Transcript: Morning Session - Biofuels For Transportation Conference
WEDNESDAY, JUNE 7, 2006
CAPITOL HILL, WASHINGTON, D.C.
PRESIDENT, WORLDWATCH INSTITUTE
DIRECTOR GENERAL, DEUTSCHE GESELLSCHAFT
FÜR TECHNISCHE ZUSAMMENARBEIT (GTZ)
AMBASSADOR OF THE FEDERAL REPUBLIC OF GERMANY
TO THE UNITED STATES OF AMERICA
PAUL D. WOLFOWITZ,
PRESIDENT, THE WORLD BANK
BIOFUELS PROJECT MANAGER, WORLDWATCH INSTITUTE
U.S. UNDER SECRETARY OF AGRICULTURE
GERMAN FEDERAL FOREIGN OFFICE,
DEPUTY CHIEF OF TASK FORCE ON ENERGY,
HEAD OF THE DIVISION OF INTERNATIONAL ECONOMIC POLICY
Transcript by: Federal News Service, Washington, D.C.
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CHRISTOPHER FLAVIN: It is a real pleasure to welcome all of you to the Rayburn Building on Capitol Hill here today. My name is Chris Flavin. I’m president of the Worldwatch Institute, and it is our great honor and pleasure to be able to host this event on global biofuels and the potential to meet a variety of needs over the years to come. Let me say just a few words about the genesis of this project and the study that we’re releasing today.
About a year and half ago we began discussions with the German minister of agriculture and the secretary of state in the Agriculture Ministry, and at the time biofuels were really just beginning to come onto the international scene in a serious way. The discussions we had were really looking beyond the sort of narrow issues about what technologies are developing, what are the market prospects, how is the lobbying going for incentives in different countries, to really looking in a much bolder and longer-term way at the unfolding potential of biofuels and what it ultimately could mean not just for the energy system, but for agriculture, for rural economies, for environmental trends – everything from global warming to the future of biodiversity – and we found it encouraging that we were even having this discussion with a ministry of agriculture rather than a ministry of energy where these kinds of questions have traditionally been more lodged. And what we ended up agreeing to over a period of two or three months was to come up with a project that was aimed at really exploring all of these aspects in a very interdisciplinary way and also, I must say, in a very international way.
In the end, we brought together, under the able leadership of Suzanne Hunt, who has led this project for Worldwatch, a team of 15 researchers and writers, and they were then joined by – it must be something in the order of 100 reviewers and experts that helped us improve various drafts of the study. So this was, I think, fair to say, one of the most ambitious research projects ever undertaken on this set of issues particularly looking at it from an unusually broad interdisciplinary framework and looking at it on an international basis.
We, of course, had very strong support and cooperation from the ministry of agriculture in Germany throughout the project and we also worked very closely with the German Agency for Technical Cooperation, which has a long history of working closely in developing countries around the world and they played a leadership role, particularly on some individual case studies for some of the individual countries that were studied as a part of this project.
I must say that the entire project and the research for the report ended up being a real eye-opener for all of us who have worked on it and I expect all of you will find a lot of new material and a lot of fresh insights as you dig into the material that we’re going to be presenting today. And it was in a way sort of a strange experience in that the whole field was evolving so quickly in the course of actually conducting this project that you really felt that you were dealing with a moving target and whatever might have been true at the beginning of the project, you couldn’t necessarily assume was still true by the time we got to the end of the project. It made the project both particularly exciting, but as you can imagine from a research point of view, particularly challenging to make sure that we were keeping up with the pace of real world developments.
I’m going to summarize for you very briefly some of the insights that have begun to emerge from this study and then Suzanne will be joining us on the podium a little bit later in the morning to explain in a more detailed way, and using the appropriate PowerPoint graphics, some of the very specific conclusions of this study. The first overall conclusion that we reached is that biofuels are just about to transition from having been an issue primarily a focus in a national domestic context to becoming a truly international, indeed a global issue. We see that in the whole host of countries around the world that are now beginning to join the world’s biofuels leaders, which are Brazil, the United States, and Germany, with policies now being discussed and passed in many, many countries around the globe encompassing a very wide range of economic circumstances as well as agriculture and energy resource basis.
The emergence of this as a global issue I think is significant in a number of ways. It is going to move a lot of the policy discussions to the international level. There are a lot of questions that are beginning to emerge about harmonization of national policies, trade issues and so on, but I also think that there is a growth dynamic that is going to emerge as this becomes an international issue because countries are now not only sharing technologies, making investments in each other’s industries, but are sharing policy experiences as well, and the countries that begin now are going to be able to move much more quickly than the United States and Brazil were able to because those countries had to invent a lot of these things from scratch.
Second, we’re impressed by the kind of technology learning curves that are clearly in place in biofuels development and I think there’s been a tendency we found as we discussed with people who don’t follow these industries closely to think of biofuels the way many people thought of them back in the ‘80s – things that only existed because of heavy government subsidies that were fairly static, that were basically unreplicable on a large scale. We think that that is changing and it is changing largely because of technology learning curves both fundamental advances in science, but also just the kind of manufacturing learning experiences that you get when you’re doubling production every four or five years as we’re beginning to see in the biofuels industry as growth rates have begun to crank up in recent years.
One of the really interesting manifestations is the fact that this is going from being a sort of quiet, agriculturally-based industry to being a high tech industry where costs come down rapidly as the huge surge of investment capital and particularly venture capital is moving into this sector. So it’s not just the big companies; it is a whole array of small companies as well, most of them trying to compete with innovative new technologies.
Third, our research indicates that biofuels have the potential to meet a very significant share of global transportation fuel needs. We have not come up with a single number. We think it’s basically premature to come up with a single number because there are not enough of the major countries that have really done the kind of resource assessments that are needed, plus there are a lot of variables about how some of the new technologies were developed. But there are estimates that have been made and that one can make rough estimates of ranging from a third of total fuel supplies to, I’m convinced, as high as 100 percent in quite a number of countries that have relatively low levels of oil consumption, but very strong agricultural resource bases, particularly in the developing countries.
The potential is very, very substantial. It will obviously take time to fully develop and one of the things we think needs to be done is for countries to study their own potential in more detail. And that is the fourth point really because the nature of the potential and the appropriate strategy to be followed is going to vary widely between different countries. There is no one program, no one strategy that is going to make a sense around the world and so there is a real need for individual countries to assess in a very detailed way their own potential, looking at the agricultural resource that base they have and examining closely what kind of a policy structure is going to make sense to exploit whatever options they feel are appropriate to develop.
Fifth, we believe that biofuels do have the potential to substantially strengthen rural economies, as they have already begun to do both in Brazil and the United States, but we believe that in a host smaller and more agriculturally dependent economies the macroeconomic effect and the effect in terms of the lives of rural people has the potential to be even greater that it is in the United States and Brazil. This is something that I think has not been sufficiently explored or developed to date. We think in particular the development community – it needs to play a very active role and a more active role certainly than it has to date in assisting countries in exploring these options, which to be frank until recently have not been taken very seriously in most countries or indeed in most international development agencies.
Sixth, we do conclude that the development of biofuels is not without risk. Indeed there are very substantial risks – particularly ecological risks – if biofuels are not developed in the right way. The huge additional pressure that is likely to be put on the world’s agricultural resource base as we begin meeting our energy needs as well as our food needs from crop land is clearly very, very substantial and I think unless that potential is met through a significant restructuring, greater intensification, improvement of efficiency of agricultural systems around the world, there is a real danger that there’re going to be very sizable environmental costs to the development of biofuels, both in terms of what it can do to the agricultural resource base – depleting soils, stretching water supplies that are already stretched too thinly, but then of course also pushing the margins of agriculture more out into the few remaining centers of biodiversity in tropical forests and other remaining ecosystems around the world.
We do believe that biofuels can be developed sustainably. They can be developed in a way that you would actually build carbon in the soil. They can be developed in a way that will help to stabilize agricultural landscapes and to reduce soil erosion, but that will only happen if farmers make the kind of commitment that is needed and in fact if governments have the kind of policy incentives, land use controls and laws that will ensure that that is, in fact, the case.
