Oil Price Pressure Driving Global Switch to Biofuels

ROME, Italy, April 25, 2006 (ENS) - Worldwide momentum is gathering for a major international switch from fossil fuels to renewable bioenergy, the UN Food and Agriculture Organization (FAO) said today. The move is driven in part by record high oil prices, as oil jumped to an all-time high above $75 a barrel last week.

“The gradual move away from oil has begun. Over the next 15 to 20 years we may see biofuels providing a full 25 percent of the world’s energy needs,” Alexander Müller, the new assistant director-general for the FAO's Sustainable Development Department, said here.

Factors pushing for such a momentous change in the world energy market include environmental constraints – increased global warming and the Kyoto Protocol’s curbs on emissions of carbon dioxide and other greenhouse gases – and a growing perception by governments of the risks of dependence on oil.

“Oil at more than 70 dollars a barrel makes bioenergy potentially more competitive,” Müller said. “Also, in the last decade global environmental concerns and energy consumption patterns have built up pressure to introduce more renewable energy into national energy plans and to reduce reliance on fossil fuels.”

His view is shared by a growing number of investors, including Bill Gates, who recently decided to finance a U.S. ethanol company to the tune of US$84 million. Other new entries in the field are a French company better known for making foie gras, and Hungary, which plans to turn one million hectares of farmland over to biofuel crops in the next few years.

Filling up at an e85 pump in Lexington, Kentucky. E85 is 85 percent plant-based ethanol fuel and 15 percent petroleum. (Photo courtesy EIA)

U.S. Energy Secretary Samuel Bodman, who is in Doha for the 10th International Energy Forum, said that high oil prices are causing great pain to the U.S. and global economies.

"Clearly these very high oil prices cause great dislocations around the world, they are very painful, they are very painful in every quarter of the world. That is certainly true of my country," he told a press conference.

The three-day forum, which officially opened Sunday, has brought ministers and representatives of some 58 countries together in order to foster dialogue between producers and consumers.

What the rest of the world could do tomorrow, Brazil, the world’s biggest producer of bioethanol, is doing now. A million Brazilian cars run on fuel made from sugar cane, and most new cars hitting the road there are powered by flex fuel engines. Introduced three years ago, they use either gasoline or bioethanol, or any mix of the two.

According to senior motor industry executives, the flex engines are spreading faster than any previous innovation in the automobile sector. In Brazil, which started producing biofuel 30 years ago, a barrel of bioethanol is currently half the price of a barrel of oil.

Some 1.5 million farmers are involved in growing sugar cane for fuel in Brazil. And “sun fuel” can be made from a variety of crops including soya, oil-palm, sugar beet, and rapeseed.

Europe lags behind Brazil in bioethanol production and consumption, and European prices are roughly twice Brazilian ones. But the EU has set itself the target of increasing the share of biofuels in transport to eight percent by 2015.

However, if oil prices stay high, things could move even faster. According to studies by the European Union, biofuels grown on available cropland could substitute 13 percent of petroleum-based fuels in the short term.

Diesel can be made from virtually any oil seed. “The world’s first diesel engine actually ran on peanut oil,” noted Best.

Biodiesel pumps stand beside petroleum diesel at a filling station in British Columbia, Canada. (Photo courtesy BC Sustainable Energy Assn.)

Various countries such as Germany, Ukraine and others, and many private and public companies are considering a big move into biodiesel from these crops and other sources.

“The beauty of bioenergy is that production can be tailored to local environments and energy needs,” Best said. “Where there’s land, where there’s farmers, where there’s interest, bioenergy may be the best option. And if we add some sound analysis and good business models, we will get that option right.”

Farmers, particularly in tropical areas, are seeing new opportunities for increasing production and raising their incomes. “But we also need to be careful," Best warned. "We need to plan. Competition for land between food and energy production needs to be converted to positive common benefits.”

One worry is that large-scale promotion of bioenergy relying on intensive cash-crop monocultures could see the sector dominated by a few agri-energy giants – without any real gains for small farmers. But to date no comprehensive attempt has been made to address the complex technical, policy and institutional problems involved, said Best.

In order to fill this gap FAO has set up an International Bioenergy Platform (IBEP), to be officially presented at the United Nations in New York on May 9.

The IBEP will provide expertise and advice for governments and private operators to formulate bioenergy policies and strategies. It will also help them develop the tools to quantify bioenergy resources and implications for sustainable development on a country-by-country basis.

It will further assist in the formulation of national bioenergy programmes, drawing on FAO’s experience in promoting national, regional and global bioenergy development.

“The aim is to help us grow both enough fuel and enough food,” Müller said, “and make sure that everyone benefits in the process.”