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Biofuels

Issue Brief I Energy and Climate Focus Area

World Business Council for Sustainable Development

Overview
Throughout history, bioenergy has been important for satisfying human needs. At present, it is primarily used for heating and cooking in Introduction the developing world. But as world leaders contemplate the post-Kyoto framework, much attention is being given to new, modern uses of bioenergy. Biomass substitution for fossil fuels in heat and power systems could play an important role in stabilizing our carbon emissions. As leaders begin to discuss carbon emission reductions of 50% by 2050, biofuels could take on an urgent role in emissions mitigation in the transport sector. In addition to climate change as a driver, increasing concerns about the rising cost of hydrocarbon-based transportation fuels and growing concern over energy security are causing many countries to view biofuels as a key element of national energy strategy. Although less efficient than when used for heat, power or manufactured forest products, biofuels may yet prove to be societys choice. In any event, biofuels are currently the alternative that is being actively promoted in many parts of the world.

Bioenergy Biofuels Biomass


Bioenergy is energy produced from organic matter (biomass). Biofuels are liquid, solid or gas fuels derived from biomass, either from recently living organisms or from their metabolic waste. Biomass refers to organic material made from plants and animals.1 The production of biomass and biofuels must be carried out sustainably in order to balance the carbon cycle and keep it intact, and to ensure that the environmental and social impacts of their production are acceptable. To learn more about biomass, download our Biomass Issue Brief at: www.wbcsd.org/web/biomass.htm

This issue brief focuses on the use of biofuels in the transport sector. Although biofuels are being pursued as a possible alternative to fossil fuels, currently most of the biofuels available for motor fuels are more expensive to produce per unit of energy delivered compared to oil derived from fossil fuels. If fuel costs are to come down, considerable development and

Source: Adapted from E4tech. Hart, David, Ausilio Bauen, Adam Chase, Jo Howes. Liquid biofuels and hydrogen from renewable resources in the UK to 2050: a technical analysis. E4tech (UK) Ltd. 2003.

Figure 1: Biofuels pathways


Resources
Arable/annual Crops Oilseed rape Wheat Maize Sugarbeet Potatoes Hydrolysis/fermentation Herbaceous perennials Miscanthus Switchgrass Reed canary grass Gasification Woody perennials Short rotation coppice Pine/spruce Hydrogen Residues + w astes Waste fats and oils Bio-oil Forestry residues Straw Organic municipal wastes Digestion Bio-methane Pyrolysis FT diesel DME Methanol Ethanol Pressing/esterification Enzymatic transesterification Biodiesel

Conversion technology

Fuel

Overview

government investment will be required to improve manufacturing and distribution technology. Biofuels include a number of different products and manufacturing pathways (see Figure 1). The most widely used biofuel, ethanol, is currently made largely from sugar cane in Brazil and from corn in the United States. Meanwhile, the largest producer of biodiesel is Germany, where the fuel is made from rapeseed. Each pathway, from the resource to the conversion technology to the fuel, has its own distinct carbon footprint.2 Our principal source of data for 2005, as well as for 2030 references, has been the International Energy Agencys (IEA) World Energy Outlook (IEA, 2006). Projections to 2030 are based on the IEA Alternative Policy Scenario (APS); 2030 is the year that has been chosen to project the cumulative impact of the

implementation of the national policies under consideration in 2005. Currently, a number of key countries are contemplating more aggressive targets for the production of biofuels. The IEA is examining much more forceful policy scenarios for discussion during the post-Kyoto framework negotiations. Global production of biofuels reached 20 million tons of oil equivalent (Mtoe) in 2005, representing about 1% of total road-transport fuel energy consumption. Brazil and the United States together accounted for almost 80% of global supply (see Figure 2). Ethanol production is rising rapidly in many parts of the world in response to higher oil prices, and supported by government incentives and rules on fuel blending. Similarly, biodiesel production is highly concentrated, with the European Union responsible for around 75% of total biodiesel production (see Figure 3).

Source: Data for 1975-2003 taken from IEA. Biofuels for Transport: An International Perspective. 2004. Data for 2004-2006 cited at http://www.ethanolrfa.org/industry/statistics/#E. Original source: F.O. Licht.

Figure 2: World and regional ethanol fuel production (1990-2006)

Million liters 50,000

40,000

Brazil US and Canada EU

World

30,000

20,000

10,000

0 1975 1980 1985 1990 1995 2000 2005

Source: Cited in World Bank (2007). Biofuels: The Promise and the Risks. Agriculture for Development Policy Brief. Original source: F.O. Licht Consulting Company, personal communication, 31 July 2007.