Finally, we believe that the whole issue of international trade in biofuels is going to come upon us in the international community very, very quickly. As you’re probably aware, there has been only very limited trade in biofuels to date, but as the scale of the market grows and of course, in an age when many industries are, in fact, globalized; indeed, in an age when the energy sector and oil in particular trades quite freely around the world in massive quantities, there is inevitably going to be a pressure to open markets and to allow trade on a growing scale between countries.
We think that that has the potential to be an additional very strong engine of development and could push growth even faster, in part because it will encourage investment because investors will see that there is more than a unitary national market available for whatever plant that they might develop. We think in particular it is likely to encourage developing countries to invest more heavily and in general we do think that it is time for both governments and international organizations, particularly the World Trade Organization, to begin serious exploration of changing the current arrangements. That can begin to happen on a bilateral basis as it already is, but I think ultimately there are some key international trade issues that can and need to be addressed if we’re going to really develop the full potential of global biofuels.
This, I think, is a study that you will all find very useful and interesting to read. We have a very short summary of it that’s available in the blue folder that you picked up when you registered. There is a significantly longer summary of the report that is available on the Worldwatch website and I believe we have the coordinates to reach that noted in your materials. Unfortunately, the full report is not yet available, but it will be published in book form later this year, and we encourage all of you either through the internet or if you want to just leave your e-mail address with our staff here today, we will ensure that you are fully informed when the report becomes available. The publisher is not finally determined yet, but that will be known shortly and we do want to make sure that we give you the opportunity to get an access to the full report just as soon as it does indeed become available.
It is now my honor and pleasure to introduce to you one of our very strong partners on this project. Peter Conze is a director at the German Agency for Technical Cooperation and, as I said earlier, they have played a very strong and important role on this report and indeed also hosted an event similar to this one that was held in Berlin two weeks ago to introduce the report to a German and the international audience. Peter has a very strong and deep background in the development field and I think particularly notable is the fact that he has extensive experience working in Africa, I believe heading GTZ’s operations in Africa during one period and I believe in that respect is in a very good position to give us a sense of the enormous untapped potential that lies in Africa and other poor parts of the developing world.
Peter, thanks for joining us. (Applause.)
PETER CONZE: Distinguished guests, dear colleagues, as Chris emphasized already, biofuels are a hot topic these days and therefore it’s an honor for me to be here as a representative of GTZ at this prestigious place on Capitol Hill to discuss this topic with you.
Biofuels need a global vision and this is why the German Ministry of Food, Agriculture and Consumer Protection – that’s the official name – contracted GTZ and the Worldwatch Institute for this global study. Suzanne Hunt will present the study later on and I want to thank the WWI for the fruitful cooperation and especially Suzanne Hunt and Chris Flavin for their strong commitment to bring biofuels on the international agenda.
The German ministry has contracted GTZ. GTZ stands for Agency for Technical Cooperation. It’s owned by the German government. We work worldwide in more than 100 countries promoting sustainable development mainly financed by the German government. The German Ministry of Agriculture is responsible for producers, upstream processors and consumers of biofuels in Germany. You might know that Germany is the biggest biodiesel producer worldwide at this moment. Thus, the Ministry of Agriculture can look back on a successful integration of German farmers into this new market. Looking ahead, the ministry aims to design policies in view of the future role of German farmers. Thus, the ministry has requested to capture the current global dynamics that will affect the production situation in the next, let’s say, 10 to 15 years.
As Suzanne Hunt will give you an overall global perspective, let me focus your attention on the situation of developing countries and emerging economies. The Ministry of Agriculture has contracted GTZ to organize policy-level consultations and conduct regional, national studies in addition to the global study on biofuels in selected countries. In Brazil, China, India and Tanzania, GTZ has contracted renowned institutions and researchers and worked out together in-depth studies and facilitated the political dialogue on biofuels. Many figures and details came out of these studies that you can access also online.
Let me just summarize five of the main conclusions in – from the perspective of emerging common economies and developing countries. First of all, why do we need to tackle biofuels in a global context? The competitive advantage of some of the emerging economies and developing countries is high. The production costs in these countries are low. Also, the efficiency of environmental benefits are higher. Many developing countries can produce more energy with less input in temperate than intemperate climates. There is a case for international cooperation. Developing countries, like Tanzania for instance, are asking for cooperation and assistance as they see new options from creating employment, reaching markets, and alleviating poverty. They’re not only interested in technology transfer, but instead require knowledge on shaping the political framework in setting up institutions.
Let me give an example of low production costs. Of course, we talk about Brazil first. We all know Brazil is the largest ethanol producer worldwide, followed, by the way, by the U.S. Their production prices are the lowest and they can compete with mineral oil from the level of $35 U.S. dollars per barrel on. Many other countries now want to learn from Brazil following their example. Do they have a chance? If we look at the learning curve in Brazil, we find that productivity in the sugar cane agribusiness has increased by 170 percent over the last 30 years. As in other industries, biofuels production would become more efficient over time. Please keep in mind that Brazil had political support for this sector from the ‘70s on.
My second point: what are the main forces supporting biofuels evolvement in developing and emerging countries? Increasing energy demand especially for transport is a major force. Furthermore, concerns for securing the energy supply has speeded up the search for alternatives. By far, the most important driving force are the budgetary constraints that force developing countries more than others to reduce foreign exchange spending for imports. Brazil is a good example for foreign currency savings. Between ’76 and 2004, Brazil has saved $61 billion U.S. dollars in foreign exchange by substituting mineral oil-based fuels by bioethanol.
Finally, when we look at the global goal to reduce poverty, the Millennium Development Goal number one, we have to seriously consider biofuels. Biofuels development can provide an option for generating employment and reducing poverty, especially in rural areas. China, for example, expects to create nine million jobs in rural areas from bioethanol and biodiesel production.
My third point: what are the future options and interests of countries really could look at? Let me highlight only two aspects. Do these countries have the space to grow biofuels? Brazil as the main global producer is planning to expand production. They are only using half of their sugar area for ethanol and that equals merely 1.2 percent of their agriculture area. Brazil also wants to expand in biodiesel. Currently, the area of oilseeds amounts to nearly 22 million hectares. Just for perspective the soybean area is 20 times larger than the oilseed area in Germany, which is the global diesel market leader, as I said already.
Second point: which technology will be of interest? Let’s look at China, which is in future the largest consumer of transport fuels worldwide. China is especially interested in the BTL technology – biomass to liquid – but the main interest in all countries in the medium term is clearly biodiesel and bioethanol. Biodiesel production largely is hyped up by the hope to find that biodiesel plant that can grow on marginal land.
My fourth point: what will be the market situation in future? The bioethanol production of Brazil in the year 2015 is estimated at 20 million tons equivalent to a 60 percent increase over current production. Eighty percent of production is anticipated to meet national demands. That leaves only 20 percent for exports. China and also India are planning to increase production substantially. At the same time, these countries invest in expanding their production and according to our studies China and India are likely to become important importers of biofuels.
My fifth point: what has to be done? First of all, a solid analysis and pilots together with investors are required. Many countries plan to start pilot value chains especially in remote areas. The German government has started various initiatives to support partner countries in a joint effort of public investment – of private investment and public support – a PPP approach. In India, for example, GTZ is facilitating cooperation between a German manufacturer of processing plants and an Indian investor in Jatropha. Representatives of the Indian investors are participating also in this conference.
Secondly, what is needed? International trade regulations need to be clarified. Everybody agrees that the main prerequisite for facilitating international trade is an agreement and enforcement of standards. The discussion on standards includes first of all the technical standards. However, it evolves beyond. It is necessary to address concerns with regard to environmental issues and food competition. In a number of other commodities, for instance, coffee, GTZ is involved in these negotiations on behalf of the German government to come to social and ecological standards that benefits both the producers and the consumers. Especially food competition is an issue which needs to be taken seriously. Countries like India have set up policies prohibiting the use of agricultural area for biofuel production and using only non-used marginal areas and byproducts instead. In any case, the food security issue, competition with food crops and the impact on the poor have to be carefully analyzed and if there is a negative impact, that needs to be addressed.
