Even if China cuts energy per unit GNP by 50%, to increase per capita income to 50% of the USA, energy production will still need to increase 40%.

Lake Tai’s breathtaking beauty belies the fact it is one of the most polluted lakes in China. (Photo: Wikipedia)

It’s no secret that China is on the brink of environmental crisis. As the country works to clean up its act, the development of the renewable energy industry could mean a big payoff to investors as well as Chinese society as a whole.

A recent article in the New York Times profiles a Chinese environmental activist named Wu Lihong. The article, part of the paper’s series on environmental degradation in China, documents Wu’s attempts to clean up Lake Tai, one of China’s most polluted bodies of water. As the article shows, Wu’s efforts have been truly heroic: he has campaigned vigorously against corrupt officials, has succeeded in generating public awareness about the problem and has risked his own livelihood - including possible jail time - for the cause.

Western reportage about the environment in China, such as the Times article about Wu, inevitably focuses on the disastrous environmental degradation that has accompanied the country’s rapid economic growth, noting that the government’s proclamations of concern for the environment mostly go unfulfilled. Such reporting usually carries with it the implication that pro-environment statements made by the Chinese government are just for show, and treats the government as a homogeneous entity and Chinese society as interested only in making money.

However, the reality is not so simple. China’s 5-year plans and far-reaching policies are indeed often bogged down in the obsession with economic progress, and the rapid pace of economic growth combined with the sheer size of the country means that effectively implementing those policies is difficult and prone to corruption and inefficiency. Focusing on activists such as Wu Lihong puts the problems of China’s embrace of capitalism in stark relief. Yet it should be noted that such cases may obscure the larger potential of China’s environmental efforts, specifically its renewable energy industry. Prominent officials and institutions in the Chinese government frequently indicate an awareness of the country’s environmental problems. China’s drive to build up its renewable energy industry will offer many opportunities for foreign investment, and the government’s plans for the future - the kinds of policies that will see fruit in the long term - are far from unpromising.

China’s plans for the future

The National Development and Reform Commission (NDRC), the institution responsible for the country’s macroeconomic planning, plans to have renewable energy account for 10 percent of China’s total energy consumption by 2010, and 15 percent by 2020, compared to 7.5 percent in 2005. (In comparison, in the United States about 7 percent of energy consumption was supplied by renewable energy in 2005 according to the U.S. Energy Information Administration, less than China’s figure for that year.)

The main dam at the Three Gorges Complex. When complete, this hydroelectric project will generate a staggering 17.5 gigawatts of electricity. (Photo: NASA)

Breaking that figure down further, the NDRC aims for hydropower generation capacity to reach 180 gigawatts a year by 2010 and 300 GW by 2020, compared to 115 GW in 2005; annual wind power generation capacity to reach 5 GW by 2010 and 30 GW by 2020, compared to 1.3 GW in 2005; biomass capacity to reach 5.5 GW in 2010 and 30 GW in 2020, compared to 2 GW in 2005; and, finally, solar power to reach 0.3 GW in 2010 and 1.8 GW in 2020, compared to 0.07 in 2005.

As for the very long term, an energy development plan compiled by the China Academy of Sciences (CAS), a Chinese government think tank, recently recommended that the country should push to make nuclear power and renewable energy (besides hydropower) main elements of the country’s energy mix by about 2030, and ensure that dependency on fossil fuels falls under 60 percent by 2050.

Government projections of renewable energy in China’s overall energy usage, 2005-2020

Can China achieve its goals?

Are these goals feasible? It’s too soon to know for sure. On the one hand, the government has often expressed its seriousness in reaching its environmental targets, and has issued several preferential tax policies and subsidies to support the development of renewable energy. On the other hand, the country has fallen short of some of its yearly goals. Energy consumption per unit of gross domestic product fell by only 1.23 percent in 2006, one-third of the country’s annual target of four percent. The government has said it will stick to its previous plan of cutting energy consumption per unit of GDP by 20 percent between 2006 and 2010, or 4 percent annually, as well as emissions by 10 percent for the period.

Taking wind power, one of China’s fastest growing renewable energy sectors, as another example, the sector ranked sixth in the world in terms of wind power generation capacity in 2006, up from eighth in 2005, according to the NDRC. Figures released by the Global Wind Power Council indicate that wind power installed capacity in China went up from 1260 megawatts in 2005 to 2610 MW in 2006, an increase of 107 percent.