Figure 3: Global biodiesel production in 2006 (6.5 billion liters)

United States 13% European Union 75% Other 12%

Overview
First generation biofuels refers to fuel derived from feedstocks harvested for their sugar, starch and oil content, which can be converted using hydrolysis/ fermentation and

pressing/esterification technologies. In OECD countries, most ethanol is produced from starchy crops such as corn, wheat and barley. In tropical countries like Brazil, ethanol is made primarily from sugar cane.

First generation

Second generation biofuels describe those produced from lignocellulosic biomass, such as herbaceous and woody Second perennials, through generation hydrolysis/fermentation, gasification or pyrolysis technologies. There is no industrial production of biofuels from cellulosic biomass, but research focusing on large-scale production is being carried out particularly in the United States, Canada, Germany, Sweden, China and Brazil. Successful ligno-cellulosic technology would technically allow the utilization of a large variety of feedstocks, as well as agricultural or municipal waste materials and specialized cellulosic crops, such as grasses and fast-growing trees.

Cellulosic feedstock could be grown with less fertilizer and water and on poorer quality lands than those currently used to grow crops for conventional ethanol production. Furthermore, cellulosic crop costs could be considerably lower when compared to those of the cereal and seed crops currently used in Europe and the United States. Figure 4 illustrates current biofuel production costs, which are projected to drop with upgraded technology and conversion processes and improved economies of scale. Aggressive energy policies and anticipated revenue from carbon markets are driving investment in biofuels. Experience will lead to lower production costs. Over the next few decades, ethanol is expected to account for the greatest proportion of the increase in biofuel use worldwide, as production costs are predicted to fall faster than those of biodiesel and other biofuels.

Source: Cited in Organisation for Economic Co-operation and Development. Doornbosch, Richard and Ronald Steenblik. "Biofuels: Is the Cure Worse than the Disease?" 2007. Adapted from IEA. World Economic Outlook. 2006

Figure 4: Current and projected future ethanol production costs, compared with recent (pre-tax) gasoline prices/liter of gasoline equivalent
Price or production cost (USD per liter) 1.2 2005 2030 1.0

0.8

0.6

Biodiesel: FT synthesis

Pre-tax diesel prices*

0.4

Pre-tax gasoline prices*

Ethanol: maize Ethanol: sugar cane

Ethanol: sugar beet

Ethanol: wheat

Biodiesel: animal fat Ethanol: ligno-cellulosic

Biodiesel: vegetable oil

0.2

*Pre-tax gasoline and diesel prices (Jan. 2000-July 2006). Based on monthly average import prices for crude oil into the IEA region, crude oil import prices varied between $20 and $70 per barrel in this period. Note: Cost estimates exclude from consideration subsidies to crops or to the biofuel itself.

Overview
Source: IEA. World Energy Outlook. 2006.

According to the IEA, fuel demand from the road transport sector is forecast to increase considerably Forecasts over the next few decades, for biofuel especially in developing production regions. Biofuels are projected to account for a growing share of the resources used to meet this demand. Production is expected to increase at a rate of 8.3% per year, reaching 73 Mtoe in 2015 and 147 Mtoe in 2030, to meet 7% of global road-transport fuel demand (see Figure 5).3 Previously, it was believed that second generation biofuel technologies would not be available on the market by 2030; however, government funding could change this. Advances in the development of these technologies will be necessary before they can be deployed commercially on a large scale. It is possible that such breakthroughs could occur in the near future leading to more rapid development of biofuel production than previously expected.

Figure 5: World biofuel consumption, alternative policy scenario

160 140 120 100 80 60 40 20

Mtoe

World Brazil China EU United States

0 2004

2010

2015

2030

The issues
To determine the Carbon greenhouse gas (GHG) balance associated with footprint/GHG different types of biofuels, emissions it is essential to consider mitigation emissions throughout effectiveness their full life cycle from change in land use for agricultural production to processing and combustion of fuels (life-cycle assessment). Most studies that make use of this type of analysis include carbon dioxide emissions as well as other greenhouse gases like nitrous oxide and methane.4 Crops that require high fossil energy inputs (in the form of standard fertilizers, for example), and that have relatively low energy yields per hectare, would result in a higher carbon footprint. Similarly, energy crops have an additional negative carbon impact if they replace primary forests. The energy demands of fuel processing are also a significant part of life-cycle assessment. For example, ethanol from sugar cane in which the bagasse is used as an energy source has lower CO2 emissions than ethanol made from corn where the process energy typically comes from hydrocarbons. Figure 6 from the Sustainable Mobility to 2030 report illustrates well-to-wheel (WTW) analysis. WTW considers not only the GHGs produced when a fuel is used in the vehicle (tank-to-wheel TTW), but also the GHGs emitted by the production and distribution of the fuel (well-to-tank WTT). The TTW takes into account the efficiency of propulsion systems such as internal combustion engines, as well as their future replacement. WTT accounts for the carbon sequestered in growing the feedstock as well as its conversion to fuel. Both must be considered when comparing a transport fuel and its potential substitute.