Finally, environmental issues also need to be carefully analyzed. These will be discussed in detail this afternoon by Uwe Fritsche. And the last point which needs to be tackled now coming to important issue: shaping the national policy framework. In developing an emerging economies, investors all over the world are pushing ahead. They are ready to invest in feasible biofuel projects. Obviously, the most crucial requirement for any investor is a clear-cut investment environment. Political level discussions and exchange is important in developing this sector. Here we need to bring people together from all levels into an intensive dialogue. A good example is the Renewables 21 Network. Ideas moved forward substantially with a big conference of several hundreds of experts and decision-makers in Bonn in 2004. A great number of activities followed and right now there’s a big follow-up conference in Mexico City.
Let me come to the end of my presentation. The regional studies in Brazil, China, India and Tanzania have brought out interesting issues for the global vision, which is required and there’s a special issue of merging the private sector interest, industries with poverty reduction especially in the developing countries. The discussions in Berlin two weeks ago upon invitation of the German Ministry of Agriculture have illustrated the serious efforts to merge the national interests of farmers, processors, consumers with our global responsibility.
Let me summarize and end with four points. First, it is necessary to see biofuels in the global context that will be a substantial portion of international trade. The incredible dynamics of the issue requires country-specific and regional analysis together with the relevant policymakers. The German government funded with government funding and private sector funds, GTZ is addressing this issue. Secondly, the newly created biofuel market is now being shaped. Political priorities in the different countries determine to which extent they will have an impact on poverty reduction. They also determine the environmental relevance of this sector and the economic viability and social implications especially for the poor.
The third point: international trade flows in biofuels are now being shaped. Investments, supplier contracts, political decisions need to be determined. Market access is an important for competitiveness and both issues determine – are determined by international standards.
And my fourth and last point: the required technology transfer far exceeds the technical content as far as developing countries are concerned. It is important to provide support along the value chain from farm to tank. This includes looking at land access issues, contracts, formation of producer organizations as well as processing technology and distribution networks.
Thank you very much. (Applause.)
And now it’s a special pleasure and privilege for me to introduce to you the ambassador of the Federal Republic of Germany to the United States, Dr. Klaus Scharioth. He’s new in town. He started his job here in March of this year. He is a lawyer. He has a Ph.D. from the Fletcher School of Law and Diplomacy and has served the German government in the foreign office for more than 30 years. With – in Bonn – in Berlin now at the permanent mission of the Federal Republic of Germany to the United States, he was a Chief de Cabinet – director of the private office – of the NATO secretary general. Before coming to the United States, he was the political director and for the last three years the state secretary in the Ministry of Foreign Affairs in Germany.
Mr. Ambassador, may I ask you to address the audience? (Applause.)
AMBASSADOR KLAUS SCHARIOTH: Ladies and gentleman, Peter.
First of all, it’s a great pleasure for me to be here and I very warmly welcome all of you to today’s Biofuels Conference. Not only is the topic of this conference extremely relevant, but I think we couldn’t also – we couldn’t have picked a better time. I think the timing is absolutely perfect because in the United States as well as in Germany this is I would say one of the great topics of the day, and I think the large number of participants and also I would say the prominence of the panelists and speakers show how great an interest there is for this issue in our two countries at least, but I think actually worldwide.
Energy drives the economy. Mobility is an important feature of any modern society. Nearly one-third of the energy consumed in the European Union is used in the transportation sector. Economic growth and also our Western lifestyle continue to be based on the unlimited availability of one – basically one limited resource, namely, petroleum. Now, the dramatic climb in crude oil prices over the past months – but let me add here immediately that fortunately, in real terms, the prices have not yet reached the same price level as we had in 1980, which sometimes is forgotten because we see the figures in nominal terms, but in real terms we have not yet reached the prices of 1980 –but still this dramatic climb in prices has delivered a blow to the economy and to consumers, and has confronted us with a hard reality.
The tremendous economic boom in some regions of the world, namely, Asia has led to a sharp rise in demand for primary energy, particularly crude oil. The real – or let me say more likely the perceived trend towards scarcity – I think it is more a perceived trend than a real trend – the perceived trend towards scarcity has driven up prices. Moreover, the large portion of the world’s oil reserves are located in politically instable regions. Thus, Western democracies’ dependence on crude oil imports also has geopolitical implications and I don’t need to mention the example, Iran, to make that point.
We’re also paying a price in environmental terms for our unchecked energy consumption. Climate protection is the greatest environmental challenge of our time. Climate researchers see numerous indications that climate change has already begun. The major factor in this phenomenon is the emission of greenhouse gases that arise particularly in combustion processes. Within the framework of the Kyoto Protocol, Germany pledged to reduce its carbon dioxide emissions by 21 percent of 1990 levels. By 2003 – that’s the latest year for which we have the statistics, the full statistics – we already reached a reduction of a solid 18.5 percent. So we have good reason to more closely examine how we can satisfy the future energy of our global economy and society.
The question basically is how can we secure a sustainable supply of affordable and environmentally safe energy? It was therefore only logical and consistent when in his most recent state of the union address, President Bush called for, and I quote, “the end of our addiction to oil,” end of quote, by, among other ways, increasingly turning to alternative energy sources. In Germany, Chancellor Merkel recently convened an energy summit, which dealt with the issues of supply security in a national and international context. It also dealt with the energy mix, with energy sufficiency and efficiency and also with new technologies. The German government has pledged to significantly increased both its investments in energy research and in energy innovation – actually, by no less than 30 percent over the next three years.
Renewable energies are an important element in securing our energies supply for the future. These include as you know, wind, water and not least, biomass. The German government aims to double the share of renewable energies in its primary energy consumption by the year 2010. In 2005 last year, we had already achieved 4.6 percent and we want to increase this share especially in electricity usage to 20 percent by the year 2020. Already now, biofuels contributes significantly to satisfying energy demand in the transportation sector. They help protect the climate and this is, I think, interesting and relevant because generally less carbon dioxide is emitted in their production, in their processing transferred and use than can be absorbed through the growth of raw materials such as trees and plant life. So that’s a very significant factor, I believe.
Second, they contribute to the security of supply because they’re currently the only available regenerative energy source in the transportation sector. They promote economic growth for development of innovative technology, and fourth, they strengthen the economy and employment particularly in rural areas. For instance, in Germany, the study predicts a rise in the number of people employed in the biofuel sector of more than 40 percent, and more than 100 percent – 130 percent even in the solid biofuels sector by the year 2020. Forty percent in general; 130 percent in the solid biofuel sector that they think is significant.
With its renewable fuel standard, the United States have mandated including 7.5 billion gallons of biofuel and its energy consumption by 2012 setting an ambitious goal, which has received global attention. That would correspond to about 4.7 percent of U.S. fuel consumption. Based on the current trend, it looks like the United States will not only reach, but also soon exceed even this goal. The European Union is striving for a share of 5.75 percent already by 2010, so that means two years earlier and the EU heads of state have recently even called for minimum share of 8 percent. So our goals are even a bit more ambitious.
Among the renewable fuels, biodiesel and bioethanol currently seem to show the greatest potential for blending with traditional fuels. While the U.S. has set its sights on ethanol, Europe is focusing on biodiesel. Biodiesel is produced primarily on the basis of vegetable oil, in particular rapeseed oil and can be blended with conventional diesel at a share of up to 5 percent in Germany. The German government recently agreed to commit the oil industry to a specific consumption goal for biofuels similar to the U.S. renewable fuel standard.
So the prospects look bright for the future of biofuel. In particular, biofuels offer the opportunity for countries like Germany that are poor in energy resources to reduce their dependence on imported fossil fuels. In a sense, you could say that we are building new drilling pumps on our domestic farmland. New opportunities are also opening up to developing countries. Peter Conze has mentioned that. They can produce part of their own energy supply even if they don’t have fossil fuels. They may even be able to establish themselves as biofuel exporters on the world market – of course, if there weren’t import duties. Despite these bright prospects, we cannot forget that there’re still some unanswered questions, but I’m sure all of you will tackle them in today’s presentations and discussions.