In short, China’s record is inconsistent - some projects succeed, while others stall. What is clear is that the country will have to be more rigorous in implementing energy-saving measures if it really plans to achieve its environmental goals.

China’s renewable energy potential: analyses and predictions

Many Western analysts are optimistic about China’s renewable energy potential. Dr. Eric Martinot, a former senior energy and environment specialist at the World Bank, told Interfax in June, “For all the [renewable] technologies [apart from biomass], I think they’ll all achieve [the targets] early. Wind will go definitely more than 30 GW by 2020 and it would very likely achieve its 2010 target two years early. Also for hydropower, I think they’ll achieve the target early.”

There have also been indications that many elements in the Chinese government, including prominent government officials and institutions, are increasingly willing to confront environmental problems head-on. The Three Gorges Dam hydroelectric project, a pet project of powerful Chinese officials, has caused landslides, stagnant pollution and excessive algae. All of these problems were finally admitted openly in September by government officials (though there was no mention of another problem with the project, the forced relocation of nearby residents). Wang Xiaofeng, the director of the Three Gorges Construction Commission on the State Council, which is in charge of building the dam, reportedly said, “We must never lower our guard against environmental problems caused by the Three Gorges project, and we cannot achieve economic prosperity at the cost of damaging the environment.” Such openness has earned praise from international commentators. “It’s the first time that Chinese officials have (openly) talked about the pollution issues and environmental effects of the Three Gorges Dam. It’s a milestone for the Chinese government to show a positive attitude towards solving the ecological problems caused by the project,” Dr. Li Lin, the Conservation Strategy Director for the World Wildlife Fund’s China branch, told Interfax.

The development of renewable energy in China: pitfalls and opportunities

The Dabancheng Wind Farm At 100 megawatts, China’s largest

The country will face several hurdles in its development of the renewable energy industry. The biggest hurdle is also foreign companies’ biggest opportunity: the need to attract more foreign investment. As Francois Nguyen, senior policy adviser with Paris-based International Energy Agency, explained to Interfax in May, “The obstacle is that China needs to attract more foreign companies and in order to achieve that, China needs to provide more incentives.” Nguyen added that China needs a more diverse and competitive market that can ensure efficient allocation of resources, and needs to reorganize the government regulators in charge of the industry. “Right now the NDRC controls both policy-making and implementation,” he said. “If you have an independent market watcher and an independent regulator, that will give confidence to foreign investors.”

China will also have to improve its technology to develop the renewable energy industry. In the wind power sector, building wind turbines is expensive, and China still largely relies on foreign equipment. “In 2006, 60 percent of all wind power equipment in use in China was imported from overseas. Such equipment is expensive, as equipment prices have soared in recent years on the international market,” Qin Haiyan, secretary-general of the China Wind Energy Association, said in June, as cited by state media. He added that only three domestic companies are able to mass produce equipment with an individual capacity of more than 1.5 MW. Other sectors, such as solar and geothermal, face similar problems: the government will need to invest substantial resources in technological development to spur the renewable energy industry.

Another problem is that energy produced by renewable energy projects tends to be more expensive than traditional sources. The solar power sector is a good example. Eric Martinot, the former World Bank official, said that an important question is, “how soon will the cost come down so that there will be a domestic market for solar PV [photovoltaic]? We are looking at maybe at least five years. Actually a lot of people are thinking much longer. The first problem with solar in China is the acceptance by the utility companies to use power generated by solar power.”

Development of the industry may suffer from infrastructure problems as well. One potential obstacle that is often overlooked is the difficulty in connecting some renewable energy projects, especially wind power, to national and local grids. “The government likes to talk about how rapidly China is building up its wind power capacity, seeing it as a symbol of achievement in its renewable energy drive,” Shi Pengfei, the vice chairman of the China Wind Energy Association, told Interfax earlier this year. “However, to me, it means nothing, as it will only make a difference in our energy mix when the grid is able to receive a majority of the power generated.” Shi added that steps are being taken to address the problem, such as requiring wind power projects to consult with local and national grids before construction.

