BEIJING - China
is working on fiscal policies to encourage
production of biological energy - including
plant-derived ethanol and methane - as substitutes
for oil, a move experts say would help China
reduce its reliance on oil and build an
environmentally friendly society.
Zhu
Zhigang, vice minister of finance, told Xinhua
news agency in an exclusive interview that the
ministry is working on policies that will enable
the government as well as energy consumers to
share the cost and risks of bio-energy production
in case oil prices drop too low for the bio-energy
business to be profitable.
Zhu said the
ministry is considering a plan to provide
subsidies to a few selected companies specializing
in bio-energy production as demonstration projects
before the mechanism is created for
sharing cost and risk. But he
declined to say how much money the government will
spend in the coming years on bio-energy projects.
Bio-energy mainly refers to ethanol, made
from sugar cane or other carbohydrate sources, and
methane; these fuels are regarded as
environmentally friendly and renewable.
China has increased its annual production
capacity of fuel ethanol to 1.02 million tons per
year, thanks to direct funding from the Finance
Ministry, preferential tax policies and subsidies,
he said. Fuel ethanol has been produced in
northeastern China, central China's Henan province, northern
China's Hebei province and
eastern China's Anhui, Shandong and Jiangsu provinces.
So far in China, mainly corn (maize) and
wheat have been used as raw materials to make fuel
ethanol, and the ethanol has been purchased and
mixed with gasoline by the country's state-owned
oil producers, including Sinopec.
Zhu said
the ministry has allocated 2 billion yuan (US$250
million) for those ethanol projects over the past
five years, which were launched mainly to solve
the problem of corn surpluses in the northeast,
China's major corn-producing area. The
corn-for-ethanol projects increased the market
demand for corn, and the market prices of corn
have been increasing gradually in the past several
years, the vice minister said. The existing
projects have made China the world's third-largest
ethanol-fuel producer.
Shi Yuanchun, of
the Chinese Academy of Sciences, said China should
do more to increase production of bio-energy to
catch up with the United States, the European
Union, Brazil and India. China should study ways
to manufacture ethanol using stalks and plants
that can be grown on wasteland and low-quality
land not suitable for grain production, said Shi,
former president of China Agriculture University.
These plants include sugar grass, which is
suitable for salina (salt marsh) and other
low-quality land in 18 provincial areas north of
the Yellow River and Huaihe River basins. Such
lands total 33.34 million hectares, and one-fifth
of them would be enough to produce 20 million tons
of ethanol, said Shi.
In addition, China
produces 1.5 billion tons of stalks a year as
byproducts of grain production, which can be used
to produce 370 million tons of ethanol. Bio-energy
is environmentally friendly and renewable, and the
fast-growing bio-energy sector will create
enormous job opportunities for farmers, Shi said.
Sweet sorghum, cassava and other materials
are also possible raw materials for ethanol
production. Industry observers say that although
there is no technology currently for producing
ethanol from sweet sorghum, Thailand has produced
it from cassava (tapioca) and there is no reason
China could not emulate this. A recent Reuters
story noted that a black market has recently
sprung up to import tapioca chips from Thailand
into southern China for purposes of ethanol
production.
The southern China region has
long produced drinkable spirits containing high
ethanol content, and the process for producing
fuel ethanol is similar, though it is typically
conducted on a larger scale and adds a dehydration
step at the end to make the ethanol combustible.
Qiao Yingbing, an expert with oil giant
Sinopec, said China's consumption of crude oil
totaled 323 million tons in 2005, including net
crude-oil imports of 119 million tons. Increasing
bio-energy production and consumption will help
ease the country's oil shortage and help reduce
air pollution, as the oil substitutes are cleaner.
Various problems are associated with
expansion of the bio-fuel industry. Cultivation of
crops for ethanol production could displace food
crops, reducing food production, particularly if
ethanol remains as profitable as it is at present;
if this situation continues for a long period, it
could lead to the nation's fuel-import dependency
being replaced by a food-import dependency.
Also, currently high oil prices have led
the national government to scrap subsidies for the
ethanol industry, because subsidies are not needed
when gasoline prices are high. Experts say that
with present technology, fuel-ethanol production
becomes economically viable when oil prices are
more than $40 a barrel. However, it remains
possible that oil prices could drop in the future,
leading to the industry becoming non-viable, and
if the ethanol sector becomes dependent on
subsidies over the long term, this could increase
the government's fiscal burden and displace needed
social-services spending.