Ladies and gentlemen, let me sum up. Biofuels are in their infancy both in terms of their potential and in terms of the fossil fuels they’re designed to replace. In order for all players to be able to participate in a targeted international trade in liquid biofuels, it is imperative that we have a complete picture of their potential global use. And that means not only their technical potential, but also the potential for their economical and sustainable use. The project “Biofuels for Transportation: Materials: Global Potential and Implications for Sustainable Agriculture and Energy in the 21st Century,” which was funded by the German Federal Ministry of Food, Agriculture and Consumer Protection is intended to provide exactly such a picture.
The project examines not only how much crude oil can be replaced worldwide by biofuels, but also the following questions. First, which biofuels hold the promise on the current conditions? Second, what opportunities do biofuels hold for our economies for employment, for export and also for added value? Third, what environmental consequences can we expect? Fourth, what role can biofuels play in developing countries? Thus, it is important to have a clear picture of the opportunities and despite all optimism also the limitations of biofuel production and usage as they relate to energy, agriculture, the environment, development and the economy.
Finally, the results of this study are also intended to offer recommendations on what type of action our political and business leaders should take. For example, what international rules do we need on the use of biofuels, say, in trade? What needs to be done in regard to international technology transfer among industrial threshold and developing countries? How can we move innovations in power generation more quickly to the application phase, and how can we ensure that biofuels are sustainably produced and used? The results of this study were presented for the first time by Christopher Flavin at a Biofuel Congress on May 16th and May 17th in Berlin. At the two-day conference, politicians, government officials, business leaders and scientists discussed the role of biofuels and the opportunities for future social developments.
I invite all of you now to build on this, to build on this discussion here in our conference in Washington. My thanks go to the Gesellschaft fur Technische Zusammenarbeit – GTZ – represented so ably here by Peter Conze and to the Worldwatch Institute in Washington for their presentation of this study and their work. I also would like to wish to thank everyone who organized this conference.
And now, you see – Paul, you come exactly at the right moment. (Laughter.) You come – this is perfectly timed because I was just going to say I’m really grateful to the president of the World Bank, Paul Wolfowitz to now address this conference. (Laughter.)
Thank you very much. (Applause.)
MR. FLAVIN: Thank you. Thank you very much, Mr. Ambassador, for a very inspiring speech. We really appreciate the leadership that the German government has taken on the whole host of energy issues, really going back over the last 15 years and it’s particularly rewarding to see that the change in leadership in Berlin has not meant any diminution of the kind of commitment to develop a new kind of energy system.
I remember back in the 1990s when we first began to notice that Germany was leading the world wind energy industry and then it was the solar electric industry and now it is, of course, beginning to happen in biofuels as well, and I think many Americans visiting Germany have found it a little bit surprising that our leadership had suddenly been taken by Germany because I remember early trips to Germany where people would say, well, if Bill Gates had been born in Frankfurt, you know, he would now be a mid-level engineer at Siemens. (Laughter.)
It’s not a country – it is a country that’s known for technological strength, but not for some of the entrepreneurialism that we’re used to seeing in Silicon Valley, but in this sector Germany has become a real entrepreneurial high technology leader and I think that it is the collaboration between strong governmental policy and the unleashing of private sector innovation that you have demonstrated, which really holds out a great example for the rest of the world, and I must say that I’m proud to indicate as an American that the U.S. for the first time and I think close to 15 years actually surpassed Germany in wind installations last year. The U.S. is very much back in the game now. Thanks, in part, to decisions taken in this Congress as well as decisions taken at the state level, but for me, this is the kind of healthy international competition that we very much need and it’s great to see the U.S. and Brazil struggling for leadership in biofuels, and Germany and the U.S. struggling for leadership in wind energy, and I think that kind of energy is going to take the world, as a whole, to a new level and to an ability to meet the huge energy challenge which you so aptly described for us.
It’s now my great pleasure to introduce the president of the World Bank, Paul Wolfowitz who has just joined us. President Wolfowitz needs no introduction in Washington with such a long and distinguished career of service in the U.S. government particularly in both the State and Defense Departments. A former U.S. Ambassador to Indonesia, a former Dean of our next door neighbor, the School of Advanced International Studies, Johns Hopkins University, and given I think the huge potential that all of us see in terms of developing countries and meeting development goals by developing this new set of industries, which of course are agricultural, rural-based industries, it is important and I think hopefully a very strong sign for the future that the president of the World Bank is joining us today.
Thank you very much, President Wolfowitz. (Applause.)
PAUL WOLFOWITZ: Thank you, Christopher Flavin. Mr. Ambassador, thank you. I was almost – (unintelligible) – which I guess is important in – – (chuckles) – the German system. And Peter Conze, good to see you this side of the Atlantic. If I seem a little spacey at some point in this talk, I have an excuse. I left last Friday, I believe it was – went to Kyoto, then Tokyo and Seoul, then Frankfurt where I met you and Hamburg where we had an excellent World Bank German forum, Rome and I’m here. I think this must the Washington if it’s Wednesday, and I’m only here in this meeting briefly, but I was eager to take advantage of the opportunity just to say a few words about how important the subject of this conference is to the developing world and the work we do at the World Bank.
My colleague, Eckhard Deutscher, the German member of our board of directors, was going to be here also, but in a special act of courage he was persuaded to go to Costa Rica to talk to some trade unions there about the importance of Costa Rica joining CAFTA, so I think that’s – I admire him.
I’d like to begin by congratulating all of you for organizing this important gathering to help raise awareness about the potential of biofuels as an alternative energy source to petroleum in the global transportation sector. I hope that the conclusions of the study carried out by the Worldwatch Institute can contribute to the debate on how to promote biofuels on a larger scale. For a development institution like the World Bank, one of the key challenges to support developing countries and meeting their energy demands and to helping poor people escape from poverty is a critical issue and how to do that with a small environmental footprint is increasingly urgent as well.
If you look at global energy statistics, it’s a daunting picture. Of the 6.3 billion people on the planet today, 1.6 billion don’t have access to basic energy services. Five hundred million of those live in sub-Saharan Africa. For those people it’s a matter in some cases literally of life and death to have access to clean energy. They’re using dirty fuels. They’re breathing in the smoke from them. They’re getting diseases and even dying from it. The International Energy Agency estimates that developing and transitioning countries will need to invest about $300 billion a year from now until the year 2030 to meet energy requirements, and the IEA has projected that world primary energy demand will increase by nearly 60 percent between now and the year 2030. That’s the equivalent of adding 16.5 billion tons of oil consumption per year and two-thirds of that increase is projected to come from developing countries.
We’re already seeing major effects of that, I think, on the world economy. It’s a major force in driving up energy prices and of course, it’s contributing substantially to the carbon in our atmosphere. The cost of adapting to projected climate change – a separate cost in developing countries alone is estimated to be somewhere – excuse me – between $10 billion and $40 billion a year and about a third of that cost is going to have to be publicly funded. Last year, at the G-8 Summit in Gleneagles in Scotland, the eight industrialized countries invited the five big middle-income countries – Brazil, China, India, Mexico and South Africa – to participate and specifically to exchange views on the issue of meeting the energy demand of developing countries. The G-8 Summit ended up with a Gleneagle Action Plan on climate change, clean energy and sustainable development, and the World Bank was asked from that to work with all the multilateral agencies and with our development partners to create what was called a new investment framework for clean energy and development.
The initial report on that investment framework was presented at the spring meeting of the IMF and World Bank to the minister’s of finance and development and a final version of that report will be presented at our annual meeting in Singapore in September. The investment framework’s goal is to serve as a vehicle to accelerate investments so that developing countries can meet their energy demands for growth and poverty reduction in an environmentally sustainable way. That report focuses on three important considerations. First, it reveals the investments to meet long-term energy needs of developing countries while taking into account efficiency in the local environment. Second, it outlines additional steps required in the energy, transport and industrial sectors to address the effects of climate change by reducing greenhouse gases, and third it explores what developing countries need to do to adapt to the impact of climate change and extreme weather changes. That report, by the way, is available in the World Bank website and as I say the final version is due in September and I think comments from both individuals and institutions are welcomed on that.
