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Biofuels Workshop:
Grangemouth 9th November 2006
James Irvine
Editor: www.land-care.org.uk
Director: Teviot Scientific at Edinburgh &
at Cultybraggan Farm, Perthshire
Filed 12 Nov 06
©www.land-care.org.uk
In conjunction with the Renewable
Energy Association (REA), the Homegrown Cereals Authority (HGCA),
to whom all UK cereal growers pay a levy, has been holding six workshops
throughout the UK on the highly topical subject of the production
of biofuels from crops. Clearly there is potentially an important
role that UK farmers could play in this major new development.
On Thursday 9th November Scotland's
workshop was appropriately held at Grangemouth: the site of one
of the world's major players in the oil refining business.
Problems over the world's future
fuel supplies are now high on the agenda of the governments of many
nations, including the UK and throughout Continental Europe, and
especially in the US where a staggering acreage of crops has already
been devoted to the production of biofuels.
UK owned resources of North Sea oil
and gas are set to dry up within the not too distant future. The
supply of gas from our fuel rich but ex-cold war combatant, Russia,
is politically unstable: especially so as the UK is at the end of
the pipe line from Russia that supplies many other countries on
the way, not all of whom are necessarily all that friendly all of
the time.
The competing demands for energy
from the rapidly expanding economies of India and China could mean
that Russia's gas could so easily be directed to the East and away
from Europe, should Russia want to exert even more political and
economic pressure on countries that have become dependent on her
for their supplies of energy. Indeed, the UK is especially vulnerable
as its government has still - at this advanced hour - not put together
a coherent plan for its future supplies of energy. Moreover, it
has essentially lost its nuclear energy expertise to France in terms
of building new nuclear energy plants, even if the UK eventually
decided that it wanted them.
John Picken, NFU Scotland
and conference chairman,
delivering his introductory remarks
(Photo ©Kimpton Graphics)
In addition, the UK government wants
to be a political world leader in reducing the risk of Climate Change
through Global Warming, even although the total contribution the
UK can possibly make to planet earth in this respect is very small.
The political drive in the UK is
to reduce carbon dioxide emissions from what remains of its industry,
from our cars and lorries, and from heating our houses, etc. There
is a strong, although not entirely rational, antagonism among a
number of the UK's political parties towards nuclear energy with
its impeccable credentials for having a low carbon imprint. All
this makes for a strong drive to get increasing amounts of our energy
from "renewable" sources. Indeed, the government has set
ambitious targets for just that: promoting wind farms, wave energy
systems, and now biofuels.
It would appear from simple arithmetic
that nuclear energy will be essential if the UK is to "keep
the lights on" in future years. There is likely to be only
a modest role for wind energy on account of it generally being not
sufficiently constant, usually in the wrong place, and not producing
enough energy per big ugly turbine. Wave or tidal power has the
big problem of its expensive - and not yet adequately developed
technology - possibly being wiped out by abnormally severe sea conditions.
But neither wind or wave power is likely to fuel our cars. And transport
is responsible for about 25% of UK carbon emissions.
Mr Rupert Furness, Policy Advisor,
Department for Transport, said that "the Government is attracted
to biofuels". He talked about the Renewable Transport Fuel
Obligation (RTFO), that was announced in November 2005 and set at
an inclusion rate of 2.5% biofuels by 2008, 3.7% by 2009 and rising
to 5% by 2010.
At present biofuels only account
for 0.3% of the UK road fuel market. So there is great scope for
expansion.
The way INEOS sees it
Elsewhere in the world the biofuel
boom is already well underway, as described by Jason Woods, Business
Development Manager (Biofuels), INEOS Enterprises Ltd. The Grangemouth
Refinery is part of the INEOS international petrochemical empire,
with 68 manufacturing sites worldwide, with 15,600 employees and
12,200 of these in Europe. In addition to Grangemouth INEOS has
another refinery in the south of France. They are indeed world players
in the refinery business.
