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World Business Council for Sustainable Development Issue Brief I Energy and Climate Focus Area Biofuels

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World Business Council forSustainable Development

Issue Brief I Energy and Climate Focus Area

Biofuels

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Throughout history,bioenergy has beenimportant for satisfyinghuman needs. At present,it is primarily used forheating and cooking inthe developing world. Butas world leaders

contemplate the post-Kyoto framework, muchattention is being given to new, modern uses ofbioenergy. Biomass substitution for fossil fuels in heatand power systems could play an important role instabilizing our carbon emissions. As leaders begin todiscuss carbon emission reductions of 50% by 2050,biofuels could take on an urgent role in emissionsmitigation in the transport sector.

In addition to climate change as a driver, increasingconcerns about the rising cost of hydrocarbon-basedtransportation fuels and growing concern over energysecurity are causing many countries to view biofuels asa key element of national energy strategy. Althoughless efficient than when used for heat, power ormanufactured forest products, biofuels may yet proveto be society’s choice. In any event, biofuels arecurrently the alternative that is being activelypromoted in many parts of the world.

Overview

Introduction

Bioenergy – Biofuels – Biomass

Bioenergy is energy produced from organic matter(biomass).

Biofuels are liquid, solid or gas fuels derived frombiomass, either from recently living organisms or fromtheir metabolic waste. Biomass refers to “organicmaterial made from plants and animals”.1 Theproduction of biomass and biofuels must be carriedout sustainably in order to balance the carbon cycleand keep it intact, and to ensure that theenvironmental and social impacts of their productionare acceptable.

To learn more about biomass, download our BiomassIssue Brief at: www.wbcsd.org/web/biomass.htm

Ethanol

Bio-oil

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Figure 1: Biofuels pathways

Source: Adap

ted from E4tech. H

art, David, A

usilio Bauen, Adam

Chase, Jo H

owes. “Liq

uid biofuels andhydrogen from

renewable resources in the U

K to 2050: a technical analysis”. E4tech (UK) Ltd. 2003.

This issue brief focuses on the use of biofuels in thetransport sector. Although biofuels are being pursuedas a possible alternative to fossil fuels, currently mostof the biofuels available for motor fuels are moreexpensive to produce per unit of energy deliveredcompared to oil derived from fossil fuels. If fuel costsare to come down, considerable development and

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Overview

government investment will be required to improvemanufacturing and distribution technology.

Biofuels include a number of different products andmanufacturing pathways (see Figure 1). The mostwidely used biofuel, ethanol, is currently madelargely from sugar cane in Brazil and from corn in theUnited States. Meanwhile, the largest producer ofbiodiesel is Germany, where the fuel is made fromrapeseed. Each pathway, from the resource to theconversion technology to the fuel, has its owndistinct carbon footprint.2

Our principal source of data for 2005, as well as for2030 references, has been the International EnergyAgency’s (IEA) World Energy Outlook (IEA, 2006).Projections to 2030 are based on the IEA “AlternativePolicy Scenario” (APS); 2030 is the year that has beenchosen to project the cumulative impact of the

implementation of the national policies underconsideration in 2005. Currently, a number of keycountries are contemplating more aggressive targetsfor the production of biofuels. The IEA is examiningmuch more forceful policy scenarios for discussionduring the post-Kyoto framework negotiations.

Global production of biofuels reached 20 milliontons of oil equivalent (Mtoe) in 2005, representingabout 1% of total road-transport fuel energyconsumption. Brazil and the United States togetheraccounted for almost 80% of global supply (seeFigure 2). Ethanol production is rising rapidly inmany parts of the world in response to higher oilprices, and supported by government incentives andrules on fuel blending. Similarly, biodieselproduction is highly concentrated, with theEuropean Union responsible for around 75% of totalbiodiesel production (see Figure 3).