Against that backdrop, biofuels presents an opportunity to build a strong partnership between rich countries and developing countries. I had the opportunity back in December to visit Brazil. I imagine actually that’s in addition to the report that I’ve just mentioned, that’s the other main reason I think I was invited here – certainly a major reason I wanted to come. I remember very vividly meeting with President Lula in his office and the enthusiasm with which he presented to me the display of various types of nuts and other potential sources of biofuel for this very remarkable president and he is a remarkable president. Biofuel is near the top of this agenda. And later during the course of my visit I got a chance to see in a number of dramatic ways exactly why.
I got to visit one of the large sugar cane manufacturing areas in Brazil where they’re producing ethanol on an enormous scale and with exceptional efficiency, and then got a very vivid presentation of how ethanol prices have been steadily coming down in the Brazilian industry at the same time that world energy prices have been coming up, and it certainly, from that point of view, presents a very promising picture. It’s an opportunity to add to the world supply of energy to meet this enormous growing demand and hopefully to mitigate some of the price effects. It’s an opportunity to do so in an environmentally friendly way and in a way that is carbon-neutral. It’s an opportunity to do so in a way that developing countries like Brazil can provide income and employment for their people, and it’s an opportunity also to – for developing countries to earn carbon credits for mitigating the environmental impacts.
There are still obstacles, of course, significant obstacles, and I suppose the most fundamental one is economics. What can be successful in Brazil may or may not be successful elsewhere. It may be difficult to duplicate the success of Brazilian production in other places, but it certainly seems like something that should be pursued. There may indeed be places in Africa with the right mixture of climate and water and land to make this kind of production effective. One of the barriers that I think is unnecessary and I hope something might be done in this go-around of negotiations to eliminate it are the barriers to trade in ethanol. I’m getting, to be honest, a little concerned about the outcome of the DOHA round, but it seems to me at a minimum one thing that ought to be aimed at is to move unnecessary trade obstacles that make biofuels less competitive. If anything, we ought to be doing everything we can to make them more so.
I guess to conclude, while in the short run ethanol from sugar cane may offer the best chance for commercial viability, in the long term the manufacture of ethanol-from-cellulose offers one of the greatest hopes. This technology, which is so far only developed on a pilot scale, uses new catalysts and enzymes to speed up natural processes. The advantage is that it does not rely on valuable crops. It can use waste products such as straw corn stalks or agriculture debris. Their widespread availability, low cost and potential to reduce greenhouse gas emissions make this technology attractive. Biofuels will certainly represent a growing share of the energy mix in developing countries. How big that share will be and what type of biofuels will be produced will depend on the circumstances of each country, their competitive advantages, the alternative uses of land, and the potential of environmental risks associated with conversion of forest into crop land.
The World Bank through its work in the Investment Framework for Clean Energy and Development will be looking at ways that we can strengthen cooperation between developing countries and between them and developed countries on biofuels. Our goal is to provide advice technical assistance and investment programs to help our partner countries meet the energy challenge while protecting the environment.
I appreciate what Worldwatch Institute is doing with its report. I appreciate very much what the German Government, GTZ is doing in this area. You have indeed been pioneers on renewable energy and we thank you for that, Mr. Ambassador. Thank you for keynoting this conference and I look forward to hearing the results.
Thank you very much.
MR. FLAVIN: We’re going to take just a five-minute break. If you’d like to grab some coffee and bring it back to your seat, we’re going to get going again fairly quickly because we have a very busy program. Thank you.
MR. FLAVIN: Well, thank you all for returning to your seats. There’re so many interesting people here to talk with, I know it’s a little hard to settle down. There are cost even with having big successes and we’ve got a tremendous crowd today and thank all of you for your patience. I think other than that we’re basically on track, and I must say that the quality of the speeches so far has just been terrific and we promise to do our best to keep the interest level very strong as we move forward.
We’re now going to have an opportunity to hear in substantially more depth about the conclusions of the study that we’ve been working on. And Suzanne Hunt who is already in effect been introduced, of course, has been the project manager for the Biofuels Project for Worldwatch. When Suzanne was hired by Worldwatch to direct this project we lured her away from a colleague environmental organization where she was working – the Environmental Defense organization. Many apologies to them, but we feel like it’s been one of the better moves we’ve made over the last year at Worldwatch.
Suzanne as is typically the case at Worldwatch comes to the Institute with an interdisciplinary background. She has studied at three institutions: Penn State University, American University and the United Nations University for Peace in Costa Rica, and has studied both in environmental science and in natural resource management, but I guess for me probably the thing that most sold me on the idea that she was the person to lead this project is that she has a personal background in agriculture. Her family has something called the Hunt Country Vineyard in Upstate New York. Suzanne has been actively involved in that operation, I guess, since she was able to steer a tractor and do the various other things you need to do on a vineyard and winery, and I think one of the proud things that she likes to include in her resume is that she helped in the early use biodiesel on the family farm there in Upstate New York.
So Suzanne, it’s all yours.
SUZANNE HUNT: Well, thank you, Chris. The president of the World Bank makes a hard act to follow, but I’ll see what I can do. If I space out in the middle of this presentation, I have no excuse, so just bear with me. (Laughter.)
I’m tasked with going into depth in 15 minutes on a 400-page study that we spent a year working on with hundreds – (laughter) – of inputs from 100 people in different sectors and countries, so I’m not sure how much depth I can go into, but I will be very pleased to take questions at the end of this part of the discussion. I think after our next few speakers, we’ll take questions together. I actually think that a Swedish colleague of ours summarized our results in one sentence very well. This was actually at a meeting in Brazil that Andre Faaij organized. And after about three days of meeting after meeting after meeting, the Swedish expert raised his hand and he said, so I think what we’ve concluded here is that biofuels are the solution to every problem and that they are the cause of every problem. (laughter)
There is nothing that is black and white in this fuel for sure. It’s very complicated, but fortunately we were able to pull in an incredible – truly incredible team of people, with a very wide range of expertise and experience and I was hoping that – a number of them have actually made it here today from far ends of the earth and I’m hoping that they won’t mind standing right now, so that we can all congratulate them and so that you can find them throughout the day and hopefully spend some time with them. So would you all rise? Andre, Jim, Janet, Sergio, Lauren, everybody, and give them a round of applause. (Applause.)
I’ll just very briefly say a few words about the current status of the industry just so that we’re all on the same page. I’ll mention a little bit about our finding in terms of the potential for these fuels, and then I’ll talk about a few of the key issues and a few of the recommendations that we made. I’m sure that many of you know that the ethanol industry globally is growing extremely rapidly. You can see in this graph that just in the last five years the growth has just really taken off. As has been mentioned Brazil and U.S. are the two leaders. They make up about 90 percent of the world’s ethanol production between the two of them and are in the race right now to see if the U.S. can overtake Brazil’s production levels.
Biodiesel: the growth curve is similar. It has taken off more recently just about in the last decade-and-a-half, but the growth has actually happened even faster. We’ve seen biodiesel production quadruple in just the last five years, but most of us expect that we’ll see these current generation fuels, fuels made from food crops, predominate in the next 10 years, but in terms of the large scale long-term sustainable potential, that really lies in the cellulosic fuels and the next generation technologies.
Sugar cane is certainly an exception and I’ll talk a little bit more about that later and we’ll talk about the environmental impacts throughout the day as well. We looked at different conversion technologies. We’ve looked at the enzymatic hydrolysis of cellulose into ethanol. You’ll hear from the vice-president of Iogen later today who will talk about their technology for that. We also have a representative from CHOREN who’s going to talk later today about the gasification process paired with Fischer-Tropsch’s synthesis. We looked into a number of other technologies, but these are the two leading one.
