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Committing to ethanol

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Leading edge technologies for refining plants

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THE B USI NE SS MAG AZ IN E FOR TH E OILS AN D FATS IN D UST RY

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CONTENTS FEATURES VOL. 32 NO. 2 FEBRUARY 2016 EDITORIAL:

NEW ZEALAND

8 Opportunities for biofuels

Editor: Serena Lim Tel: +44 (0)1737 855066 E-mail: serenalim@quartzltd.com

INDONESIA

Editorial Assistant: Rose Hales Tel: +44 (0)1737 855157 E-mail: rosehales@quartzltd.com

THE EU MUST DECREASE THE AMOUNT OF GREENHOUSE GAS IT PRODUCES TO MEET ITS EMISSIONS TARGETS, AND CAN DO SO BY USING ETHANOL P30

SALES: Sales Manager: Mark Winthrop-Wallace Tel: +44 (0)1737 855 114 E-mail: markww@quartzltd.com Sales Consultant: Anita Revis Tel: +44 (0)1737 855068 E-mail: anitarevis@quartzltd.com Chinese Sales Executive: Erik Heath Tel: +44 (0)1737 855108 E-mail: erikheath@quartzltd.com PRODUCTION:

12 Cultivating a renewable future

Production Editor: Carol Baird E-mail: carolbaird@quartzltd.com CORPORATE: Managing Director: Steve Diprose Tel: +44 (0)1737 855164 E-mail: stevediprose@quartzltd.com

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EUROPE

18 The road to renewable 30 fuel PROCESSING & TECHNOLOGY

Comment

Landmark deal 2

News

US corn and ethanol markets at risk from China DDGS probe

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Oils & Fats International

Committing to ethanol

NEWS & EVENTS 2

Published by Quartz Business Media Ltd Quartz House, 20 Clarendon Road Redhill, Surrey RH1 1QX, UK Tel: +44 (0)1737 855000 Fax: +44 (0)1737 855034 E-mail: oilsandfats@quartzltd.com

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22 Plant & technology round-up

Diary of Events

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NEWS

COMMENT

Landmark deal

total of 195 countries signed up to the landmark UN Paris climate agreement in December last year. And while biofuels were not specifically mentioned as a means of fighting global warming, they clearly have a role to play. The Paris Agreement arose from the 21st Conference of Parties (COP21) organised by the United Nations Framework on Climate Change on 30 November to 11 December. The goal was ambitious – to achieve a binding and universal agreement on climate change, from all the nations of the world, for the first time in over 20 years of UN negotiations. In several ‘firsts’, the talks involved governments, business leaders and campaign groups. The agreement has financing behind it and includes all nations, not just developed countries. The talks abandoned the idea of a traditional international treaty with fixed obligations, instead relying on countries to come forward with plans for cutting greenhouse gas emissions. The 195 countries have agreed to reduce their carbon output “as soon as possible” and to do their best to keep global warming to 20C above pre-industrial levels, while aiming for 1.50C. Key to the success has been the two largest national greenhouse gas (GHG) emitters – the USA and China – backing a deal. China has committed to 8.6 gigatonnes of carbon reduction and the USA 6.1 GT. A total of 146 countries presented ‘Intended Nationally Determined Contributions’ (INDCs) before the conference. Of course, there is still a very long way to go. Critics say the agreement contains promises rather than firm commitments. The Paris agreement will become legally binding if at least 55 countries representing at least 55% of global GHG emissions sign up. Each ratifying country needs to set a target for emission reduction, but the amount is voluntary and there is no enforcement if a target is not met. And there is still a big gap between current national pledges and the Paris goal. Current pledges stand at 3.40C; Paris pledges from 146 INDCs is at 2.70C; and the ultimate Paris target is 1.5-20C. However, UN climate change official Christiana Figueres says that after two decades of negotiations, countries had at last found their “higher purposes” and kindled “a huge flame of hope”. “This was the first time [in six such climate meetings] in which it was evident that there was overwhelming, not just political will, but political determination to actually come to an agreement.” In the wake of the agreement, the biofuels industry has highlighted its role in fighting climate change. “COP21 is an excellent opportunity to reboot the debate about biofuels and begin a discussion on how best to capture their genuine ability to play a positive role in the fight against climate change,” Ethanol Producer Magazine says. Robert Wright, secretary general of ePure, the European Renewable Ethanol Association, says that global transport emissions have increased to 14% of the world’s GHG emissions and account for about a quarter of total energy-related CO2 emissions. “It was therefore reassuring that 36 countries had, in their INDC plans, highlighted biofuels use as a key component of their climate action policies. Sixty-four countries, including the EU, USA and Brazil, already have policies mandating the use of biofuels, but more need to do so. Ethanol is one of the technologies that will play an important role in the fight against climate change. But unlike other solutions, it is ready to use today and at scale.” w

US corn and ethanol markets at risk from China DDGS probe C

hina has launched an antidumping probe against imports of US dried distillers grains with solubles (DDGS) on 12 January, which may hit the US corn and ethanol markets. The Ministry of Commerce (MoC) launched its anti-dumping and countervailing duties investigations on 12 January, following complaints from Chinese producers that US DDGS were being sold at prices “below normal value”, hurting the domestic industry, according to China’s state news agency Xinhua. It was also claimed that US DDGS exports were supported by the US government with up to 42 subsidy schemes. The USA was the world’s top exporter and China the top buyer of DDGS, a high-protein by-product of ethanol production used in animal feed as a substitute for corn or soya meal, Reuters said. China imported almost all its DDGS, mostly from the USA. In the first 10 months of 2015, China imported 5.9M tonnes of DDGS, up 14% from the same period a year ago, Reuters said. China formally accepted a petition from Chinese producers of DDGS seeking anti-dumping and anti-subsidy duties in

December, according to a report by US agricultural attaches in Beijing. It then had 60 days to decide whether to start an investigation. The MoC said the investigation should last no longer than a year under “normal conditions”, but could be extended to oneand-half years should “special circumstances” arise. China previously performed anti-dumping investigations of US DDGS imports in 2010 but dropped the probe in mid-2012. US Grains Council (USGC) president and CEO Thomas Slight said the group was “disappointed” to see China launch the investigations. “We believe the allegations by the Chinese petitioners are unwarranted and unhelpful. They could have negative effects on US ethanol and DDGS producers, as well as on Chinese consumers, potentially over a period of many years.” He said the USGC was confident its members’ trading practices for DDGS, ethanol, and related products were “fair throughout the world”. “We stand ready to cooperate fully with China in the investigations and will be working closely with our members to coordinate the US response.”

USA extends tax credit for blenders but not producers O n 18 December, the US House of Representatives and Senate passed a tax extenders package that included a twoyear retroactive extension of the US$1/gallon biodiesel and renewable diesel blenders tax credit. The biodiesel blenders tax credit will be retroactive to 1 January 2015 and will be in effect until 31 December 2016. US biodiesel producers and the National Biodiesel Board welcomed the move, although they had been advocating a producer’s credit. “While this is a missed

opportunity to reform this tax incentive, biodiesel plants across the country will have a greater degree of predictability and stability under this extension,” said Anne Steckel, vice president of federal affairs for the NBB. “We will continue pushing to reform this as a producer’s credit next year.” Iowa Biodiesel Board executive director Grant Kimerley said making a producer’s credit would ensure that foreign-made biodiesel would not be eligible for the credit, better-fulfilling Congress’s original intention when establishing the policy.

2 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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NEWS

VW sued for air pollution violations in the US T

he US Department of Justice (DoJ) is suing Volkswagen (VW) for violating air pollution laws, four months after its emissions scandal first broke out (see OFI Comment, November/ December 2015). The civil complaint filed on 4 January on behalf of the Environmental Protection Agency (EPA) alleged that nearly 600,000 diesel engine vehicles had illegal defeat devices installed that impaired their emission control systems and caused emissions to exceed the EPA’s standards, resulting in harmful air pollution. The complaint also alleged that VW violated

the Clean Air Act by selling, introducing into commerce, or importing motor vehicles that were designed differently from what VW had stated in applications for certification to the EPA and the California Air Resources Board. The suit was filed against Volkswagen AG, Audi AG, Volkswagen Group of America Inc, Volkswagen Group of America Chattanooga Operations LLC, Porsche AG, and Porsche Cars North America Inc, collectively referred to as VW. “Car manufacturers that fail to properly certify their cars and that defeat emission control systems breach the public trust,

endanger public health and disadvantage competitors,” said Assistant Attorney General John Cruden for the Justice Department’s Environment and Natural Resources Division. “The United States will pursue all appropriate remedies against Volkswagen to redress the violations of our nation’s clean air laws alleged in the complaint.” According to a Reuters report, VW could face fines of as much as US$37,500 per vehicle for each of two violations of the law; up to US$3,750 per “defeat device”; and another US$37,500 for each day of violation, taking the total up to US$48bn.

Cevital to build ethanol plant in Mato Grosso

lgeria’s largest private conglomerate, Cevital, is planning to build a corn-based ethanol plant in Brazil’s leading soya producing Mato Grosso state, according to a December Reuters report. The plant would be located in the municipality of Vera, close to the main soya and corn hubs of Sorriso and Lucas do Rio Verde, along the BR-163 highway used to transport a major part of the state’s grain output to the main southern Brazilian ports of Santos and Paranagua. Cevital said the corn-based ethanol plant would be the first project of a larger US$750M investment plan that included a soya crushing installation and a feed plant, to bring it closer to producing areas and add value to raw materials. Cevital’s representative in Brazil, Paulo Hegg, said the company bought around US$1.5bn/year worth of raw materials from Brazil. Reuters said ethanol was normally produced

from sugarcane in Brazil but some producers had recently been drawn to corn’s low cost and large availability in some regions such as the country’s centre-west. Some projects were already under way, such as a corn-based ethanol plant joint venture in Goias state between local sugar group Usina Sao João and US commodities trader Cargill. Corn produced in Mato Grosso was among the cheapest in the world but was usually less competitive on the world market because the state was relatively far from ports. Cevital is a leading food processor in Algeria with a sunflower and soyabean oil refinery, a margarine factory, a sugar refinery, mineral water and beverage packaging unit, port silos as well as a terminal for port unloading. Its products are in several countries, particularly in Europe, the Maghreb, the Middle East and Western Africa.

Biorefinery closes Kolmar acquires first biodiesel plant

uPont has closed its biorefinery in Vonore, which was built as a partnership with the state of Tennessee as part of a US$70.5M project to research and develop a biofuel industry in East Tennessee, USA. The ‘demonstration-scale’ 250,000 gallons/year biorefinery started as a joint initiative between DuPont Danisco Cellulosic Ethanol LLC and The University of Tennessee Research Foundation where DuPont researched ways to use crops such as switchgrass to make cellulosic ethanol. A DuPont statement said the company was closing the facility “in an effort to streamline operations.” “That core mission has been fulfilled as demonstrated by DuPont’s recently opened 30M gallons/year cellulosic ethanol facility in Nevada, Iowa,” the DuPont statement said.

he US unit of Swiss commodities trader Kolmar Group AG has bought a biodiesel plant in Connecticut, its first acquisition of a physical production asset, the company announced in January. The Greenleaf Biofuels LLC plant (pictured above), located in New Haven, will be renamed American Greenfuels, LLC. Kolmar trades petrochemicals, petroleum products and renewable

fuels, and company vice president Paul Teta said the acquisition would give it room to be a more significant biodiesel player even as an increasing number of producers sold their fuel directly. Kolmar Americas Inc is a major importer of biofuel and previously had a tolling arrangement with the Connecticut plant, which has a capacity of around 15M gallons. This was relatively small for the 2bn gallon US biodiesel market but the largest biodiesel plant in New England, Reuters said. “This is a very important acquisition for Kolmar. It is the first such acquisition in the company’s history, and it shows the deep commitment Kolmar has to Connecticut, the environment, the biodiesel industry in general, and to the employees at the plant, in particular,” said Kolmar Americas president Raf Aviner.

IN BRIEF BRAZIL: Cargill unit Black River Asset Management LLC was given the go-ahead in December to buy two sugar mills in the municipalities of Paraíso and Ubarana in the main sugarcane belt of Brazil’s São Paulo state. The approval by Brazil’s antitrust regulator CADE was posted in the country’s official gazette on 14 December, Reuters said, the first acquisition in the Brazilian sugar and ethanol sector involving a major commodities trader in several years. The mills can process around 3.8M tonnes/year of sugarcane and belong to Antonio Ruette Agroindustrial, which had been struggling to manage its debt load, Reuters said. Regina Ruette, vice president of the company, valued at some 700M reals (US$180M) including debt in September. PHILIPPINES: The Sugar Regulatory Administrator is expecting more ethanol production this year thanks to two new facilities coming online during the first quarter, reports Biofuels Digest. The Absolut Distillery and Emperador Distillery will both use molasses as feedstock. The 40M litres/year Cavite Biofuels Producer should also come online by the end of 2016 as well, bringing total installed capacity to 322M litres, enough to supply 80% of the country’s E10 blending mandate, the report said. In total, the three new plants would add 10M litres of production capacity.

3 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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NEWS

IN BRIEF BRAZIL: The country’s biodiesel production was set to go past the 4M m3 mark in 2015, growing by 85% on the year, reports SeeNews. The announcement was made in the 94th edition of the Renewable Fuels Bulletin, published by the Ministry of Mines and Energy on 6 January. The report said Brazilian production from the start of its 2015 harvest until October totalled 3.3M m3, 19.7% higher than the total volume for 2014. Its installed biodiesel capacity was 7.3M m3 in October 2015. Installed production capacity had increased 103% since the introduction of mandatory usage of biodiesel in 2008. URUGUAY: Alcoholes del Uruguay made the country’s first biofuel export with 100,000 litres of used cooking oil-based biodiesel destined for the Netherlands, Biofuels Digest reported on 29 December. The fuel was sold to Argos for US$750/tonne via the company’s Brazilian arm. The UCO was collected from the cities of Canelones, Maldonado and Montevideo via smart container systems and collection services. The report said the shipment followed an earlier announcement reducing the country’s biofuel blend volume to 5% for both ethanol and biodiesel from 10% and 7% respectively, despite the country having enough production capacity to meet the mandates. GERMANY: In December, the German Institute for Standardisation (DIN) published a standard for mixing biodiesel in percentages of up to 20% (B20) or 30% (B30) by volume, compared with the previous 7% maximum in the DIN EN 590 diesel fuel standard. The Union for the Promotion of Oil and Protein Plants (UFOP) said B20 and B30 could only be used in closed vehicle fleets and their application was therefore especially geared towards fleets in HGV traffic. “The use of B20 or B30 is an important fuel option for decarbonising HGV traffic in view of the extremely ambitious target as part of the 2050 climate change action plan of the federal government.”

IEA predicts 5% of transport fuel from renewable energy by 2040

he International Energy Agency (IEA) released its World Energy Outlook 2015 on 10 November and projects that by 2040, renewable energy will account for more than 5% of all transport fuel consumption if current government supports for blending are maintained. The World Energy Outlook 2015 looks at global energy trends to 2040 in the oil, natural gas, unconventional gas, coal, power and renewables markets, along with energy efficiency. Each sector is analysed under three scenarios, with current and new policies, as well as a more aggressive 450 Scenario resulting in greater greenhouse gas (GHG) reduction. In the new policies scenario, renewables meet some 35% of total growth in primary energy demand. “By 2040, renewable energy accounts for onethird of total electricity generation, one-sixth of heat demand and more than 5% of all transport fuel consumption,” the report said. The new policies scenario assumes that government support for biofuels through blending mandates generally persists. “Biofuel blending mandates are now in place in around 60 countries and, in the new policies scenario, demand for biofuels in transport is projected to triple over the outlook period, exceeding

four million barrels of oil equivalent per day (mboe/d) by 2040.” That would be up from 1.5 mboe/d today and would be 70% ethanol, with the remainder biodiesel. The report projects investments in biofuels supply will average US$15bn/year over the period, and remain concentrated in Brazil, the EU and USA, with some expansion in China and India. That figure will have plunged from the 2007 high of US$27bn. The 450 Scenario projects the impact of “much stronger policy interventions to address climate change [that] leads to a peak in oil demand by 2020,” the report said. Projections for world biofuels demand under the 450 Scenario call for 2.1 mb/d in 2020, rising to 9.4 mb/d in 2040. Under that scenario, by 2040, world oil demand drops to 74.1 mb/d. In 2013, the global biofuels share of total transport fuels was 3%. Under the different scenarios, current policies are projected to lead to biofuels rising to a 4% in 2025 and 5% in 2040. Under its new policies scenario, the 2025 projections at 4% is the same, but the 2040 projection rises to 6%. Under the more aggressive 450 Scenario, the 2025 projection is 7% and the 2040 projection is 18%.