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Overview

“First generation”biofuels refers to fuelderived from feedstocksharvested for their sugar,starch and oil content,which can be convertedusing hydrolysis/fermentation and

First generation

“Second generation”biofuels describe thoseproduced from ligno-cellulosic biomass, such asherbaceous and woodyperennials, throughhydrolysis/fermentation,gasification or pyrolysis

technologies. There is no industrial production ofbiofuels from cellulosic biomass, but researchfocusing on large-scale production is being carriedout particularly in the United States, Canada,Germany, Sweden, China and Brazil.

Successful ligno-cellulosic technology wouldtechnically allow the utilization of a large variety offeedstocks, as well as agricultural or municipal wastematerials and specialized cellulosic crops, such asgrasses and fast-growing trees.

Second generation

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Cellulosic feedstock could be grown with lessfertilizer and water and on poorer quality lands thanthose currently used to grow crops for conventionalethanol production. Furthermore, cellulosic cropcosts could be considerably lower when compared tothose of the cereal and seed crops currently used inEurope and the United States.

Figure 4 illustrates current biofuel production costs,which are projected to drop with upgradedtechnology and conversion processes and improvedeconomies of scale. Aggressive energy policies andanticipated revenue from carbon markets are drivinginvestment in biofuels. Experience will lead to lowerproduction costs. Over the next few decades, ethanolis expected to account for the greatest proportion ofthe increase in biofuel use worldwide, as productioncosts are predicted to fall faster than those ofbiodiesel and other biofuels.

pressing/esterification technologies. In OECDcountries, most ethanol is produced from starchycrops such as corn, wheat and barley. In tropicalcountries like Brazil, ethanol is made primarily fromsugar cane.

*Pre-tax gasoline and diesel prices (Jan. 2000-July 2006). Based on monthly average import prices for crude oilinto 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.

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Overview

140

120

100

80

60

40

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160Mtoe

United States EU China Brazil World

Figure 5: World biofuel consumption, alternative policyscenario

Source: IEA. World Energy O

utlook. 2006.

According to the IEA, fueldemand from the roadtransport sector is forecastto increase considerablyover the next few decades,especially in developingregions. Biofuels areprojected to account for a

growing share of the resources used to meet thisdemand. Production is expected to increase at a rateof 8.3% per year, reaching 73 Mtoe in 2015 and 147Mtoe in 2030, to meet 7% of global road-transportfuel demand (see Figure 5).3

Previously, it was believed that second generationbiofuel technologies would not be available on themarket by 2030; however, government fundingcould change this. Advances in the development ofthese technologies will be necessary before they canbe deployed commercially on a large scale. It ispossible that such breakthroughs could occur in thenear future leading to more rapid development ofbiofuel production than previously expected.

Forecasts for biofuel production

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To determine thegreenhouse gas (GHG)balance associated withdifferent types of biofuels,it is essential to consideremissions throughouttheir full life cycle – fromchange in land use for

agricultural production to processing andcombustion of fuels (life-cycle assessment). Moststudies that make use of this type of analysis includecarbon dioxide emissions as well as othergreenhouse gases like nitrous oxide and methane.4

Crops that require high fossil energy inputs (in theform of standard fertilizers, for example), and thathave relatively low energy yields per hectare, wouldresult in a higher carbon footprint. Similarly, energycrops have an additional negative carbon impact ifthey replace primary forests.

The issues

Carbonfootprint/GHG

emissionsmitigation

effectiveness

The energy demands of fuel processing are also asignificant part of life-cycle assessment. For example,ethanol from sugar cane in which the bagasse is usedas an energy source has lower CO2 emissions thanethanol made from corn where the process energytypically comes from hydrocarbons.

Figure 6 from the Sustainable Mobility to 2030 reportillustrates “well-to-wheel” (WTW) analysis. WTWconsiders not only the GHGs produced when a fuel isused in the vehicle (“tank-to-wheel” – TTW), but alsothe GHGs emitted by the production and distribution ofthe fuel (“well-to-tank” – WTT). The TTW takes intoaccount the efficiency of propulsion systems such asinternal combustion engines, as well as their futurereplacement. WTT accounts for the carbon sequesteredin growing the feedstock as well as its conversion tofuel. Both must be considered when comparing atransport fuel and its potential substitute.