Source: WBCSD. Mobility 2030: Meeting the challenges to sustainability. 2004.

Figure 6: Well-to-wheel greenhouse gas emissions for various fuels and propulsion system combinations

Fuel Gasoline Gasoline Gasoline Ethanol (Sugar Beet) Ethanol (Straw) Diesel Diesel RME Biodiesel

Well-to-tank emissions

Tank-to-wheels emissions

Propulsion system

2010 ICE DI ICE


Advanced ICE
(1)

ICE

(2)

ICE (2) DI ICE Advanced DI ICE (1) DI ICE (2) DI ICE DI ICE ICE ICE DI HEV DI HEV HEV
ICE HEV

FT-Diesel (Remote-NG) FT-Diesel (Residual Wood)


CNG (EU-NG-Mix) LH2 (EU-NG-Mix) Gasoline Diesel F-T Diesel (Residual Wood)

-150

-100

-50

50

100

150

200

250

300

Greenhouse Gas Emissions (g/km)


(1) (2)

Estimated by VKA Estimated by BP, from GM data Net output from energy use in conversion process (4) Based on Hydro figures
(3)

ICE: Internal combustion engines DI: Direct injection HEV: Hybrid electric vehicles

The issues

Biofuels can be blended with gasoline or diesel, used unmixed or nearly Downstream pure (e.g., E85 ethanol infrastructure blend). However, the and latter requires modifying biorefineries vehicle components and distribution infrastructure such as pipelines, storage tanks and fuel dispensers. This could be a barrier to deployment. The scale of biorefining required will be determined by a variety of factors, including availability of feedstock

resources, proximity to markets, company objectives (local use, export production, etc.), fuel application and financial resources. The second generation of biorefineries is expected to create a higher-value coproduct, and will also require the development of more capital-intensive, complex production facilities. At lower blend ratios, liquid biofuel can be distributed through existing oil distribution infrastructure; from a consumer perspective it requires minimal retrofits to current petroleum-based vehicles.

Water availability may constitute a regional or national limitation to crop production in developing countries. There are Water significant differences resources between fuel manufacturing processes. The largest water impact is in the irrigation of the feedstock crop. Non-irrigated crops may play a larger role in second generation biofuels, though they too consume large quantities of water through evapotranspiration. Rainwater absorbed by plants does not enter ground and surface water systems. In some regions this will place a strain on already limited water resources.

Fuel manufacturing can also be water-intensive and affect water availability. Figure 7 shows the variation in water process efficiency between different fuels and their production methods in the US. However, while important, a single criterion like water consumption cannot capture all of the resource impacts of a fuel. Different production processes also have an impact upon water quality. For example, waste from the manufacturing process could pollute water resources. Similarly, agricultural runoff can be a substantial pollutant. Once again, agricultural methods vary widely in their downstream impact.

Figure 7: Water consumption per-unit-energy and current water use for fuel extraction and processing
Biodiesel refining

Source: US Department of Energy. Energy Demands on Water Resources: Report to congress on the interdependency of energy and water. 2006.

Soy irrigation Ethanol processing Corn irrigation Hydrogen electrolysis Hydrogen reforming Uranium processing Uranium mining Oil storage in salt cavern** Oil sands Oil shale in-situ* Oil shale surface retort Refining Enhanced oil recovery Petroleum extraction Gas storage in salt cavern** Natural gas pipeline operations Natural gas extraction & processing Coal gasification Coal slurry Coal liquefaction Coal washing Coal mining

Petroleum refining consumes 1-2 billion gallons per day

* Water consumption for electric power from evaporatively-cooled combined cycle gas turbine ** One-time use for solution mining of salt cavern 1 10 100 1,000 10,000 100,000

Gal/MMBTU
7

The issues
The single largest cause of ecosystem degradation is land use change for Land agriculture, which is requirements driving conversion of and land use grasslands and forests. change The present share of the worlds arable land used to grow biomass for biofuels is expected to rise from 1% to 3.8% by 2030, based on the assumption that biofuels are derived solely from conventional crops. If second-generation technologies based on lignocellulosic biomass were widely commercialized before 2030, arable land requirements could be much less per unit of biofuel output since an important fraction of the biomass needed could come from regenerated and marginal land not currently used for crops or pasture, as well as from agricultural and forest residues and waste.