Abengoa to sell off biofuels plants First US waste-to-

risis-ridden Abengoa presented a plan to its board on 25 January to sell its non-core assets, including all its first-generation biofuel plants, for some US$1.08bn as part of a restructuring to avoid bankruptcy, Biofuels Digest reports. The sale of Abengoa Bioenergy could be in three parts – Brazil, Europe and the USA – and possible offers had already been made from investment funds and a Brazilian investor, the report said. The Spanish renewable energy firm began insolvency proceedings on 23 November (see OFI Biofuel News, January 2016). Its preliminary bankruptcy protection period ends on 31 March. Ethanol Producer magazine said Abengoa had six first-generation ethanol plants in the USA and one cellulosic facility. It had five ethanol plants, one biodiesel plant and one cellulosic demonstration plant in Europe, and three ethanol plants in Brazil. Biofuels Digest said Abengoa would sell properties in Spain, Germany and the Middle East, including its headquarters in Seville, for around US$163M to pay off immediate debts as required by the bankruptcy court. It would also look to sell various energy, water and other installations located around the world for another US$1.3bn. Once the non-core assets had been sold, Abengoa would focus on engineering and construction activites.

solid fuel facility

n 6 January, Entsorga West Virginia LLC broke ground at its first waste-to-solid fuel facility in the USA, which is expected to be operational in early 2017. The joint venture of Apple Valley Waste Technologies LLC, Entsorga USA and Chemtex International was about six years in the making, partly because it was the first US plant of its kind, said Entsorga director Frank Celli. Entsorga WV will recover biomass, plastics and other carbon-based materials from mixed municipal solid waste using mechanical biological treatment technology to convert them into clean-burning solid recovered fuel. (SRF).

US biodiesel board challenges Argentine imports

he US National Biodiesel Board (NBB) has furthered its challenge against the Environmental Protection Agency’s (EPA) streamlined rules on Argentinian biodiesel imports by filing a legal brief with the US Court of Appeals on 12 January. In January 2015, the EPA approved an application to simplify the import process, submitted by CARBIO, the trade association representing Argentinian biodiesel producers. The approval allows a survey approach, instead of more rigorous map and track requirements, to

demonstrate compliance with the eligible renewable biomass and sustainability verification requirements of the Renewable Fuel Standard (RFS). The NBB filed an initial petition in December 2015 seeking court review of the EPA decision, citing the lack of a public comment period, the adequacy of the Argentinian plan, and the inability of the EPA to verify that the plan meets RFS requirements. The American Soybean Association said final briefs in the case were due in February, after which oral arguments would be scheduled.

4 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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NEWS

New Jersey man has been sentenced to 20 years in prison and ordered to pay more than US$56M in restitution for his role in a massive biodiesel fraud. The Justice Department said Joseph Furando took part in a years-long process to buy and resell biodiesel, claiming both the US$1/gallon federal tax credit for it and the valuable Renewable Identification Number (RIN) that fuel refiners use to prove they have complied with blending requirements. Furando and others made more than US$55M in profits at the expense of customers and taxpayers, prosecutors said. Furando’s co-defendants ran the Indiana-based e-Biofuels biodiesel manufacturing plant between 20072012. Some time in late 2009, Furando’s companies – Caravan Trading Ltd and Cima Green, began supplying e-Biofuels with biodiesel that was actually made by other companies and had already been used to claim tax credits and RINs. Because these incentives had already been claimed, Furando could buy the biodiesel at much lower prices. Furando supplied the cheaper biodiesel to e-Biofuels and his co-defendants would illegally re-certify the fuel and sell it at the much higher market price for B100, with RINs. Furando, his companies and e-Biofuels were ordered to pay US$56M in restitution jointly and severally.

Alaska Airlines buys Gevo bio-jet fuel

Groups sue EPA for lower RFS volumes S even biofuel and agriculture groups launched a legal challenge at the start of January against the Environmental Protection Agency (EPA)’s Renewal Fuel Standards (RFS) for 2014, 2015 and 2016. The groups representing biofuel manufacturers, corn and sorghum farmers are challenging the EPA’s authority to set volume requirements below original 2007 levels, said a Biotechnology Innovation Organization (BIO) spokesman. The EPA finalised its long-awaited RFS volumes for 2014, 2015 and 2016 in late November (see OFI Biofuels News, January 2016) after missing a series of deadlines for their announcement. The volumes disappointed biofuel groups,

which wanted more ambitious targets; and petroleum groups, which oppose higher blending requirements as they fight for market share amid sinking gasoline demand. The RFS originated with the Energy Policy Act of 2005 and was expanded by the Energy Independence and Security Act of 2007. As well as the BIO, the other petitioners are Americans for Clean Energy, American Coalition for Ethanol, Growth Energy, National Corn Growers Association, National Sorghum Producers and the Renewable Fuels Association. The American Fuel & Petrochemical Manufacturers (AFPM) group has filed a motion supporting the EPA volume requirements.

50 2015

Man gets 20 years’ jail for biodiesel fraud

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eattle-based Alaska Airlines (AA) has ordered 1,000 gallons of Gevo Inc’s bio-jet fuel to progress from demonstration flights to commercial use some time this year, reports the Denver Business Journal on 6 January. AA would be Gevo’s first commercial customer to use a significant amount of its bio-jet fuel in a commercial flight, Gevo vice president of regulatory affairs Glen Johnson said. Carol Sim, director of environmental affairs for AA, said parent company Alaska Air Group was looking at multiple biofuel possibilities and signed an agreement with Gevo because of the promise of its alcohol-based fuel technology. US-based Gevo uses a proprietary process to turn a range of plant products into iosobutanol, from which it can then make jet fuel. AA has not said what the blend rate will be, or how many flights the bio-jet fuel would be used for. The airline flies to Seattle from Denver International Airport and Colorado Springs. 3381_FM_Tonsil_128x185_en.indd 1 5 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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DIARY OF EVEN TS

23-25 February 2016 10th Annual FO Licht’s Sugar & Ethanol Asia VENUE: Sheraton Grande Sukhumvit Hotel, Thailand CONTACT: Informa Agra Customer Services, UK Tel: +44 (0) 20 3377 3658 Fax: +44 (0) 20 3377 3659 E-mail: registrations@agra-net.com Website: www.sugarethanolasia.com

9-11 March 2016 The Second International Biofuels Conference VENUE: Cartagena, Colombia CONTACT: National Biofuels Federation of Colombia Website: www.conferenciabiocombustibles. com.co

14-17 March 2016 World Bio Markets 2016 VENUE: Movenpick Hotel City Centre & Passenger Terminal, Amsterdam. The Netherlands CONTACT: Green Power Conferences, UK Tel: +44 (0) 207 099 0600 E-mail: info@greenpowerconferences.com Website: www.worldbiomarkets.com

13 April 2016 5th Annual EU Biofuels Seminar VENUE: Grand Hotel Kempinski, Geneva, Switzerland CONTACT: Baron Kootstra, Platts, UK Tel: +44 (0) 20 7176 3486 E-mail:baron.kootstra@platts.com Website: www.platts.com/events/emea/EUBiofuels/index

20-21 April 2016 6th Annual European Algae Biomass Summit VENUE: Berlin, Germany CONTACT: Dimitri Pavlyk, Active Communications International (ACI), UK Tel: +44 (0) 20 3141 0627 E-mail: dpavlyk@acieu.net Website: www.wplgroup.com/aci/event/ european-algae-biomass-conference-europe/

20-23 June 2016 International Fuel Ethanol Workshop & Expo VENUE: Wisconsin Center, Milwaukee, Wisconsin, USA CONTACT: BBI International, USA Tel: +1 866 746-8385 E-mail: service@bbiinternational.com Website: www.fuelethanolworkshop.com

For a full listing of oils and fats industry events, go to: www.ofimagazine.com

Four events in one at OFI India W ith the new OFI India 2016 event drawing close, packed business and technical programmes promise to inform and enlighten those interested in learning about the world’s largest edible oil importer. OFI India will be held at the Hyderabad International Convention Centre on 13-14 April and will feature four events in one:

t An international exhibition of suppliers, producers and processors (free to attend) t A business conference: ‘Fostering Market Growth and Facing Challenges in the Oils and Fats Industry’ (free to attend) t A Smart Short Course: ‘Oilseed and Oil Processing Technology Utilisation’ t Tour of CSIR-IICT (free to attend) The OFI India business conference will feature four modules covering global and regional issues impacting the oils and fats industry; drivers and challenges in the Indian and South Asian markets; geographical and feedstock issues impacting Indian markets; and applications and opportunities for oils and fats players. A parallel two-day Smart Short Course offers delegates the chance to meet and learn from international experts to discuss their current problems and enhance their product innovation and plant operations. On the eve of OFI India on 12 April, the Council of Scientific and Industrial Research – Indian Institute of Chemical Technology (CSIR-IICT) will also hold a tour of its cuttingedge R&D facilities. A wide rang eof international exhibitors have already booked or reserved stands at the OFI India exhibition including Andreotti Impianti SPA; Buhler (India) Pvt Ltd; Buss ChemTech AG; ChemTech International; C.M. Bernardini Srl; Crown Iron Works Company; Desmet Ballestra India Pvt Ltd;

DNR Process Solutions; Famsun Integrated Solution Provider; Ferro Oiltek Pvt Ltd; GEA Westfalia Separator India Private Ltd; HF Press + LipidTech, Harburg-Freudenberger Maschinenbau GmbH, Isotex Corporation Pvt Ltd; Kumar Metal Industries Pvt Ltd; Lipico Technologies Pte Ltd; Mectech Process Engineers Pvt Ltd; Muyang Co Ltd; Sharplex Filters (India) Pvt Ltd; United Engineering (Eastern) Corporation and TMCI Padovan. OFI India 2016 offers a unique opportunity to engage in serious debate, face-to-face networking and the chance to conduct business in one of the world’s fastest growing oils and fats market.

Book a stand! Exhibition & sponsorship Mark Winthrop-Wallace, Sales Manager E-mail: markww@quartzltd.com Tel: +44 (0) 1737 855 114 Anita Revis, Sales Consultant E-mail: anitarevis@quartzltd.com Tel: +44 (0) 1737 855 068 Nikunj Vishwakarma, India Sales Executive E-mail: nikunj@quartzltd.com Tel: +91 67351022; +93 73517070 Erik Heath, Chinese Sales Executive E-mail: erikheath@quartzltd.com Tel: +44 (0) 1737 855 108

21-22 June 2016

20-22 September 2016

Oleofuels 2016 VENUE: Exhibition Centre Liverpool, UK CONTACT: Stergios Zacharakis, Active Communications International (ACI), UK Tel: +44 (0) 20 3141 0609 Email: szacharakis@acieu.net Website: www.wplgroup.com/aci/event/ oleofuels

9th Biofuels International Conference VENUE: Ghent, Belgium CONTACT: Tracy Whitehead, Biofuels International, UK Tel: +44 (0) 20 8687 4138 Email: tracy@biofuels-news.com Website: www.biofuels-news.com/conference

26-29 June 2016 6th International Conference on Algal Biomass, Biofuels & Bioproducts VENUE: San Diego, USA CONTACT: Elsevier Conferences, UK Tel: +44 (0) 1865 84 3337 E-mail: n.clear@elsevier.com Website: www.algalbbb.com

8-11 November 2016 18th Annual FO Lichts World Ethanol & Biofuels VENUE: InterContinental Budapest CONTACT: Informa Agra Customer Services, UK Tel: +44 (0) 20 3377 3658 Fax: +44 (0) 20 3377 3659 E-mail: registrations@agra-net.com Website: www.worldethanolandbiofuel.com

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Although New Zealand currently generates 80% of its electricity from renewable resources, it imports 80% of the fossil fuel it uses to meet transport needs. The country could make use of unused hill country to meet transport fuel demand, according to a recent report in an International Energy Agency Bioenergy Task 39 newsletter

Opportunities for biofuels in N

ew Zealand is a geographically-isolated country with a land area of 269,190km2 (between that of Italy and the United Kingdom) but with a comparatively small population (4.47M). It has a temperate climate, with an export-focused economy highly dependent on agriculture, particularly dairy products, meat, wood, wood products, fruit and seafood. Consumer energy demand in New Zealand in 2014 was 573PJ, dominated by oil (44%) and electricity (25%) (see Figure 1, right). Of particular note: n Almost all of New Zealand’s fossil oil is imported, mainly (80%) to meet the country’s transport fuel needs. There are, however, also significant exports of unrefined crude oil (30% of total oil consumption) as these sweet crudes are not processed at New Zealand’s only oil refinery. Per-capita use of transport fuels is relatively high due to the country’s low population density and the nature of the economy. n A total of 80% of New Zealand’s electricity was generated from renewable resources in 2014, mainly using hydro (57%), geothermal (16%) and wind (5%). New Zealand is on track to meet the country’s target of 90% renewable electricity by 2025. n Bioenergy, mainly as woody biomass, is used primarily in the wood processing sector as a source of process heat, but a portion is also burnt to heat private homes. The largest opportunity for increased use of bioenergy in New Zealand is therefore as a replacement for imported fossil transport fuels, particularly diesel and aviation fuels where there are no current replacements for liquid fuels. There are also significant shorter-term opportunities to increase the use of bioenergy for commercial and industrial heat.

Bioenergy feedstock options Wood from plantation forests is the largest biomass resource in New Zealand and also the one with the most potential to expand to allow large-scale biofuels production. While existing residual biomass resources offer an attractive and potentially lowcost feedstock for biofuel production, they could only ever provide 6% of the country’s total transport fuel demand, meaning purpose-grown feedstocks would be required for high levels of biofuels implementation.

NEW ZEALAND’S PLANTATION FOREST ESTATE IS COMPOSED LARGELY OF RADIATA PINE (PICTURED) AND WOOD THE PROCESSING INDUSTRY PROVIDES A STR

New Zealand could sustainably supply all its transport fuel demand by 2030 from forests grown on lower productivity land. There is 9.2M ha of hill country that is either marginal land, or low to moderate productivity hill country grazing, and converting just 30% of this land to forests would be sufficient to meet the country’s total transport fuel demand while still retaining the higher-value flat land for food production. Such large-scale forestry for bioenergy will also have significant economic and environmental benefits. New Zealand already has a well-established plantation forest estate and wood processing industry, providing a strong base to grow a future biofuel and biochemicals industry. The forest estate, totalling approximately 1.73M ha, is composed largely of radiata pine (Pinus radiata, ~90%, grown on a rotation of 25-30 years) and Douglas fir (6%, 40-45 year rotation).

Bioenergy strategy The New Zealand Bioenergy Strategy, developed jointly by the New Zealand forestry and bioenergy sectors, envisions bioenergy supplying more than 25% of the country’s consumer energy needs by

2040, including 30% of the country’s transport fuels (see Table 1, following page). Plantation forests are seen to be the main feedstock for this expansion, building on the strong existing forestry sector, although biofuels from agricultural sourced materials, algae and municipal and industrial process residues will also be important. A preliminary macro-economic analysis of the scenario proposed in the NZ Bioenergy Strategy has provided support for a prima facie case that expansion of the bioenergy sector has the potential to yield significant positive economic, environmental and social benefits for the country. These benefits are significantly greater if coproducts are also produced.

Support for biofuel production New Zealand currently provides only limited government incentives to encourage biofuel implementation, with neither a mandate nor any target for biofuel use in place. This may change in the future, depending on the political climate and greenhouse gas (GHG) reduction targets. Currently, fuel ethanol (including imported bioethanol) is exempt from excise duty, providing

8 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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s in New Zealand PHOTO: NZGMW/DOLLARPHOTOCLUB

USTRY PROVIDES A STRONG BASE FOR A FUTURE BIOFUEL AND BIOCHEMICAL INDUSTRY

some incentive for its use in transport fuels. On top of this, the New Zealand Emissions Trading Scheme zero-rates the biofuel component of any transport fuel. In practice the latter has had little impact, due to the low prices for carbon (NZ Units) and the fact that only half of the emissions from transport fuels incur a carbon price. The New Zealand Energy Strategy, which sets the strategic direction for the energy sector, recognises biomass as a resource having considerable potential, and indicates that the government will encourage biomass-to-energy developments.