It’s been very difficult, as Chris mentioned, very difficult to put a specific number on how much of these fuels we can produce and certainly there are an almost infinite number of factors that go into that equation, but it’s interesting to note that the projections globally for the next 20 to 50 years range all the way from biofuels being able to provide only a fraction of our fuel needs all the way up to more than our fuel needs. So it’s quite a range. We found that some of the country-specific assessments were the most instructive and the United States you might be familiar with the Billion Ton study that was done by the USDA and the USDOE that found that with their – what they felt were conservative estimates: about 37 percent of our fuels needs could be met with biofuels by the year 2025.
A similar study, led by Uwe Fritsche and the Oeko-Institut in Germany, looked at the potential for biofuels in Germany and that was then expanded to Europe and they also conservatively, assumed no trade and assumed that biomass is also used for other uses, and that sustainability criteria are applied. They also found that on the order of a quarter of their biofuels could be produced in Germany, and this is interesting especially because these are both two temperate countries and we all know that the developing world tends to be tropical countries that have longer growing seasons and inherently more productive crops.
There are three issues that I thought I would highlight that are important to influencing the potential of these fuels. One is that we’ve been fascinated with the ability of some of these technologies to take actual waste streams to take some of our societal problems and turn them into a valuable resource to help meet our energy needs. The picture on the bottom there was taken on a trip to Brazil. That’s a mountain of sugar cane bagasse at a ethanol facility that we visited, and many of you may know that in Brazil they burn this right now – currently, quite inefficiently – they started doing that to get rid of it and they use the energy from the combustion to power their ethanol plants. As they’re changing their laws they’re able to feed some of the electricity back into the grid, they’re making their boilers more efficient. But as these next generation conversion technologies come online they’re expecting that they can take – let me back up – cellulose is made up of lignin, hemicellulose, and cellulose and by just taking the hemicellulose and cellulose, a fraction of that mountain of bagasse and turning it into fuel, they expect that they can literally double their yields per hectare of ethanol and still have the lignin left over to burn to power their plants.
Another factor is that currently sugar cane fields are generally burned before they’re harvested, so all the leaves and tips are burned off so that the men can get in machetes and harvest the cane. They’re starting to transition to mechanical harvesters that can harvest all of that extra biomass. So they actually think they may be able to triple their yield per hectare. In terms of energy crop breeding, I think it’s interesting to think about how we’ve tinkered with food crops for millennia and we’ve hardly begun to look at how we can adapt energy crops – crops for energy purposes. So I think that there is a huge amount of potential there as well.
So now, I’ll just go into a few of the key issues. I’ll talk a bit about the environmental issues and some of the constraints. We’ve heard a bit already about the excitement about the development impacts that biofuels could potentially bring and then I’ll just mention a few trade issues as well and some policy factors. Again, just to highlight the complexity of these issues. The environmental impacts – I think we all tend to assume that biofuels are green fuels and environmentally friendly fuels. You’ve heard the term “carbon-neutral” mentioned already today, but really the environmental and climate impacts of biofuels depend – They really, really depend – they can vary dramatically based on how the fuels are produced. One of the main factors is the feedstock that’s chosen. How is that feedstock– if it’s a crop – how is it grown? What are the inputs used? What was the land used for previously? For example, if a virgin forest or grassland is converted to, say, an annual crop, you could negate all of your carbon benefits that way, and then also as we’ve seen in Brazil the type of energy used to process these fuels is also very important.
This graph – I don’t know if you can see in the back, but this graph just shows the different ranges in greenhouse benefits that are achieved with different feedstocks. On the far right of the screen, you see vegetable oils. To the left of that, you see starches – mainly, corn and you can see that there is a positive climate benefit – the range there, but it is the smallest. The largest is from fibers: switchgrass, poplar, and other energy crops.
I just thought I’d highlight three of the major environmental risks that biofuels could potentially pose. The one that is getting probably the most press and that you might have heard about is the expansion of biofuel crops into sensitive areas. There’s been quite an outcry over pressure put on rainforests in Malaysia and Indonesia for oil palm. There’s also quite a lot of concern in Brazil. The industry there likes to remind us all that Sao Paolo, where most of the sugar cane production is, is very far away from the rainforest, but that’s actually a little bit oversimplified. The expansion of sugar cane is happening in an ecosystem called cerrado. It’s also a very valuable ecosystem – grassland ecosystem. And there’s also, considerations in terms of spillage effects – leakages effects when one land use is displaced and moved to another place. For example, where do those cattle go; where does that farm go? So there are certainly a lot of land management issues, and land title issues that are going to need to be wrestled with.
Water supplies: water is often an issue that doesn’t get enough attention. We’ve already seen aquifer depletion happening in parts of China, parts of the U.S., parts of India, and elsewhere. So this is a very important factor and making these energy crops more – and these energy processing facilities – more water-efficient should be a major goal. Soil degradation – I love this picture – I just put it up there. This is in Brazil where they are harvesting and then being followed by planters. We’re debating whether or not this is staged; probably it’s a stage picture, but it shows the incredible stresses put on soils, by large scale agriculture and one of the things that we would like to work on more in the future and see more in the future is research on integrated systems, integrated energy and food systems, sustainable practices, and these are only renewable fuels if we are able to continue producing them year after year and we can only do that if we have healthy soil.
In terms of other factors that we need to be aware of as this industry develops, there are competing uses for biomass in terms of high tech products, but also just everyday products. There are other energy uses: co-firing, basic combustion for example. We’ve already heard mentioned the trade barriers. There are infrastructure issues and unfortunately, we don’t have much time to get into those, but there are certainly a number of issues in terms of transitioning fuel pumps and what needs to happen for biofuels to be able to go through pipelines and that kind of thing that need to be considered. There are still technological hurdles to cellulosic biomass production that need to be overcome. We’re expecting those hurdles to be overcome much more quickly in the years to come as interest in this has heightened and oil prices stay high.
Public acceptance: now this is something that hasn’t been talked about a whole lot, but resistance to these fuels can slow down the development of the industry and efforts should be made to help consumers become comfortable with these fuels, understand the differences in these fuels and traditional fuels and learn how to appropriately use them in their vehicles. One topic that might be mentioned this afternoon is the need for international fuel quality standards. There also issues like this that just need to be dealt with on the institutional level. I feel that a lot has already been said about this.
Certainly, a lot of support for this industry is coming because we are very excited about the development potential and having come from a small farming community as Chris mentioned, I can tell you that this is something that is very exciting for rural communities in rich countries like ours, but also poor countries. But as we’ve seen in the Brazilian experience and also now more and more in the U.S. there is a tendency for increased concentration as these industries mature. So there has to be active policy intervention to make sure that smallholders and small communities do really gain from this industry. It’s interesting actually, the World Bank came out with a report on biofuels that said that for every unit of energy output in biofuels industry you’ve got 100 times as many jobs as you do in the petroleum industry, which I think is an impressive statistic for people who are looking at the job creation angle.
This graph is just a visual representation of some of the trade barriers that exist in the form of import duties. You can see that these numbers are a couple of years old, but I think that they haven’t change very much. Australia has very large import tariffs, followed by the United States, the European Union, Brazil, and Canada, and maybe, depending on your interest, we’ll get into this issue this afternoon, but there’s certainly a lot of debate in this country going on now as many of know about this dilemma between nascent industry, domestic industry protection and nurturing and the development of a truly global market. So this is a certainly an interesting area to be discussed, but we feel that this is an enormous market – the transport fuel market is absolutely enormous and that there is probably room for both.
Some of the experience in Brazil and the U.S. and Europe has shown that there are certain policy mechanisms that are more effective than others in supporting this industry and its development. Some of them have been used together very effectively – tax mechanisms and mandates especially. We just saw in Germany that they have decided to repeal at least some of their tax relief for biodiesel and replace it with a blending mandate so sometimes you see these things in succession. We’re hoping that there will be new mechanisms that we haven’t even thought of yet that will be even more effective than these others in supporting this industry.