Jason Woods
Business Development Manager (Biofuels),
INEOS Enterprises
(Photo ©Kimpton Graphics)
In Germany and in France the production
of biodiesel is forging ahead, with a 65% annual expansion. The
projected requirement by 2010 is a staggering 13,450 kilo tonnes.
The projected UK market is likewise huge. At present INEOS refineries
produce 4.5 million tonnes of Diesel per year and 2.5 million
tonnes of Gasoline per year. INEOS has an internal need for more
than 400 kilo tonnes per annum by 2010. Its plans have been announced
to build a world scale, 500ktpa
production facility within the UK, linked to their Grangemouth
refinery and wider European locations.
These plans will lead to
INEOS enterprises being the first truly Pan European supplier
of Biodiesel. The first step of this strategy will be to achieve
2 million tonnes of biodiesel output by 2012, with at least 1.2
million tonnes by 2010.
To achieve this a value chain needs to be
established, involving
Farmers are key in this as oil seed rape
is the preferred feed crop for this enterprise. INEOS is keen
to use local supplies to the maximum, although clearly not all
of it could come from Scotland, nor indeed from the UK as a whole.
It takes about 2.2 tonnes of oilseed to produce a tonne of biodiesel.
Jason Woods emphasised that INEOS had expertise
in refining and wished to actively cooperate with others with
expertise in the other elements of the chain. Thus, crushing plants
to handle the oilseed rape crop from the farmers were needed.
Good working relationships between the different components of
the value chain were essential, so all could benefit and thereby
maintain the chain over the long term.
He stressed that the risk must be spread throughout the supply
chain. As farmers are at the start of that chain it is not quite
clear how this spreading of risk would impact on them. Supermarkets
are at the other end of the chain, and one wonders how they will
behave in view of their current record, what with the Office of
Fair Trading running an enquiry into their activities.
It is understood that
there are plans by another company to build a crushing plant at
Rosyth, just a few miles down the road from Grangemouth. Such
a location has the advantage of deep water berthing, enabling
it to take larger tankers as may be required to meet the demands
of the crushing plant. The Rosyth crushing plant could be the
conduit for vegetable oil from oilseed rape.
So what is in it for UK farmers, and Scottish ones in particular?
In response to a specific question from the
author of this article, Elaine Booth (SAC Oilseeds/industrial
Specialist) stated that the total production in Scotland is only
130,000 tonnes of rapeseed, excluding the spring crop with its
lower yields. To meet our share she indicated that Scotland would
need to produce some 330,000 tonnes. While there is scope to work
towards that the limiting factors are the need for crop rotation
and diseases such as club root and light leaf spot.
What might be the role of GM oilseed rape?
Here one immediately thought of what role the
Scottish Crop Research Institute (SCRI) at Invergowrie, Dundee
might have. And, indeed, the role for GM varieties which might
achieve disease resistance and higher yields much quicker than
by traditional breeding methods. Yet in the drive to produce higher
yields of oilseed rape, it will be necessary to monitor the amount
of fertiliser used, as it may affect the overall carbon imprint
of the whole process.
In response to another question from the packed
and keenly interested house of some 200 cereal producers and grain
merchants, Jason Woods replied that as a commercial company they
had to consider the needs of their customers, which were largely
the supermarkets. To date they did not like GM crops because of
the perceptions held by their customers, the public. But it should
be remembered that some 50% of the world's soya is GM based. The
same is likely to happen to the world's supply of oilseed rape,
whether UK citizens like it or not.
It could be that he overwhelming demand for
the production of biodiesel from oilseed rape may force some change
in attitudes towards GM crops. How this potential major conflict
is resolved between the different factions of environmentalists
will be fascinating to behold. Just let us hope that it is not
too self-destructive for Scotland - and the UK generally - in
the face of the opening up of this whole new industry that is
so desperately needed, not only to maintain energy supplies but
also for the wider aspects of the environment in relation to Global
Warming.