Greenhouse gas emissions New Zealand’s GHG emissions are dominated by emissions from the agricultural (48%) and energy (39%) sectors. The high proportion of emissions from the agricultural sector, mostly as methane and nitrous oxide, reflects the country’s high level of agricultural production. In spite of improvements in emissions intensity, New Zealand’s total GHG emissions (81M tonnes CO2-e in 2013) have increased by 21.3% over 1990 levels, while energy sector emissions have grown by 32%. This has been largely driven by strong

economic and population growth. Liquid fuel combustion emissions, driven by the transport sector, have increased by 50% over 1990 levels and are now responsible for over 55% of the total energy sector emissions. Liquid transport biofuels therefore represent one of the few options to significantly reduce the country’s emissions, as New Zealand already has a high proportion of renewable electricity, a growing population and almost half the country’s emissions come from agriculture where ways to significantly reduce emissions without reducing production are not yet available.

The University of Auckland’s biofuels research has focussed mainly on the conversion of waste products into biofuels, including: n Upgrading of low-grade tallow and used vegetable oil to esterify the free fatty acid impurities with glycerol, making them easier to convert into biodiesel n Development of a fast reactor for biodiesel production, capable of reducing the reaction time to a few seconds n Production of oil and chemicals by pyrolysis of waste plastic, including using microwave pyrolysis.

Conventional biofuel production

The University of Canterbury’s research has focused on the development of thermochemical technologies to convert woody biomass to liquid biofuels. This has included work on steam gasification of biomass, including development of a 100 kWth dual fluidised bed gasifier, two lab-scale reactors for removal of tars and gas contaminants from biomass gasification producer gas and construction of a micro-channel Fischer-Tropsch (FT) reactor for synthesis of liquid fuels from woodderived producer gas. More recent research has focused on producing high-grade liquid fuels by biomass pretreatment followed by fast pyrolysis. GNS Science is the leading earth sciences provider in New Zealand. GNS specialises in the enrichment and isolation of novel microorganisms v

The production of conventional biofuels is already well established in New Zealand. However, biofuel use remains low compared to many other countries (<0.1% of total transportation energy), reflecting the low level of government incentives. An estimated 4.2M litres of conventional biofuels were produced in New Zealand in 2014, mainly as ethanol from whey and biodiesel from tallow and used cooking oils (see Figure 2, following page). Total biofuel consumption was 5.7M litres in 2014, including imports of a further 1.5M litres of bioethanol. Biodiesel production levels still remain well below those reached when the biodiesel grants scheme was in place, but have increased over 2013 levels. The largest current domestic producer is Green Fuels, which produces biodiesel from recycled vegetable oil. Biodiesel production is set to rise further next year, with fuel distributor Z Energy constructing a 20M litre/year plant to produce biodiesel (B100) from tallow for sale to commercial customers. It has been estimated that New Zealand produces sufficient tallow to produce up to around 5% of the country’s diesel fuel needs. Bioethanol is currently produced by Anchor Ethanol Ltd at three dairy factories by fermentation of whey, a cheese by-product. Interestingly, a local brewery has developed a process to strip ethanol from the yeast slurry, a by-product of the beer brewing process, and then distill it to produce bioethanol. This bioethanol, available in quite limited amounts, is blended with fossil petroleum to create a transport fuel marketed as ‘DB Export Brewtroleum’.

FIGURE 1: CONSUMER ENERGY USE IN NEW ZEALAND IN 2014

Research and development activity A number of New Zealand universities and research institutes are actively involved in biofuels research.

Source: Bioenergy Newsletter August 2015

TABLE 1: IMPACT OF IMPLEMENTATION OF THE NEW ZEALAND BIOENERGY STRATEGY Biofuels Biofuels plus coproductsa Bioenergy sector production (PJ)

162.3

GHG savings (CO2-e, M tonnes)

10.8

Difference from business-as-usual GDP (2010 NZ$bn)

6.09b

6.30

Trade balance (2010 NZ$M)

1,942

2,037

Employment (000s) 27c a Assumes an additional export revenue equal to 10% of bioenergy production b New Zealand’s GDP in the year to December 2014 was NZ$240bn c Approximately 1.1% of national employment

Source: Bioenergy Newsletter August 2015

9 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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FIGURE 2: BIOFUEL PRODUCTION IN NEW ZEALAND

Source: Bioenergy Newsletter August 2015

n Thermochemical technologies for converting wood to liquid fuels and chemicals n Wood-based biorefinery co-products – extractives, lignin and hemicelluloses n Woody biomass feedstock supply and growing plantation forests for energy production n Defining the best options for biofuel deployment in New Zealand n Opportunities to integrate bioenergy production into existing wood processing sites, including synergies between geothermal energy and wood processing. In this case Scion is collaborating with the University of Waikato and GNS Science.

Commercial developments LanzaTech, founded in 2005 in New Zealand, has developed a gaseous feedstock-based fermentation

This feature is republished with permission from the IEA Bioenergy Task 39 August 2015 Newsletter. See www.task39.org for more information. WWW.DBEXPORTBEER.CO.NZ

from New Zealand’s geothermal areas. Since 2007, it has focused on bioprospecting for novel cellulolytic and thermotolerant bacteria and enzymes that could be used to increase the rate of cellulose degradation, and improve biofuel production. One option to produce algal biomass for use as a biofuel feedstock, potentially already economically viable today, is to grow and harvest algae produced as part of the operation of wastewater treatment pond systems. Over the last 20 years, the National Institute of Water and Atmospheric Research (NIWA) has maintained a research programme involving laboratory, pilot-scale and full-scale studies to address the major issues limiting the widespread application of wastewater algae production and biofuel conversion. NIWA is currently operating a demonstration enhanced pond system containing two full-scale 1ha high rate algal ponds (HRAP), and including the largest wastewater treatment HRAPs augmented with CO2 addition in the world. This system will enable actual measurement of the hydrodynamics of hectare-scale ponds, demonstrate the performance improvements with CO2 addition and provide large quantities of algal biomass for further algal biofuels research, currently being conducted in collaboration with The University of Auckland. Scion is a government-owned research institute, focused on improving the international competitiveness of the New Zealand forest industry and building a stronger bio-based economy. This includes a range of bioenergy and biorefinery research and development activities across the whole value chain from resource establishment through to product development. Areas of focus include: n Biochemical routes for converting softwoods to biofuels and chemicals, focusing particularly on pretreatment, saccharification and fermentation of the resultant sugars to biochemicals and bioplastics

process to take carbon-rich waste gases (containing carbon monoxide, carbon dioxide and/or hydrogen) from sources like steel mill chimneys to convert them into biofuels like ethanol or green chemicals such as 2,3-butanediol. It has successfully scaled up its gas feedstock fermentation process from the laboratory through a pilot plant at the Glenbrook Steel Mill south of Auckland, on to two precommercial scale demonstration plants (100,000 gallons/year ethanol) in China, and is now looking to build its first commercial-scale ethanol plant in China. The company has recently relocated to Chicago in the USA. Alternative Energy Solutions has a demonstration pyrolysis plant which turns waste wood into bio-oil and biochar. This company proposes building small bio-oil plants near to where waste wood is produced, cutting transport costs and providing distributed power for rural and provincial communities. CarbonScape has developed a technology that uses microwave heating of waste biomass such as sawdust to produce activated carbon products suitable for adsorbent applications or steel-making, together with a bio-oil targeted towards end uses such as heating and higher value pharmaceutical and cosmetic products. Christchurch company Solvent Rescue Ltd has developed processes for producing crude oils via hydrothermal liquefaction of a range of biomass sources including fresh water algae, wood, woolscouring waste and treated wood waste after first removing the wood treatment chemicals (copper, chrome and arsenic). Newsprint manufacturer Norske Skog and fuel distributor Z Energy have recently completed their Stump to Pump study to determine the technical and commercial feasibility of establishing a business in New Zealand to convert forest waste into a sustainable liquid transport fuel biofuels. The partners concluded that sufficient forestry residues exist to support such an industry and that a technically feasible path exists to convert forestry residues to liquid fuels. However, they have put this project on hold until economic conditions for it are w more favourable.

DB EXPORT BREWTROLEUM PRODUCE BIOETHANOL USING BY-PRODUCTS FROM THE BEER BREWING PROCESS

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Cultivating a renewable W future

hile the biodiesel industry in Indonesia has grown dramatically since 2006, ineffective policies and insufficient supply chain infrastructure have caused biodiesel use to fall far short of aggressive goals and the nascent fuel ethanol market to completely disappear. Regulations issued in 2015 introduced a new support scheme and pricing formula for biodiesel and new biofuel mandates, changes which are expected to spur further growth for biodiesel. At the same time, low petroleum prices have weakened foreign demand for biodiesel and are slowing Indonesian exports. In a few short years, the biodiesel economy has shifted from export driven, to one driven by domestic demand. No changes in the fuel ethanol market are foreseen through 2016.

Policy and programmes New plantation fund Indonesia has created a new funding mechanism for its biofuels subsidy. The new programme will impose a levy on palm oil exports and is expected to provide a stable funding source for biofuel subsidies, thereby increasing domestic biodiesel consumption (see GAIN ID 1420). The levy was implemented on 16 July 2015 and was established by regulations 24/2015 and 61/2015, which created a “plantation fund” paid for by a levy on palm oil exports. According to regulation 61, the fund will be used for the procurement and utilisation of biodiesel in order to fill the gap between the market index price of conventional diesel and the market index price of biodiesel. The fund will be collected at a rate of US$50/tonne of CPO and US$20 to $30/ tonne of processed palm oil products. The fund will be managed by a public service agency (CPO fund agency) appointed by the Ministry of Finance (MOF). If the levy generates sufficient revenue to bridge the gap between fossil fuels and biodiesel prices, the Jakarta Post expects that the levy will have significant implications for the Indonesian palm oil and biodiesel industries. CPO production, which continues to grow, will face increased demand from domestic biodiesel producers. As a result, CPO stocks are expected to moderate. The Indonesian Palm Oil Association (GAPKI) also suggests that CPO exports may soften slightly due to higher fob export prices resulting from the levy.

PHOTO: DOLPHFYN/DOLLARPHOTOCLUB.COM

Indonesia’s biodiesel industry is founded on its strong crude palm oil production. However, policies, mandates and funding programmes need to be updated or established to spur further growth

Revisions to reference price Indonesian biodiesel producers incurred heavy losses following the 2014 drop in crude oil prices. This led to the abandonment of previous subsidy programmes in February 2015 and the enactment of a new biofuels price index formula in March 2015 through the Ministry of Energy and Mineral Resources (MEMR) Regulation 726/2015. Previously, Indonesia’s biodiesel reference price was based on the Mean of Platts Singapore (MOPS) price. According to MEMR 726, the MOPS price has been replaced by the current market price of CPO. The new price formula covers biodiesel production costs and a 3% margin. The Government of Indonesia

(GOI) expects the new biofuels price index formula to more accurately reflect market dynamics. The Jakarta Post notes that revisions to the reference price were ongoing throughout 2015, and as a result, biofuel subsidies have not been provided for most of the calendar year. The reference price formula is critical in determining the size of the payment subsidy to bridge the gap between biodiesel and diesel, and therefore critical to meeting the new mandates. With the implementation of the palm oil levy in July 2015, the Indonesian Biofuel Producers Association expected that the subsidy would be fully implemented in September at a 15% blend rate. However, by November, compliance was still reported to be low. Policy background Indonesian biofuels policy is governed by a number of regulations and decrees. Government regulation 1/2006 was an important first step for the development of biofuels in Indonesia. The regulation governs the acceleration of the procurement and usage of biofuels. In support of Regulation 1, Presidential decree 20/2006 established a National Biofuels Development Team, which supervises biofuel implementation programmes and has created a blueprint for biofuels development. According to the blueprint, biofuels development aims to: 1. Alleviate poverty and unemployment 2. Drive economic activities through biofuel procurement and 3. Reduce domestic fossil fuel consumption. This was followed by Indonesia’s House of Representative (DPR), which passed Energy Law (UU 30/2007) to strengthen regulations prioritising the use of renewable energy and biofuels. In 2008, the GOI created a biofuel blending mandate through MEMR Regulation 32. The blending mandate regulation has been revised several times, most recently through MEMR Regulation 12, released in March 2015. This regulation increased mandatory biodiesel blending from 10% to 15% for transportation and industrial uses. Regulation 12 also increased mandatory blending to 25% for electricity generation as of April 2015. The GOI expects that domestic CPO consumption will increase by 3.5M kilolitres (equal to 2.9M tonnes), resulting in an estimated 15% reduction of diesel imports. Indonesia’s biodiesel mandates have been aggressive historically. In 2014, blending rates were set at 10% for 2014 and 2015. 2015 rates were revised up to 15% as per MEMR regulation 12/2015 (see Table 2, following page). Interestingly, historic data shows that while Indonesia’s biofuel consumption has grown swiftly, they have yet to reach their blending mandates (see Table 1, following page). Industry sources confirm that blending has remained below target due to supply shortages, caused by infrastructure weaknesses and funding shortfalls for subsidies. The Jakarta Post notes, however, that necessary infrastructure, such as blending facilities and storage tanks, is coming online. Additionally, the April 2015 levy is expected to provide a regular funding stream that will maintain biodiesel’s competitiveness, even in the face of low global fossil fuel prices. As a result, the industry is hopeful that B15 biodiesel should become common in v

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WHY ATTEND? Network with local and international suppliers under one roof Meet with new contacts face-to-face including world leaders in their field Source the latest products and services on the market Discuss and debate the latest industry developments and innovations Learn from experts by attending the conference sessions Take a tour of the CSIR-IICT facilities

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v Indonesia’s major population centres – including Java, Sumatra, Kalimantan and Sulawesi over the next two years. Expansion into the outlying eastern islands will continue to be hindered by distribution challenges. Blending mandate regulations define the minimum biofuel quantity used in each end use category for the certain period of year. Table 2 (below) shows GOI plans to increase the percentage use of biodiesel in total diesel consumption up to 2025. This new target required at least 4.86bn litres of biodiesel to be blended in the transportation sector from July 2015 to July 2016. The GOI’s ethanol mandatory schedule is shown in Table 3 (following page). The Jakarta Post notes that subsidies are only being implemented for transportation sector biodiesel. Given the lack of ethanol infrastructure, feedstock supply gaps, and the general focus on diesel, the GOI is unlikely to pursue ethanol blending. Table 4 (following page) shows the GOI’s revisions to biodiesel mandatory blending targets between 2014 and 2015. Note that there is no change to mandatory biodiesel blending for the electricity generation sector. Fuel consumption & outlook Recent gasoline, diesel and jet fuel consumption show mixed trends. Indonesian gasoline consumption has increased by 1.6bn litres since 2012 and jet fuel has increased 300M litres. Diesel consumption decreased during the same period (see Figure 1, right). Total fuel consumption, including diesel, gasoline, jet fuel, and other fuel products have declined overall from 72.3bn litres in 2012 to 70.7bn litres in 2014. MEMR officials have cited a slowing global economy as the impetus for decreased fuel consumption. Indonesian fuel consumption was forecast to reach 119bn litres by 2025 (see Table 5, following page). Gasoline and diesel are expected to make up about 48% and 41% respectively, with the remainder being made up by jet and other fuel products. Diesel consumption is primarily focused in the transportation sector (road, rail and shipping). Indonesia has no specific regulation on biofuel sustainability. There are, however, sustainability criteria for biodiesel feedstock (palm oil plantations) through the Indonesia Sustainable Palm Oil (ISPO) scheme. The ISPO scheme covers greenhouse gas (GHG) emissions (including methane capture), land use, biodiversity and labour. Some oil palm companies are recognised by the Roundtable on Sustainable Palm Oil (RSPO) as participants in the international sustainability scheme. The GOI has set biofuel quality standards (SNI) through the Directorate General of New and Renewable Energy (DGNRE) decree 723 for biodiesel (SNI 7182:2012) and DGNRE decree no 722 for bioethanol (SNI 7390:2012). Another SNI for pure plant oil has been enacted through DGNRE decree no 903 (SNI 7431:2008).

but was minimal and primarily intended for export. In June 2015, state-owned company PT Enero (a subsidiary of state-owned Company PTPN X) moved towards an agreement to produce fuel ethanol for Pertamina. The Jakarta Post notes that this agreement is not yet finalised and there is no indication that it will bring significant change to the fuel market. In September 2015 it was reported that PT Enero was complaining that Pertamina had still not fulfilled its promise to buy PT Enero’s ethanol. Given these factors, the Jakarta Post expects fuel ethanol production will remain extremely limited through 2016 with no domestic consumption, and production of ethanol for other industrial chemicals will remain small but continue growing. Indonesia is expected to produce 230M litres of ethanol for use in non-fuel, other industrial chemicals for domestic use or export in 2015 and 2016, slightly greater than the 220M litres in 2014. MEMR sources cite nine fuel ethanol plants in Indonesia but industry sources state there are only two fuel ethanol plants. The Jakarta Post believes some of the fuel facilities are either idle or have switched to the production of other industrial chemicals. The Jakarta Post estimates there are currently two fuel ethanol plants and 18 plants producing ethanol for other non-beverage uses which use just over half of

their combined production capacity. Consumption Gasoline has made up approximately 47% of Indonesia’s total fuel consumption for the last three years. Under the past mandatory biofuel programme, the blend goal for ethanol was 1% to 2%. However, the blend average has never exceeded 1/100th of 1% of the total gasoline supply. The growing demand of industrial grade ethanol produced in Indonesia is intended for pharmacy and chemical solvent producers. Trade There was very limited export of fuel ethanol in 2014. About 90% of industrial grade exports were sent to Japan and Philippines in 2014. The Jakarta Post estimated that exports of non-fuel industrial grade ethanol would increase about 7% to 78M litres by the end of 2015. Stock The Jakarta Post expected ethanol stocks to reach 75M litres in 2015 and 78M litres in 2016.

