THE PHILIPPINE BIOFUEL PROGRAM

(Paper presented at the 2008 Philippine Energy Summit, SMX Convention Center, Mall of ASIA, 31 January 2008)

EMIL Q. JAVIER, PhD

President National Academy of Science and Technology

Introduction The Philippine biofuels program (RA 9367) has three policy objectives, namely: 1. Reduce dependence on imported oil 2. Mitigate toxic and greenhouse gas (GHG) emissions, and 3. Increase rural employment and incomes. Moreover, it has one caveat with three elements: the production of biofuels should be achieved without any detriment to the natural ecosystem, biodiversity and food reserves of the country. The European Union (EU) renewable energy policy reflects similar purposes i.e. mitigating climate change, employment creation, and reduced dependence on imported fuels (Berndes and Hansson 2007). The relative priority that any particular country attaches to each of the policy objectives depends upon its resource endowments, unique circumstances and needs. We need to be clear on what our national purposes are and how biofuels can impact on the attainment of those purposes. As in many human enterprises with multiple objectives, there are degrees of incompatibilities among objectives and, inevitably, there are trade offs. For example, maximizing climate change benefits cost effectively is in conflict with maximizing employment. Modelling studies in EU indicate that substituting biomass for fossil fuels in heat and electricity generation (stationary energy) in general is less costly and provides larger CO2 emissions per unit of biomass than substituting biomass for gasoline or diesel for transport (Berndes and Hansson 2007). However, direct employment from the production of liquid biofuels for transport are 2-10 times and

25-50 times as employment intensive as biomass use for electricity and heat generation. Both biofuel production and food production are land based and will therefore compete for the same scarce resource. The issue does not arise for land-rich countries like Brazil but it could be critical in the long-term for people-rich but land-poor countries in Asia, including the Philippines. Mitigating Carbon Emissions and Climate Change Carbon emissions and climate change are important global concerns. Transport fossil fuels account for 20 percent of CO2 emissions worldwide (Austin, Duncan et.al. 2003). CO2 emissions could be reduced if fossil fuels were replaced with biofuels like ethanol and biodiesel that produce less carbon dioxide. Depending upon the feedstock used, the way the crops are grown, and the in-vehicle performance of the fuels, the CO2 savings appear to be between 50% and 70% (Hammond et.al. 2007). But the Philippines is a minor contributor to the planet Earth CO2 emission problems. The Philippine per capita CO2 emission in 2004 was only 0.97 metric tons p.a. (Wikipedia). The big contributors are the developed countries like the US (20.4 mt.), Australia (16.3 mt.), and Japan (9.84 mt.). Closer to home, Singapore, Malaysia, Thailand and China produce 12..2, 7.05, 4.28 and 3.84 mt CO2 emission per capita, respectively.. Moreover, our most recent estimates indicate that the Land Use Change and Forestry Sector (LUCF) is a net sink of -107 million mt CO2 equivalent (PA 2020 Forestry ISP). On the other hand, the total net GHG emission of the Philippines from all sources was +104 million mt CO2 equivalent. Thus the Philippines is essentially carbon neutral. Therefore reducing our CO2 emission by using biofuels for transport to mitigate global climate change is great but as a country we cannot do much about it. Nevertheless, using biofuels for transport can reduce air pollution in Metro Manila, Cebu, and the major urban centers.

Reducing Dependence on Imported Fuel The second policy objective is reducing dependence on imported oil. We do have oil and natural gas reserves and the Department

of Energy is trying its best to attract investors to find more reserves and to develop them (DOE National Energy Plan 2006 Update). The target of the Philippine Energy Plan (2005-2014) is to reach an energy of self-sufficiency level of 60 percent by 2010 and beyond. However, the target maximum substitution by biofuels for transport fuel is only 2% and 10% for biodiesel and bioethanol, respectively. The same plan projected that the annual energy savings from the Energy Efficiency and Conservation Program will generate 2.9 million tons of oil equivalent (MTOE) and only 0.3 MTOE from alternative fuels for transport. In other words in the overall scheme of things in the Philippine energy sector, biofuels are at best minor players. More gains can be attained from energy conservation, more oil and gas exploration, fuller utilization of coal resources, and geothermal exploitation.

