In Southeast Asia, hope for biofuels turns to early disappointment

Aerial view of palm oil plantation on deforested land, Sabah, Borneo, Malaysia 2007

Aerial view of palm oil plantation on deforested land, Sabah, Borneo, Malaysia. WWF Deutschland

BOGOR, Indonesia (1 February 2013)_Governments across Southeast Asia had high hopes for biofuels several years ago: At a time of upwardly spiralling oil and gas prices, renewable energy made from palm oil, sugarcane or jatropha was seen as a way to reduce dependency on fossil fuel imports, improve livelihood opportunities for rural communities and play a part in global efforts to mitigate climate change.

But all of the countries failed to meet their own targets, according to a recent study by the Center for International Forestry Research, partly because — in a region where oil and gas has long been heavily subsidized — consumers had little incentive to switch to a more costly, sustainable alternative.

They also had to grapple with international concerns that forests were being cleared and that the production and use of oil palm, sugarcane and other crops for energy could threaten food security. To date, a very small proportion (less than 5%) of all oil palm grown in Indonesia is used as a biofuel feedstock.

“Countries in Southeast Asia have not been successful at achieving their goals due to a combination of unfavourable economic conditions and perverse incentives,” says Ahmad Dermawan, a CIFOR researcher and lead author of the study Withering before full bloom?: Bioenergy development in Southeast Asia.

He and other members of his team still believe biofuels have the potential to play a significant role in the region’s energy mix in the future. But for that to happen, governments will have to begin by tackling the sensitive issue of fuel subsidies, they say.

At the end of the day, it all comes back to political commitment — removing fossil fuel subsidies is a politically unpopular move.

Indonesia, Malaysia, Thailand and the Philippines would need to gradually reduce subsidies for oil and gas (something governments fear could spark public anger and lead to political instability), and put in place more subsidies for the development of renewable energy. Comparable challenges exist in many other parts of the developed and developing world including substantial subsidies to grow corn to produce liquid fuels in the US.

Governments also need to alleviate fears that forests are being cut or burned to make way for expanding biofuel plantations and to better demonstrate that the substitution of food crops by biofuels does not necessarily lead to higher food prices.

“There are millions of hectares of land that is classified as “degraded” in Indonesia, which could be used to develop oil palm plantations,” Dermawan said.

“And corn and soy are not the main feedstocks for biofuels in Southeast Asia – oil palm, sugarcane and, to a very limited extent jatropha, are mainly used.”

Though originally marketed as environmentally friendly, the ‘green credentials’ of many biofuels have come into question in recent years. This has been confirmed by CIFOR’s global comparative research on biofuels, and endorsed by a preliminary October 2012 decision by the European Commission.

Some of the feed crops being used – such as ethanol made from corn grown in the US, sugarcane from Brazil and oils derived from arable crops – turned out to be land-intensive and often required large inputs of energy to produce. Others made from woody materials and agricultural residues are perceived to be greener because they use waste materials, but are still expensive to produce at industrial scale.

With the biofuels price being less competitive than subsidised fossil fuels [in SE Asia], the market is not growing as expected.

Even so, energy-starved Southeast Asian countries – home to nearly 600 million people with some of the fastest growing economies in the world – were full of hope when it began setting targets for integrating biofuels into their national energy plans in 2005, often decreeing that biofuels be blended with fossil fuels at varying percentages.

“Southeast Asian countries are aware that the supply of traditional sources of energy, such as oil, is shrinking, and they need to find alternatives,” says Dermawan.

“In this context, biofuels appeared promising, especially with their ‘renewable’ status.”

Indonesia, which pays more than $15 billion a year on fossil fuel subsidies put into place decades ago, declared that 2 percent of its energy must be derived from biofuels by 2010 and 5 percent by 2025. Thailand, heavily dependent on imports to fuel its growing manufacturing-based economy, was pushing for half a percent in 2002 and which rose to 8 percent by 2011.

But, CIFOR notes in its report, all countries in the region are failing to meet their modest blending targets. The Philippines has for example achieved only 20 percent of their original target of 10 percent bioethanol and 5 percent biodiesel in transport fuels by 2011.

The main obstacles, says Dermawan, are the continued subsidies to the fossil fuel industry and limited progress with operationalizing the technologies for second generation fibre based biofuels.

“With the biofuels price being less competitive than subsidized fossil fuels, the market for biofuels is not growing as expected,” he says.

“At the end of the day, it all comes back to political commitment, as removing fossil fuel subsidies is a politically unpopular move.”

This new publication is part of the CGIAR Research Program on Forests, Trees and Agroforestry and was supported by the European Union.