Biodiesel Indonesian biodiesel production was founded on the country’s strong position as a palm oil producer v

TABLE 1: INDONESIAN BIODIESEL MANDATORY TARGETS/DOMESTIC CONSUMPTION (M LITRES) 2010

2011

2012

2013

2014

Mandatory target

1,076

1,297

1,641

2,017

4,000

Domestic consumption

220

258

670

1,048

1,600

Percent of target achieved

20%

28%

41%

52%

40%

TABLE 2: INDONESIAN BIODIESEL MANDATORY TARGETS AS STATED IN REGULATION 12/2015 Sector

April 2015

2016

2020

2025

Transportation, Public Service Obligation (PSO)

15%

20%

30%

Transportation, Non-PSO

15%

20%

30%

Industry

15%

20%

30%

Electricity

25%

30%

FIGURE 1: INDONESIA FUEL CONSUMPTION 2012-2014 (BN LITRES) 34.3

34.1 30.9

30.5

29.3

32.7

Ethanol Production The Indonesian bioethanol programme ended in 2010. Fuel ethanol producers indicate that Pertamina’s purchase pricing scheme was insufficient, and as a result, Indonesia’s domestic fuel ethanol market never developed. Fuel grade ethanol production occurred in 2014 and 2015,

3.9

4.2

3.4

Diesel

4.2

2.9

2014

2013

2012 Gasoline

3.2

Jet fuel

Other fuel

SOURCE, ALL TABLES: USDA GAIN REPORT 2015, INDONESIA

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and European demand for biodiesel. Eighty percent of production was shipped overseas (mostly to Europe) as recently as 2009, but the importance of exports has since diminished. Following fossil fuel price rises a decade ago, the GOI started encouraging domestic biodiesel consumption. These policies were slow to catch on due to the cost competitiveness of fossil fuels compared to Indonesian palm-based biodiesel. More recently, biodiesel consumption started to pick up as incentives have been developed. However, this growth has fallen short of targets, notably due to infrastructure shortcomings and funding issues for incentive programmes. Throughout most of 2015, biodiesel was not blended for on-road transportation due to funding shortfalls. If Indonesia’s new biofuels policy is effective, Indonesian consumption will be poised to make a significant jump. Sales to traditional export markets are expected to remain far below recent years due to competition from lower-priced fossil fuels and an export levy imposed on Indonesian palm oil products.

reports plans to increase the installed capacity of biodiesel refineries by 340-680M litres in 2016. The Jakarta Post notes that although there are early concerns that a severe El Niño in Indonesia may drive down CPO production in 2016, producer’s long-term perspective is bullish, and are bolstered by ample CPO stocks. Indonesian biodiesel production capacity remains under-utilised. The recent implementation of the Plantation Fund levy is expected to pick up production, as it will introduce a new funding stream to support biodiesel consumption in Indonesia. The effectiveness of the levy was expected to become more apparent in late 2015 and early 2016 following blending subsidies being reinstituted in September, after being stopped in February 2015. Based on the drop-off of exports and the lack of blending funding throughout most of 2015, the Jakarta Post revised its 2015 production number down to 1.6bn litres. Production may be further spurred in the event of rising fossil fuel prices, which will support export sales as well as contribute to biodiesel’s competitiveness in Indonesia.

Production Biodiesel production in 2015 dropped precipitously and estimated capacity use has fallen to 24% due to lagging export demand and issues implementing biodiesel blending subsidies for transportation. Producers remain optimistic nonetheless, noting that there are abundant CPO stocks, an increase from a 10% to 15% mandatory blending rate, and the creation of the new Plantation Fund. As a result of this optimism, blending capacity continues to rise. At least one major plantation owner also

Consumption The new biofuels mandatory programme is expected to increase domestic biodiesel consumption. Under the regulation, the targeted blending rate for the transportation and industrial sectors was increased from 10% to 15% as of April 2015. Some concern has been raised by industry associations and local electric company PLN regarding the 25% targeted blending rate for electricity, noting that the mandated blend rate exceeds the capacity of their generators. Industry groups note, however, that

TABLE 3: INDONESIAN BIOETHANOL MANDATORY TARGETS AS STATED IN REGULATION 12/2015 Bioethanol (minimum) Sector

April 2015

2016

2020

2025

Transportation, Public Service Obligation (PSO)

20%

Transportation, Non-PSO

10%

20%

Industry

10%

20%

TABLE 4: COMPARISON VIEW OF BIODIESEL MANDATORY TARGET REGULATION Regulation 20/2014

Biodiesel

Regulation 12/2015

2015

2016

2020

2025

2015

2016

2020

2025

Transportation, PSO

10%

20%

30%

15%

20%

30%

Transportation, Non-PSO

10%

20%

30%

15%

20%

30%

Industry

10%

20%

30%

15%

20%

30%

Electricity

25%

30%

25%

30%

TABLE 5: INDONESIA, FUEL USE PROJECTIONS (BN LITRES), 2016-2025 Calendar year

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

Gasoline total

33.00 35.00 37.00 39.00 42.00 45.00 48.00 51.00 54.00 57.40

Diesel total

32.40 34.00 35.70 37.50 39.40 41.50 43.40 45.10 47.10 49.20

On-road and off-road

24.90 26.51 28.24 30.07 32.03 34.11 36.07 37.73 39.47 41.28

Industry

6.88

6.90

6.93

6.95

6.96

6.98

7.00

7.02

7.30

7.60

0.37

0.35

0.33

0.32

Heating

0.59

0.50

0.52

0.47

0.44

0.41

Jet fuel total

6.70

7.20

7.80

8.50

9.10

9.90 10.70 11.60 12.40 13.20

Total fuel markets

72.1

76.2

80.5

84.9

90.6

96.4 102.1 107.7 113.5 119.8

SOURCE: USDA GAIN REPORT 2015, INDONESIA

mandatory blending for electricity generation is not currently supported by a subsidy, leaving little possibility for expansion of biodiesel consumption in this sector. The GOI was targeting about 3.84bn litres of biodiesel to be blended into diesel for transport in 2015. However, it was predicted that Indonesia would fall far short of its target due to delays in subsidy implementation. A more reasonable consumption estimate for 2015 is 1.45bn litres. If Indonesia continues on track with its blending mandate, it could consume 2.7bn litres in 2016, achieving an overall blending rate of 10.3% in 2016. The Jakarta Post notes that blending for the transportation sector will remain focused on major population centres such Java and Sumatra, due to its proximity to blending facilities and high consumer concentrations. Outlying regions of Indonesia, particularly in the east, are expected to linger on biodiesel adoption due to logistical challenges such as a lack of blending capacity and sparse distribution networks. Despite these shortfalls, the expansion of Indonesian biofuel blending will be amongst the highest in the world, with the potential for continued growth. Trade Biodiesel exports fell sharply in the first five months of 2015. EU imports of Indonesian biodiesel were significant from 2010 through 2012, following antidumping duties placed on US biodiesel. EU imports from Indonesia, however, fell sharply in 2013 and virtually ceased thereafter, following anti-dumping duties that were also enforced on Indonesia. In contrast, exports to China picked up following the elimination of its tax on biodiesel imports. In 2015, however, Indonesian exports to China dropped off considerably in the face of low fossil fuel prices. The addition of the GOI’s plantation fund, which will levy US$20/tonne on biodiesel exports, will reduce the price competitiveness of exports reducing export prospects further. January to May 2015 trade data set Indonesian biodiesel exports at 111M litres. The Jakarta Post estimated that exports would reach 150M litres by the end of calendar year 2015, while 2016 exports will reach 100M litres. Stocks Indonesian biodiesel stocks remain stable and low. The decline of biodiesel production in 2015 helped maintain low stocks, while the increase in 2016 consumption is expected to keep stock at a consistent level.

Advanced biofuels Local research on second-generation biofuels is being conducted by Indonesia’s Institute of Science (LIPI). Researchers are looking into empty fresh fruit bunches, a palm oil plantation waste product. LIPI research reports that raw material costs for bunches was advantageous over cassava, but that overall costs of production remained higher due to w greater technological burdens. This feature is extracted from a United States Department of Agriculture (USDA) Global Agricultural Information Network (GAIN) report published on 31 July 2015, titled ‘Indonesia: Biofuels Annual 2015’

16 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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The road to renewable fuel Australia currently produces ethanol and biodiesel from a range of waste products and, although it is working on technology to produce second-generation biofuel from lignocellulose or algae, there is currently no commerical production in the country

n Australia, first generation biofuels are produced primarily from molasses and wheat starch and there is no commercial production of second-generation biofuels. In 2015, biofuel production capacity in Australia was 740M litres consisting of 440M litres of ethanol production capacity and 300M litres for biodiesel/year. Australian biofuels total production for 2015 was estimated at 330M litres, comprised of 265M litres of ethanol and 65M litres of biodiesel. Production of ethanol is stable but biodiesel output has been more variable. The main measure supporting the industry is an excise on biofuels that is levied on both local production and imports of ethanol. Changes to assistance to the biofuels industry were announced in the 2014 federal budget and in subsequent statements. Under these changes, the excise rebate for local production of ethanol is being phased down by mid-2016 while imports of biodiesel were no longer eligible for the excise rebate from mid2015. Further support for biofuels is provided from the New South Wales (NSW) government mandate, which specifies that the oil distribution industry must include ethanol in the mix of available fuels.

Policy and programmes International Australia is a member of the Asia-Pacific Economic Cooperation (APEC) biofuels task force; an international grouping of countries seeking to make biofuels a more viable and sustainable transport fuel. Other members include Brazil, Canada, Japan, Malaysia, Mexico, New Zealand, Singapore, Taiwan, Thailand, the United States and Vietnam. Bioenergy Australia is active in the International Energy Agency’s Bioenergy group and Australia is participating in the development of ISO sustainability criteria for bioenergy. Renewable energy target The government has set a national target for 20% of electricity to be sourced from renewable sources by 2020. The primary mechanism for achieving this target is the Renewable Energy Target (RET), which will require an additional 45,000 GWh (162 PJ)/year of renewable energy by 2020, applying until 2030. The RET operates through the creation and surrender of Renewable Energy Certificates, each certificate being for one MWh of compliant renewable energy. Under the scheme, energy retailers and large energy users must purchase a proportion of their energy requirements from renewable energy sources. In June 2015, the government announced a reduction in the RET from 41,000 GWh to 33,000 GWh for large-scale renewable energy generation in Australia by 2020. The RET was also amended to

reinstate biomass from native forest wood waste as an eligible source of renewable energy, including the same safeguards that were in place prior to removal of this source from eligibility in late 2011. The RET is administered by the Federal Government’s Office of the Clean Energy Regulator. Fuel quality standards Federal government regulations apply to the quality of petrol and diesel fuel. The Fuel Quality Standards Act 2000 provides a legislative framework for setting national fuel quality and fuel quality information standards. Fuel quality standards apply to petrol, diesel, biodiesel, autogas and ethanol E85. The standards were implemented to reduce the amount of toxic pollutants in vehicle emissions. A fuel quality information labelling standard covers ethanol (in petrol) and ethanol E85. Under the fuel standard for E10, suppliers who supply petrol containing ethanol must comply with the Fuel Quality Information Standard (Ethanol) Determination 2003 (labelling standard) to inform consumers that the fuel contains ethanol. The government capped the level of ethanol that can be added to petrol at 10% in July 2003 after vehicle testing showed blends of 20% or more could cause engine problems in some older vehicles. A requirement to label ethanol blend petrol was introduced on 1 March 2004 and amended in January 2006 to simplify the labelling standard. Under the Fuel Quality for Ethanol-e85 (a fuel blend of 70-85% ethanol with the remainder petrol), the fuel may only be used in cars that have been specifically built or modified to use E85. The Fuel Quality Standard for Biodiesel defines biodiesel as ‘a diesel fuel obtained by esterification of oil derived from plants or animals’. Fuel taxes Imports of petroleum products attract a customs duty equivalent to the excise on domestically refined products. Petroleum refiners and independent fuel wholesalers account for the bulk of imports, which they on sell to service station operators. No nontariff barriers apply to petroleum product imports. The fuel retailing industry does not receive any government subsidies or grants. Industry products attract an excise duty at varying rates, and Goods & Services Tax (GST) on pump prices. Excise on regular unleaded petroleum is currently set at a constant 38.14 cents/litre. In addition to collecting GST on behalf of the Federal Government, service station owners also pay tax on services and products purchased. In June 2015, fuel excise indexation was reintroduced to take account of inflation. Under this change, the fuel excise will increase twice a year, in February and August, in line with movements of the Consumer Price Index. The first increase occurred

in November 2014. All excise increases will be dedicated to road infrastructure. NSW ethanol supply mandate The NSW government has a legislated ethanol supply mandate of 6% for wholesale companies and a requirement for retailers with 20 or more outlets to offer ethanol product for sale. Currently, only 4% has been reached. The NSW Biofuels Act 2007 facilitated a roll-out of retail and distribution infrastructure which has allowed wider distribution of ethanol fuels. Most of the fuel ethanol produced by the three Australian producers is sold on the NSW market as E10 blend petrol. In 2013, the market shares of fuels offered in the NSW market was Premium Unleaded Petrol (PUP) at 40%, E10 at 40% and Unleaded Petrol (ULP) at 20%. Ethanol-blended petrol has to be widely available in the state, 6% of total petrol sold must be ethanol. In 2012, the NSW government removed the requirement for all regular grade unleaded petrol to be E10. In practice, the small price difference between regular unleaded petrol and E10 has reduced the volume of E10 sold in the state to around 3-4% of fuels sold at service stations. In July 2015, the Independent Regulatory and Pricing Tribunal was asked to review the ethanol mandate. Queensland government support for biofuels The Queensland Government Ethanol Industry Action Plan 2005-2007 included a commitment of A$7M to fund the conversion of service stations for ethanol blends, distribution and blending infrastructure, and committed to mandating ethanol sales at fuel retailers. The number of service stations in Queensland retailing ethanol blended fuels rose from 47 in 2005 to over 550 in June 2010.

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PHOTO: OLGA GALUSHKO/DOLLARPHOTOCLUB

full excise reimbursement to producers for ethanol produced and supplied for transport use in Australia from locally derived feedstock. Prior to the 2014 Budget, ethanol fuel was subject to an excise of 38.143 cents/litre on users. The EPG programme provided a grant of 38.143 cents/litre to domestic ethanol producers on fuel supplied for transport where production inputs are sourced domestically. Imported ethanol was subject to a customs duty of 38.143 cents/litre and a value duty of 5%. Together, the duties and the EPG protected the domestic industry against competition from imports. Legislative changes to the excise The government reduced the excise on domestic production of ethanol and biodiesel to zero from 1 July 2015 and terminated the EPGs and Clean Fuels Grants schemes. Instead, these alternative fuels will become partly liable to excise under a sliding scale. The rates of excise duty for domestically manufactured ethanol commenced at zero on 1 July 2015 and will increase annually by 6.554% until the final schedule rate of 32.77% of the excise rate for petrol is attained. Imported ethanol will maintain an excise rate equivalent to that of petrol. The rates of excise duty for domestically manufactured biodiesel commenced at zero from 1 July 2015 and then increase each year by 3.333% until the rate of 50% of the excise duty rate for diesel is attained. Imported biodiesel will maintain an excise rate equivalent to that of diesel.