In the coming years, all sectors of the renewable energy industry - wind, solar, hydropower, biomass, nuclear, geothermal, waste-to-energy, clean coal and gas-fired power generation - will be expanded. All will face obstacles, but it is increasingly apparent that the Chinese government recognizes the reality of the environmental crisis, and will work to build up renewable energy in the country. As Li Lin from the WWF put it, “In recent years the central and local governments have gradually realized that sustainable economic development won’t happen without effective environment protection.”

This article was originally published by Interfax-China, and is republished with permission. Author Sam Goffman is the Editor of the Interfax-China Energy Sector Team, with special thanks to Terry Wang, Sector Analyst, Interfax-China. This article is part one of a five part series written as part of the research efforts for Interfax-China’s “China Clean & Renewable Energy to 2010” special industry report. To automatically receive the other parts of the series please send an email to andrew@interfax.cn.

MELTING ON GREENLAND’S ICECAP

The darker the shading, the more days of summer melting are happening today compared to the base year of 1988. (Photo: NASA)

Meltwater stream flowing into a large moulin in the ablation zone of the Greenland ice sheet. (Photo: NASA)

It is hard to shock journalists and at the same time leave them in awe of the power of nature. A group returning from a helicopter trip flying over, then landing on, the Greenland ice cap at the time of maximum ice melt last month were shaken. One shrugged and said: “It is too late already.”

What they were all talking about was the moulins, not one moulin but hundreds, possibly thousands. “Moulin” is a word I had only just become familiar with. It is the name for a giant hole in a glacier through which millions of gallons of melt water cascade through to the rock below. The water has the effect of lubricating the glaciers so they move at three times the rate that they did previously.

Some of these moulins in Greenland are so big that they run on the scale of Niagara Falls. The scientists who accompanied these journalists on the trip were almost as alarmed. That is pretty significant because they are world experts on ice and Greenland in particular.

We were visiting Ilulissat, Greenland, once a stronghold of Innuit hunters but now with so little ice that the dog sleds are in danger of falling through even in the depth of winter.

But it is not the lack of sea ice that worries scientists and should be of serious concern to the inhabitants of coastal zones across the world. Cities like New York and states like Florida are in the front line.

Scientists know this already, but just to give you some idea of the problem, the Greenland ice cap is melting at such a fast rate it is triggering earthquakes as pieces of ice several cubic kilometres in size break up.

Scientists say the acceleration of melting and subsequent speeding up of giant glaciers could be catastrophic in terms of sea level rise and make previous predictions published this year by the Intergovernmental Panel on Climate Change (IPCC) far too low. The glacier at Ilulissat, which it is believed spawned the iceberg which sank the Titanic, is now flowing three times faster into the sea than it was 10 years ago.

Robert Correll, chairman of the Arctic Climate Impact Assessment, from Washington told me: “We have seen a massive acceleration of the speed with which these glaciers are moving into the sea. The ice is moving at 2 metres an hour on a front five kilometres long and 1,500 metres deep. “That means that this one glacier puts enough fresh water into the sea in one day to provide drinking water for a city the size New York or London for a year.”

Professor Correll, who is also director of the global change programme at the Heinz Centre in Washington said the estimates of sea level rise in the IPCC report in February 2007 had been “conservative” and based on data two years old. The range of rise this century had been predicted to be 20 to 60 centimetres, but would be the upper end of this range at a minimum and some now believed it could be two metres. This would have catastrophic effects for European and US coastlines.

He said newly invented ice penetrating radar showed that the melt water was pouring through to the bottom of the glacier creating a melt water lake 500 metres deep causing the glacier “to float on land. “These melt water rivers are lubricating the glacier, like applying oil to a surface and causing it to slide into the sea. It is causing a massive acceleration which could be catastrophic.

The glacier is now moving at 15 kilometres a year into the sea although in periodic surges it moves even faster. He has seen a surge, which he had measured as moving five kilometres in 90 minutes - an extraordinary event.

If all of Greenland melts, something we were previously assured would take thousands of years, but now could be hundreds, then sea level round the world would rise seven metres. That is without any contribution from the Antarctic, the glaciers of Alaska, the Rockies, the Himalayas, or the ocean water expanding as it warms.

So the talk of sea level rise should not be in centuries, it should be decades or perhaps even single years. For 10,000 years, during all of human civilisation sea level remained stable leading us to believe that coastlines remained roughly in the same place. A century ago the sea began to rise one millimetre a year, 20 years ago it had reached two millimetres and this century it has risen to 3 millimetres. This annual rise may not seem much but add hurricane storm surges and high tides and we are soon saying good bye to a lot of coastal settlements  like the Big Apple.