Increasing Rural Employment and Incomes Among the hierarchy of national development goals, the elimination of poverty is paramount and since poverty in the Philippines is largely a rural phenomenon, biofuels production creates an additional window to create livelihoods, raise incomes and improve overall productivity in the countryside. Therefore, the principal rationale for the countrys biofuels program has to be to increase rural employment and raise incomes for the rural poor with which to buy food, clothing, shelter, medicines and other life necessities. The policy debate on biofuels in order to be more focused and meaningful therefore ought to be re-phrased: How can biofuels create livelihoods, raise incomes and improve productivity in the Philippine countryside? To be more precise: which raw materials, where, by whom, why and how? The two principal biofuels are bioethanol and biodiesel. The raw materials for bioethanol come from sugarcane, sweet potato and cassava and a new crop, sweet sorghum. The raw materials for biodiesel are coconut oil and palm oil and a newly domesticated small tree jatropha.

Bioethanol from Sugarcane The sugarcane industry in 2006 was worth P58 billion and accounted for 8% of the agriculture GVA, and 1.2% of national GDP (A. Amara. Sugar Industry Draft Master Plan). Sugarcane was planted on 391,712 hectares, was processed in 28 raw sugar mills and employed 500,000 workers. Sugar production was 2.23 million mt, of which 1.90 million mt was consumed domestically, leaving a surplus of 330,000 mt for export in the world market. The Philippine sugar industry will be at a crossroads by 2010 by which time tariffs that protect the industry will be eliminated. Our cost of production is 14 US cents per pound sugar versus the world market price of 11 US cents per pound. For the Philippine sugar industry to compete and survive, substantial investments in farm-to-market roads, irrigation, sugar mill improvement, and research and development will have to be made. The sugar industry needs all the help it can get to compete and survive. Bioethanol production will provide it a most timely lift. In the first place, the 330,000 mt surplus of sugar production need not be sold at a loss in the world market because it can be profitably converted into alcohol. (<http://us.mg3.mail.yahoo.com/dc/launch?.rand=09dgdm8t7gpa3#_f tn2> [2]) Secondly, by the nature of the sugarcane crop, the milling season is 200 days a year, leaving the sugar mills idle the rest of the year. The new crop, sweet sorghum, which has the same processing and logistics requirements as sugarcane, and which could be grown and harvested throughout the year, could supply the complementary raw materials to raise capacity utilization of the sugar mills which presently is only 65%. Thirdly, with the diversion of sugarcane in Brazil and sugarbeet in Europe to bioethanol, world sugar prices have gone up, easing the competitive pressure on Philippine sugar. By 2014, assuming a 10% gasoline blend, bioethanol demand is projected to reach 537 million liters. The equivalent area required if all the bioethanol is sourced from sugarcane is 118,022 ha (DA brief). The Sugar Regulatory Administration has identified 353,962 hectares of potential sugar areas for

ethanol. Thus, crop land for sugarcane bioethanol production is available. The comparable land requirements for sweet sorghum and cassava are indicated below: Area for Bioethanol Needed by 2014 Sugarcane ------ 118,022 ha Sweet Sorghum -- 107,400 ha Cassava ---------372,917 ha The area for cassava is overstated because the assumed fresh roots yield is only 8 mt/ha. An average yield of 16 mt/ha is easily achievable. The area needed using sweet potato is even less because sweet potato can be harvested in 4-5 months.

Bioethanol from Sweet Sorghum Sweet sorghum could be a commercial source of bioethanol. It is a recent plant introduction and its hectarage is still low. Sweet sorghum has multiple uses the sweet stalks for ethanol, the grain as animal feed, and the leaves as stover for cattle and carabao (Layaoen 2007 DA-BAR, MMSU.) Sweet sorghum is a versatile crop and fits the existing cropping patterns. It will tend to compete with yellow corn that is needed to support the rapidly expanding pork and poultry sector. This competition can be managed, if sweet sorghum is planted after rice in rainfed rice fields (1.1 million ha.) which remain idle after the main rice crop is harvested. After the initial seed crop, it can be ratooned once or twice without need of plowing and replanting. Sweet sorghum is relatively more tolerant than corn to drought and flooding stress.

Bioethanol from Root Crops Starchy roots are likewise potential sources of bioethanol. Our national yield average for sweet potato and cassava is in the order of 6-8 mt fresh roots/hectare although with Philippinebred varieties and better agronomy, we can produce 25 to 45 metric tons fresh roots per hectare. Farmers are discouraged by low farm gate prices. The poultry and pork industries can use more root crops as source of calories in feed formulation but the cost of drying is a major constraint. The principal source

of cassava chips for feed is Northeast Thailand where the cassava chips are economically dried under the sun. Root crops as raw materials for ethanol production need not be dried; bioethanol from sweet potato and cassava could be an attractive option. The challenge boils down to organizing the supply chain concentrating production in key areas, providing access to central processing facilities, integrating primary production with feed milling and/or ethanol production, and offering attractive farm gate prices to encourage farmers to plant.