Renewable Transport Fuel Obligation (RTFO)
According to Alastair Dickie (Crop Marketing
HGCA) in his presentation, biodiesel produced from oilseed rape
is both energy efficient and carbon dioxide emission efficient
compared to conventional diesel production - and by a substantial
margin. And so is the production of bio-ethanol from wheat, compared
to the conventional way of producing petrol.
The risks for INEOS as producers is the linkage
to fluctuations in mineral oil prices. Government support will
be one of the major factors in encouraging the new biofuel industry,
and reducing the risk to producers. The method favoured by the
UK government is a device referred to as the Renewable Transport
Fuel Obligation (RTFO).
Rupert Furness (Policy Adviser, Department of
Transport) described a system of certification, making it clear
that a range of incentives and penalties would be used to ensure
that fuel companies complied or paid the price. Taxation is clearly
going to be an important tool wielded by Government to persuade
motorists to use biofuels, while still reaping in massive revenue
for the Treasurer.
The RTFO will "bite" at the fuel duty
point. Any company paying excise duty on any fossil transport
fuel will become liable to the Obligation. Certificates will be
issued by Government to any company paying fuel duty on any renewable
transport fuel. At the end of each "compliance period"
Obligated companies will have to produce enough certificates to
demonstrate compliance with the Obligation. If a company cannot
produce enough certificates at the end of each compliance period
it will have to pay a "buy-out price", which goes into
a buy-out fund.
The buy-out fund will be recycled at the end
of the compliance period to all those who have redeemed certificates
in such a way that those who have redeemed the most certificates
get the largest share of the fund.
Obligated companies will have to report on the
carbon savings delivered by their renewable transport fuels, They
will also have to report on the wider sustainability of these
fuels, including environmental and social aspects. Mr Furness
assured us that a methodology to allow this to be done is being
drawn up, which will apply equally to UK-produced and imported
biofuels. It will fascinating to know the details of this scheme
and how it will relate to those that may be adopted by other Member
States within the EU and elsewhere in the world. After all Global
Warming is a golbal issue. Let us hope that it does not become
a political battlefield, with each country vying for individual
advantage.
What will happen after 2010?
A big unknown is what will happen after 2010.
This must pose a substantial risk to those in the biofuels value
chain who are required to invest a massive amount of capital.
There is an intention that the RTFO may be increased
to 10% - that is to say, that all diesel fuel must contain 10%
biodiesel. A number of questions come to mind, such as
An alternative source to oilseed rape
is palm oil, produced from the oil palm tree. Although not discussed
at any length at the Workshop, a few words on this topic may be
appropriate here.
Palm Oil as a feed stock for biodiesel
The Malaysian government, for example,
is refocusing the use of palm oil to the production of biodiesel
to cater for the huge demands from European countries; it has
encouraged the building of biodiesel plants. This is due to the
higher prices of fuel and increasing demand for alternatives sources
of energy in the Western world.
The plants will start operating
by the middle of next year and produce 100,000 tonnes of biodiesel
annually. Strong demand for biodiesel from Europe as well as Colombia,
India, South Korea and Turkey has fueled the industry's growth,
as more countries seek to reduce their reliance on oil.
Malaysia has already begun preparations
to change from diesel to bio-fuels by 2008, including drafting
legislation that will make the switch mandatory. From 2007, all
diesel sold in Malaysia must contain 5% palm oil. Being the world's
largest producer of crude palm oil, Malaysia intends to take advantage
of the rush to find cleaner fuels.
With the growing emphasis on biodiesel
presenting a sustainable alternative to fossil fuels, it is important
to recognise that these benefits are partly negated when forest
is cleared to make room for biodiesel crops such as oil palm.
Non Government Organisations (NGOs) are now alerting the international
arena to the fact that despite millions of hectares of land standing
unplanted in Indonesia there is still clearance of tropical hardwood
forest for palm oil plantations. Furthermore, as the remaining
unprotected lowland forest dwindles, developers are looking to
peat swamp for conversion, which causes a draining of the peat
and this not only unlocks the carbon in the surface covering of
trees, but begins an oxidation process of the carbon in the peat
reserves which can be between 5,000 to 10,000 years worth of carbon
locked into the ground. Drained peat is also at very high risk
of forest fire, and there is a clear record of fire being used
to clear vegetation for palm oil development in Indonesia.