CHINA, USA, INDIA - 1995 vs. 2005

In 2007 China’s CO2 emissions passed the USA, though China and the USA currently have virtually identical energy intensity (energy consumed per unit of GNP).

Switch forward a week from the helicopter ride to George W. Bush’s meeting of 16 of the biggest greenhouse gas emitters in Washington last month and what do we hear. We hear lots of rhetoric about how, along with terrorism, climate change is the biggest threat to the earth although the catastrophic sea level rise facing our major coastal cities does not rate a mention.

But instead of decisive political action (as with terrorism) we get suggestions from the President of voluntary cuts in emissions, down to the government of each country, and then next summer another conference to discuss where we have got to  which on past form will be nowhere at all. It did not sound like the much needed change of heart from the President, but just another delaying tactic to tide him over until his term of office ends.

Although it may sound like it, the commentators in Europe are not singling out America for criticism, although it has to be said as often as possible that the US is the world’s most profligate nation when it comes to fossil fuel consumption, AND has rejected the only legally binding international agreement that could do something about it. But Europeans are not doing enough either. We need convincing that our own leaders have enough political will to reach the tiny Kyoto targets that are the minimum first step to tackling this problem. The public hears the latest scientists warnings that an 80% cut in greenhouse gas emissions is needed if we are to stave off catastrophic climate change, yet wait in vain for the policies needed to achieve them.

In my book, protestors wearing George Bush masks are pictured “fiddling while the earth burns.” Maybe he is just the lead violinist of the orchestra.

About the Author: Paul Brown was the environment correspondent for The Guardian newspaper for 16 years and has worked in newspaper journalism for more than 40 years. He has written extensively about climate change, population, biodiversity, pollution, energy, desertification, and ocean management. Brown has appeared in and written television documentaries on environmental issues, contributed to books on green politics, and is the author of several books on the environment, ref. www.globalwarningbook.com.

High-rise urban farms will deliver water and food, freeing up millions of square miles of farmland Skyscraper Farms

CONCEPT & DESIGN

McDonough, Braungart Design Chemistry www.mbdc.com

If you’re looking for “cradle to cradle” design you can do no better than to call upon the duo who coined the term, William McDonough and Michael Braungart, whose 2002 breakthrough book “Cradle to Cradle, Remaking the Way We Make Things” has helped launch the latest green revolution. But you better get in line. McDounough and Braungart’s firm, MBDC, is in the forefront of green design with projects all over the world. For example, MBDC is playing a key role helping the Chinese develop new cities of 500,000 people each - cities that are springing up from nothing. These cities will produce their own energy and reuse their own water. They will have farms on their rooftops. They will leapfrog everything that has come before, merging the latest technologies with time-honored traditional designs, building on everything we’ve ever learned. There are many excellent green development and design firms, but MBDC is the leader of the pack.

MANAGING GREEN CONSTRUCTION

Essential Software & Services www.ess-home.com

It is no longer possible to consider large scale development without needing to navigate extremely complex and constantly changing regulations. In order to make sure your contractors are in compliance, you need to track and fulfill these requirements from application to sign-off without getting off schedule. You need to manage a task involving dozens if not hundreds of public and private entities, and know who is doing what, where, when and how. You need to set and track goals for financial and operational excellence. Essential Software & Services is a company whose been helping developers and contractors accomplish these objectives for many years.

ASPHALT

Astec, Inc. www.astecinc.com

In the United States each year over 3.0 billion tons of rock is quarried and crushed. This amounts to over 10 tons of rock per person per year. About 25% of this rock is used in asphalt, 25% is for concrete, and the remaining 50% is used for the base rock in canals, embankments, and buildings. Asphalt is 95% crushed rock aggregate, and 5% heavy oil. A new technology pioneered by Astec Inc., the world’s largest manufacturer of asphalt manufacturing equipment, allows the asphalt to be mixed at lower temperatures. By developing a method to mix asphalt at less than 285 degrees fahrenheit, which is the boiling point of heavy oil, Astec equipment requires less energy and emits significantly less air pollutants. Astec’s process also allows for much heavier, less usable oil to be mixed into asphalt. Astec also has new machinery that can recycle and remix into asphalt as much as 50% of old road surface - where previously only 15% of old road surface could be recycled and remixed into new asphalt.