Cellulosic Ethanol The conversion of sugar and starch from traditional agricultural crops into ethanol is commonly referred to as first generation biofuel technology (Laney 2006). However, the bigger part of the plant energy is locked up in the biomass made up of cellulose in the cell walls. The cellulose found in trees and grasses and agricultural residues can be broken down with enzymes or by acid hydrolysis into sugar that is then fermented into ethanol (Bomb et.al. 2006). To date the enzymatic process to break down cellulose remains too expensive to compete with the first generation technology. However, in time cellulosic ethanol (second generation biofuel) should be feasible. The National Institute of Molecular Biology and Biotechnology (BIOTECH)at UP Los Banos is receiving support from DOST to develop more efficient organisms to produce cellulosic ethanol.

Biodiesel from Coconut and Oil Palm Coconut is a vital, strategic industry in the agriculture and natural resources sector. Coconuts is planted on 3.12 million hectares with over 3.4 million farmers directly deriving their income from coconut. Its average share in GVA in crop agriculture is 6.0%, next only to rice. Coconut is the countrys top agricultural export, earning US$629.88 million during 2000-2003 (PA 2020 Coconut-Oil Palm ISP). In addition, the crops is rendering valuable ecological services (soil and water conservation) the value of which is as yet unquantified. About 90% of our coconuts are converted into coconut oil, the bulk of which (78%) is intended for export. The Philippines has 56% share of the global market of coconut oil, but accounts

only for 3.27% of the total world market for vegetable oils. In comparison, Malaysias palm oil represents 27.6% of the world vegetable oils market. As a matter of fact we import palm oil from Malaysia and Indonesia to replace the coconut oil we export. However, since oil palm is 3 times more productive than coconut, palm oil is cheaper than coconut oil. It is unlikely, therefore, that coconut oil will be competitive with palm oil as raw material for biodiesel conversion. But even now Malaysian palm oil diesel producers are complaining of high raw material costs. Therefore, the logical strategy is to improve productivity of our coconut industry as best as we can, export coconut oil and processed products, and replace coconut oil exports with cheaper palm oil imports. Better, yet, plant enough oil palm for domestic consumption (PA 2020 Coconut-Oil Palm ISP). We are import competitive, but not export competitive with palm oil. We can be self-sufficient in palm oil because we have plenty of suitable land in Mindanao. Currently we have 29,000 ha of oil palm. By 2020 in order to meet domestic requirements, we need to establish 104,000 hectares new plantings of oil palm.

Biodiesel from Jatropha Jatropha is a small tree oil crop that is being domesticated for the first time. It has a lot of potential as raw material for biodiesel production. Its fruits and seeds are not edible and its biology, genetics and agronomy have not been fully worked out anywhere in the world as far as we know. From the little that we know, it is highly unlikely it will be competitive with row crops like corn on arable land. However jatropha ecologically could fit into marginal slope lands the so-called public production forest lands that are now occupied by millions forest dwellers under the Community-Based Forest Management Agreements (CBFMAs). Jatropha has to compete with commercial fast growing trees, bamboos, rattan, coffee, rubber, abaca, and fruit trees. In the PA 2020 study, we project that we shall need about 1.2 million hectares of forest tree and industrial crop plantations. Since there are 8 million hectares of such production forestlands, there will be room for jatropha provided the farm gate prices for dried jatropha seeds are remunerative enough. By 2014,

assuming a 2% biodiesel blend, 132,000 ha. of jatropha would be required (DA Brief 2008).

Conclusion The Philippine biofuels program has three policy objectives, namely: 1. Reduce dependence on imported oil 2. Mitigate toxic and greenhouse gas (GHG) emissions, and 3. Increase rural employment and incomes. However, biofuels production should be achieved without any detriment to the natural ecosystem, biodiversity and food reserves of the country. The relative priority or importance that a country attaches to these individual objectives depends upon the countrys resource endowment and unique circumstances and needs. The most relevant policy objective as far as the Philippines is concerned is the third i.e. biofuels as instrument for increasing rural employment and incomes. Biofuels is an opportunity for development to fully utilize idle and underemployed human and natural resources the third dividend after higher energy security and cleaner environment (Canuto 2007). Both biofuel production and food production are land based and will therefore compete for the same scarce resource. It is important that the inherent incompatibility be recognized and the trade off be addressed and resolved. The paramount national development goal is poverty elimination and since Philippine poverty is largely a rural phenomenon, the policy debate on biofuels in order to be more focused and meaningful ought to be rephrased: How can biofuels create livelihoods, raise incomes with which poor rural people can buy food, clothing, shelter, medicines and other life necessities? To join the issues and to be more precise: Which raw materials, which lands to grow them, by whom, why and how? The major biofuels are bioethanol from sugarcane, sweet sorghum and root crops; and biodiesel from coconut, palm oil and

