Biomass Initiative

China: Taking Steps Towards Biofuels Development

By Chris Lawrence, BCS, Incorporated

As the world’s second largest consumer of oil, with its consumption reaching approximately 7.5 million barrels of oil each day, China is taking strides to move toward alternative forms of energy. To this end, China is cooperating with the United States on biofuels research. On December 11, 2007, the United States and China signed a Memorandum of Understanding (MOU) in which biofuels cooperation was highlighted. The countries agree to collaborate in all areas of biofuel production, including the scientific, technical, and policy aspects of biofuels development, production, and use. Specific areas of interest include biomass production and sustainability, conversion technologies, bio-based products, and rural development strategies. This agreement will benefit both the U.S. and Chinese agriculture industries, as new markets for several agricultural commodities and waste products become evident through the increased cooperation between the two nations. The agencies involved in this effort include the U.S. Departments of Agriculture and Energy, and China’s National Development and Reform Commission.

China’s demand for oil has been increasing steadily over the past 20 years, with rapid growth since 2002. Exhibit 1 displays China’s petroleum demand since 1986. Since 1994, China consumed more oil than it produced, thus requiring imports to satisfy the rest of its demand. China is the third largest net importer of oil in the world behind the United States and Japan. The growth of China’s petroleum consumption stems greatly from rapid economic growth and an icreasing number of vehicles in the country. By the end of 2007, there were approximately 57 million civilian use vehicles on the road in China. This represents a growth of 14.3 percent from 2006. Of the 57 million vehciles, approximately 35 million were privately owned, representing a 21 percent growth rate from the previous year.

Exhibit 1: China Petroleum Consumption and Demand, 1986-2006*

China had initiated policies requiring the use of biofuels in the country even prior to signing the MOU with the United States. The Chinese Government began mandating the use of a bio-ethanol blend in 2002 in response to rising fuel demands, greater use of imports, and increased levels of pollution.  In October 2004, a mandatory 10 percent bio-ethanol blend (E10) was implemented in the provinces of Heilongjiang, Jilin, Liaoning, Hernan, and Anhui.  Plans to expand the E10 program to 27 cities in the Shandong, Jiangsu, Hebei, and Hubei provinces by 2006 have been delayed due in part to shortage of feedstocks. China also began drafting biodiesel blending standards toward the end of 2007.

Currently, China is using corn as its primary feedstock to produce ethanol. However, China is exploring other feedstocks in the face of increasing prices of corn and as ethanol production begins to compete with corn needed for other industries. China Agro-Technology Ltd. recently signed an MOU with the city of Beihai to construct a biodiesel plant that will produce approximately 2 million metric tons of biodiesel using Jatropha as a feedstock.. Other feedstocks being examined by the Chinese energy ministry include potatoes, sorghum, rice, and lignocelluloses.

It is predicted that plans to expand the use of corn-based ethanol in China will certainly impact global corn markets. At its current rate of consumption, and if the country expands the E10 mandate, it is predicted that Chinese imports of corn could increase 92 percent by 2015. Meanwhile, world corn imports and exports are only expected to increase 3.2 percent by 2015. It is therefore important for China to seek alternative feedstocks so as to dampen their demand for corn.

In addition to partnering with the U.S. government, China is pursuing advances in biofuels through private foreign investment in agriculture research. For example, a $65 million Biotechnology Research Center, located in Beijing, is focusing on early stage evaluation of genetically modified and native traits in corn and soy that may lead to breakthroughs in increasing crop yields.

State Profile - Missouri

Missouri is a logical location for traditional ethanol production facilities that utilize corn. In 2007, Missouri produced approximately 460 million bushels of corn, making it the nation’s ninth largest corn producer.^, Currently there are four ethanol production facilities in Missouri, possessing a total capacity of approximately 200 million gallons of ethanol annually. In addition to ethanol production, Missouri is also home to several biodiesel production facilities, amounting to a total capacity of approximately 123 million gallons of biodiesel annually. Exhibit 1 summarizes current ethanol and biodiesel production facilities in Missouri.

Exhibit 1: Current Biofuels Production Capacity in Missouri

In January 2008, U.S. Department of Energy Secretary Samuel W. Bodman announced that DOE will assist in funding four pilot small-scale cellulosic ethanol production facilities. One of these facilities receiving funding will be operated by ICM Incorporated in St. Joseph, Missouri. The facility will be constructed to be approximately 10 percent of the size of a full-scale commercial cellulosic ethanol production facility. The facility will utilize thermochemical and biochemical processes to convert materials such as corn stover, corn fiber, sorghum and switchgrass into ethanol. The U.S. DOE is committed to contribute up to $30 million to the project. In addition to this project, Dynamotive Energy Systems, Inc. recently announced plans to build the United States’ first fully commercial industrial bio-oil plant in Missouri.

Missouri offers a number of incentives that drive biofuels production. Missouri offers a $0.20 incentive per gallon for the first 12.5 million gallons of ethanol produced using state crops and $0.05 per gallon for the 12.5 million gallons produced after that in each fiscal year. This incentive is scheduled to expire in December 2015. Missouri offers a similar incentive to biodiesel producers in the stateâ€"a grant of $0.30 a gallon for the first 15 million gallons of biodiesel produced and $0.10 for the next 15 million gallons produced each fiscal year. This incentive is scheduled to expire in December 2009.

The state also offers incentives to use biofuels. First and foremost, Missouri implemented a renewable fuels standard, effective January 1, 2008 that required that all fueling stations in Missouri dispense gasoline containing 10percent ethanol. Moreover, Missouri Governor Matt Blunt has also endorsed a plan to implement a standard requiring all diesel retails to sell diesel fuel containing at least 5 percent biodiesel by April, 2010. In addition, school districts are eligible to receive additional payment through the state’s Transportation Aid Payment if the district establishes a contract to purchase blends of B20 or greater from a non-profit, farmer-owned biodiesel production cooperative.

Missouri is also home to a number of alternative fueling stations. Currently, there are 70 fueling stations in Missouri offering E85. There are also eight stations that offer biodiesel at the pump.