Food security is one of the major concerns surrounding the Competition sustainability of the for food, fiber biofuel industry. Biomass and forest production competes with products food, fiber and timber for land, water and fertilizers. There is a fear that this competition could lead to commodity shortages, as crops that would otherwise be available for food or forest products might be used for fuel. According to one estimate, agricultural and livestock prices could rise from 20% to 50% by 2016 as a result.5 Moreover, biofuel production negatively affects the exports of certain crops; for example, recent exports of US corn and soybean, Western European rapeseed and Brazilian sugarcane have declined. Rich, crop importing nations with greater purchasing power could demand these crops at higher prices, thereby further increasing their prices. For the poor, who are net buyers of food, this would place even greater pressure on already-limited financial resources. However, such increases in the demand for, and price of, crops can provide higher returns to farmers. Moreover, higher prices for agricultural crops are one possible answer to the paradox of agriculture. Under this paradox, during periods of high yield, farmers have had to sell their output at low prices because supply outstripped demand. Now that there are potentially alternative uses for food crops, supply and demand could become more balanced, resulting in higher prices for agricultural produce. One of the outcomes of this paradox is that farm income subsidies have been used broadly by
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many governments to sustain farming as a viable business sector. Biofuels, as a new value-added use of agricultural products, creates the potential for many more farmers to improve their businesses and reduce or eliminate the need for ongoing income subsidies. Similarly, higher demand for biomass could reduce the amount of food dumped internationally. Finally, the problem of food scarcity in certain areas is currently more an outcome of inequitable distribution due to the existing food distribution system, an issue which is outside the biofuels domain.

The issues

Large corporations are currently analyzing biofuel markets and increasingly making substantial investments in the field. Supply chain Small- and medium-sized sustainability enterprises (SMEs) can play an important role in exploring these markets. In addition, efficient clusters of SMEs could benefit large corporations by creating more effective and inclusive supply chains and rationalizing procurement procedures.

Moreover, investments could be made more efficient through strategic partnerships between the private and public sectors. Governments could implement measures to create investor-friendly environments; in turn, large corporations could provide the necessary management capacity and contribute substantially to project financing.

With current fossil fuel prices at high levels, biofuels are proving to be a Subsidies, viable way to reduce trade barriers greenhouse gas emissions and where feedstock costs are restrictions low and the conversion technology is mature. Second generation technologies have the potential to make a further contribution, but they will not become economically viable without substantial development and deployment. Much of the potential benefit of biofuels is still not reflected in the market price for fuels. Government policy support is needed to unlock its potential. Governments around the world are encouraging the development of indigenous biofuel industries. Initiatives include mandatory blending targets, tax exemptions, direct subsidies, cheap and easy finance, fiscal incentives for biofuel producers and flexible fuel vehicle (FFV) manufacturers, preferential government purchasing policies, etc. However, among these different policy alternatives, mandatory blending targets are the most popular. For instance, the EU directive on biofuel use calls for the substitution of 5.75% (energy equivalent) of overall fossil fuel demand by 2010. Similarly it proposes a 10% substitution by 2020. Likewise, the US has a mandatory production target of 28 billion liters of ethanol by 2012,6 and recently proposed to raise the mandatory target for renewable fuels to 133 billion liters by 2017. International trade, investment and technology transfers could facilitate progress. The rapid spread of

viable biofuel production technology is going to require integration of the worlds climate policy objectives with the multilateral trading system. Trade in fuels is regulated under World Trade Organization rules for industrial commodities. The Agreement on Subsidies and Countervailing Measures limits countries' options for promoting one fuel manufacturing process over another. Agricultural crops are traded under a different set of rules that have developed in an arena where countries have very different objectives. Energy trade rules are often designed to promote access to fuel exports. Agricultural trade rules have often been designed to protect domestic agriculture from imports. Removal of trade barriers and support for deployment of biofuels is going to require the integration of these very different policy regimes.