CONCRETE

Hycrete, Inc. www.hycrete.com

Hycrete has invented an inexpensive, non-toxic sealant that mixes directly into concrete, rendering it impervious to water. Not a surface sealant, but a part of the concrete mixture, Hycrete’s additive is chemically bound throughout the mix. Not only does this mixture create sealed concrete, which is useful for far more applications, but it ensures the concrete chemically binds to steel reinforcing members inside the concrete, for greater endurance and better structural life.

STRUCTURAL PANELS

Sipcrete, LLC. www.sipcrete.co.uk

Sipcrete has pioneered structural panels with a “sandwich” design that combines cement exteriors with foam interiors. Between the reinforced concrete exterior slabs, running through the foam interior are diagonal steel struts which give the panels extraordinary structural strength. These relatively lightweight panels combine drywall, insulation, and framing in one modular unit. They use far less materials than most alternative construction materials.

PHOTOVOLTAICS

Applied Materials www.amat.com

Photovoltaic electricity, which converts light into electricity, has the potential to greatly increase global energy production. Applied Materials (AMAT) occupies the leadership position in supplying photovoltaic manufacturing equipment for use in factories around the world. Several thin-film photovoltaic factories are currently under construction using AMAT tools, including some designed to output 500 megawatts of thin film panels per year. This is a staggering achievement, given the entire manufacturing output of photovoltaics in the world in 2006 was only about 3.0 gigawatts, and the entire installed base of photovoltaics worldwide is still only about 10 gigawatts. AMAT also is a leading supplier of tools to manufacture crystaline photovoltaics, which still dominate the photovoltaic market, and which are finally free of the shortage of polysilicon. The only primary materials you need to manufacture photovoltaics are sand and electricity - which itself is a product of photovoltaics. With manufacturing costs dropping below $1.00 per watt, and installed costs falling below $10.00 per watt, look for this energy source to explode in the coming years.

SOLAR THERMAL ELECTRICITY

Ausra, Inc. www.ausra.com

Long the shy sister of photovoltaic power, solar thermal technology is now in a horse race with photovoltaic technology to become the dominant source of alternative electricity. Solar thermal electricity is generated by using mirrors to focus the sun’s heat onto a heat exchanger, superheating water to drive a steam turbine. The water is then cooled and returned into the system - almost no water is lost in this process. The breakthrough designs being pioneered by Ausra, Inc., promise to bring solar thermal electric generating stations into the mainstream of utility delivered electricity. A solar field of one square mile can deliver 175 megawatts of electricity in full sun; about 1.0 gigawatt-hour per day. Such a plant costs under $500 million, and has far lower operating costs than conventional power generating plants. Officials at Ausra believe they can get the cost per kilowatt-hour under $.10, a very competitive price. And adding extra steam storage capacity to allow a solar thermal power station to continue generating electricity into the night only adds about 10% to the cost of the entire installation. Solar thermal technology is going to be big.

ENERGY STORAGE

Gridpoint, Inc. www.gridpoint.com

Until energy can be efficiently stored all over the power grid, it will not be feasible to complete our transition to decentralized clean energy. Solar thermal power can be stored at the utility. But how do you store surplus photovoltaic electricity, generated during the day but needed at night? Gridpoint’s “Connect Series” energy management systems are turnkey energy management appliances that can manage electricity for a neighborhood, multi-family dwelling, or commercial building. Each unit is a turnkey energy management system that can decide whether to draw electricity from the grid, send surplus energy into the grid, or store energy. Each unit can store up to 12 kilowatt-hours of usable AC current. Stationary batteries are now down to $185 per kilowatt-hour of usable AC current. Gridpoint is the only company to-date that has an off-the-shelf product to allow storage and management of surplus electricity from on-site sources. This sort of storage solution is the key to distributed power - and unlike electrolysis / hydrogen / fuel cell systems which lose over 50% of the original electricity during conversions, these battery systems can charge and discharge electricity while losing less than 10% of the original electricity in the conversion.