The number of motorists trialling ethanol blended fuels rose from one-in-six to two-in-five between 2005 and 2007. The potential for Queensland’s biofuels and bio-manufacturing industries were explored in a discussion paper released in June 2015 and the state government aims to commence a 2% biofuels target on 1 July 2016. Applying the mandate on the total volume of regular unleaded sales (rather than requiring every litre of petrol to contain ethanol) and excluding premium unleaded petrol will allow unblended petrol to remain on the market for those vehicles that are incompatible with ethanol blends. In addition, and to support implementation and educate consumers about the biofuels mandate, the government proposes to develop a targeted education campaign that would be launched prior to the biofuel mandate commencing. The ethanol grants programme The Ethanol Production Grants (EPG) programme ceased in June 2015. The policy aimed to support production and deployment of ethanol as a sustainable alternative transport fuel. It provided

Australian fuel use Australia’s supply of transport fuels is met by a mix of domestically and imported refined crude oil and other feedstock and finished product. In 2014, over 80% of the crude and other feedstock required for domestic refining was imported, with the balance being supplied from production in Australia. Around 40% to 45% of refined petroleum products are imported from overseas refineries. Since 2010, the number of Australian oil refineries declined from seven to five, with 35M litres/day reduction in refinery capacity (Energy White Paper 2015). Energy consumption in the transport sector has been growing over the past 40 years, reflecting economic and population growth. The dominant means of transport for goods and passengers in Australia is by road, which accounts for around 75% of transport energy use. The share of air transport has increased steadily over the same period, largely reflecting increased activity and popularity. Petrol, diesel and aviation fuel are the dominant transport fuels. The share of petrol in the transport fuel mix has decreased slowly over recent decades, outstripped by growth in diesel and aviation fuel.

TABLE 1: AUSTRALIAN IMPORTS OF ETHANOL BY COUNTRY, 2010-2014 (‘000 LITRES/YEAR) Country

2010

2011

2012

2013

2014

Indonesia

7,717

14,206

5,954

3,375

United States

6,544

10,773

3,464

3,159

4,934

Papau New Guinea

1,645

1,136

995

621

219

298

213

206

254

235

Brazil

18,435

10,783

3,439

124

China

3,640

New Zealand

Source: Global Trade Atlas (2207.0)

This reflects fuel switching and increased demand for diesel, particularly associated with mining activities and increased air transport activity. Alternative transport fuels accounted for 5% of energy consumption in 2012-13, comprising liquefied petroleum gas (LPG) (2.7%), natural gas (1.6%) and biofuels (0.6%). In terms of market share, the retail fuel market in Australia includes supermarkets (48%), large independent retail chains (19%) and branded refiners and wholesalers (33%) (ACCC 2014). Petrol and diesel make up around 75% of transport fuel used. After taking into account inflation, petrol and diesel prices have fluctuated in recent years. Average prices peaked in 2007-08, declining until 2009-10 and grew slightly in 2013-14 (BREE 2014). The major petroleum refinery and distribution companies in Australia are also the main distributors of biofuels to consumers and business. Their industry association recently argued that there is no access to imported ethanol on the same terms as domestically produced ethanol even accounting for the 2014-15 Budget announcement to impose an effective excise on locally produced biofuel. It suggested that the excise on imported ethanol was “hampering the development of a competitive, efficient and diverse biofuels market in Australia” (Australian Institute of Petroleum, June 2014). Developments and trends in vehicle efficiency The road transport fleet is generally reliant on petroleum-based fuels such as petrol and diesel. Petrol is the dominant fuel in the light vehicle sector, although the share of diesel has increased. Diesel is the dominant fuel in the heavy vehicle sector. Imposition of excise on LPG has lowered demand for the fuel. Biofuels are produced using a range of biological feedstock and include ethanol and biodiesel. These fuels are then blended with petrol or diesel and can produce the same fuel efficiency with lower carbon intensity. However, at current rates of production and usage, these fuels are likely to remain as a small proportion of the traditional fuel market. Australia has a range of policy measures to increase fuel efficiency in the vehicle fleet. Since 2004, the government has mandated fuel consumption labelling of all new vehicles up to 3.5 tonnes, to provide information to consumers on the relative performance of individual models. There are a range of voluntary measures in place to reduce vehicle CO2 emissions and improve fuel efficiency. The government and the Federal Chamber of Automotive Industries (FCAI) agreed to a voluntary national average fuel consumption (NAFC) target for new passenger cars of 6.8 litres/100km for petrol passenger cars. The Green Vehicle Guide (GVG) website provides model specific information to consumers on the emissions performance of all light vehicles produced since mid-2004. According to a 2014 study by the National Transport Commission (NTC) the average annual CO2 emissions ratings of new passenger vehicles and light commercial vehicles was 192 grams/ km travelled, a 3.4% reduction from 2012 and is the third largest annual reduction since records started in 2002. In 2013, 2.2% of new cars sold in Australia were ‘green’ cars (compared with 1.2% in 2012). A ‘green’ car is a vehicle that does not exceed 120g/km (NTC, 2014). In 2012, Australia’s national average carbon emissions from new passenger vehicles was 44% v

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v higher than in the EU (190g/km compared with 132g/km). There is a consumer preference for heavier vehicles with larger and more powerful engines, a lower proportion of diesel powered engines and the comparatively low cost of fuel in Australia partly because of a freeze on indexation of fuel excise taxation. The 2014 Budget announced that indexation would be re-introduced.

Ethanol In Australia, ethanol is produced from grain-based distillation technology in which the feedstock accounts for most of the production costs, although waste from co-production processes such as flour milling can lower costs. The most commonly available blend is E10, a 10% blend of ethanol with unleaded petrol (ULP). Ethanol blend fuels are also available using premium unleaded petrol (PULP). Ethanol contains 68% of the energy content of petrol and in an E10 blend provides 3% less energy. Ethanol accounts for 1% of the road transport fuel market, while ethanol blended fuels (mainly E10) accounted for 14% of total petrol sales in 2013 (BREE, 2014). In 2014, the average price differential between regular unleaded petrol and E10 was 2.2 cents a litre, according to the Australian Competition and Consumer Commission. In 2013, locally-produced ethanol supplied around 1% of the total road transport fuel market in Australia. The predominant petrol-ethanol blend (E10) is largely sold in NSW and Queensland and accounted for around 14% of total Australian petrol sales in 2013. Ethanol capacity is 440M litres/year nationally, from two plants in Queensland and one in NSW. Concern over possible engine damage from using the fuel, declining availability of E10 pumps, a consumer preference for regular unleaded over E10 and only a small price difference has resulted in declining use in recent years. Production The ethanol industry comprises three producers in NSW and Queensland, with an installed production capacity of 440M litres. In 2014, there were three ethanol fuel manufacturing plants, each distilling different feedstocks. The largest producer in NSW uses wheat starch with capacity to make 300M litres of ethanol. The second largest producer in Dalby, Queensland uses red sorghum with capacity to make 80M litres of ethanol while the third largest at Sarina, Queensland uses molasses from sugar and has a capacity of 60M litres of ethanol. Actual production is considerably below capacity but firm-

specific output is not available. The process of storing and blending ethanol with petroleum to make E10 has involved additional investment in infrastructure at terminals and storage facilities of around A$40M. The price of ethanol blends will vary according to market prices for ethanol and petrol, the effective excise exemption on the ethanol component of the fuel and market forces. The bulk supply price of ethanol is also influenced by the cost of feedstocks such as wheat and sugar and the price of petrol. Consumption Australia’s most commonly available ethanol blend is E10. Blends containing greater than 10% ethanol have been shown to damage some vehicle components and there is consumer resistance to higher blends. Therefore the government limits ethanol content in petrol to a maximum of 10%. Currently, around 60% of petrol engine vehicles in Australia can operate on ethanol blend fuels. Vehicle compatibility issues with ethanol have been reduced and the Biofuels Association estimates over 90% of vehicles are now compatible with E10. Storage tanks for ethanol blends have been installed at many service stations and a distribution infrastructure is in place to allow an expansion in market supplies. Trade Ethanol imports are subject to both a general tariff of 5% and the customs equivalent full excise on mid-energy fuels of A$0.38143/litre. Imports of US sourced ethanol are not exempt from customs duty under the provisions of the Australia-United States Free Trade Agreement (AUSFTA). Imports of ethanol are not significant because they are subject to the full excise, making them uncompetitive with locally produced ethanol and other fuels.

Biodiesel Biodiesel is manufactured in Australia from a range of waste products including tallow, waste vegetable oils and used cooking oils. In 2011, biodiesel production and imports were granted excise free status under the Cleaner Fuels Grant Scheme. In 2014, the Treasurer announced that imports of biodiesel would be fully subject to excise while locally produced biodiesel would be subject to lower excise. Biodiesel accounts for 2% of diesel used in Australia. The mining industry is a major consumer of biodiesel and is exempt from the excise. Biodiesel can be mixed with normal fuels and B5 is the common blend, consisting of 5% biodiesel and

TABLE 2: AUSTRALIA’S BIOFUELS PRODUCTION CAPACITY 2015 (MILLION LITRES/YEAR) Biofuel plant Location ARFuels Barnawartha Barnawartha, VIC

Owner ARF

Capacity 60

Feedstocks Tallow, used cooking oil

ARFuels Largs Bay

Largs Bay, SA

ARF

Tallow, used cooking oil

ARF Picton

Picton, WA

ARF

Tallow, used cooking oil

Biodiesel Industries

Rutherford, NSW

Biodiesel Industries

Used cooking oil, veg oil

EcoTech Biodiesel

Narabgba, QLD

Gull Group

Tallow, used cooking oil

Macquarie Oil

Cressy, TAS

Macquarie Oil

Poppy oil, waste veg oil

Territory Biofuels

Darwin, NT

Territory Biofuels

140

Palm oil, tallow, waste oil

Total Capacity (millon litres/year) Source: BAFA, BMF, FNR (August 2013)

360

BIODIESEL ACCOUNTS FOR 2% OF DIESEL USED IN AUSTRALIA

95% petrol. The B5 fuel is considered as identical with normal diesel fuel and is sold unlabelled in Australia. The B20 biodiesel blend (20% biodiesel and 80% petrol) is generally sold for commercial operations and is labelled. Renewable diesel is derived from tallow that is co-produced with diesel and is chemically indistinguishable from diesel. Biodiesel has slightly lower energy content than conventional diesel although this is not significant when operating vehicles on biodiesel blends. There is an Australian fuel standard for unblended biodiesel (B100), which is currently used in fleet operations, such as local council trucks (AIP, 2014). Biodiesel blends such as B5 or B20 have been made available at an increasing number of service stations. Most diesel fuel is sold in bulk to commercial/ industrial customers such as mining and transport companies on long-term contracts. Only 25% is sold through retail outlets. Of this, 80% is bought by the long-haul trucking industry with only a small proportion sold to private customers. Diesel engine manufacturer warranties for engines typically allow biodiesel blends up to 5%, provided that the resultant blend meets the diesel standard. A limited number of manufacturers have engines which are certified for fuels above B5. Australian production of biodiesel has fallen in recent years with the closure of a number of plants. Only four of the eight plants are currently operating and the industry association has estimated total production at 65M litres, well below total capacity of around 300M litres. A major producer mothballed its 100M litre biodiesel plant in 2013 because it was unable to secure long-term deals with established petroleum refiners and distributors. The largest biodiesel plant was built in the Northern Territory with a rated capacity of 140M litres/year. It was designed to use palm oil and food-grade vegetable oil but was closed in 2009. The plant was then acquired in early 2014 by a US biofuels and energy company which planned to use a broader range of feedstocks, including lower quality tallow, used cooking oil and palm sludge oil.

Advanced biofuels Second generation or advanced biofuels are derived from sustainable sources of organic matter not used

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PHOTO: MAKSYM YEMELYANOV/DOLLARPHOTOCLUB

for food production, such as wood residues, certain oilseeds and algae. Commercialisation of second generation bioenergy technologies would increase the range of sustainable resources available for both biofuels and electricity generation. Second generation technology, such as conversion of algae or lignocellulose (woody or fibrous plant material) to fuels could allow a viable biofuel industry in Australia, but this technology has not yet been sufficiently developed. There are a number of research and trialling projects using the second generation model based on different feedstocks including lignocellulosic feedstocks. The Oil Mallee project, for example, used Mallee eucalypts for producing eucalyptus oil, activated carbon and bioenergy in a 1kW integrated wood processing demonstration plant. Other feedstocks under development include Indian mustard seeds (Western Australia), Pongamia pinnata trees (Queensland, Western Australia), Moring oleifera (Western Australia) and algae (Queensland, South Australia, Victoria). The Australian Renewable Energy Agency (ARENA) is supporting South Australian research into sustainable production of biodiesel from microalgae. In the 2014 Budget, the government announced its intention to abolish ARENA but has not obtained parliamentary support for this policy. Sustainable aviation fuel (SAF) Traditional aviation fuel accounted for 30% of Australian airlines’ operating costs in 2013 compared to 14% in 2003. The two main airlines have encouraged the development and use of SAFs as a way to reduce greenhouse gas (GHG) emissions and to increase energy supply security. Research aims to develop competitive ‘drop-in’ advanced biofuels compatible with existing engines, infrastructure and existing supply chains. In the aviation sector, standards are set by the American Society for Testing and Materials (ASTM). Strong airline support for biofuels has led to the revision of ASTM standards to allow airlines to accept aviation fuel that blends up to 50% biofuels for two certified pathways. A 2011 study by the Commonwealth Scientific and Industrial Research Organisation (CSIRO), supported by Boeing, Airbus, Qantas and Virgin, found that a sustainable aviation fuels industry could be developed and would decrease GHGs by almost 20% in the aviation sector. The industry

has recognised that biofuels represent the main opportunity to reduce aviation emissions but the price of biofuels has not yet become commercially viable, especially in a period of falling international petroleum oil prices. A 2012 study was coordinated by Qantas and Shell on the potential for biofuels from production of hydroprocessed natural oils and animal fats in Australia (the HEFA pathway). The study assessed the commercial viability of a potential A$1bn SAF facility with an annual production capacity of one million barrels of renewable hydrocarbons (diesel, SAF, naphtha and refinery gas). It found the plant was not commercially viable as the price of feedstock is generally higher than the price of end products, such as diesel and jet (Qantas and Shell, 2013). The study also assessed the potential for production of SAF from the certified Fischer Tröpsch (FT) pathway. It found that the conversion of gas and coal-based feedstock into hydrocarbon products using the FT process is an accepted technology but it is not yet commercially viable. Research is also being undertaken by the CSIRO and Virgin Airlines on a renewable aviation fuels supply chain based on various sources of biomass, including eucalyptus, to find the most promising sources of SAF in the future. In 2012, Qantas operated Australia’s first commercial SAF flight from Sydney to Adelaide with a 50% blend of SAF with traditional jet fuel in one engine. In 2013, Qantas also undertook a comprehensive feasibility study with Shell Australia on the viability of an SAF industry in Australia using existing supply chain and refining infrastructure. The study examined the commercial viability of a hypothetical facility with capacity of 20,000 barrels of renewable hydrocarbons (diesel, SAF, naphtha and refinery gas) per day at a capital cost of A$1bn. It found SAF production was technically feasible but not yet commercially viable. There have been a number of other studies into the viability of an aviation biofuels industry in Australia. CSIRO concluded in 2011 that only next generation biomass feedstock (non-food parts of crops, plants, trees, algae and waste) could be used for SAF in the foreseeable future. LEK consulting firm’s 2011 report for ARENA concluded that Australia had a comparative advantage in the biofuels market, but significant investment and land use change is required for the industry to be viable. US-Australia cooperation on biofuels In 2012, the Secretary of the US Navy established a goal that by 2020, half of the Department of Navy’s energy would come from alternative energy sources and that the Navy would deploy a “Great Green Fleet” in 2016 which would use biofuels for 50% of its total fuel supplies. One goal of this policy is to demonstrate the viability of advanced alternative fuels as a substitute for petroleum and to increase energy security. Under a 2012 US Australia Statement of Cooperation for the Research and Use of Alternative Fuels, Australia and the USA agreed to exchange information about policies, programmes, projects, research results, and publications, and to conduct joint studies in areas such as fuel sources and environmental impacts. In May 2014, the Royal Australian Navy (RAN) confirmed plans to transform its existing fleet of naval vessels and aircraft into biofuel capable by 2020. This decision is in line with the US Navy’s

plans to convert its own fleet using at least a 50-50 fuel blend. Australia has also been offered access to the alternative fuel technology, which is currently being developed by the US military. In total, the RAN is planning to make around 50 vessels and aircraft compatible with alternative fuels. However, this goal is more likely to be achieved when the cost of biofuels approaches parity with other fuels used by the Navy.