Greenhouse Gas Emissions (g/km)

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Well-to-tank emissions Tank-to-wheels emissions

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

Source: WBC

SD. M

obility 2030: Meeting the challenges to sustainability. 2004.

ICE: Internal combustion enginesDI: Direct injectionHEV: Hybrid electric vehicles

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Biofuels can be blendedwith gasoline or diesel,used unmixed or nearlypure (e.g., E85 ethanolblend). However, thelatter requires modifyingvehicle components anddistribution infrastructure

such as pipelines, storage tanks and fuel dispensers.This could be a barrier to deployment.

The scale of biorefining required will be determined bya variety of factors, including availability of feedstock

Downstreaminfrastructure

andbiorefineries

The issues

resources, proximity to markets, company objectives(local use, export production, etc.), fuel applicationand financial resources. The second generation ofbiorefineries is expected to create a higher-value co-product, and will also require the development ofmore capital-intensive, complex production facilities.At lower blend ratios, liquid biofuel can be distributedthrough existing oil distribution infrastructure; from aconsumer perspective it requires minimal retrofits tocurrent petroleum-based vehicles.

Gal/MMBTU

Petroleum refining consumes 1-2 billion gallons per day

10 1 100 1,000 10,000 100,000

Biodiesel refining

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

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

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Water availability mayconstitute a regional ornational limitation to cropproduction in developingcountries. There aresignificant differencesbetween fuelmanufacturing processes.

The largest water impact is in the irrigation of thefeedstock crop. Non-irrigated crops may play a largerrole in second generation biofuels, though they tooconsume large quantities of water through evapo-transpiration. Rainwater absorbed by plants does notenter ground and surface water systems. In some regionsthis will place a strain on already limited water resources.

Waterresources

Fuel manufacturing can also be water-intensive andaffect water availability. Figure 7 shows the variation inwater process efficiency between different fuels andtheir production methods in the US. However, whileimportant, a single criterion like water consumptioncannot capture all of the resource impacts of a fuel.Different production processes also have an impactupon water quality. For example, waste from themanufacturing process could pollute water resources.Similarly, agricultural runoff can be a substantialpollutant. Once again, agricultural methods varywidely in their downstream impact.

* Water consumption for electricpower from evaporatively-cooledcombined cycle gas turbine** One-time use for solution miningof salt cavern

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The single largest causeof ecosystem degradationis land use change foragriculture, which isdriving conversion ofgrasslands and forests.The present share of theworld’s arable land used

to grow biomass for biofuels is expected to rise from1% to 3.8% by 2030, based on the assumption thatbiofuels are derived solely from conventional crops.

The issues

Landrequirementsand land use

change

If second-generation technologies based on ligno-cellulosic biomass were widely commercializedbefore 2030, arable land requirements could bemuch less per unit of biofuel output since animportant fraction of the biomass needed couldcome from regenerated and marginal land notcurrently used for crops or pasture, as well as fromagricultural and forest residues and waste.

Food security is one of themajor concernssurrounding thesustainability of thebiofuel industry. Biomassproduction competes withfood, fiber and timber forland, water and fertilizers.

There is a fear that this competition could lead tocommodity shortages, as crops that would otherwisebe available for food or forest products might beused for fuel. According to one estimate, agriculturaland livestock prices could rise from 20% to 50% by2016 as a result.5

Moreover, biofuel production negatively affects theexports of certain crops; for example, recent exportsof US corn and soybean, Western European rapeseedand Brazilian sugarcane have declined. Rich, cropimporting nations with greater purchasing powercould demand these crops at higher prices, therebyfurther increasing their prices. For the poor, who arenet buyers of food, this would place even greaterpressure on already-limited financial resources.However, such increases in the demand for, and priceof, crops can provide higher returns to farmers.Moreover, higher prices for agricultural crops are onepossible answer to the “paradox of agriculture”.Under this paradox, during periods of high yield,farmers have had to sell their output at low pricesbecause supply outstripped demand. Now that thereare potentially alternative uses for food crops, supplyand demand could become more balanced, resultingin higher prices for agricultural produce.

