World cooling on biofuel

2008-04-07 08:29

Jakarta - Once a golden promise in the fight against climate change, biofuels are fast losing their lustre as high demand for essential crops drives land clearing and pushes up the price of food.

Biofuels made from food crops such as corn, sugar, soybeans and oil palm burn cleaner than fossil fuels, but experts say high demand is sending ripples through the world economy, and could be doing the environment more harm than good.

Rudy Gosal, a 36-year-old courier who queued with hundreds of others in Indonesia's capital in March to buy government-subsidised cooking oil, is one of millions feeling the pinch of the push towards biofuels.

After the latest rise earlier this year, the cost of cooking oil in Jakarta jumped a massive 70%, to around 12 000 rupiah a litre.

Cooking oil in much of the world comes from palm oil. And, in recent years, mostly European demand for biodiesel has helped push the price to record highs.

Gosal is relatively lucky - he supports his wife and three children on 1.6 million rupiah a month, nearly twice the minimum wage here.

But the latest price increase still meant he could afford less tofu to go with his family's rice. Another likely rise could mean doing without a twice-monthly luxury: meat.

"If there's a price rise, our salaries don't go up but the cost jumps. It's out of balance," Gosal said.

Demand for palm oil has also been a major source of land clearing here.

The spread of palm oil plantations into forests and highly sensitive peatlands on Sumatra and Borneo islands have helped make Indonesia the world's third-highest greenhouse gas emitter.

The peatlands are a swampy store of semi-decomposed vegetation up to several metres deep, and clearing and draining them releases massive amounts of carbon.

A study published in the journal Science in February found it would take around 86 years for biodiesel made from palm oil grown on cleared tropical lowland forest to repay the "carbon debt" generated from clearing the land.

For biodiesel from cleared peatlands, the study found, the debt would take more than 840 years to repay.

"Certainly the carbon debt from converting peatlands is far and away larger than in any of the other ecosystems we considered," said Jason Hill, an economist at the University of Minnesota and study co-author.

Biofuel producers are struggling with high costs

But Indonesia appears intent on running up that debt. Already at least 10 million of its 22.5 million hectares of peatland have been cleared, according to the Centre for International Forestry Research, and the clearing shows no sign of slowing.

Shifting crops over to biofuels can also have environmental and social consequences that cross borders, said Timothy Searchinger, an environmental law expert from Georgetown University in the United States.

"Whenever cropland in some countries is diverted to fuel, the price goes up and farmers in other countries produce more, in significant part by expanding into forest and grassland," he said.

In the United States, for example, government subsidies for corn ethanol have pushed up global corn prices to levels unseen in decades, spurring a 15% growth in land planted with the crop last year.

Less land devoted to crops like soybeans has led to higher global prices that may spur farmers in Brazil to clear more of the Amazon to take advantage of the windfall - thus increasing carbon emissions, said Joe Fargione, another author of the Science study.

Meanwhile, in Jakarta's side streets, it's not only cooking oil that is becoming more expensive. Record global corn prices mean high prices for livestock feed, making protein sources such as eggs - and Gosal's family's twice-monthly meat - an increasingly rare luxury.

Siegfried Falk, an analyst with German-based consultancy Oil World, said that despite the hype, palm oil only makes up between 10 and 20% of biodiesel used in the European Union, the largest market for the fuel.

Most European biodiesel comes from rapeseed oil which is less efficient to produce but is protected by tax incentives, Falk said.

Despite this, he said, palm oil prices are rising as investors react to high oil prices by bidding up palm oil futures as a possible alternative.

"A lot of people in the market are hoping that (expensive fossil fuel) creates substantial demand in palm oil, and oils in general," Falk said.

As a result, biofuel producers are struggling with the increased cost of their raw material.

Indonesian producers are currently only making a fraction of the one million ton of biodiesel they have capacity for, said Yohan Soelaiman, a manager at local producer Eterindo.

"Our capacity at the moment is 240 000 tons per year and we're only running 20 000 tons," he told AFP.

"We cannot export now because the price (of palm oil) is so high."

- AFP