Biomass for heat and power While overall energy generation and fuel use is dominated by fossil fuels, bioenergy is one of the largest contributors to Australia’s renewable energy production (Geoscience Australia, 2013). Australia generates energy from biomass resources including bagasse from sugarcane, landfill gas, wood waste, energy crops, agricultural products and municipal solid waste (ARENA, 2013). Bioenergy for electricity and heat generation is produced predominantly from byproducts of sugar production and waste streams. In 2014, bioenergy accounted for over 10% of renewable electricity production. These projects include converting food and meat processing waste into biogas, producing ethanol from bagasse and creating biofuels from sorghum, wood waste, or straw and waste biomass. There were 389 accredited renewable energy power stations under the RET with 139 accredited bioenergy power stations (Clean Energy Regulator, 2014). Part of the heat and energy generation total comes from the burning of some 4-6M tonnes of firewood/year. A range of woody biomass is currently commercially used to generate power. These are typically densely planted, high yielding varieties of poplar, willow and eucalyptus that regenerate quickly after harvesting via coppicing (shoots from the stump of cut down trees). Other large energy contributions are from bagasse (sugarcane residues) and wood waste in heating and electricity generation, as well as the capture and use of methane gas from landfill and sewage facilities. The heat component of industrial cogeneration (such as alongside sugar mills) and dedicated industrial thermal energy are not supported by a specific mandatory target or Renewable Energy Certificates (RECs) in Australia. Nevertheless a range of thermal energy projects have proceeded, generally using process wastes such as sawdust at sawmills. Residues from forests and wood processing and organic waste streams are relatively untapped resources for heat and power generation in Australia. Wood residues include primary waste from forestry such as cleared bark and sawn branches as well as pulp logs. Secondary residues from sawmills include chips, sawdust and shavings. These residues are generally abundant in the southern and eastern coasts, and in south western WA, with supply being available year round. Wood wastes can generally be obtained at affordable costs and there have been a number of proposals to use wood waste for biofuels, although none have so far become commercially viable. w This feature is extracted from a United States Department of Agriculture (USDA) Global Agricultural Information Network (GAIN) report published on 3 August 2015, titled ‘Australia: Biofuels Annual 2015’

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PR OC ESSIN G & TEC H N OLOGY

Plant and technology round-up Oils & Fats International reports on some of the latest biofuel projects, plant and technology news and developments around the world IN BRIEF INDIA: Oasis Group will be investing Rs5bn (US$74M) to establish a wheatbased ethanol plant in Perozepur, Punjab, Money Control reported on 4 January. The facility would have a final capacity of 500,000 litres/day, although in the first phase of manufacturing it would produce 250,000 litres/day. Currently most of the ethanol produced in the country comes from sugar mills, but Oasis would use wheat that is unfit for human consumption. The plant will be established at Oasis’ current unit at Zira. USA: Louis Dreyfus Commodities’ new glycerine refinery was due to open at the end of last year in Claypool, Indiana, commercial manager Jeremy Mullins told Biodiesel Magazine in mid-November. The refinery would be co-located with the company’s soyabean crushing facility and its biodiesel production plant – one of the largest in the USA. The refinery itself would also be the second-largest, USP-grade, Kosher-refined glycerine producer in the USA, it was reported, with a 36,000-tonne/year capacity. The new refinery was situated 100 miles southeast of Chicago on the Norfolk Southern Rail Road. The complex can load the refined glycerine onto trucks and specialised, lined tanker railcars for shipping. In addition to the refinery itself, supplementary onsite storage had been built to support operations. MEXICO: Absolut Distillers said in October that it planned to construct a sugar mill and cogeneration plant in Mexico worth approximately 500M pesos (US$30M), Business Mirror reported. The plant would crush sugarcane and then process the juice into bioethanol. Absolut said it estimated 1,800-2,000 tonnes of sugarcane juice would be produced each day. The cogeneration power plant would then be fuelled by the sugarcane bagasse. Gerardo Tee, chief operating officer of Absolut, told Business Mirror that construction would commence as soon as funding was available and it would probably take approximately two years to build.

Praj Industries to expand ethanol plant in Argentina

ne of the largest sugar and ethanol producers in Argentina, Ingenio Tabacal, has chosen Praj Industries to expand its existing alcohol and ethanol plant in the Salta province of Argentina, according to a statement from Praj in December last year. Argentina’s ethanol blending programme is ambitious, with a current blending mandate of 10%. This is expected to increase in the near future, the announcement said. The plant’s planned production is up to 211,338 gallons/day of ethanol. Praj said it would employ efficient distillation and molecular sieve dehydration technology, using very low pressure exhaust steam, to achieve a 50-60% steam saving. Praj would also assist Ingenio Tabacal in modernising the existing plant. By installing

fermentation, distillation and vinasse treatment modules, the companies hope that they can achieve global benchmarks. Praj said the plant would be one of the most efficient in the whole of Argentina’s sugar belt. Tabacal is owned by Seaboard Corp USA. Suppliers from around the world were invited to bid for the project and Praj eventually secured its selection based on its solution being the lowest energy consumer, its experience in the region and execution capacity. Praj Industries has commissioned a corn to ethanol plant in Santa Fe, Argentina for Vicentine SAIC, and has also commissioned a 105,669 gallons/day ethanol plant in Colombia for Riopilla Castilla – which would be one of the largest ethanol plants in the country.

Illinois supercritical biodiesel plant A

5M gallons/year supercritical biodiesel plant in Annawan, Illinois, designed and built by Jatrodiesel was due to be operational by mid-November, Biodiesel Magazine reported on 5 November. The plant was announced two years previously and is co-located with the 125M gallons/year CHS-owned Patriot Renewable Fuels ethanol plant. In November Jatrodiesel president Raj Mosali told Biodiesel Magazine that all the equipment and distillation columns were running and the plant would be online in 7-10 days. CHS staff trained at Jatrodiesel’s headquarters in Miamisburg for two weeks where the trademarked ‘Super’ process has been being tested for three to four years. The Super technology is a single-stage process that eliminates esterification and transesterification, Jatrodiesel told Biodiesel Magazine, and it puts no limit on free fatty acid levels in feedstock. The process is 25-28% cheaper than traditional biodiesel refining. When commercialising the process Jatrodiesel had three main challenges: scaling up the technology, making it continuous (vs batch) and overcoming high equipment costs.

Uganda ethanol plant to come online in July

akira Sugar Works Ltd, Uganda’s biggest sugar producer, has said it will start commercial output at its US$36.6M ethanol plant by July, Bloomberg reported last October. Assistant to the general manager of the company, Kenneth Musinga Barungi, told Bloomberg that mechanical installation was in full swing and the capacity was set to be 6,000 litres/day. The plant will use 74,000 tonnes of molasses/year to produce 2M litres of ethanol annually. India-based Praj Industries Ltd was contacted by Kakira last January to build the distillery. The

distillery’s power will initially come from the sugar plant, however it would eventually become self-sufficient, Bloomberg said, and use steam for generation. In June, the country’s information minister said plans were in place to enforce a 20% biofuel ratio for oil products, once it begun crude oil output, it was reported. The government said oil production might start in 2018. Sugar output projections for last year were cut to 174,000 from 180,000 tonnes, Bloomberg said, after sugarcane growth was affected by less sunshine.

22 OFI – FEBRUARY 2016, BIOFUELS ISSUEs www.oilsandfatsinternational.com

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Construction due to start C

onstruction of Pentland Bio-Energy’s ethanol plant in North Queensland, Australia could get underway as early as June, according to a report in Biofuels Digest on 16 November. The facility would produce 250M litres of ethanol annually from sugarcane and sorghum feedstocks, and could be commissioning by mid-2018, Biofuels Digest said. The production could be scaled up to 344M litres at a later point, and at a further stage could produce as much as 1bn litres of ethanol. In November, it was reported that 20 investors had already signed up, including an unnamed major US company that had signed an offtake agreement for the entire first 15 years of production. Biofuel Digest said claims had been made that production costs would be the lowest in the world.

Saipol invests €28.5M in French biodiesel sector A

vril Group subsidiary Saipol announced in late October during a press conference that two major industrial investments had been made in the French biodiesel sector worth €28.5M, Biodiesel Magazine reported. The first investment established a €13M biodiesel processing facility in Sète. Diester Industrie (which merged with Saipol in 2014) opened a commercial-scale biodiesel plant in the area in 2006. The plant used Axens’ Esterfip-H process to manufacture 160,000 tonnes of biodiesel/year, the report said. The new facility meant the Sète complex could produce 280,000 tonnes/year of biodiesel and 28,000 tonnes of glycerine.

Biodiesel Magazine said the second investment was worth €15.5M, which included €4.2M from a government grant under the “Biomass Heating for Industry, Agriculture and Services” project in 2012. From the investment a biomass boiler fuelled by sunflowerseed shells was installed at Sète. The shells came from Saipol’s hulling plant at Bassens, 300 miles west of the site. The boiler will produce steam to process rapeseed into oil, meal, biodiesel and glycerine. Work began in 2014 and was completed last October, Biodiesel Magazine reported. Saipol said the investment would produce an annual greenhouse gas saving of 90%.

IncBio to build refinery in Columbia

iocosta Green Energy has awarded the contract to build its new biodiesel refinery in Columbia to Portuguese engineering firm IncBio, Lipid Technology reported in September. The project was due to be completed by this May and it was reported that the plant would be capable of producing 75,000 tonnes/year of biodiesel. IncBio CEO José Marquez said the company used ultrasonic technology to reduce the amount of catalyst and reagents required in all steps of the process. IncBio’s plants can process crude vegetable oils, waste materials and by products such as used cooking oil, animal fats, distilled free fatty acids, palm fatty acid distillate and trap grease.

$41.6M Thai Agro Energy ethanol plant

hai Agro Energy (TAE) has teamed up with Kamphaengphet Bio Power for the development of a 200,000 litre/day ethanol facility in Thailand, Biofuels Digest reported in December. The estimated total investment in the plant is US$41.6M, following a three-month feasibility stage. TAE said that it expected to operate at 90% of capacity in 2015, producing an estimated 125M litres. In 2016, it planned to boost production to 95% of capacity and also expected to reach full capacity at its existing two facilitites by 2017. 23 OFI – www.oilsandfatsinternational.com

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AVIATION

Elevating Europe Worldwide air travel is expected to grow by 5% per year in the period up to 2050. To meet its targets on CO2 emissions, the EU must increase its production and use of bio-jet fuel, according to energy think-tank INSIGHT_E

viation is one of the strongest growing transport sectors. Global airline operations consumed approximately 1.5bn barrels of Jet A-1 fuel producing 705M tonnes of CO2 in 2013, producing just under 2% of the total of man-made CO2 emissions. In the period up to 2050, worldwide aviation is expected to grow by up to 5% annually. If fuel consumption and CO2 emissions were to grow at the same rate, CO2 emissions by worldwide aviation in 2050 would be more than six times their current figure (2M tonnes/year). Europe is home to approximately 3,800 passenger aircraft and over 700 commercial airports (with more than 15,000 passenger movements per year) which supported the free movement of 842M passengers in 2013 (as reported by Eurostat), an increase of 1.7% on 2012 levels. CO2 emissions from aviation in 2012 in Europe were 149M tonnes representing 12.9% of total transport emissions. Final energy

consumption in aviation 2012 was 49.1M tonnes or 14% of transport energy usage.

European policy context A number of targets and policy instruments exist that concern biofuels (including bio-jet fuels) and Figure 1 (next page) presents a graphical overview of medium and long-term policy targets for aviation at EU and a global level. The EU’s Renewable Energy Directive (RED) sets a binding target of 20% gross energy consumption from renewable sources by 2020 (20% RES). To achieve this, the directive allocates individual targets to member states ranging from 10% in Malta to 49% in Sweden. Each member state is also required to have at least 10% of its transport fuels from renewable sources (10% RES-T) by 2020. It is anticipated that liquid biofuels in road transport will make the largest contribution to the 10% RES-T target owing to the fact that road transport accounts for 72% of transport emissions (EU-28, 2012). In the case of both targets, only biofuels that meet specific sustainability criteria can be included. The denominator for the 20% RES target includes energy use in aviation, while the numerator includes all forms of renewable energy in all forms of transport. Therefore, in principle, bio-jet fuel usage can also count towards the 20% RES target. The Fuel Quality Directive (FQD) sets a 6% target of GHG emission reduction from all energy used in road transport and non-road mobile machinery for 2020 compared with 2010. The

FQD target does not apply to aviation fuel, but is expected to be a driver for increased road biofuels, alongside the RED. Under the RED, the current GHG savings threshold (one of the sustainability criteria) is 35% for all biofuels, increasing to 50% from 1 January 2017 for existing installations and 60% from 1 January 2018 (for installations that start producing biofuels after 1 January 2017). Equally biofuels cannot be grown in areas converted from land with previously high carbon stock, such as wetlands or forests, and biofuels cannot be produced from raw materials obtained from land with high biodiversity such as primary forests or highly biodiverse grasslands. In 2011, the European Commission adopted a White Paper on Transport, which includes 40 initiatives to build a competitive transport system that will increase mobility, remove major barriers in key areas and fuel growth and employment. The roadmap aims to dramatically reduce Europe’s dependence on imported oil and cut carbon emissions in transport by 60% by 2050. Also there is an ambition of 40% use of sustainable low carbon fuels in aviation. The 2013 directive on the deployment of alternative fuels infrastructure acknowledges the fact that aviation can rely only on alternative liquid fuels of drop-in type (and for the time being, biofuel remains the main alternative). This contrasts with other transport modes, which can rely on electricity, LNG and hydrogen. The Trans-European Network for Transport (TEN-T) guidelines recognise that alternative fuels serve, at least partly, as a substitute for fossil oil sources in the energy supply to transport, contribute to its decarbonisation and enhance the environmental performance of the transport sector. In its 2014 communication, the European Commission (EC) proposed a policy framework for climate and energy covering the period from 2020 to 2030, in which the goals for transport echo those from the 2011 White Paper on Transport but without v

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AVIATION

specifying the role of biofuels, i.e. leaving it free for member states to opt for other alternatives such as electric cars. The Biofuel FlightPath Initiative was introduced in June 2011. The EC with Airbus, Air-FranceKLM, British Airways, Lufthansa and biofuel producers Chemtex Italia, Neste Oil, Biomass Technology Group, UOP and Swedish Biofuels are targeting 2M tonnes annual production of fuel derived from renewable sources by 2020. This equates to approximately 1% of the total world jet fuel consumption in 2020 or 4% of EU jet fuel consumption. To put this in context, in 2013 approximately 13.1M tonnes of biofuels were consumed in all forms of transport in Europe. Alternative jet fuels are currently produced in small quantities compared to both jet kerosene and to corn ethanol. While there are no specific figures for Europe in terms of volumes consumed, over 200 flights were operated globally in 2014 using alternative jet fuel and, in the last decade, over 1,600 commercial flights have occurred by 21 different airlines. In 2011, Lufthansa became the first airline worldwide to use a biofuel mix in scheduled daily operations when it conducted a six-month test run with an Airbus A321 on the Frankfurt-Hamburg route totalling over 1,188 flights involving 800 tonnes of bio-jet fuel.

from aviation in its Carbon Neutral Growth initiative, according to which the aviation industry has committed to an average improvement in fuel efficiency of 1.5% per year from 2010 to 2020 and a cap on aviation CO2 emissions from 2020 (carbon-neutral growth). By 2050, the ambition is to reduce CO2 emissions from aviation by 50% relative to 2005 levels. In 2013, at the 38th Session of the International Civil Aviation Organization (ICAO) Assembly, members reaffirmed the ambition for the international aviation sector to improve annual fuel efficiency by 2%, and to limit CO2 emissions at 2020 levels. The assembly also defined a range of measures designed to help achieve these goals. This includes: technology improvements, operational changes, alternative fuels such as biojet fuels, and market-based measures. However it was recognised that the aspirational goal of 2% annual fuel efficiency improvement is unlikely to deliver the level of reduction necessary to stabilise, and then reduce, aviation’s absolute emissions contribution to climate change, and that more ambitious goals will need to be considered to deliver a sustainable path for aviation. To date, no long-term binding targets exist.

Ambition to 2050

A primary driver for emissions in aviation is passenger activity. World passenger traffic, expressed in terms of revenue passenger kilometres (RPK) on total scheduled services, increased by 5.2% in 2013 compared to 2012, according to ICAO preliminary figures. This represents the fourth consecutive year of positive growth for the air transport industry since 2009 and corresponds to a slightly higher increase than in 2012. Within the EU, aviation traffic is expected to grow at an average rate of 3% annually until 2050, pointing to a fuel consumption growth of 2% annually, and hence a more than doubling of CO2 emissions by 2050.

