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Biofuel National Policy - Learning from Experience of Brazil

Biofuel National Policy - Learning from Experience of Brazil.

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Biofuel National Policy - Learning from Experience of Brazil

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  1. Biofuel National Policy- Learning from Experience of Brazil Jai UppalB.Sc. Chem. Engg., M.S.E. (Michigan, USA)F.I.E.. L.M.I.I.Ch.E., L.M.I.M.A. Sr. Advisor, Center for Alternate Energy Research (CAER), Gen. Secretary, Samyak Vikas Sanstha Email: jaiuppal @ yahoo.com / jaiuppal @ gmail.com M: +919811171121New Delhi, October 13, 2008

  2. Relevance of Biofuels –Sugarcane/Ethanol Example • Sugarcane is one of the most energy efficient crops • It produces between 60 tonnes to 150 tonnes of sugarcane per ha • It is a tropical and subtropical crop suitable for India • Has low consumption of water per unit weight of biomass but high overall consumption • 1 ha sugarcane can produce ~5,000 l/ha Ethanol + 10,000 kWh power + equal amount of Thermal Heat or another ~5000l/ha of Ethanol from cellulose

  3. Sustainability Criteria of Biofuels • Water Use – sugarcane most efficient crop per Kg of Biomass created. However, in future micro-irrigation ! • Employment– Rural Employment - Ethanol: Employment rate per unit energy higher than oil - 150:1, Employment per unit Capital investment much higher • Environment– processing (bio-composting and Concentration-Incineration) and in use as transport fuel – Oxygenate – reduces pollution – mandatory in USA. Issue of monoculture/crop rotation, Use of fertilizer/pesticides – Not very relevant for India • Indian climate is not suitable for growing Sugarcane ! • Land Use – Minuscule area of Global cultivated land used for Ethanol • Energy Balance • Food Vs Fuel

  4. Relevance of Ethanol from Sugarcane

  5. Energy from Sugarcane

  6. (Sugar)Cane Potential Source - Reinarch

  7. Production of Biodiesel from Various Feedstocks(Courtesy - Axens)

  8. Criteria for a Policy on Biofuels • It should be compatible with the Integrated Energy Policyof the country • It promotes use of Biofuels in the short term as well as long term so the volumes grows and efficiency increases • It sets clear short and long term targets and Roadmap • It must be stakeholder friendly along the value chain – Farmers; Producers; Customers (Oil companies etc.); Consumers; facilitators etc. Creates a Win-Win situation for everyone.

  9. Criteria for a Policy on Biofuels • Long term rational incentives in Infancy based on ‘need’ with a gradual sunset clause • Creates easy availability of soft fund for investment in the sector • Firm enforcement of the Policy • Promotes RD&D for the emerging sector – increase productivity per ha, reduce costs and make it more eco-friendly • Recognizes need for regular stake holder consultation and is flexible - yearly planning and Stakeholder consultation mechanism since biofuels depend on agro-climatic conditions

  10. Brazilian Experience • Oil shock of 1973– Brazil heavy dependence on imported oil – F.E. situation critical. One of the Remedies – reduce dependence on imported oil • Urgent need to reduce the country’s dependence on expensive imported petroleum & low global prices of sugar • 1975 - National Alcohol Program – “Proalcool” – started with 5% and target of using E20 by blending • Initial Opposition from Petroleum and Auto lobby • Inter-ministerial group set up on Ethanol to address issues & set yearly targets with stakeholders participation • Oil Shock of 1979 – Target to use Hydrous neat alcohol by using cars with special Ethanol engines.

  11. Brazilian Experience • 1980 - Created the PRO-ÓLEO – National Program for production of Vegetable Oils for Fuels (Not implemented) • Encourage: sugarcane plantation, Ethanol manufacturing in Sugar mills, and use by Oil companies, Auto, public etc • By 1984,‘neat’ hydrous ethanol cars accounted for 94.4% of overall production • In 90s all subsidies removed - rapid drop of use of neat alcohol cars -neat Ethanol car sales fell to about 1% of total cars • Crude oil prices slump to $10 per barrel by 1998, but government continues its 25 year persistence Simultaneously, Ethanol production costs continue to fall as efficiency grows.

  12. Brazilian Experience • Production costs fall because increase in agriculture yields and processing efficiencies • New Auto revolution of 2003 when FFVs introduced – giving consumer an unmatched flexibility to mix any blend of Ethanol and Petrol – auto costs almost same. • Since 2007, 90% of all new cars sold are FFVs • At present Ethanol replaces 50% gasoline – significant contribution of Oil (new pipeline) & Auto Cos (FFVs) • Revolution of generating power from bagasse (11,500 MW by 2015) is further reducing cost of Ethanol & providing flexibility to Ethanol producers • Since late 90s There is no government subsidy for the production of sugar or ethanol in Brazil.

