//Bumpy road as China drives biofuels to market

Bumpy road as China drives biofuels to market

Despite the promising future China still faces tremendous challenges, the biggest among them being uncertainty of oil prices, feedstock supply, and government policies.

Excluding conventional, medium-to-large scale hydropower, the use of renewable energy in China is enormous. But, as two Honolulu-based researchers point out, a significant portion of that renewable energy “is in the noncommercial use of biomass, particularly firewood and straw.” Neither of which will fuel the engine of economic growth in China nor lessen the country’s reliance on petroleum. And, while China has huge potential to develop renewable energy such as small hydropower, commercial biomass, biofuels, wind power, solar energy, and other sources, the researchers say Beijing is facing big challenges.

Kang Wu, a senior fellow at the East-West Center, and Caleb O’Kray, an EWC degree fellow and Ph.D. candidate in agricultural and resource economics at the University of Hawaii-Manoa, say Chinese officials are aware of the need to increase efficiency and economy of renewable energy production, especially biofuels or biomass. And they are taking steps in that direction.

“The Chinese are pursuing biofuels for three reasons,” the researchers say, following a year-long study of the situation and extensive interviews conducted by O’Kray in China during the summer of 2006. “They want to alleviate poverty in rural areas, they want to decrease energy dependence on imported fossil fuels, and they want to reduce carbon emissions,” the two researchers point out. And, to a certain extent, Beijing has been successful. O’Kray in particular points out “China has already solidified itself as a major player in biofuels, trailing only Brazil and the United States in net biofuel production and consumption.”

But, according to the researchers, despite the promising future China still faces tremendous challenges, the biggest among them being “uncertainty of oil prices, feedstock supply, and government policies.”

Ethanol and biodiesel production, the largest end uses in the biofuel arena, are married to the price of oil.

Wu and O’Kray point out that while oil prices are high, “history suggests that they may drop at times, which (would) render some biofuel investment projects uneconomical,” slowing down development. They note for ethanol to be profitable, oil prices would have to remain in the $3 a gallon range.

Feedstock supply will be greatly effected by land limitations and food security issues, the researchers note. “With their unique history, Chinese desire secure food supplies,” and despite the many variables involved, “arable land availability and regional water supply issues (may) pressure officials into thinking twice before unilaterally expanding feedstock and biofuel production.”

“The biofuels industry,” O’Kray and Wu also point out, “is currently married to government subsidies and official support.” And despite a tilt toward the biofuel sector at the expense of other renewable energy sources, “government policies have delivered contradicting messages leaving many investors and developers at odds.”

The two point out that China is serious in increasing its renewable energy sources, especially biofuels, but they say other factors beyond energy may also be at play. A push toward biofuels could “help the State recover from failed agricultural planning policies by drawing down the large supplies of decaying feedstock and crops in the countryside.” And, they add, “A reduction in energy dependence on fossil fuels could also improve China’s energy supply structure, and biofuel development could help Beijing earn a needed improvement in its reputation in the international community by showing a willingness to reduce global carbon emissions.”

Whatever the reasoning behind the move into renewable energy, Wu and O’Kray foresee a bright future for China. But they caution that “while there are many budding industries and sources of biomass energy in China, in the long-term economic feasibility will be the determining factor,” and that “market and scientific uncertainty (still) enshrouds China’s biofuels future.”

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