A review of the EU fuel quality
standards is awaited. Just how biofuels derived from Palm oil
will fit with these standards, and with the RTFO environmental
assurance schemes, is unknown. But clearly there is the threat
of cheap imports that could undermine the UK production of biofuels
from a limited home supply of oilseed rape.
Quality Assurance Schemes for biodiesel at a European
or Member State level seem to be inevitable. But will they be
used for truly environmental reasons, or as a tool to limit global
trade?
The situation could lead to some
sorts of quality assurance or environmental accreditation schemes
in relation to biodiesel or materials used in its manufacture.
Directives from the EC and rules created by the UK Government
could become a political and commercial nightmare.
In this context it was refreshing
to hear Douglas Ward (Managing Director, Argent Energy UK Ltd)
insist that "it is about time there was a level playing field
within the EU". As soon as some new directive arrives from
Brussels the first thing the UK Government does is to send it
to their lawyers for meticulous scrutiny to ensure that we comply
with it to the letter. While on continental Europe they try to
see ways round it, whereby they can get on with what they want
to do, and in so doing achieve commercial advantage.
Interestingly, Melvyn Askew of
DEFRA is due to speak on biofuels at the SAC Annual Outlook Conference
at Murrayfield, Edinburgh on Tuesday 14th November.
-
Will DEFRA have the competence to handle this opportunity
in a timely and efficient manner?
-
Are they capable of integrating their efforts with other
UK government departments?
-
Will they get into a mess with conflicting environment concerns,
pressed upon them by powerful single interest lobby groups?
-
Are they, along with other departments, capable of negotiating
with the faceless powers in Brussels so that the UK gets a
fair deal?
At best Brussels is a slow, slow organisation
that must test the patience of big industry to the extreme - as
it does everyone else - except for those countries like France,
Germany and Italy that seem to know how to manipulate it to their
advantage.
Will all this help the financially strapped Scottish
hill farm with its traditional mix of livestock and cereals?
For UK cereal growers - especially
those in Scotland with their proximity to Grangemouth - there will
undoubtedly be a new market: indeed, a new industry. In Scotland
the demand for oilseed rape will put pressure on the supply of barley
for malting. There should be a consequent rise in prices. In recent
years the acreage grown for malting barley has been greatly reduced,
as the low prices paid by the grain merchants made it on unprofitable
crop for the hassle and risks involved. The advice at the workshop
was to negotiate a good contract before planting, and not to accept
the first offer.
Whether the improved prices will
be enough to offset the predicted rise in farm costs is debatable.
There was a great mood of optimism at the Workshop, but success
may well depend on whether home grown quality standards are upheld
against cheaper imports with perhaps lower quality assurance standards
- a familiar problem in the beef industry.
But will the biodiesel boom help
Scottish farmers in agriculturally Less Favoured Areas - that extensive
amount of land in Scotland that is so important to the environment
and to the economy of the more remote rural areas? Perhaps the biodiesel
market is not for them. But if the big growers in the plains are
enticed by the prices offered by the biodiesel industry, then these
areas in Scotland may benefit from competitive demands for malting
barley, which would have the added advantage of keeping the Scottish
beef industry going: straw being essential for the winter housing
of cattle. Oilseed rape is no good for straw.
But if many Scottish hill farms have
to give up the struggle of trying to make suckler herds profitable
there would be little need for straw. Then there may be a place
for biomass to fuel local heating systems: that is, if the planners
could get a move on and insist in designing houses to higher environmental
standards including how they are heated.
In summary, growing oilseed rape
for the biodiesel industry is likely to be the game for the big
boys of UK cereal farming. Hopefully, there may be a spin off for
those farmers with their smaller holdings in the rolling hills of
the remoter areas. The price paid for malting barley to produce
whisky and other beverages that bolster the Scottish economy might
attract a better price. It might just help to keep them in business.
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