WATER SUPPLY

Energy Recovery International www.energyrecovery.com/

The biggest secret in the water industry today is the feasibility, right now, of desalination. Recent developments in energy recovery, many of them innovations brought to market by Energy Recovery International, have reduced the power required to desalinate sea water to 2.0 kilowatt-hours per cubic meter of recovered fresh water. This is a major breakthrough, reducing energy necessary to desalinate by well over 50% over earlier technologies. A desalination plant, running on a constant energy input of only 60 megawatts, can desalinate enough seawater to provide fresh water to 1.0 million residential consumers. And a plant of this capacity would only cost about $500 million, or about $500 per residential customer. Practical, large scale desalination is one of the most important breakthoughs in the history of civilization.

WATER RECYCLING

Epuramat www.epuramat.com

Total water recycling is closer than ever to reality. In the USA each year, total water withdrawals are over 500 cubic kilometers per year, about 80% of it for agriculture. Treated sewage returns about 65 cubic kilometers of water each year to US watersheds, with only about 5% of that water reused for irrigation. This is all going to change. Epuramat, a Luxembourg company, has developed a breakthrough treatment that replaces expensive primary and secondary treatment methods with a much smaller, far less expensive system that hydraulically removes the sludge from the water. Methods to complete the process and go the last mile in water purification are just around the corner. Water recycling combined with desalination have the potential to eliminate water scarcity in the next few decades.

IRRIGATION

Netafim www.netafim.com

In California, public authorities are toying with the dangerous notions of water rationing for residences, when residential water use only represents about 10% of California’s water consumption. Meanwhile, wasteful flood irrigation consumes about 80% of California’s water, and this technique threatens to destroy California’s rich farmland due to salt buildup caused by years of flood irrigation. Clearly the Californian farmers need to consider drip irrigation, both above ground and subsurface. Such techniques have been used in Israel for years, and have reduced their agricultural water requirements by over 50%. What water scarcity? Move to drip irrigation. Netafim, based in Israel, has over 80% of the world market for drip irrigation equipment.

TRANSPORTATION

General Motors “Volt” www.gm-volt.com

Last but certainly not least, here comes the green car. The GM “Volt” is still on track to be in showrooms by 2010, and this is much more than a plug-in hybrid. The “Volt” is a series hybrid, meaning that while it has a gasoline engine, this engine is completely disconnected from the drivetrain. Instead, the gasoline engine turns an onboard electric generator, supplying power to an electric motor. The Volt also comes with a 400 pound lithium ion battery pack, which will power the car exclusively for 40 miles. But when the battery is drained, the gasoline engine (highly efficient because of no variable RPM requirements) can deliver a 600 mile range at a gasoline-only mileage of 50 miles per gallon. This car is a breakthrough - once cars like this a deployed by the millions, vehicular transportation miles will increasingly be fueled by electrons, not petroleum, and these electrons will come from renewable sources such as photovoltaics and solar thermal power stations. Energy, water, and land abundance is the destiny that awaits us, if we maintain our faith in free market innovations, and let green technology take us there.

Ethanol fuel from sugar cane has surely been an economic benefit to the Brazilians.

Renewable fuel has always been of interest, but has historically not been commercially viable at low fuel prices.

At high fuel prices and due to climate change there has however been an upsurge in the interest in renewable fuel.

The renewable fuel interest can be grouped into the following segments:

1) Governments

a. For fuel security

b. For the environment

2) Social interest groups for the environment

3) Producers of renewable fuel feedstocks

a. Existing farmers of feedstocks that can be used for fuel.

b. New entrants to the market who produce food stocks that can be used for fuel.

c. New entrants to the market who supply feedstocks that can only be used for fue.

4) Producers of Renewable fuel

If we look at the impact of each of these segments and list the main costs and benefits that the actions of each group provides we can summarise as follows:

1) Governments

Switchgrass, which is a fuel-only crop, requires cellulosic extraction of its ethanol in order to produce high yields.

a. Fuel Security

We need to distinguish here between the intention of the government and realistic ability to secure fuel security. First, if we say a government seeks fuel security that clearly implies that the fuel from crop to market would be under control of the government. It therefore would justify the motive to try and produce all the fuel under the government’s control, which would imply the fuel, would have to be produced in country. However, the question then falls back to whether that country has the ability to produce such renewable fuel in country given the local agricultural system dynamics.

