BANGKOK/JAKARTA — Offsetting high oil prices. Cutting fossil fuel consumption. Winning the votes of farmers. If these are the questions, governments across Asia have settled on the same answer: biofuels. Policies designed to promote the oil alternatives are taking root from Vietnam to India. But an Asian biofuels boom could create different complications, affecting agricultural prices and straining the region’s food supply. Consumers in Vietnam have a more immediate concern, sparked by the government’s energy policy.
At the end of 2017, the Vietnamese authorities halted the sale of RON 92 gasoline, which is equivalent to regular gas and was marketed as A92. The decision forced drivers to use either E5, a blend with 5% biofuel, or A95, a more expensive equivalent to high-octane gas. Vietnam’s daily consumption of petroleum products has doubled over the past 10 years due to economic growth. The Ministry of Industry and Trade says the new policy is an effort to reduce the country’s reliance on fossil fuels and protect the environment.
Since plants absorb carbon dioxide, the thinking is that crops grown for biofuels soak up emissions roughly equivalent to those spewed by cars burning fossil fuels. Plus, with crude prices at the highest levels in three years, the cost of importing gasoline has increased. Biofuel costs, conversely, have dropped. So experts say increased use of biofuels can help keep capital within the nation’s borders.
Some drivers, though, are not happy. The blended E5 gas offers poor fuel economy and may cause engine trouble, complained a 42-year-old Hanoi resident who gave the name Hung. “I use the high-quality A95 though it is priced some 10% higher.” Now, the government is thinking about making it mandatory to mix biofuel into A95 as well, since the current policy has not had the desired effect on purchasing patterns.
Over in Indonesia, the world’s largest producer of palm oil, the government plans to increase the mandatory biological content in biofuels to at least 25%, from 20%. Ignasius Jonan, the energy and mineral resources minister, said in May that increasing the ratio in palm oil-based biodiesel would cut the state’s expenditure on total oil imports by up to $1 billion a year. Saving money is not the only reason to push biofuels.
Palm oil, corn and sugar cane — the main sources of ethanol for biofuels — are known as “political commodities” in countries like Indonesia and Thailand, both of which are headed for general elections early next year. Growers form crucial voting blocs. The Thai government is on the biofuel bandwagon. The current standard in the country is 7% biofuel mixed with 93% fossil-based diesel, but the junta intends to raise the biofuel ratio to 10% by the end of this year and 20% over the next few years.
The Thai government also decided to reduce sugar exports by 500,000 tons this year, diverting the crop into ethanol production. The policy was aimed at increasing sugar cane consumption within Thailand — the No. 2 sugar exporter after Brazil — to shore up prices.
The government was evidently feeling pressure from farmers. Favorable weather has brought abundant crops of sugar and palm. Sugar production in 2018 is forecast to surge nearly 50% on the year to a record high. The country is also projected to have 850,000 tons of crude palm oil stockpiled by the end of the year, well above the usual 300,000 tons or so.
Expectations of oversupply are keeping the prices of both commodities at historically low levels. “The government should encourage investors to produce sugar cane into sugar-based ethanol, and the government should set up a campaign to encourage motorists to use more biofuel in order to lend indirect support to farmers,” said Theerachai Saenkaew, president of the North-Esan Sugarcane Planters Association.
Ironically, the focus on “greener” biofuels has put governments like Indonesia’s at odds with conservationists and the European Union. Palm oil producers stand accused of contributing to illegal deforestation, endangering orangutans in the process. The European parliament voted in January on a revision to the bloc’s Renewable Energy Directive, seeking to completely phase out palm oil in biofuels by 2021.
During a panel discussion at the Jakarta Foreign Correspondents Club in May, Vincent Guerend, the EU’s ambassador to Indonesia, said, “Because of the fast expansion of palm oil production over the past five to 10 years, the plantation has been expanded at the expense of other agricultural land or even land which wasn’t devoted to agriculture … where the economic activity has led to a massive production of greenhouse gases.”