There are a number of global and European targets for emissions reduction and alternative fuel use in aviation. The goals pursued by the Advisory Council for Aviation Research and Innovation in Europe (ACARE) in terms of GHG emissions are a 50% reduction in CO2 per passenger kilometre by 2020 (relative to 2000 levels) and a 75% reduction by 2050. These targets are therefore independent of traffic growth. At a global level, the International Air Transport Association (IATA) has also set ambitious targets to curb fuel consumption and mitigate emissions

Long-term passenger forecasts

FIGURE 1: EU (GREEN) AND GLOBAL (BLUE) POLICY LANDSCAPE TO 2050

Source: INSIGHT_E

The ICAO estimates that global passenger traffic is expected to grow from 5bn to more than 13bn RPK over the period 2010-2030, i.e. an average annual growth rate of 4.9%. Examining the specific figures for Europe suggests annual growth rates of approximately 2.7% to the year 2040. In the report ‘EU Trends in Energy and Transport to 2050’ air transport is projected to be the highest growing of all passenger transport modes, increasing by 133% between 2010 and 2050 (2.1%/year), mainly due to the large increase of international trips (for example, to emerging economies in Asia).

Technical improvements Technological improvements will play an important role in emissions reduction from aviation to 2050. The ICAO Committee on Aviation Environmental Protection (CAEP) projects future environmental trends in aviation that include GHG emissions. The CAEP uses the latest input data and related assumptions to investigate improvements in trends related to global climate, particularly fuel burn and CO2 emissions trends. Results are presented for global full-flight fuel burn for international aviation from 2005 to 2040, and extrapolated to the year 2050. Under the scenarios investigated, technological improvements to 2050 range from 0.57%/year (from 2015-2050) for a moderate technology improvement scenario to 1.5%/year (2010-2050) under an optimistic improvement scenario.

Air traffic management As the technological pillar of Europe’s ambitious Single European Sky Initiative, SESAR is the mechanism that coordinates and concentrates all EU research and development activities in Air Traffic Management (ATM). The European ATM Master Plan is the agreed roadmap driving the modernisation of the ATM system and connecting SESAR research and development with deployment. The roadmap includes a target of a 2.8% reduction in environmental impact per flight by 2020. The modernisation of the European ATM systems is discussed in the document ‘A Blueprint for the Single European Sky’ and is expected to deliver a 300kg fuel saving per flight, resulting in €6bn of cost savings, and 12M tonnes reduction in CO2 emissions for 20M flights annually. According to a review by the IPCC, improvements in air traffic management and other operational procedures could reduce aviation fuel burn by between 8% and 18%. It reports that the large majority (6% to 12%) of these reductions come from ATM improvements, which are anticipated to be fully implemented in the next 20 years. All engine emissions will be reduced as a consequence. CANSO, the Civil Air Navigation Services Organisation, state in its report ‘ATM Global Environment Efficiency Goals for 2050’ that 100% ATM efficiency is not achievable as some efficiency is reserved for the interdependencies such as safety, capacity, weather and noise. They estimate the Global ATM system is already between 92% and 94% fuel efficient. CANSO has set the ATM industry the aspirational goal of recovering all of the remaining recoverable inefficiency by 2050, resulting in a Global ATM system, which is between v 95% and 98% efficient at that time.

26 OFI – FEBRUARY 2016, BIOFUELS ISSUE www.oilsandfatsinternational.com

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Cost of bio-jet fuels Alternative jet fuels are currently produced batchwise in small quantities as the demand is not yet sufficient to justify continuous production. This makes an analysis of costs challenging and the costs reviewed vary significantly. As of February 2015, the price of conventional jet fuel was US$621/tonne (US$0.48/litre) and in 2012 fuel costs accounted for approximately 30% of operating costs for airlines. From 2007 to 2012, the US military purchased 1.9M gallons of jet fuel through its procurement agency DLA Energy (Defence Logistics Agency), which provides data regarding the actual purchase prices of biofuels. These prices are detailed in ‘IATA 2014 Report on Alternative Fuels’ and vary from US$0.99/litre for Fischer-Tropsch (FT) jet fuel from natural gas or coal to US$10.99/litre for hydro-processed renewable jet/hydroprocessed esters and fatty acids (HEFA) from camelina, algal oil, used cooking oil and tallow and US$15.59/litre for fuel from alcohols. For commercial aviation, there is limited data available on costs of alternative fuel purchase agreements. In April 2014 however, British Airways committed to purchasing 50,000 tonnes of bio-jet fuel/year at market competitive prices, produced from post-recycled waste, normally destined for landfill or incineration. In a recent US study of the ambition of the Federal Aviation Administration’s goal of 1bn gallons of renewable jet fuel each year from 2018, Winchester et al used an economy-wide model of the US aviation industry. They found that if soyabean oil is used as a feedstock for meeting the FAA aviation biofuel goal in 2020, it would require an implicit subsidy from airlines to biofuel producers of US$0.71/ litre of renewable jet fuel. If the aviation goal can be met by fuel from oilseed rotation crops grown on otherwise fallow land, the implicit subsidy is US$0.09/litre of renewable jet fuel. Pearlson reviews HEFA fuel production, and estimates the gate price of fuel for several plant sizes and operating conditions. The gate price was found to range between US$1.00/litre for a 378M litres/year HEFA facility, and US$1.16/litre for a smaller 116M litres/year facility.

Seber et al present an environmental and economic assessment of producing hydroprocessed jet and diesel fuel from waste oils and tallow. They calculate the production costs for these fuels using a discounted cash flow rate of return model. The minimum selling price was estimated to be US$0.88/litre to US$1.06/litre for yellow greasederived HEFA, and US$1.05/litre to US$1.25/litre for tallow-derived HEFA fuel. The EU report on ‘A Performing Biofuels Supply Chain for EU Aviation’ investigates the costs of bio-jet fuels for a target of 2M tonnes per year by 2020. To achieve this target, construction of the plants has to start soon. The deployment of the bio-jet fuels is foreseen in two steps; first the starting of operation of ‘first of its kind’ dedicated plants by 2015, and then a steady increase in supply chains to bring more biojet fuel to the market. According to the document, sustainable bio jet kerosene currently comes at significant additional costs for airlines. In addition to the estimated €3bn investment in technologies and production facilities to enable a constant production flow of bio kerosene, mechanisms are also needed to address the cost increase, which is currently attached to bio-kerosene. This cost increase, currently calculated at €3bn for 2M tonnes (ca. €1.20/litre), reduces the potential market uptake. For the year 2020, analysis done by the IEA assumes a cost range for FT jet fuel from €1,500/ tonne to €1,800/tonne (€1.20/litres to €1.45/ litres) and for HEFA jet fuel from €1,200/tonne to €1,300/tonne (€0.96-1.05/litre). This analysis is based on production costs of HEFA (based on palm oil) and FT biofuel (based on forest wood). A comparison of current and future projected kerosene prices from the IEA, to IEA projected bio-jet fuel prices in 2020 is given in Figure 2 (below). Given the EIA projected price of jet fuel in 2020 [€0.54/litre], this leads to cost increase of between €0.42/litre and €0.91/litre compared to IEA estimates, while the previously mentioned EU analysis suggest a higher additional cost of €1.20/ litre. These costs, if spread across all domestic and intra-EU-28 flights in 2020, would add between €1.20 and €4.30 to the cost of a typical 1,000km flight per passenger, for 2M tonnes of bio-jet fuel

FIGURE 2: EIA PRICE PROJECTIONS PER LITRE FOR JET FUEL IN THE US TO 2040 COMPARED TO PROJECTED IEA BIO-JET FUEL COSTS IN 2020 (€1 TO $0.85)

Source: Global Trade Atlas (2207.0)

IT IS ESTIMATED THAT AIR TRAVEL PASSENGERS WILL INCREASE TO MORE THAN 13BN R

production in 2020 i.e. 4% of the estimated EU 28 jet fuel volume.

Feedstock limitations A major concern with bio-jet fuel is with the limitations of feedstock quantity and quality, since only a limited number of feedstocks meet the requirements to produce the strict physical and chemical characteristics of jet fuel. Feedstock supply is further compounded by the fact that there are competing uses for biomass e.g. heat, electricity and chemicals. Each crop has benefits and drawbacks in terms of costs, availability, yields, etc. Increasingly, wastes have been considered a viable feedstock option. In the GreenSky London partnership, British Airways and biofuel producer Solena announced plans in 2014 to build a plant that would process 575,000 tonnes of post-recycled municipal waste into 120,000 tonnes of liquid fuel (50,000 tonnes of bio-jet fuel) using plasma gasification followed by the FT process from 2017 onwards. However, in January 2016 it was announced that the plans had been shelved due to a lack of financing. BA says that it is talking to other companies in the field as it still plans to pursue the MSW-to-jet fuel pathway. Algal oils could potentially replace vegetable oils in the biofuels process but these will not be commercially available within the next five to eight years. Due to very high infrastructure cost for industrial algal cultivation it is unclear when competitiveness vs. conventional plant oil or other advanced biofuels cost will be achieved. However, due to the fact that in principle there are no issues related to land use, algal oils have attracted significant interest from the aviation sector. Deltares (2011) concludes that producing bio-jet fuel from algae grown in the Netherlands currently costs approximately €28/litre, which is approximately 60 times higher than the cost of conventional jet fuel.

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AVIATION

TO MORE THAN 13BN REVENUE PASSENGER KILOMETRES OVER THE PERIOD 2010-2030

Scenario analysis We use simple scenario analysis to compare the future quantity of bio-jet fuels required in European aviation under three levels of ambition to 2050. The first scenario is ‘No Action’ and this provides a counterfactual to the other scenarios. Growth in passenger activity to 2050 is assumed to be 2.7%/year with no annual fuel efficiency improvements or ATM improvements. The second scenario is ‘Hitting the Target’ and assumes that EU emissions from aviation in 2050 will be 50% of the 2005 reference level thus applying the IATA global goal at EU level. Growth in passenger activity to 2050 is again assumed to be 2.7%/year, which is consistent with ICAO estimates. Annual fuel efficiency improvements due to technology and operational improvement are set at 1.5%/year to 2020 and improvements due to ATM are assumed to be 0.2%/year (Note that these combined assumptions are more optimistic that the IATA self-commitment). It is here assumed that the Biofuel Flightpath Initiative delivers 2M tonnes of biofuel production in Europe

in 2020. An output of this scenario is the growth in annual biofuel production from 2020 to 2050 required to meet the emissions target. The scenario assumes growth in passenger activity of 2.1%/year (aligned with EU estimations) with annual fuel efficiency improvements due to technology to 2020 at 0.75%/year and improvement due to ATM at 0.1%/year. It is assumed that the Biofuel Flightpath Initiative delivers 2M tonnes of biofuel production in 2020 with a growth of 5%/year thereafter. However it does not assume that 2050 EU emissions from aviation will meet the IATA 50% reduction target. Results of the analysis are as follows: In the absence of any action or improvements in fuel efficiency or ATM, CO2 emissions will grow to 405M tonnes (compared to 152M tonnes in 2005). Results indicate that for the ‘Hitting the Target’ scenario, an annual growth in biofuels of 13.1% is required from 2020 to meet the IATA emission reduction target. This translates into the production of 83M tonnes of biofuels in 2050 representing approximately 77% of final energy demand in aviation in 2050. This clearly requires strong growth in biofuel production (as shown in Figure 5, below) particularly in the period post 2040 where production will almost have to triple in 10 years. If biofuels are withdrawn as a mitigation option (but ATM and fuel efficiency improvements are allowed) then the resulting CO2 emissions in 2050 are 334M tonnes, breaching the IATA 50% reduction target of 75M tonnes by approximately 258M tonnes (shown in Figure 4, below). A final analysis was made on this scenario

where annual fuel efficiency improvements due to technology are set at 1.5%/year to 2050. This reduces the amount of biofuels required to meet the target from 83M tonnes to 43.6M tonnes or 64% of energy. In the ‘Lower Growth’ scenario CO2 emissions in 2050 grow to 267M tonnes therefore breaching the IATA 50% reduction target by 191M tonnes. Biofuel production is assumed to grow by 5%/year, leading to a contribution of 8.8M tonnes of biofuels in 2050 (9% of aviation energy). In the absence of any contribution for biofuels for this scenario CO2 emissions would grow to 294M tonnes.

Conclusion It is widely acknowledged that in the absence of fuel switching, improved efficiency through technological progress, combined with better air traffic management, will not be sufficient to reach the IATA 2050 target. Aviation biofuels will have an important role to play. The main obstacle to the widespread uptake of biofuels is not due to technical constraints but are more economic in nature. For large-scale deployment of biofuels it will be imperative that significant volumes of biojet fuel are produced and utilised. Increasing the volume and the availability invariably decreases price but will not happen without sufficient support mechanisms. w This feature is based on the paper ‘Biofuels for Aviation’, written in 2015 by INSIGHT_E, an energy think-tank informing the European Commission (www.insightenergy.org)

FIGURE 3: SCHEMATIC OF THE ‘HITTING THE TARGET’ SCENARIO WITH CONTRIBUTIONS FROM EFFICIENCY, ATM AND BIOFUELS OUTLINED

FIGURE 4: EU CO2 EMISSIONS FROM AVIATION UNDER THREE INVESTIGATED SCENARIOS

FIGURE 5: BIOFUEL REQUIREMENT UNDER THREE INVESTIGATED SCENARIOS

Source: INSIGHT_E

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EUROPE

Committing to ethanol

place in the structure of the overall market, but also in terms of the raw materials used to produce ethanol in the EU. In Europe, ethanol is made from a variety of agricultural feedstocks. However, in recent years, maize in particular has grown in popularity as a feedstock due to its competitive price and higher ethanol yields. Most of the production capacity that has been added in the EU in recent years relies on maize, while some existing plants have been refitted to process maize in place of other cereals. In 2014, the feedstocks used to produce ethanol in Europe were: maize (42%), wheat (33%), sugar beet (18%), and other cereals (7%) (see Figure 2, followiung page). A total of 10.5M tonnes of cereals and 2.21M tonnes of out-of-quota sugar (white sugar equivalent) were used to produce ethanol, the equivalent of 2% of Europeâ&#x20AC;&#x2122;s cereals and 8% of sugar supply in 2014. Although the EU ethanol market tripled in size between 2004 and 2009, growth rates have substantially slowed down in recent years. Since 2009, the ethanol market has only grown an estimated 8%. In 2014, Europe consumed an estimated 7.7bn litres of ethanol (F.O. Lichts), with the fuel market accounting for well over 80% of total consumption. While the market is expected to continue to grow in the coming years, anticipated demand for fuel ethanol in transport by 2020 has halved from an initial estimate of 14bn litres to a current estimate of 7bn litres (European Commission, DG JRC, 2014). This has been a major concern for companies which made long-term investments on the basis of member states indicating in their National Renewable Energy Action Plans (NREAPs) an expected total collective consumption of 14bn litres.

A challenging EU market

PHOTO: MAXWO/DOLLARPHOTOCLUB

2015 was a difficult year for the European ethanol industry, with policy uncertainty and low market prices causing instability. However, in order to meet both 2020 and 2030 emissions commitments, greenhouse gas from European transport must be reduced. ePURE, the association representing the industry in Europe, provides a market perspective

n 2014, ePURE members produced 6.6bn litres of renewable ethanol, representing a production increase of 13% from 2013. This represented 90% of an estimated European production capacity of 8.8bn litres. In terms of production there were commercialscale ethanol production plants in 20 EU member states, with France and Germany being the largest ethanol producing countries, together accounting for 40% of the total installed production capacity in the EU. France has the highest number of individual production plants, followed by Poland and Germany. Of the 6.6bn litres of ethanol produced by ePURE members, 86% (5.6bn litres) was fuel ethanol while 14% (1bn litres) was for traditional markets, with an equal share between beverages and industrial applications (see Figure 1, following page). The rate of ethanol production growth slowed as companies struggled with poor market conditions and underlying policy instability across EU member states. Noteworthy developments have not only taken

In 2014 and 2015, EU ethanol producers faced a challenging market environment, with ethanol prices in Europe dropping by 30%, making it increasingly difficult to achieve sustainable profit margins. This was coupled with increasing amounts of duty-free ethanol imports to Europe. Despite relatively low feedstock prices, the EU ethanol industry is facing difficult times. European producers are under increasing pressure as a result of a combination of strong global competition, which benefits from stronger forms of support from their respective governments, a growing number of bilateral free trade agreements, which have encouraged duty-free ethanol imports to Europe and regressed demand in the EU biofuels markets. These factors have put severe downward pressure on domestic ethanol prices, which has caused damage to companies and stifled further growth and investments in the European ethanol industry. On average, ethanol prices in Europe have dropped 30% since 2013. Europe is a relatively small player on the global ethanol scene Globally, 90.5bn litres of renewable ethanol were produced in 2014. Only about 10% of this production was traded internationally. Most of it was consumed domestically as a renewable transport fuel. The USA is by far the largest ethanol producer, followed by Brazil. EU ethanol production has grown significantly since 2003, but while Europe v

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FIGURE 1: END-USES OF EU RENEWABLE ETHANOL 2014

Source: ePURE

FIGURE 2: SHARE OF FEEDSTOCK USE (2014)

Source: ePURE

is today the third largest producer in the world, it remains a relatively modest player, accounting for just over 7% of global ethanol production in 2014. The European ethanol market is increasingly exposed to duty-free imports In 2014, Europe imported 600M litres of ethanol from third countries. This represents less than 10% of total EU consumption. By contrast, between 2009 and 2013, imports represented above 20% of EU ethanol consumption. Close to 80% of all imports came from countries that have duty-free access to the EU market, through free trade agreements or other trade preferences. The top five countries of origin were Bolivia, Costa Rica, Guatemala, Pakistan and Peru. Together, they accounted for 60% of all EU ethanol imports.

