China: Taking Steps Towards Biofuels Development

By Chris Lawrence, BCS, Incorporated

 

As the world’s second largest consumer of oil, with its consumption reaching approximately 7.5 million barrels of oil each day, China is taking strides to move toward alternative forms of energy.[i] To this end, China is cooperating with the United States on biofuels research. On December 11, 2007, the United States and China signed a Memorandum of Understanding (MOU) in which biofuels cooperation was highlighted. The countries agree to collaborate in all areas of biofuel production, including the scientific, technical, and policy aspects of biofuels development, production, and use. Specific areas of interest include biomass production and sustainability, conversion technologies, bio-based products, and rural development strategies. This agreement will benefit both the U.S. and Chinese agriculture industries, as new markets for several agricultural commodities and waste products become evident through the increased cooperation between the two nations. The agencies involved in this effort include the U.S. Departments of Agriculture and Energy, and China’s National Development and Reform Commission.[ii]

 

China’s demand for oil has been increasing steadily over the past 20 years, with rapid growth since 2002. Exhibit 1 displays China’s petroleum demand since 1986. Since 1994, China consumed more oil than it produced, thus requiring imports to satisfy the rest of its demand.[iii] China is the third largest net importer of oil in the world behind the United States and Japan.[iv] The growth of China’s petroleum consumption stems greatly from rapid economic growth and an icreasing number of vehicles in the country. By the end of 2007, there were approximately 57 million civilian use vehicles on the road in China. This represents a growth of 14.3 percent from 2006. Of the 57 million vehciles, approximately 35 million were privately owned, representing a 21 percent growth rate from the previous year.[v]

 

Exhibit 1: China Petroleum Consumption and Demand, 1986-2006*

 

 

China had initiated policies requiring the use of biofuels in the country even prior to signing the MOU with the United States. The Chinese Government began mandating the use of a bio-ethanol blend in 2002 in response to rising fuel demands, greater use of imports, and increased levels of pollution.  In October 2004, a mandatory 10 percent bio-ethanol blend (E10) was implemented in the provinces of Heilongjiang, Jilin, Liaoning, Hernan, and Anhui.[vi]  Plans to expand the E10 program to 27 cities in the Shandong, Jiangsu, Hebei, and Hubei provinces by 2006 have been delayed due in part to shortage of feedstocks.[vii] China also began drafting biodiesel blending standards toward the end of 2007.[viii]

 

Currently, China is using corn as its primary feedstock to produce ethanol.[ix] However, China is exploring other feedstocks in the face of increasing prices of corn and as ethanol production begins to compete with corn needed for other industries. China Agro-Technology Ltd. recently signed an MOU with the city of Beihai to construct a biodiesel plant that will produce approximately 2 million metric tons of biodiesel using Jatropha as a feedstock.[x]. Other feedstocks being examined by the Chinese energy ministry include potatoes, sorghum, rice, and lignocelluloses.[xi]

 

It is predicted that plans to expand the use of corn-based ethanol in China will certainly impact global corn markets. At its current rate of consumption, and if the country expands the E10 mandate, it is predicted that Chinese imports of corn could increase 92 percent by 2015. Meanwhile, world corn imports and exports are only expected to increase 3.2 percent by 2015.[xii] It is therefore important for China to seek alternative feedstocks so as to dampen their demand for corn.

 

In addition to partnering with the U.S. government, China is pursuing advances in biofuels through private foreign investment in agriculture research. For example, a $65 million Biotechnology Research Center, located in Beijing, is focusing on early stage evaluation of genetically modified and native traits in corn and soy that may lead to breakthroughs in increasing crop yields.[xiii]