One of the outcomes of this paradox is that farmincome subsidies have been used broadly by

Competitionfor food, fiber

and forestproducts

many governments to sustain farming as a viablebusiness sector.

Biofuels, as a new value-added use of agriculturalproducts, creates the potential for many more farmersto improve their businesses and reduce or eliminatethe need for ongoing income subsidies. Similarly,higher demand for biomass could reduce the amountof food “dumped” internationally.

Finally, the problem of food scarcity in certain areas iscurrently more an outcome of inequitable distributiondue to the existing food distribution system, an issuewhich is outside the biofuels’ domain.

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With current fossil fuelprices at high levels,biofuels are proving to be aviable way to reducegreenhouse gas emissionswhere feedstock costs arelow and the conversiontechnology is mature.

Second generation technologies have the potential tomake a further contribution, but they will not becomeeconomically viable without substantial developmentand deployment.

Much of the potential benefit of biofuels is still notreflected in the market price for fuels. Governmentpolicy support is needed to unlock its potential.

Governments around the world are encouraging thedevelopment of indigenous biofuel industries. Initiativesinclude mandatory blending targets, tax exemptions,direct subsidies, cheap and easy finance, fiscalincentives for biofuel producers and flexible fuel vehicle(FFV) manufacturers, preferential governmentpurchasing policies, etc. However, among thesedifferent policy alternatives, mandatory blendingtargets are the most popular. For instance, the EUdirective on biofuel use calls for the substitution of5.75% (energy equivalent) of overall fossil fuel demandby 2010. Similarly it proposes a 10% substitution by2020. Likewise, the US has a mandatory productiontarget of 28 billion liters of ethanol by 2012,6 andrecently proposed to raise the mandatory target forrenewable fuels to 133 billion liters by 2017.

International trade, investment and technologytransfers could facilitate progress. The rapid spread of

Subsidies,trade barriers

andrestrictions

The issues

viable biofuel production technology is going torequire integration of the world’s climate policyobjectives with the multilateral trading system. Tradein fuels is regulated under World Trade Organizationrules for industrial commodities. The Agreement onSubsidies and Countervailing Measures limitscountries' options for promoting one fuelmanufacturing process over another. Agriculturalcrops are traded under a different set of rules thathave developed in an arena where countries havevery different objectives. Energy trade rules are oftendesigned to promote access to fuel exports.Agricultural trade rules have often been designed toprotect domestic agriculture from imports. Removalof trade barriers and support for deployment ofbiofuels is going to require the integration of thesevery different policy regimes.

Large corporations arecurrently analyzing biofuelmarkets and increasinglymaking substantialinvestments in the field.Small- and medium-sizedenterprises (SMEs) can playan important role in

exploring these markets. In addition, efficient clustersof SMEs could benefit large corporations by creatingmore effective and inclusive supply chains andrationalizing procurement procedures.

Supply chainsustainability

Moreover, investments could be made more efficientthrough strategic partnerships between the privateand public sectors. Governments could implementmeasures to create investor-friendly environments; inturn, large corporations could provide the necessarymanagement capacity and contribute substantially toproject financing.

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Integrating agriculturalmarkets of countries wherethere is potential forproviding feedstock at lowcost with fuel demands ofthe high-consumingcountries will speed thedeployment of biofuel

technology. Rapid deployment will presentenvironmental and social sustainability challenges.Creating and implementing a certification system basedon sustainability criteria could play an important role inaddressing these challenges and ensuring that biofuelsare produced in a responsible manner.

Different biofuel production technologies have verydifferent carbon footprints. For instance, cultivation ofenergy crops on depleted agricultural soils can yieldbeneficial carbon sequestration effects in addition toproviding habitat and other ecosystem services. Butthose same practices on undisturbed peatlands wouldhave negative impacts on water and habitats. Theycould result in a large, one-time release of carbon fromthe soil that overwhelms the positive benefit of thedisplaced fossil fuel consumption.