As we now live in a global village, the impact of any significant shift in agricultural output use would affect other parties and countries in the world. Without going into details this is exactly what happens if you try and subsidise local production of biofuel from corn which drives up local demand for corn and consequently the effect spills over into the rest of the world which leads to the fact that corn prices skyrocket. Similar effects are visible throughout renewable feedstocks that can be used either for food or fuel once you create a synthetic demand by way of subsidies or legislation you impact market demand and prices. The net result here is that this is in no way whatsoever a food versus fuel debate but simply a debate on what the effects of legislation, subsidies and government intervention has on markets; this is why we have noble prize winners in economics who try and explain why governments should not directly intervene in markets.

b. Environment

As is the case of fuel security, the intention of environmental security or environment improvement is pure in nature, however, to institute policies that directly affect markets simply lead to market demand increasing, resulting in market price pressure and thus market insecurity which is synthetically created by such interventionist policies. Again, this makes a strong case for disinterventionist policies by government when it comes to fuel production targets for green fuel which consequently affects feedstock prices (such as the rise and rise of palm oil prices). Again this is not a matter of food versus fuel but synthetic impact on market prices by government interventionist policies.

2) Social Interest Groups

Firstly it is greatly due to the tireless pursuit of these groups that climate change and the correlation of interest in renewable was formed. This has certainly resulted in renewable fuels surging to the forefront of interest. What is however very hard to ascertain if these groups have resulted in the current policies of Governments in which case, the net result is more instability than benefit to the food markets, again their support is well intended, but if correlated with government reactions as described above then more specific lobbying is required to stay aware from the above policies and rather try and refocus on the producers of renewable resources and support to these parties.

3) Producers of renewable fuel feedstocks.

There are actually three subsets of producers and their impact and reactions to the increased interest in renewable fuels differs.

a. Existing farmers of feedstocks that can be used for fuel.

These include existing coconut growers, palm oil plantations, corn growers and so forth. These groups are simply reacting to existing demand and supply forces and therefore when scenarios like government reaction affect demand for their products upward, they simply benefit from increased income. The parties can be seen as neutral parties as they consistently supply their products and simply sell to the highest bidder. In this context these parties certainly do not participate in the food versus fuel debate.

Nigerian Cassava A flex crop, good for food or ethanol.

b. New entrants to the market who produce food stocks that can also be used for fuel.

These farmers focus on similar products as the above parties. Their expansion I simply centred around the logic that farming has become profitable in feedstock that can be used either for food or fuel. Again these parties will not act as market makers, but rather market takers. In this regard they will simply sell to the highest bidder, regardless if that is a fuel or food consumer. The focus then turns directly back on to the buyer and their motives for buying, which in turn directly back on to whether subsidies or economics provide incentive for the buyer to consume the crop as a fuel or as a food. Again, the food versus fuel debate can quite easily be removed from the discussion by simply asking as to whether the market is being created by government intervention, as is the current case, or by plain market forces, which does not appear to be the case.

c. New entrants to the market who supply feedstocks that can only be used for biofuel.

These are specialist producers who use crops such as Pongamia or Jatropha often with the interest of either developing own plantation or combining this with an outgrower program or doing a combination of the two. The first question one would need to ask of these parties is how do they affect the local food security. Is the areas of their operation currently food neutral or positive (thus producing more or equal food than being consumed), or is the area food negative (thus consuming more food than being produced. If negative the one should determine if the consumption of the area can be maintained from another area in the world, and if it would not be more important to increase food security to neutral or positive before commencing fuel crop production.

The questions raised by the prospect of biofuel-only crops replacing food crops in food-neutral regions are exceptionally important, because today many very poor parts of the world do not have food insecurity in poor rural areas. Such areas would include certain parts of Africa where the environment is exceptionally fertile for most of the year and the local populace are therefore certainly not starving by way of food from crops this I can affirm from personal experience as I have travelled across a number of areas by road and very rarely see signs of malnutrition in such areas.

Jatropha is a fuel-only crop, doing well in harsh arid conditions. Jatropha’s best yields, however, are where food crops would also thrive.

In cases therefore where food security is neutral or positive and land is not currently under development it would therefore raise the question as regards what to do with the land should we plant food or fuel renewables. Allow me to say that the greatest crime what not be to develop the land at all (this is of course in a sensitive way that takes care of biodiversity and the environment which is a totally separate issue from a strictly food versus fuel debate). Development will bring economic development and prosperity to an undeveloped area and would be to the benefit of all people. So if the question then is what should be developed on the land logic would then dictate that the most economically viable crop should be produced, irrespective of whether it is used for food or fuel for the simple reason that the investment pool for agriculture projects is somewhat smaller than for industries such as mining.