  13. Brazilian Experience • Brazilian ethanol saved till 2007 foreign exchange of US $85.8 billion in fuel imports & does not import oil • Success of the PROÁLCOOL program: Ethanolproduction risen from 555 million liters in the 1975-76 to over 20 billion liters in 2007-08 • Sugarcane for ethanol occupies only 3.4 million hectares, or roughly 1% of the country’s 355 million hectares of arable farmland & substitutes 50% of petrol. • well-to-tank analysis, sugarcane ethanol produces 9.3 to 11 units of clean, renewable energy for every unit of fossil energy utilized (efficient Indian distilleries do not use any fossil energy)

  14. Ethanol Time/Volume Vs Price

  15. Brazilian Experience • Biodiesel Policy - National Program of Biodiesel - PROBIODIESEL 2000 • Established a national network to study biodiesel from soybean and ethanol - 2002 • 2003 (22/12) - Interministrial Working Group(14 Ministries) for formulation and implementation policies of PROBIODIESEL; • IM concluded that that introduction of Biodiesel could bring Social, Environmental, Economic and Strategic benefits • Enabling legislation passed

  16. Brazil - Incentives for Biodiesel • Law 11116 (May 2005) and Decree 5297 (Dec. 2004): • Exemption on Excise tax; • Tax Reduction for biodiesel producers: • Incremental Reduction if: • The raw materials are purchased from family agriculture; • The raw material is from Palm or Castor trees coming from • the North, the Northeast or the semi-arid region of the country; • Zero tax for the combination of the above factors of ~ USD 90/m3.

  17. Brazil - Incentives for Biodiesel • Law 11097 (Jan. 13, 2005) - Introduces Biodiesel in Brazil’s Energetic Matrix and also: • Authorizes B2 from 2005 • Mandatory 2% (B2) from 2008 (800 million Liters/Year) • Mandatory 5% mixture of Biodiesel (B5) from 2013; • Encourages cooperative arrangements

  18. Brazil - Incentives for Biodiesel • Resolution # 3 (Sept. 23, 2005) from “National Council for Energetic Policy”: • Mandatory Obligationfor oil producers and importers to purchase all biodiesel producedfrom companies or associations (awarded with SFS) from January 1, 2006; • This Biodiesel will be sold through public auctions promoted by The National Agency for Petrol, Natural Gas and Biodiesel (ANP). • Criticism: too much dependence on market forces for an industry in infancy– insufficient incentives and support price • Most important lesson from Brazil – Real benefits of Biofuels will come after decades of perseverance (Source:Paulo T. de Sousa Jr/Antonio René Iturra) • Infant RE (Biofuel) programs cannot survive the ruthless world of unfair competition without ‘mother’s protection in its infancy’.

  19. Learning from Policies of Successful Countries • Political Will – Broad consensus • Widespread Public support thru awareness – role of media • Perseverance & Persistence – Acid test oil below $80 per bbl. • Rationale for Biofuels – Energy security, Economic, Farmers welfare, rural employment, Environmental benefits, appropriate agro-climatic conditions • Long-term incentives for industry in infancy • Investment in R&DD – (eg. Jatropha Demonstration Project. We need a Karanj Demonstration Project! We may a need one on Algae – We need to be brave to be a world leader)

  20. Recap of Indian EBP • Budget of Feb 2002 -Excise duty concession on Ethanol of Rs 0.70 reduced to Rs 0.30 per litre with year to year validity in the budget – not renewed after Feb 29, 2004 • Dr SJ Chopra Technical Committee Report of March 20, 2002 that Ethanol most appropriate oxygenate for India • September 13, 2002 notificationmaking 5% Ethanol blending in gasoline mandatoryin 9 States & 4 UTs by January1,2003- a notice period of just 3.5 months

  21. Recap of Indian EBP • Notification regarding mandatory provision made conditional with new notification Oct 2004– blending subject to availability, market forces & import parity price • Substantial Progress made - nearly 1200 mill L Ethanol capacity built up. • Purchase Policy for Biodiesel October 2005 – Buy biodiesel at Rs. 25 per litre inclusive of all taxes and duties at 20 depots from January1, 2006 – a good but low price gives wrong signal

  22. Recap of Indian BD experience • Large capacity of more than 500,000 tonnes set up • Most of the plants lying closed due to lack of competitive price feedstock – imported/Indian and low price of diesel • At least 2 large plants on 100% EOU • One large plant retrofitted to produce BD – supplied to PMTC when diesel prices were high but stopped after the diesel prices fell and imported raw material prices increased.