The issues
Given that more than three-quarters of poor people in developing countries live in rural areas, agriculture and Rural rural development are development critical to poverty alleviation.7 Biofuel production has a huge potential to reduce poverty by creating income and wealth generating activities while also meeting local energy demands. With these potential opportunities, however, come issues of land ownership, labor rights and food security, among others. Biofuel programs, for instance, can be especially harmful to farmers who do not own their land. Moreover, unsafe working conditions and abuse of labor rights threaten economic and social progress. Therefore, making the right decisions now and creating appropriate policies is a key component to ensuring poverty alleviation and an equitable distribution of growth. As the second generation technologies based on lignocellulosic feedstock become commercially viable, this will reduce the potentially negative effects on land and competition for food availability. But these technologies could still be accompanied by a risk: a potential increased likelihood of a greater push to exploit lowyield lands (such as rangelands and savannas) to plant switchgrass and other hardy biofuels, and the displacement of cereals and subsistence crops. Furthermore, the production of significant quantities of biofuel feedstock on marginal lands could compete with livestock grazing, have unacceptable impacts on ecosystems, and damage soil fertility through sustained removal of too much biomass residue. One potential alternative feedstock under active development is micro-algae. Although such production raises the issue of genetic engineering, algae could help avoid a number of the sustainability issues associated with land use, freshwater use, deforestation and food production.

Integrating agricultural markets of countries where there is potential for providing feedstock at low cost with fuel demands of Sustainable the high-consuming production countries will speed the deployment of biofuel technology. Rapid deployment will present environmental and social sustainability challenges. Creating and implementing a certification system based on sustainability criteria could play an important role in addressing these challenges and ensuring that biofuels are produced in a responsible manner. Different biofuel production technologies have very different carbon footprints. For instance, cultivation of energy crops on depleted agricultural soils can yield beneficial carbon sequestration effects in addition to providing habitat and other ecosystem services. But those same practices on undisturbed peatlands would have negative impacts on water and habitats. They could result in a large, one-time release of carbon from the soil that overwhelms the positive benefit of the displaced fossil fuel consumption.

Thus, criteria that are quantifiable, and yet flexible for application in various settings, could focus on areas such as GHG emissions, crop production, biodiversity protection, food security and labor conditions, among others. Moreover, it would be imperative that compliance with established criteria be enforced and for such enforcement to not be costly. The strain the worlds liquid fuel demand will place on tenure systems and the lives of the rural poor will be difficult to manage, yet by developing a system that represents diverse stakeholders, such strain could be alleviated. Several groups, such as the Roundtable on Sustainable Biofuels, are exploring robust certification systems that can distinguish the nuances of environmental and social sustainability. Such a system would have to be deployed globally to enable end users to discriminate among fuels that respect sustainability criteria. Finally, harmonization of standards across countries could help various stakeholders, particularly vehicle manufactures, to develop uniform technologies, which could be fairly easy to disseminate.

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1. Worldwatch Institute. Biofuels for transport. 2007. 2. Six greenhouse gases are covered under the Kyoto

Notes

Protocol. The term carbon footprint is shorthand for the sum of the gases carbon dioxide equivalents.

3. IEA. World Energy Outlook. 2006. 4. Worldwatch Institute. Biofuels for Transport. 2007. 5. OECD-FAO. Agricultural Outlook, 2007-2016. 2007. www.oecd.org/dataoecd /6/10/38893266.pdf (accessed 19 October 2007). 6. Worldwatch Institute. Biofuels for transport. 2007. 7. World Bank. Agriculture & Rural Development: Issue brief. 2007. www1.worldbank.org/publicsector/ pe/pfma07/ARDBrief.pdf (accessed 10 August 2007).

The World Business Council for Sustainable Development (WBCSD) brings together some 200 international companies in a shared commitment to sustainable development through economic growth, ecological balance and social progress. Our members are drawn from more than 30 countries and 20 major industrial sectors. We also benefit from a global network of about 60 national and regional business councils and partner organizations.

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Our mission is to provide business leadership as a catalyst for change toward sustainable development, and to support the business license to operate, innovate and grow in a world increasingly shaped by sustainable development issues. Our objectives include: Business Leadership to be a leading business advocate on sustainable development; Policy Development to help develop policies that create framework conditions for the business contribution to sustainable development; The Business Case to develop and promote the business case for sustainable development; Best Practice to demonstrate the business contribution to sustainable development and share best practices among members; Global Outreach to contribute to a sustainable future for developing nations and nations in transition.

www.wbcsd.org

Disclaimer This report is released in the name of the WBCSD. Like other WBCSD reports, it is the result of a collaborative effort by members of the secretariat and executives from several member companies. A wide range of members reviewed drafts, thereby ensuring that the document broadly represents the majority view of the WBCSD membership. It does not mean, however, that every member company agrees with every word.

Photo credits Copyright ISBN Printer

Flickr, iStockphoto WBCSD November 2007. 978-3-940388-15-5 Atar Roto Presse SA, Switzerland Printed on paper containing 50% recycled content and 50% from mainly certified forests (FSC and PEFC) 100% chlorine free. ISO 14001 certified mill.

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