Discussions on Bio-Energy

The Post-Oil Era and Biomass Liquid Fuels

Zhang Ruihe
China National Chemical Information Center

1. Petroleum will be replaced by biomass liquid fuels

The concept of "post-petroleum era," meaning that mankind is
forced to find "post-petroleum era" energy as soon as possible,
was introduced in May 2003. Today, countries still have
different viewpoints on the time the world will enter the
"post-petroleum era." Some people think that it will take only
15-25 years and others think that it will be more than half a
century. Most scholars and experts agree to the view of more than
40 years proposed by BP of Britain.
    To get prepared for the coming of the "post-petroleum era,"
the United States, Russia, Europe and Japan started to
strengthen research on the utilization of nuclear energy,
hydrogen energy, biomass energy and other renewable energies a
long time ago. They also regard biomass liquid fuels as one of
the important alternative energies. Europe is the biggest
bio-diesel producing region worldwide.
   As a major crude oil importer, China also pays great attention
to the coming of the "post-petroleum era." It has included
biomass liquid fuels in its development program. On November
29th, 2005 fuel alcohol and bio-diesel were included as
renewable energies in the directory of industrial sectors whose
development was encouraged by the government. On January 1st,
2006 China began implementing the "Law on Renewable Energies."
The utilization of renewable energies in China is developing at
an average annual rate of over 25% today. According to the
"Medium and Long-Term Development Program for Renewable
Energies" issued by the central government, China will invest
around RMB1 500 billion in the development of renewable energies
over the next 15 years. Biomass liquid fuels with energy crops
as the main raw materials will be able to replace 10 million t/a
of crude by 2020.

2. The fundamental strategy for the development of the fuel
alcohol sector is first, not to create competition between grain
for food and grain for fuel, and secondly, not to create
competition between allocation of land for biofuel farming and
for other land uses

In 2000 China started explorations of the use of grain reserves
that become too old for use as food such as corn and wheat to
produce fuel alcohol. As the price of fuel alcohol produced in
this way was higher than gasoline at that time, development was
slow. Only 30 000 tons were produced in 2002. The global rise
of energy prices - oil in particular - in 2004 increased the value
of fuel alcohol. With support from the financial policy of the
central government, fuel alcohol gained market advantage, and
producers also started to make profits. Fuel alcohol projects
turned from "burdens" into "cakes" that everybody wanted to get.
   The four biological fuel alcohol pilot projects approved in
2006 by the central government to begin construction have
already created an operating capacity to produce 1.02 million
t/a. The capacity of Heilongjiang CR Alcohol Company Ltd. is 100
000 t/a, the capacity of Jilin Fuel Alcohol Company Ltd. is 300
000 t/a, the capacity of Henan Tianguan Fuel Alcohol Company Ltd.
is 300 000 t/a and the capacity of Anhui BBCA Biochemical Company
Ltd. is 320 000 t/a. The output of fuel alcohol was 680 000 tons
in 2004, 810 000 tons in 2005 and more than 1.0 million tons in
2006.
    The central government has provided support to the pilot
production and dissemination of fuel alcohol since 2002. Major
measures taken include the following. A national bond fund of
RMB480 million was set up for the construction of three fuel
alcohol producers in Henan, Anhui and Jilin provinces. Favorable
tax policies have been implemented and the four pilot fuel
alcohol projects approved by the government are exempt from 5%
excise tax. Tax breaks amounting to RMB190 million have been
granted and a subsidy of RMB2.0 billion has been allocated by
the Ministry of Finance to compensate for the loss.
   According to the information released by Henan Tianguan, the
company received subsidies of RMB2 070 per ton in 2004 and RMB1
721 per ton in 2005. Anhui BBCA got RMB1 883 per ton in 2005 and
RMB1 628 per ton in 2006. Since 2006 the subsidy from the Ministry
of Finance has become a flat rate of RMB1 373 per ton and its
duration is determined by the time producers take to reach their
design capacity. Henan Tianguan has already started to implement
the new subsidy policy. Anhui BBCA will start in 2007.
   Stimulated by brisk demand and the huge financial subsidy,
the four producers have actively expanded their production
capacity. Total capacity reached 1.63 million t/a in 2006. Other
local governments ambitiously apply for the construction of
biological fuel alcohol projects. The development of fuel
alcohol has been included in their Eleventh Five-year Programs
(2006-2010). The planned capacity of biological fuel alcohol
projects submitted to the National Development and Reform
Commission already exceeds10 million t/a. Signs of overheated
and blind development have appeared. At this critical juncture
in the development of the biological fuel alcohol sector, the
Ministry of Finance formulated the "Interim Methods for the
Management of Specific Funds for the Development of Renewable
Energies" at the end of May 2006, stipulating that biological
fuel alcohol refers to fuel alcohol produced from sugarcane,
cassava and sweet sorghum and does not include fuel alcohol
produced from corn, wheat, rice and grain reserves. It also makes
clear that the central government no longer encourages new
grain-based fuel alcohol projects but will exercise a strict
control on them. In December 2006 departments of the central
government issued urgent circulars one after another such as
"Strengthening Management of the Construction of Biological
Fuel Alcohol Projects and Promoting Sound Development of the
Sector" and "Strengthening Management of the Construction of
Corn Processing Projects." Control of the drastic heating of
fuel alcohol projects was started. Approval to corn processing
projects will be suspended and overall rectification of projects
now being constructed or being planned for construction will be
conducted.
    The central government will continue to implement the system
to verify biological fuel alcohol projects during 2006-2010. New
projects have to submit verification to investment managing
departments and financial departments of the central government.
Fuel alcohol projects approved in violation of laws and
regulations or starting construction without approval will not
enjoy subsidies and tax benefits. Similarly, fuel alcohol
projects expanding capacity without approval of the central
government will not be entitled to financial subsidy.
    The utilization of fuel alcohol today is limited to only
eight provinces and municipalities such as Heilongjiang
province. Based on the gasoline consumption of 55.91 million
tons in China in 2006, in case of a nationwide dissemination,
the amount of fuel alcohol as an additive would be 5.60 million
tons. Based on 3.3 tons of corn per ton of fuel alcohol, 18.48
million tons of corn would be consumed, accounting for 3.8% of
the total