Certainly more research and development is needed, but not in lieu of commercialization hopefully together with commercialization, and more and more discussions are happening as people wrestle with how we make sure that these fuels are developed sustainably both environmentally and socially and there have been increasingly calls for standards – standard creation for biofuels and certification systems. Those conversations are evolving. Actually, maybe Andre later will talk about what’s going on in Holland. Holland has passed a law saying that all of their bioenergy that’s imported has to be certified sustainable. So they are right now wrestling with how to define that and how to make that happen.
In terms of the recommendations that we’re making, unfortunately we can’t make extremely specific recommendations because they are, of course, context-specific, but in general we felt that strengthening the market is extremely important. Speeding the transition to the next generation is also extremely, extremely important because we have the most to gain there and there’s only so much food that can be turned into fuels. So we’re going to hit that limit fairly soon and need to really move quickly into these cellulosic technologies, protecting the resource base, facilitating sustainable trade and really distributing these benefits equitably. I think that it will be interesting to see how these industries develop, but it’s quite intuitive I think to understand that when there’s more ownership on the community level, the economic benefits are magnified.
And then last but certainly not least, we urge that this industry be developed together with efficiency gains. We did some quick, back of the envelop calculations and we looked at a typical American city of a million people and how much municipal solid waste they make. We calculated that if that waste was turned into biofuels, it would be enough fuel to meet the needs of about 58,000 Americans, and at today’s per capita fuel use levels in France that would need the meets of 360,000 people. So the demand side, the efficiency side is absolutely critical to how big a role that biofuels can play, and if you go to China, it’s actually 2.6 million people. So I can’t stress the efficiency side enough and hopefully we can make great gains there as well.
I guess maybe I’ll end with something that I’ve heard Bill Holmberg say and many of you in this room probably know him. He’s often introduced as the grandfather of biofuels in this country and I’ve heard him tell people that: “Now we know what you know, but tell me what you’ve achieved,” and I think that we all know that there’s a lot of work to be done and we are looking forward to working with all of you in the future. So thank you for coming and I look forward to hopefully meeting those of you I don’t know later today.
Thank you. (Applause.)
MR. FLAVIN: Thank you very much, Suzanne.
We now have two more speeches this morning and then we’re going to open it up to questions and discussion involving all three of the speakers that are speaking post to coffee break. Next speaker is Viktor Elbling, who is the deputy chief in the division of international economic policy in the German Foreign Office. The German Foreign Office as you probably surmise is the German equivalent of the U.S. State Department responsible for the foreign policy of Germany.
Okay. Excuse me, a slight change of plans. Prior to Mr. Elbling’s speech, we’re going to hear from Thomas Dorr, the undersecretary for rural development at the U.S. Department of Agriculture and as one can imagine the Department of Agriculture is a central player in biofuels in the United States. Mr. Dorr comes to this position with a substantial body of experience in agriculture as one could imagine having been head of a family agribusiness company based in Iowa, I believe and having grown up in our farm belt and having played a number of important policy roles including having been a member of the board of the National Corn Growers Association as well as the Iowa Corn Growers Association.
So without further ado, the undersecretary of the U.S. Department of Agriculture. Thank you.
THOMAS DORR: For those of you who wanted to see Viktor, just play like I’m Viktor. (Laughter.) I just came from the press conference announcing Chairman Goodlatte, Ranking Member Peterson, chairman of the Finance Committee, Senator Grassley, and a number of members’ endorsement of a resolution called “25 x 25,” which I’m certain most of you have heard about and it was very exciting, very enthusiastic reception. And I got out of there to come over here, and I made the observation that given the fact that we’re at 6 percent renewable energy use in this country now, today maybe we can start a moniker of something like “19 percent to go.” But, in addition, I was there with a fellow who was involved in the biodiesel business and my father who’s now deceased years ago was involved in the oil and gas business in a small way. Every time he had a well that looked good, well, he got a little bottle of fresh clear crude oil and set it on his desk and I was given a bottle of biodiesel and I thought if only my farmer father could have lived long enough to have a bottle of biodiesel, he would have been rather surprised and impressed, but thank you.
It really is a distinct pleasure to be with all of you today. I would like to first bring you greetings from Secretary Johanns who himself has a fairly significant background in the area of renewable energy and ethanol support, both as a governor in the state of Nebraska, prior to that in his role in local government and now as a secretary of agriculture, but we are here obviously today to discuss and frankly to celebrate the emergence of biofuels as a significant contributor to the energy economy, both in the United States as well as internationally. This process, of course, is still in its infancy. Renewables right now, as I’ve just indicated, barely account for about 6 percent of U.S. energy consumption, but the growth curves – the growth curves are steep and in my view and as you all I’m sure concur the potential is very high, and last but certainly not least, the rising cost of oil is truly a big go signal for especially biofuels and wind, which are finally approaching commercial viability at current and I would submit reasonably modest subsidy levels.
In my view, this is really a great thing. It’s a great thing for national security, for the economy, for the environment, and frankly for farmers as well. If you’ll permit me a personal aside as a farmer from Iowa as was indicated, I spent most of my life growing what you grow in Iowa: corn and soybeans, hogs and cattle. However, the way we’re headed, that’s just in my view another way of saying producing ethanol, biodiesel and methane with some premium food products thrown in. In fact, not too many years down the road once we get cellulosic ethanol up to speed just about everything on a farming except the machinery, the buildings and the proverbial squeal of the pig will be a potential energy source. From the sunlight glinting on the fields to the wind rippling through the trees, to the corn stover that today mostly rots in the field tomorrow it will be powering our vehicles.
This has been a long time coming. I can remember my father, who I mentioned a moment ago, more than 30 years ago working very hard to pass the first corn check-off in the state of Iowa and the immediate thing they did was to begin producing ethanol. I have to tell you a little anecdotal story because this is a great story. Some of my peers might not appreciate this, but when we passed the check-off and began to advocate at that point gasohol – some of you may have seen that ear corn pump – but what most farmers didn’t know is that we couldn’t find any ethanol any place, and the truckload of ethanol that we did find was produced at a wood ethanol factory plant owned by the DOT – DOD in the forest of Oregon and if they would have known the price we paid for that ethanol to blend it, start pumping it, I think they’d probably would have shot us, but back then ethanol was really nothing other than a niche industry with a regional market.
Basically, it was a gleam in the eye of a small group of Midwestern corn farmers who saw potential that most others ignored. Thirty years later after spending most of my life on a tractor and a combine, I took a temporary job here in Washington, D.C., and I now have the honor of serving as a member of President Bush’s team at U.S. Department of Agriculture as the undersecretary for rural development as well as the chairman for the USDA’s Energy Policy Council, and in that capacity I must tell you I work with a very dedicated group of people, not only USDA but as well as our counterparts in other agencies particularly DOE to facilitate the acceleration of the development and the commercialization of biofuels.
This is a high priority for this president, for this administration and the country and frankly I’m very proud of the progress that we’re beginning to make, but as I look around the room I see a number of familiar faces. I know that there are many people who have shared this commitment and vision for many, many years. There’s a phrase that’s now making the rounds of which most of us are vaguely familiar. It’s essentially, we were ethanol before ethanol was cool. (Laughter.) You know, the biodiesel boom is more recent, but the same sentiment applies there as well. There are more than a few people here today who are entitled to stencil that on your T-shirts and wear it with pride and I want to thank each of you for what you’re doing to move this biofuels revolution ahead to sustain this agenda.
This is truly an international story and I’m glad our German friends are here. You know, Henry Ford famously told a New York Times reporter back in 1925 that ethanol was the fuel of the future, but you know, Henry Ford was actually a relatively late comer because even earlier Rudolph Diesel had designed his first engines to run on peanut oil. Cheap oil or cheap hydrocarbons, if you may, put that vision on hold for nearly a century, but now we are, in fact, coming back to the future in Germany, in America and indeed around the world. Interest in biofuels is global. In recent years as you saw a few moments ago, Brazil has been the leader in ethanol with the United States a close second at roughly 4 billion gallons last year; China is third and India is fourth; Germany is well back in ethanol production, but is in fact the world leader in biodiesels obviously reflecting the much higher percentage of diesel engines in their automobiles.
