Biofuels trade and sustainable development: an analysis of South African bioethanol

Dec 2007

Decoupling economic activity from the consumption of fossil fuels is a prerequisite for sustained economic growth, if not survival. In the face of this challenge biofuels are once again being posited as a source of renewable transport fuel and global biofuel production is increasing. In 2005, 48 billion litres of biofuel were produced globally. In 2007, production is expected to reach 65 billion litres, 1.3 per cent of total liquid fuel consumption by volume.
Up until now biofuel programmes have been focussed on meeting domestic demand and dependent on domestic support. Accordingly most biofuel has been consumed in the country of its production. There are a number of rationales for this approach. Many of the current major biofuel programmes have their origins in the fuel crises of the 1970s. Back then these programmes were motivated by nationalist policies aimed at promoting energy security, reducing import burdens and supporting national agricultural sectors. In addition the transport of biofuels from inland refineries to ports can be expensive and can undermine greenhouse gas (GHG) emissions benefits. The biofuel produced, therefore was almost exclusively consumed locally. The current wave of biofuel programmes shares many of these original characteristics. Most of the prominent programmes are dependent on fiscal support and focussed on domestic efforts to reduce transport sector pollution and dependence on increasingly expensive imported oil. Exporting biofuels would export these associated benefits, and dilute the public benefits accruing to fiscal allocations in support of domestic biofuel programmes.
The global biofuel industry is, nonetheless, emerging against the backdrop of increasing international trade and attempts in some quarters to liberalise the terms of this trade. It has been suggested that developing countries in the tropics could exploit favourable growing conditions and lower opportunity costs of land, water and labour to produce and supply biofuels to industrialised countries in the north. Very little country specific analysis has been conducted, but biofuel trade almost certainly has the potential to amplify either the benefits or the negative impacts that are commonly associated with biofuels. This paper is forward looking and explores these issues from a South African perspective. South Africa does not yet have a significant biofuel industry and does not engage in biofuel trade. The focus is on the potential for bioethanol trade to and from South Africa to contribute to sustainable development. Sugarcane and maize, the two feedstocks that are most likely to be used in bioethanol production in South Africa during the initial phase, form the basis for analysis. It is assumed that production levels will remain close to E8, which is the level targeted by the industry. Accordingly South Africa will remain a small (by global standards) bioethanol producer and the extent and nature of trade will depend on comparative policies and prices in the South African and export markets.
Section 2 of this paper describes South Africa’s liquid fuel sector and the nature of petrol and diesel demand in South Africa. Section 3 introduces South Africa’s bioethanol industry by examining potential feedstocks, processing capacity and emerging policy issues. Section 4 explores South Africa’s potential to export bioethanol in terms of relative prices, market access, domestic support for a South African industry and ability to comply with international bioethanol standards. Section 5 analyses the sustainability implications of bioethanol exports from South Africa by assessing the potential macro-economic, environmental and social impacts of such exports. A key question arising from this study involves whether or not South Africa can rise to the economic governance challenge of drawing on its legislative instruments in a coherent fashion to ensure that a Southern African Development Community (SADC)
bioethanol industry delivers on its potential. The factors influencing this outcome are discussed in Section 6.

By: Anton Cartwright (IIED)

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