jatropha. Actually sugarcane and coconut are two of the largest industry clusters in the agriculture sector both in terms of gross value added and employment. Both are facing severe competition and are struggling to compete and survive, particularly for sugarcane after protective tariffs are eliminated in 2010 . Bioethanol production can provide the lift to make Philippine sugar industry competitive in three ways: 1. Profitably converting surplus sugar to alcohol, 2. Sweet sorghum to produce complementary raw materials to increase capacity utilization of sugar mills, and 3. Increase in world sugar prices as sugar is diverted to bioethanol. Sweet sorghum potentially will compete with yellow corn for arable land. But this can be managed if sweet sorghum is planted on the 1.1 million hectares of rainfed rice areas which are idle after the main rice crop is harvested. These areas are usually marginal for corn. Sweet potato and cassava are potential raw materials also for bioethanol. Farmers are discouraged from planting because of low farm gate prices. Land is available for root crops but farmers need to be assured of markets. Sweet sorghum, sweet potato and cassava have multiple uses as food, feed and biofuel. For now there is still sufficient land for all these uses. Improved varieties and technologies are available to produce respectable yields. The challenge is organizing the supply chains, linking primary production to the processors and the markets to make farm gate prices remunerative and attractive to small farmers. The prospects for biodiesel from coconut and oil palm are not as attractive as in the case of bioethanol. Philippine coconut oil is an expensive biodiesel raw material and not competitive with palm oil. In fact, we export coconut oil and replace it with inexpensive palm oil imported from Malaysia and Indonesia for domestic cooking. We need to plant more oil palm ourselves just to attain self-sufficiency for food purposes. Clearly, vegetable oil for food takes precedence over vegetable oil as biodiesel.

Jatrophas case is different. Jatropha is inedible and is highly unlikely to compete with row crops like corn on arable land. But ecologically it could fit into the marginal slope lands now occupied by forest dwellers under the CBFMAs. The economics of jatropha cultivation for biodiesel need to be established vis--vis commercial fast growing trees, bamboos, rattan and industrial crops like abaca, coffee, rubber and oil palm, which are alternative crops in the slope lands. There are potentially 8 million hectares of slope lands that can be more fully used for growing relatively ecologically benign fast growing tree crops, industrial crops and fruits. For now there is room for all these tree crops provided the farm gate prices are attractive enough to farmers.

References AUSTIN, Duncan et.al. 2003. Changing drivers: The impact of climate change on competitiveness and value creation in the automotive industry. World Resources Institute and Sustainable Asset Management. BERNDES, G. and J. Hansson. 2007. Bioenergy expansion in the EU: cost effective climate change mitigation, employment creation and reduced dependency on imported fuels. Energy Policy 35 (2007): 5965-5979. BOMB, Christian et.al. 2007. Biofuels for transport in Europe: lessons from Germany and the UK. Energy Policy 35 (2007): 22562267. CANUTO, Otaviano. 2007. Biofuels and development: The third dividend: Paper before the Americas Society and Council of the Americas. February 2007. New York. DEPARTMENT OF AGRICULTURE Brief 2008. DEPARTMENT OF ENERGY. 2006. The National Energy Development Plan: Overview. HAMMOND, G.P. et. Al. 2007. Development of biofuels for the UK automotive market. Applied Energy 2007. In press. LANEY, Kara. 2006. Biofuels: Promises and constraints. International Food and Agricultural Trade Policy Council. Discussion paper. Washington.

LAYAOEN, H.L. 2007. Sweet sorghum in the Philippines. DA-BAR, MMSU. PHILIPPINE AGRICULTURE 2020: A STRATEGIC PLANT FOR POVERTY REDUCTION, FOOD SECURITY, COMPETITIVENESS, SUSTAINABILITY, AND JUSTICE AND PEACE. National Academy of Science and Technology. Draft. PHILIPPINE BIOFUELS ACT OF 2000. Republic Act 9367. Congress of the Philippines. SUGAR MASTER PLAN (2007-2015) draft.

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<http://us.mg3.mail.yahoo.com/dc/launch?.rand=09dgdm8t7gpa3#_ft nref1> [1] <http://us.mg3.mail.yahoo.com/dc/launch?.rand=09dgdm8t7gpa3#_ft nref2> [2] Taking into account cost of production of sugarcane and cost of production of ethanol, the ideal price for ethanol at distillery weould range from P23 to P25 per liter (Sugar Master Plan 2007-2015 draft).