A high yielding project would greatly assist to bring development to an area and this would lead to a socially and economically responsible investment not focusing on what the crop is used for, but what benefits the projects (and hopefully if a socially acceptable project then what benefits the people of the area most. In this regard it is the writers opinion that a blend of pure fuel and ‘flex’ crops (used for fuel or food) would be the most justifiable long-term investment. This would mean that a balanced output can be provided and the output can be switched between the two uses to provide a more stable income.

There is another reason why it is safer to spread the project between pure fuel and ‘flex’ crops, and this reason is agricultural subsidies. Put very simply, it very often does not pay to produce pure food crops in the third world as very often you have to compete against highly subsidised markets, that is ultimately the reason why the World Trade Organisation is consistently struggling to bridge this exact problem in the various trade rounds held to address the problem. This problem cannot be expected to disappear for a very long time still, and in this regard it therefore provides a far sounder project profile with reduced risk by at least planting partially flex crops and partially pure fuel crops which are not affected by agricultural subsidies. That way if food prices synthetically skyrocket then the project benefits, and if they drop you can still sell your crop for fuel, thus providing a balanced investment.

4. Producers & Refiners of Renewable Fuel

This group simply provides a conversion function dependent on one hand on feedstock supply and on the other hand for a viable market. Often however the risk is that the feedstock price is driven by support for the off-take segment to which the fuel producers deliver, and if this is affected as described in the government impact section, then they directly need to drive up the feedstock prices which means they needs further government support to remain at viable levels of off-take prices. The greatest danger here is that these producers along with government support can fall into a negatively reinforcing loop by consistently requiring more and more government support as the feedstock prices consistently get driven up, which can potentially bring food from fuel production to a total market collapse if subsidies are withdrawn for these producers. The contra argument would be that if the fuel producers seek lowest cost advantage and structure their investments on that basis (which would mean that they would need to be as close from crop to market as possible) and therefore possibly relocate given that they then produce an international commodity fuel and not biofuel anymore they might find a more stable, reliable and cost effective market.

Burgeoning plantations of oil palms are an example of how subsidized biodiesel is generating massive rainforest destruction.

Whether for food security or for environmentalism, intervening or creating synthetic prices in the market for food securities is creating food instability.

Certainly seeking optimal areas where the optimal crop yields can be sought and seeking a blended strategy of pure fuel and flex feedstocks provides as safe strategy against such risks, as the investors will be able to capitalise on their dual position.

Synthetic prices also create a dangerous position for pure fuel refiners if they do not focus on low cost production strategy and stick to as short as possible a cycle from crop to market as it means your political risk to the project is immense as if the government withdraws support for market prices your project viability is significantly eroded.

Further, if fertile areas can be accessed and developed this provides benefit for the local area and therefore social upliftment flexible crop strategies can greatly impact the viability of these investments. And if return on investment both for the community and investor is the prime objective, why then could it be possibly justifiable to launch the main centre of a commercial investment into marginal land. Yes of course, if there is some economic return it could be considered to develop such marginal land, but surely any investor would primarily be interested in good economic return.

It is unlikely that marginal land would cater for such rate of return requirements, more likely these projects would be social, and if they are social, then there is a real case for government intervention to address social development and not to affect markets. Food versus fuel is not the issue then, the issue is renewable policy for fuel and flex feedstocks from governments both in the first and the third world.

About the Author: Louis Strydom is an expert in new venture creation and project finance with wide experience on projects in the developing world. One of Strydom’s main projects for the last year has been conducting a pre-feasibility study and promotion of a 230,000 acre site for a Jatropha plantation and biodiesel refinery in Kenya. Previously he was Senior Vice President of Project Finance at Decillion - a company listed on the Johannesburg Stock Exchange. Other positions included Senior Economist managing the Credit Policy and Risk Management division of the Export Credit Insurance Corporation of South Africa. Prior to that he was a Director with Triumvirate responsible for Marketing and Consulting on Crisis Management. Strydom also has extensive experience in short term insurance with American Insurance Group on fire/casualty risks, niche products and political risks in Africa, Europe, the Middle East, UK and USA.