Alternative Fuels Update

Source: Opec 9/14/2007, Location: Europe

A recent OECD study concluded that promoting biofuel via heavy subsidies is not beneficial after all. The study reported that biofuel production is actually increasing the price of food and disrupting natural habitats. The study suggests that countries should halt subsidizing biofuels and work on improving technology instead.

The low efficiency of ethanol blended gasoline in comparison to regular gasoline is preventing it from growing as was expected in Thailand. The government’s new strategy to boost the E20 ethanol gasoline consumption is to reduce the tax on vehicles which are capable of consuming such a blend. There has been skepticism on whether such a move will help the economy as a whole. While favourable to farmers, an ethanol demand boost would result not only in higher costs for the government but also prove to be harmful for the environment and increase food commodity prices. According to a new study carried out by the International Water Management Institute (IWMI), the biofuel programmes of China and India would place a threat to water supply in the long run as would the development of Coal-to-Liquid (CTL), which consumes a lot of water and makes it a non-green fuel. A recent increase in the sales tax of biodiesel in Germany has dented sales volume, forcing plants to reduce the utilization level to 60%.

One of China’s plans to reduce its dependence on oil is to increase the use of biofuel. The country’s target is to achieve 15% of transport fuel from biofuel within the next thirteen years. It is a tough target because of the economic unfeasibility; therefore China must heavily subsidize this industry. The biofuel industry caused a strong hike in food prices not only in China but worldwide. China has announced that it would stop the use of corn as a feedstock for biofuel.

The USA is again promoting the biofuel industry via mandatory laws and financial support. The first renewable fuels standard (RFS) programme came into effect in September 2007 to force the energy industry to use a minimum percentage of biofuel as a mix in transport fuel within the next five years. The energy industry is reluctant to expand such commodity because of the excess cost attached to it.


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