Reducing emissions and air pollution Europe’s transport emissions have increased by 36% since 1990 and account for 26% of total EU GHG emissions. Transport is the second biggest source of GHG emissions in the EU and is the only sector in Europe where GHG emissions have continued to rise compared to 1990 levels. Solutions are urgently needed to address this. Biofuels are proven to be one of the most commercially viable carbon abatement solutions for transport in the short to medium term. Renewable ethanol, which can be mixed with petrol and sold as a transport fuel, is a cost-effective and readily available means of decarbonising transport. In 2014, European ethanol achieved 61% average GHG savings compared to petrol, saving 5M tonnes of GHG, the equivalent of taking 3M cars or 1.3% of Europe’s total car fleet off the road for a year. Ethanol still has substantial net GHG savings even after taking in account any potential indirect land use change (ILUC) emissions. Furthermore, the use of ethanol makes petrol’s combustion more efficient, thereby improving fuel efficiency. However, the structure of the European

fuels market is complex and limits the amount of GHG savings that can be achieved in transport. With the right regulations in place, Europe can achieve substantial cuts in GHG emissions. The EU-wide roll-out of E10 (a petrol-ethanol fuel blend containing up to 10% ethanol) would reduce Europe’s transport emissions by 15M tonnes, the equivalent to taking 9M cars or 4% of Europe’s total car fleet off the road for a year. Europe’s air quality is in decline In 2014, 17 EU member states were found to be in breach of their air quality targets. Poor air quality is a major cause of increased respiratory disease and therefore has a major negative impact on human health for many thousands of people across Europe, particularly in urban areas. Over-reliance on diesel as a transport fuel in cities is a key reason for this worsening air pollution in urban areas. Policy makers therefore need to act in order to meet their EU air quality legal obligations. Greater use of petrol blended with renewable ethanol, such as E10 will lessen air quality problems associated with diesel use and at the same time reduce the GHG emissions associated with petrol use. Ethanol-petrol blends are a solution Petrol blended with higher levels of ethanol has lower levels of emissions than diesel or non-blended petrol fuels. This is because ethanol contains more than one-third oxygen, which, when added to petrol, leads to a more complete combustion of fuel in the engine, resulting in fewer toxic particulate emissions and making it safer for humans to breathe. Many additives commonly used in petrol to increase octane levels contain carcinogens, such as benzene, which are highly toxic and harmful to humans. Renewable ethanol is a high-octane fuel additive, which improves engine efficiency and is a substitute for benzene, while also being virtually sulphur-free. In 2014, the EU ethanol industry produced

enough green fuel to displace 4.8% of Europe’s petrol volumes, saving €1.5bn to the EU oil bill. European transport is too reliant on foreign oil Over-reliance on energy imports hampers EU competiveness by leaving its economy at the mercy of oil prices and supply volatilities beyond its control. In 2014, the EU’s oil import bill topped €272bn, which is nearly the size of the entire debt of Greece, and contributed to a significant deficit in the EU trade balance of 2.5% of EU GDP. Europe’s oil bill would have been much larger but for the past year’s collapsing crude oil prices. The recent oil crisis in Ukraine brought home the fact that Europe is over-reliant on foreign oil. In 2014, the EU imported over 90% of its crude oil needs, 27.5% of which came from Russia. Most of these oil imports came from politically unstable regions. Europe’s oil dependency has now increased around 10% since 2009. The transport sector is especially vulnerable, with 95% of its energy coming from oil products. Investing in domestically produced renewable ethanol can help Europe reduce its dependence on foreign energy imports and thereby increase its energy independence and security. In 2014, European renewable ethanol displaced 4.8% of Europe’s petrol volumes, saving €1.5bn to the EU oil bill. Increased ethanol use, via a shift to E10 fuel, would further strengthen the benefits of ethanol use, and reduce crude oil use by 50M barrels, thereby saving €4bn for the European economy based on 2014 crude oil prices. Current policy conditions are inhibiting ethanol’s contribution to energy security In 2014, biodiesel accounted for 80% of the EU market in biofuels. Renewable ethanol made up the other 20%. Renewable ethanol’s contribution to Europe’s energy security is currently being hampered by the lack of a level playing field between energy products. The existing energy taxation regime in Europe favours diesel over petrol and is v

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EU ROPE

one of the reasons behind Europe’s over-reliance on diesel fuel. This over-reliance has meant that the diesel market has now grown to 70% of Europe’s transport fuel market, while petrol has declined to 30%. The declining petrol demand has meant that Europe has an increasing surplus of petrol because it produces more petrol than it needs. Europe exports its excess petrol to markets such as the USA or Africa. However, changes in US energy policy, including the increased use of ethanol in the USA petrol market, mean that the opportunities for EU petrol exports to the US are in decline. This has left Europe with a large surplus of petrol that it is having difficulty selling to its traditional export markets. Europe should focus on retaining more of its petrol exports and reducing its diesel imports. As such, a rebalancing of the taxation on petrol and diesel fuels, in favour of petrol, is urgently needed. Ethanol is the most heavily taxed transport fuel Based on volume, ethanol is the most taxed transport fuel in Europe (see Figure 3, below). A fairer energy taxation system is needed. With Europe’s dependence on imported diesel increasing – in particular from Russia – a fairer taxation regime would enable Europe to readdress its fuel balance, allowing for further petrol-ethanol penetration and to properly address issues such as air quality, energy security and long term cost. Responsible land use and improving sustainability Europe’s ethanol sector uses feedstocks grown on

less than 1% of Europe’s agricultural land and has a high potential for further production with low ILUC impacts. In 2014, ePURE companies produced enough animal feed co-product to feed 10% of Europe’s dairy herd. This ensures that ethanol production supports food production and increases food security. Responsible land use for ethanol production does not impact the amount of food available for human consumption and has a minimal impact on global land conversion. The crops used to produce ethanol in Europe meet the highest environmental sustainability standards in the world. In addition, by generating high-protein animal feed as a co-product of ethanol, ePURE companies reduce the need for European farmers to use imported animal feed, such as soya, which requires large amounts of land outside of Europe. To qualify for use towards Europe’s 2020 targets – the 10% target for renewable energy use in transport and the 6% reduction target for the GHG intensity of transport fuels – the biofuels that companies produce must comply with strict sustainability criteria. In addition, the European Commission reports on the impact of ethanol production on food availability, compliance with land use rights and international labour conventions. The overwhelming majority of agricultural crops used to produce ethanol are low-grade and are not suitable for direct human consumption. For every tonne of cereals used by the industry, as much animal feed is produced as ethanol. In 2014, ePURE companies produced 5.2M tonnes of co-products,

FIGURE 3: TAXATION OF TRANSPORT FUELS (BY ENERGY CONTENT)

Source: DG TAXUD, European Commission

FIGURE 4: WORLD FOOD AND OIL PRICES (2005-2014)

Source: DG TAXUD, European Commission

Europe’s sustainability criteria for biofuels n Emissions savings of at least 35% compared to fossil fuels, rising to at least 50% in 2018 and 60% for new installations n Land use: raw materials must not be grown on land with high carbon stocks or high biodiversity value. n Crops used to produce biofuels in the EU must meet the minimum requirements for ‘good agricultural and environmental condition’ as part of the Common Agricultural Policy (CAP). Source: Revised Renewable Energy Directive (RED) and Fuel Quality Directive (FQD)

of which 63% was highly valuable animal feed. This 3.3M tonnes of animal feed was enough protein to feed 2.1M dairy cows, 10% of the EU dairy herd. It also displaced nearly 10% of Europe’s soyabean and soyabean meal imports by volume. Reducing imports of animal feed improves Europe’s environmental footprint and helps reduce land conversion and GHG emissions resulting from agricultural land use outside of Europe. Reducing animal feed imports is also strategically important, as Europe is 70% dependent on feed imports to meet its ever-growing livestock demand. Using land even more responsibly Recent concerns over the risk of land displacement for food production caused by the production of feedstocks for biofuels means the industry is ready to assess how best to strengthen its commitment to sustainable land use. In Europe, farmland that has low agricultural productivity or has been abandoned can provide suitable locations to grow crops for renewable ethanol production. A 2014 study by the University of Utrecht found that ILUCrisks can be mitigated through agricultural yield increases and when unused land is used to grow crops for biofuels production. Ethanol produced on these types of farmland has low-ILUC impacts and strengthens the sector’s contribution to environmental sustainability even further. In harmony with food production Historically, ethanol production in Europe uses a very small amount of cereals, and in 2014 only 2%, or 10.5M tonnes, of EU cereals supply were used – not enough to reduce cereals supply to food markets or have any significant effect on food price increases. 2014 was a record year for European cereals production, increasing by 22M tonnes from 2013 – an increase that is more than twice the size of the amount of cereals that were used for ethanol production during that period. So in 2014, the amount of cereals used to produce ethanol in Europe was more than offset by cereals production increases, meaning there was no competition between ethanol and food production. The European Commission’s Cereals Balance clearly shows that over the last decade, the demand for cereals for ethanol production has not taken away from food markets. A 2014 UN FAO report, ‘The State of Food Insecurity in the World’, confirms that even after accounting for the cereals used for

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ethanol, more grain is available for feed and food use today than at any time in history. As a result, global hunger has fallen 21% since 1992.

Innovative sustainable technology Renewable ethanol is a versatile product and the industry is a vital asset in Europe’s quest to decarbonise transport, boost growth and jobs, and achieve greater resource efficiency by utilising a range of feedstocks, such as waste and residues. By 2030, biofuels made from these feedstocks could create up to 300,000 jobs. The ethanol sector is constantly innovating European ethanol plants are true biorefineries, converting multiple inputs into multiple outputs, not limited to renewable ethanol and animal feed. The sector is also constantly innovating at different stages of the conversion process. For example, new enzymes and yeasts have been developed in order to maximise the amount of ethanol produced from the feedstock used, improving resource efficiency. New outputs have also been developed, such as oil extracted from maize and wheat. Similarly, the spread of best practice and constant innovation allow for the minimisation of waste. In many cases the plants pursue closed-loop production systems using, for example, waste biomass to generate green electricity for use in ethanol production plants. Water use is also kept to a minimum, recycled and/or treated before discharge, allowing some plants to be water neutral or even to return water to the rivers cleaner than when it was extracted.

Advanced ethanol, such as cellulosic ethanol, is a renewable fuel that further optimises resource efficiency by using waste and residue material, such as straw. In Europe, cellulosic ethanol can also be produced from dedicated energy crops such as miscanthus and switch grass. Cellulosic ethanol has the potential to achieve even higher GHG emissions savings, up to 90% compared to fossil fuels, but its benefits go beyond this: n A 2014 report by the European Climate Foundation found that by 2030, some 20M tonnes of cellulosic material (from agricultural residues, municipal solid waste and forestry residues) could be made available sustainably in the EU for energy production, and up to 300,000 jobs created in Europe – mostly in high-tech areas – as a direct result. n Cellulosic ethanol production will incentivise the collection of agricultural residues, which will diversify farmers’ income and generate additional European revenues of up to €15bn annually. Advanced production technologies have the potential to process new, dedicated energy crops grown on degraded or marginal land that currently lies fallow. Processing these feedstocks to extract sugars requires high-tech facilities, pioneering enzyme and yeast extraction technologies, as well as highly skilled people. Europe enjoys easy access to these resources, thanks to traditional financing in the first stages of R&D up to the point of pilot and demonstration plants. Europe now needs to maximise the use of these resources and harvest

Ethanol Biorefineries in Europe 6 7 11

9 24 18 23 2

9 11 9 8 9 9 89 8 8 9 9 9 9

12 18 13

14 15 19

11 9 1

21 21

9 17

9 20 1 16

4 21

the benefits of cellulosic ethanol by supporting fully integrated commercial-scale biorefineries.

EU policy must adapt To do this, change is needed. Currently, cellulosic ethanol makes up less than 0.1% of the European transport fuel market. The first commercial cellulosic ethanol facility in Europe opened in northern Italy in 2013, but while other pilot and demonstration facilities are currently in operation, there are minimal prospects for commercial-scale cellulosic ethanol in Europe. In contrast, several commercial plants are operational in the USA and Brazil, and a second wave of plants is also under construction in these markets. While European companies are world leaders in advanced biofuel technologies, investments are increasingly being made outside the EU, where public policy and market conditions are more favourable. The current use of multiple-counting as a policy tool in measuring contributions towards the EU’s renewable transport target has not incentivised truly advanced biofuel technologies or supported innovation in the renewable energy sector. The EU needs to change its focus in order to help innovation ventures and projects move from R&D to commercial deployment in the short to medium term in order to avoid ‘innovation w leakage’. This feature is based on the paper ‘Enabling Innovation and Sustainable Development: State of the Industry 2015’, written in June 2015 by ePURE, the European renewable ethanol association. www.epure.org

Agrana Bioethanol GmbH

Alco Bio Fuel N.V.

Almagest A.D.

Essentica

DONG Energy A/S

Altia

NEOT

Cristal Union

Tereos

Clariant A.G.

CropEnergies A.G.

KWST GmbH

Nordzucker A.G.

Suiker Unie GmbH

Vereinigte BioEnergie A.G. (Verbio)

Pannonia Ethanol Zrt.

Biochemtex

Cargill B.V.

BioAgra.

Enviral a.s.

Abengoa

Lantmännen Agroetanol A.B.

AB Sugar

Vivergo Fuels Ltd

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STATISTIC S

BIODIESEL VS DIESEL PRICES (US$/LITRE)

STATISTICAL NEWS FROM MINTEC Biodiesel and diesel EU biodiesel prices rose in Q4 2015 due to an increase in the cost of rapeseed oil, a major feedstock. EU diesel prices have fallen due to an oversupply in the market. An increase in margins, caused by the decline in crude oil prices, has encouraged refiners in the EU to boost output. However, demand for diesel has weakened due to mild weather conditions this winter.

Unleaded petrol and ethanol US unleaded petrol prices fell, driven by a renewed weakness in crude oil prices. Inventories also rose by 10.6M bbl for the week ending 1 January due to the seasonal slowdown in demand. Crude oil prices fell in January due to concerns about demand in China and exports from Iran flooding the market, following the end of international sanctions.

PETROL VS ETHANOL (US$/GALLON)

Ethanol and maize

ETHANOL VS CORN PRICES (US$/GALLON & US$/BUSHEL)

PRICES OF SELECTED OILS (US$/TONNE) 2013

2014

Oct 15

Nov 15

Dec 15

Jan 16

Soyabean 1,052 897 735 707 748 715 Crude Palm 854 825 633 594 600 608 Palm Olein 803 762 593 575 579 596 Coconut 948 1,276 1,110 1,078 1,151 1,161 Rapeseed 1,080 906 801 772 811 781 Sunflower 1,108 905 855 858 850 836 Palm Kernel 904 1,120 874 807 862 914 Average price 964 INDEX 228

956 226

800 190

770 182

800 190

802 190

Ethanol prices in the USA fell in Q4 2015 due to ample supplies. Stocks reached an 11-month high at 21.3M bbl in January, due to an increase in production and a slowdown in demand for gasoline leading to an oversupply of ethanol. However, prices have risen recently, driven by an increase in the cost of feedstock maize. Maize prices rose in January due to downward revisions in the global maize production forecast. In 2015/16, global production is forecast 4% down yearon-year to 967.9M tonnes with falls in production for the USA and Brazil.

Mintec works in partnership with sales, purchasing and supply chain professionals to deliver valuable insight into worldwide commodity and raw materials markets using innovative technology and a knowledgeable team of specialists. We provide independent insight and trusted data to help the worldâ&#x20AC;&#x2122;s most prestigious brands to make informed commercial decisions. Tel: +44 (0) 1628 851313 E-mail: sales@mintec.ltd.uk Website: www.mintecglobal.com

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