The issues

Sustainableproduction

Thus, criteria that are quantifiable, and yet flexiblefor application in various settings, could focus onareas such as GHG emissions, crop production,biodiversity protection, food security and laborconditions, among others. Moreover, it would beimperative that compliance with established criteria be enforced and for such enforcement to not be costly.

The strain the world’s liquid fuel demand will placeon tenure systems and the lives of the rural poor willbe difficult to manage, yet by developing a systemthat represents diverse stakeholders, such strain couldbe alleviated. Several groups, such as the Roundtableon Sustainable Biofuels, are exploring robustcertification systems that can distinguish the nuancesof environmental and social sustainability. Such asystem would have to be deployed globally to enableend users to discriminate among fuels that respectsustainability criteria. Finally, harmonization ofstandards across countries could help variousstakeholders, particularly vehicle manufactures, todevelop uniform technologies, which could be fairlyeasy to disseminate.

Given that more thanthree-quarters of poorpeople in developingcountries live in ruralareas, agriculture andrural development arecritical to povertyalleviation.7 Biofuel

production has a huge potential to reduce poverty bycreating income and wealth generating activitieswhile also meeting local energy demands. With thesepotential opportunities, however, come issues of landownership, labor rights and food security, amongothers. Biofuel programs, for instance, can beespecially harmful to farmers who do not own theirland. Moreover, unsafe working conditions andabuse of labor rights threaten economic and socialprogress. Therefore, making the right decisions nowand creating appropriate policies is a key componentto ensuring poverty alleviation and an equitabledistribution of growth.

Ruraldevelopment

As the second generation technologies based on ligno-cellulosic feedstock become commercially viable, thiswill reduce the potentially negative effects on land andcompetition for food availability. But these technologiescould still be accompanied by a risk: a potentialincreased likelihood of a greater push to exploit low-yield lands (such as rangelands and savannas) to plantswitchgrass and other hardy biofuels, and thedisplacement of cereals and subsistence crops.

Furthermore, the production of significant quantities ofbiofuel feedstock on marginal lands could competewith livestock grazing, have unacceptable impacts onecosystems, and damage soil fertility throughsustained removal of too much biomass residue. Onepotential alternative feedstock under activedevelopment is micro-algae. Although suchproduction raises the issue of genetic engineering,algae could help avoid a number of the sustainabilityissues associated with land use, freshwater use,deforestation and food production.

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1. Worldwatch Institute. Biofuels for

transport. 2007.

2. Six greenhouse gases are

covered under the Kyoto

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).

Notes

DisclaimerThis report is released in the name of the WBCSD. Like other WBCSDreports, it is the result of a collaborative effort by members of thesecretariat and executives from several member companies. A widerange of members reviewed drafts, thereby ensuring that the documentbroadly represents the majority view of the WBCSD membership. Itdoes not mean, however, that every member company agrees withevery word.

Photo credits Flickr, iStockphotoCopyright © WBCSD November 2007.ISBN 978-3-940388-15-5Printer 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.

The World Business Council forSustainable Development (WBCSD)brings together some 200international companies in a sharedcommitment to sustainabledevelopment through economic

growth, ecological balance and social progress. Ourmembers are drawn from more than 30 countries and 20major industrial sectors. We also benefit from a globalnetwork of about 60 national and regional businesscouncils and partner organizations.

Our mission is to provide business leadership as acatalyst for change toward sustainable development,and to support the business license to operate, innovateand grow in a world increasingly shaped by sustainabledevelopment issues.

Our objectives include:

Business Leadership – to be a leading business advocateon sustainable development;

Policy Development – to help develop policies that createframework conditions for the business contribution tosustainable development;

The Business Case – to develop and promote the businesscase for sustainable development;

Best Practice – to demonstrate the business contributionto sustainable development and share best practicesamong members;

Global Outreach – to contribute to a sustainable future fordeveloping nations and nations in transition.

www.wbcsd.org

WBCSD

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WBCSD North American Office1744 R Street NW, WashingtonDC 20009, United StatesTel: (1 202) 420 77 45, Fax: (1 202) 265 16 62E-mail: [email protected]

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