scale in order to sell the teak wood. The forest land is replanted with palm trees for palm oil, which is used to produce biodiesel and shipped to western countries.

These and other disturbing notifications are important to address as they may cause considerable and irreversible damage for future generations. They also form the content of a second media wave, putting the same governments under even greater pressure to rapidly act on these issues. A return to pure fossil fuels, as some oil companies hope and lobby for, is highly unlikely to occur. Better solutions are being worked out.

These solutions will include a quality standard for energy production, guidelines and laws for the entire supply chain, such as:

1. a positive energy balance of the system in which biofuels are produced to demonstrate that it contributes to the growing energy demand, which means that the energy output of the system exceeds the energy input; 
2. biofuels are produced in an ecological process with environmental benefits and contribute to reduction in (CO2) emissions, reducing public health hazards, respecting the planet's natural resources and rainforests; 
3. synergies are created between feedstock and food production, rather than a fierce competition for land and fresh water; 
4. inclusion of smallholders and job creation in developing rural areas.

Failing to introduce such policies would clearly be a missed opportunity. First steps have been taken. Image problems have to be addressed while the public opinion demands action. The German government is currently designing a replacement of their fiscal incentive program for national biodiesel, which is being reduced and comes to an end by 2012. It introduces the above issues as mandatory to obtain these valuable bonuses on biofuel produced anywhere in the world. In biofuel business sometimes the fiscal incentive makes the difference between all or nothing.