  23. National (Indian) Biofuel Policy • Policy aims at mainstreaming Biofuels • An indicative target of 20% by 2017 for the blending of biofuels has been proposed – should be latest by and not a fixed date target. – Ethanol target can be met by 2012given the right policies. • 10% Ethanol mandatory from Oct 2008 • Bio-diesel production will be taken up from non-edible oil seeds in waste / degraded / marginal lands. • The focus would be on indigenous production of bio-diesel feedstock • Biodiesel on Wasteland and not on fertile irrigated land • Biodiesel blending recommendatory – (why not oil companies will buy whatever/wherever available ?)

  24. NBP – Pricing Aspects • Minimum Support Price (MSP) with the provision of periodic revision – details to be worked out (Risk vote bank politics; centre or state) • Consider extension of SMP for oil seeds - can it compete with crude ? • NREGP would be applicable (already) • Marketing, distribution limited to OMC – (If Higher PP from private sector, then ?) • Minimum Purchase Price (MPP) for the purchase of bio-ethanol by the OMCs would be based on the actual cost of production and import price

  25. NBP – Pricing & Incentives • Take into account entire value chain for determining price of BD. • In case of biodiesel, the MPP should be linked to the prevailing retail diesel price – State-wise variation & • Compensation to OMC for lower diesel and fuel prices (already subsidy to petrofuels?) • Biofuels from Biomass will get incentive and concession – it needs subsidy • Bioethanol enjoys concessional ED of 16%(???) (& Molasses ED Rs 750 per tonne increased from Rs500) (I propose to reduce the excise duty from 16 per cent to 8 per cent on a few items including -----veneers and flush doors,specified packaging material, and breakfast cereals - FM08-09 Budget speech) • Role of States – nominate nodal agency, land matters, infrastructure for Biofuels

  26. NBP- Finance Related Aspects • Envisages that bio-fuels may be brought under the ambit of “Declared Goods” by the Government to ensure unrestricted movement of biofuels within and outside the States. • Import of Free Fatty Acid (FFA) oils would not be permitted (why?) • Export of Biofuels would be permitted after meeting the domestic requirements (what happens to 100% EOUs set up or to be set up in future ?) • 100% FDI in Biofuels sector thru automatic approval • Law needed to enforce mandatory provisions!

  27. NBP- Institutional Mechanism • For R&D in bio-fuels, a Sub-Committee under the Steering Committee would be constituted led by the DBT, MoA & MoRD and coordinated by MNRE – Thrust generation II Biofuels • MNRE has been given the responsibility for the National Policy on Biofuels and overall co-ordination • National Biofuel Coordination Committee to be chaired by the Prime Minister with Secretary, MNRE would be the Convener. • & The Bio-fuel Steering Committee to be chaired by Cabinet Secretary – Secretary MNRE to be member secretary

  28. Short term Challenges • Availability & cost of appropriate feedstocks– increase productivity and cyclic nature (weather resistant ) esp. for BD • How to increase availability of feedstock and how to match with production capacity of BD ? • How to financially support the grower for first 3 to4 years ? • Increasing productivity (AgT/BT) – Biomass, starches/sugars (sugarcane – 100 T/ha/yr) and Jatropha, Algae etc. for BD • Technology to process new feedstocks – biomass, algae etc • Technology to make Biofuels that are most appropriate (economical & eco friendly) – Can we make biofuels that are ‘best’ liquid or gaseous fuels for the transport sector ? • Give a boost by incentives applicable to RE – ED concession, Accelerated Depreciation etc.

  29. Short term Challenges • Biofuels Development Fund for R&DD is proposed but should similar to SDF for soft loans for setting up new projects also. How will it be funded? • No mention of FFVs to provide flexibility to consumers • Allow Biofuel blending at petrol pumps by private sector (pure Ethanol for FFV, Ethanol-diesel blends, Biodiesel blends??) • For economics & decentralized system it may be better to have higher blends in surplus states up to 20% or FFVs - reduce transport costs • Prepare BIS standards for E20, B20, FFVs now so that it can be used so it sends right signal • Addressing restrictions in setting up of Ethanol plants by state governments and movement of Ethanol

  30. Thank you !

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