Purbaya Yudhi Sadewa, Indonesia’s deputy minister for coordinating maritime sovereignty at the coordinating ministry for maritime affairs, fired back: “Sometimes people protest because when you are expanding this palm oil industry or plantation, you kill many orangutans. I agree with that, but we have to find a balance between feeding our population and letting the orangutan live.”
Mahendra Siregar, a former deputy trade minister and currently the executive director of the Council of Palm Oil Producing Countries, was more blunt. In the “worst-case scenario” of an EU palm oil ban, he said, the Indonesian industry can live without the EU. “The question is whether the EU can live without the palm oil.” The looming halt to EU-bound exports is another reason Indonesia is eager to increase domestic consumption of palm oil as biofuel. At the same time, the government sees a huge opportunity in China.
Indonesian President Joko Widodo has already convinced Beijing to import more of his country’s crude palm oil. “Exports of palm oil to China can be increased immediately,” Chinese Premier Li Keqiang said when he visited Indonesia in May. “We have taken into account Indonesia’s [need] for economic growth and to improve the welfare of farmers.” As part of its war on air pollution, the Chinese government has set a rule requiring gasoline to contain 10% ethanol by 2020.
“We must speed up the construction of a system of ecological civilization and ensure that the ecology and environment are fundamentally improved by 2035, and that our goal of building a beautiful China is basically achieved,” President Xi Jinping said in May. Indonesia is not the only country that has taken notice of China’s emphasis on ethanol. For U.S. President Donald Trump, it may offer a way to shore up support in the Corn Belt — the Midwestern region that dominates the country’s corn production — while battling Beijing over trade.
“Farmers have not been doing well for 15 years,” Trump tweeted on June 4, accusing China and other countries of treating American growers “unfairly.” “Massive trade deficits no longer!” the president vowed. The growing thirst for ethanol in China — which apparently still lacks the infrastructure to produce and transport the liquid itself — could help Trump back up that pledge. “If China is serious about meeting their own ambitious mandate, there is an expectation that trade will have a role,” the U.S. Grains Council told Nikkei, hinting at its interest in ethanol exports to China.
In late May, the Ethanol Summit of the Asia Pacific, held in Minnesota and sponsored by the U.S. Grains Council, attracted energy officials and ethanol producers from China as well as India and Southeast Asian countries. Tetsuo Hamamoto, Japan director for the Grains Council, was impressed by Chinese participants’ hunger for information, noting how they “attentively listened” to talks about infrastructure and ethanol transport.
A major question is whether this new biofuels boom will have similar side effects to the first one in the 2000s. Back then, as expensive crude oil spurred a shift to ethanol, prices of corn and other edible grains soared. Surging food costs fanned popular discontent — one of the contributing factors to the Arab Spring protests that swept the Middle East.
Nowhere is the delicate balance more apparent than in India, with its large population and widespread poverty. There, ethanol is mainly produced from molasses. But the government in May announced a national biofuels policy that permits the use of sugar cane juice, sugar-containing produce like sugar beets, and starchy crops such as corn and cassava.
Prime Minister Narendra Modi, who has promised to double farmers’ incomes, is loath to lose their support ahead of general elections next spring. Yet an official of the United Nations Food and Agriculture Organization warned in an recent interaction with Nikkei, “bio energy policies should be based on real country conditions and what is assessed to be sustainably viable in each country.”
Many experts do not expect food prices to skyrocket like they did last time around, thanks to the rise of electric vehicles and other new types of cars. Electric and hydrogen vehicles are gentler on the planet than cars running on biofuels. “Biofuels only play a bridge role, until ‘new energy vehicles’ become widespread,” said Yasushi Ninomiya, senior researcher at the Institute of Energy Economics, Japan. Since the cost of producing green cars will drop in the long run, he said they will increasingly replace gasoline-powered vehicles.
Even so, investment in ethanol production is increasing in the U.S. in anticipation of greater demand from China. There are also signs of speculators pouring money into the ethanol futures market. The possibility that Asia’s biofuel boom will impact food prices cannot be ruled out.