Page last updated at 23:54 GMT, Tuesday, 17 January 2006

Biofuel raises global dilemmas

By Jorn Madslien
BBC News business reporter in Henstridge, Somerset

The massive depots at Wessex Grain's sprawling processing plant in Henstridge are filled to the brim, not only with locally grown wheat, but also with hope for a more environment-friendly future.

Wessex Grain's processing plant in Henstridge
Grain processing could bring rural jobs

Here, the Wessex Grain subsidiary Green Spirit Fuels has just been given planning permission to create one of Britain's first bioethanol plant, which will eventually convert 340,000 tonnes of locally grown wheat per year into 131 million litres of ethanol.

And since the government's Renewable Transport Fuel Obligation demands that 5% of all motorcar fuel must come from renewable sources by 2010, bioethanol will be used to fuel a growing number of cars on British roads, insists Green Spirit Fuel's finance director, Arthur Llewellyn.

"The UK will need 10 production plants like the one in Henstridge to meet the government's requirements," he says.

Biofuel converted cars

Most of the bioethanol will be mixed thinly with petrol.

The way it has been positioned as a solution to UK motoring is naive
Biofuel industry official

Ordinary cars can run on blends of 5% biofuel and 95% petrol, and this is quickly and silently emerging as a standard fuel at Britain's service stations.

But some of the ethanol will be mixed with just 15% petrol to produce a fuel dubbed E85 (since it contains 85% bioethanol), which can be used by specially biofuel-enabled cars, like the Ford Focus flex-fuel or the Saab Biopower.

Nationwide benefits

For Britain's farmers, this anticipated shift towards bioethanol would be particularly good news, observes Wessex Grain trader Owen Cligg.

Each year, UK farmers produce 3.5 million tonnes more grain than they can sell. If this surplus were sold to bioethanol producers, prices should rise across the board by £10-15 per tonne, Mr Cligg estimates.

"We can provide farmers with a revenue for wheat that is above the cost of production," adds Mr Llewellyn.

And the benefits are not limited to farmers who grow wheat. Bioethanol and biodiesel can be produced from a slew of other agricultural products, for example rapeseed and other virgin oils, according to Greenergy, which provides biofuel blends to Tesco forecourts.

An expensive solution

Nevertheless, the introduction of E85 in the UK is proving both costly and difficult.

On the face of it, "it is not that far removed from providing fossil-based transport fuel," according to Graham Meeks of Climate Change Capital, a specialist merchant bank: it is a liquid fuel that is transported by road to underground tanks at service stations, where drivers fill up their cars.

Fiona Leggate with an E85 Ford Focus
Specially modified cars can run on 85% bioethanol

However, most service stations are operated by the oil industry, which is "pathologically opposed" to going down the biofuel route, according to Green Spirit fuels' Graham Hilton.

Even the supermarkets are loath to allow E85 pumps to take up valuable space on their forecourts. "Persuading them to take bioethanol is very difficult," Mr Hilton laments.

In fact, as yet just a handful of supermarkets in Somerset have agreed to sell E85, and only after being offered some significant incentives.

"We had a real challenge getting those forecourts," says Mr Hilton.

"We'll pay for the pumps to be put in, we'll pay a forecourt rental [and] we'll rent an underground tank from them."

Bioethanol distribution is expensive too, with stainless steel tankers costing £120,000 each, and the fuel itself costs 35 pence per litre to produce, Mr Hilton explains.

In other words, as spelt out by the European Commission: "Biofuels are an expensive way of reducing greenhouse gas emissions."

Red herring

But great expense is not in itself a reason not to push the biofuel solution, which the European Commission says "has a justifiably high political priority".

Car exhaust
Bioethanol made from grain produces 65% fewer greenhouse gases than petrol, according to the UK government agency Central Science Laboratory

In its Biomass Action Plan, it describes biofuel as "the only direct substitute for oil in transport", and as such it is "one of only two measures that have a reasonable chance of [reducing greenhouse gas emission] on a significant scale in the near future" - the other being reduced emissions from petroleum-powered engines.

Indeed, there are those - and Climate Change Capital's Mr Meeks is among them - who insist that "with rising oil prices, biodiesel is becoming cost-effective in its own right".

Others disagree and point out that rising demand for grain, sugar beet, rape seeds or any other plant used to produce biofuels is pushing raw material prices higher too.

And the demand is not just coming from biofuel producers. "China's increasing dependence on agricultural imports is expected to lead to a strong turnaround in grain prices," according to Deutsche Bank's commodity analysts - a strong reminder that any foodstuff used for fuel is taken out of the food chain, in a world where many people are starving.

"There's simply not enough foodstuff available and not enough land to grow it on," says one industry official, speaking on condition of anonymity, for commercial reason.

"E85 is good for raising awareness of biofuels, but on a worldwide basis it is a red herring. Eighty-five percent is not the solution," the official insists, adding that "the way it has been positioned as a solution to UK motoring is naive".

Several benefits

This is a moot point for Andy Taylor, Ford Europe's director of corporate citizenship, whose job it is to make Ford a "more socially and environmentally aware company".

"It's a renewable fuel that is adding to our world resources of fuel," Mr Taylor points out, though when pushed he also acknowledges that the automotive future is not bioethanol.

"This is niche," Mr Taylor admits. "You can't make a business on the assumption that some people will pay a premium."

Unless, that is, there are rich and powerful governments involved, such as those in Sweden and Brazil.

In Brazil, cars have been running on biodiesel for years, while in Sweden, Ford's flex-fuel models are outselling its ordinary petrol and diesel cars.

Such progress for the fuel is not primarily due to a particularly environmentally-aware customer base.

Rather, it has come about through government incentives.

Traffic in Sao Paulo city centre
Brazilian cars have been running on bioethanol for years

In Brazil, where biofuel cars now outsell ordinary cars, a state-run bioethanol fuel programme was originally set up for patriotic, not financial or environmental reasons.

It was a strategic decision taken by the military government that ran the country from 1964 to 1985, inspired by a desire to reduce its dependence on petroleum imports following the 1970s oil crisis.

Sweden's state-backed bioethanol programme, meanwhile, ensures that there is no duty on the fuel. E85-enabled cars are offered free parking in Gothenburg, Stockholm and other municipalities.

Biofuel cars are also 20% cheaper to insure and are exempt from the Stockholm congestion charge, while both personal and fleet users pay less tax.

But if this sounds like a high economic price to pay for a reduction in carbon dioxide emissions, consider this: Sweden gets more than that for its money.

As is the case in Britain, Sweden too needs to create rural jobs, and the biofuels sector has the potential to provide that in spades.

Then there is the potential benefit from being at the cutting edge of a new technology; there is even talk of a future where grain is genetically modified to create more efficient biofuels.

But to this small, Nordic nation, perhaps the most important benefit from biofuel is the way it reduces its dependence on imported fossil fuels, and thus further cements Sweden's neutrality as a nation.

In a geopolitically unstable world, the sum of these benefits may well be enough to continue pushing biofuel further, despite any shortcomings.

This is the second of two features exploring the rise of biofuel in the UK. The first feature looks at the growing interest in biofuel both from local politicians, car makers, farmers and investors:



SEE ALSO
Europe biofuel plans under fire
12 Jan 06 |  Business
More Brazil cars run on alcohol
11 Jan 06 |  Business
Garden of England could fuel UK
26 Sep 05 |  England
Farmers cash in on bio-fuel market
15 Sep 05 |  Northern Ireland

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