The U.S. biodiesel industry is relatively new, but is literally growing like the proverbial weed in the bean field from two million gallons in 2000, 25 million gallons in 2004, 91 million gallons last year; it’s projected that we will double that in 2006. In the broad picture though, these are still in effect niche fields, but exponential growth simply can’t be ignore for long. The energy bills renewable fuels standard at 7.5 billion gallons by 2012 is clearly going to be reached several years early. Ethanol this year is projected to absorb nearly 20 percent of the U.S. corn crop and biodiesel will absorb 2.3 billion pounds of soybean oil and frankly no matter how you cut it, that’s a big number.
A generation from now, assuming commercialization of cellulosic ethanol, the totals are clearly going to be significantly higher and the United States isn’t unique, biofuels are growing rapidly just about everywhere. There are obviously vitally important national security and balance of trade dimensions to this entire question. Most of us I am sure look forward to the day though when we power our cars with ethanol and biodiesel from the Midwest rather than oil from the Mid-East and there are as was alluded to earlier important environmental benefits as well, but from our perspective – our perspective at USDA rural development, the potential for farmers and for the rural economy as a whole, are at the top of the list. I can’t overemphasize that.
Last year, for example, the United States imported almost five billion barrels of crude oil and oil products, about 40 percent of which was from OPEC, and at current prices replacing a fifth or about one billion barrels of this oil equates to what the net average farm income was the last two years – excuse me – the average cash farm income nationally the last two years, spent about $75 billion. The average over the last 10 years has been about $55 to $56 billion. Stop and think about that. The potential to capitalize on $70 to $75 billion or $55 billion worth of crude oil and keep that revenue in rural America is truly astounding. Rest assured though that kind of potential truly does get the attention of USDA and that’s why USDA has supported ethanol for many years. Like you, USDA was ethanol before ethanol was cool and that’s why we’re involved in the entire spectrum of distributed renewable energy resources today: wind, solar, biomass and geothermal as well as the biofuels spectrum that we’re most familiar with.
Since 2001, USDA rural development has invested nearly $360 million in 650 renewable energy and energy-efficiency projects. That is the single largest federal financing of any program in the federal government that I am aware of. Those investments have leveraged well over $1.2 billion in private dollars and we are, in fact, leading in the commercialization of this effort. Today though, thanks to soaring oil prices, the economic markets are, in fact, beginning to catch up and clearly the political markets are as well. To all of those – to all of us who are – excuse me – to all of those who are hopping on the bandwagon now or perhaps I should say who are being chased onto the bandwagon by $70 a barrel of oil, I say, “Welcome aboard.”
There is an enormous opportunity. We need to work together and there is plenty of work for everyone as you all know, but in my view, President Bush has been out in front on this. It is ancient history now, but you know, I believe it’s worth remembering that a comprehensive energy bill was one of the first of his priorities taking – when he took office in 2001. Obviously, there were some political opposition; that’s nothing new on energy. There’s always opposition to anything you wanted to do. In fact, if you wanted to create a controversy in Washington, just say energy and then you can look for cover, but President Bush worked steadily for five years to get an energy bill passed last summer and he then followed up immediately with the advance energy initiative focused on transportation fuels and better ways to power homes and businesses. In my view the president’s strategy is pretty straightforward; it’s simply this: the United States will in the long run deal from a position of strength and not weakness. We do have a costly addiction to imported oil, but we do believe we can kick the addiction if we make up our minds to do so and the president is, in fact, determined to do just that.
We’re here today to discuss biofuels, but it’s important to remember that biofuels are just a part – a very important part albeit – but just a part of a much broader effort. The United States has extensive supplies of clean, safe energy. These include significant reserves of conventional oil, natural gas and coal. We have the technology to recover these resources in an environmentally safe manner and if we’re serious about reducing imports, we in fact, should do so. We have the technology today to build low-emission coal plants as well as safe highly efficient nuclear plants; we should do so. We are developing the technology for near-zero atmospheric emission coal plants and new generation nuclear energy technologies, which all have great potential, and we should do so. We are significantly accelerating research on wind and solar power on hydrogen and fuel cells, on battery technology for hybrid and plug-in hybrid vehicles. All of this does play a major part, but that said ethanol clearly is in the lead – the closest to full commercialization of the leading oil alternatives today. Biodiesel is a few years behind, but at its growth rate and it’s astonishing, it will be a significant player all around the world as well.
To stay on track, the president and Congress have extended the ethanol tax incentive, they’ve doubled the size limitation for the small producer tax credit and they’ve provided a tax credit of up to $30,000 for the installation of clean fuel infrastructure such as storage tanks and pumps. For biodiesel, tax credit is a dollar per gallon. For biodiesel derived from virgin oil, 50 cents a gallon. For oil derived from animal fats and recycled materials, biodiesel now receives the 10-cent per gallon small producer tax credit. Looking a bit further down the road however, President Bush has also proposed a $150 million in 2006 Budget a 65 percent increase in research funding on ways to produce ethanol cost-effectively from cellulosic feedstocks like cornstalks, forestry byproducts and switchgrass.
If we can solve the riddle, we can, in fact, bypass in my view, the acreage limitations of corn-based ethanol and dramatically lower the cost while increasing the supply many times over. So in my view, the future is, in fact, bright. We’re especially excited because there’s so many of these technologies including biofuels are actually rural and agricultural based. There are very significant economic opportunities for investment, job growth and wealth creation in rural America. That, in fact, goes far beyond five or 10 or 20 cents a bushel or more for corn. It’s the potential ownership of the plants, the good jobs they bring to small towns, it’s the businesses and jobs that will be involved in construction and maintenance and it’s the ripple effects that they can provide all across the world economy.
Let me make one other sideboard comment. A year ago now is that the Renewable Energy Finance Forum in New York City, that particular forum, it was pointed out that this the second annual forum had the largest registration – had doubled the size of registration from the prior year. Without going into a great deal of detail, it was also pointed out those attending that conference represented $125 billion of money willing to invest in green energy. Interestingly enough later in the day, a venture capitalist got up and pointed out how he had raised $185 million of tier two (unintelligible) off the Wall Street for the investment in Midwest ethanol facility. I went up to him afterwards and I said, “Is there any possibility that money was in the Persian Gulf? He said, “Clearly, there is; a great deal of it.”
Now, I submit to you that as we talk about how, in fact, we keep the wealth in rural America, we could get hung up on mandates and imposing restrictions on flow of capital on the one hand, or we could actually sit down and seriously reflect on those issues that impact the ability to integrate the distributed models of liquid fuel or electricity or any other distributed energy source into the legacy systems. The distributed systems are, in fact, going to tend to be smaller in scale. They will, in fact, require regulatory tax structure and investment vehicle redesigned of many other things that we do today. This is not a big versus small in my view. If you go out to build $150 million ethanol plant in rural America today and you want to put 40 percent equity in it, where do you go? If you need $60 million, it’s easier to go get one check in New York City than it is to have 3,000 not very cost-effective transactions in rural America. Does that mean that rural America can’t and shouldn’t invest in this? Absolutely not. What it does mean is that the federal government and the state governments have to do everything in their power to facilitate the integration of the regulatory investment and tax structures so that these distributed models can be integrated into legacy systems.
This, in my view, is rural America’s biggest new market that we’ve seen in generations. It is a tremendous opportunity for all of us particularly if we address these pending issues. Biofuels by themselves won’t solve the energy problem, but they very clearly will be a bridge to the new energy economy of the 21st century. So on my part, it really is very exciting to be able to play a bit part in this historic transformation and for those of you who may be in the business, we look forward to working with all of you whenever we can. I thank you for the opportunity to join you and I wish you the very best in this conference.
Thank you. (Applause.)
MR. FLAVIN: Thank you very much. That was a terrific speech, and Iowa really, I think, can be thought of as a leader in North America to the same degree really that Germany is a leader in Europe, and that the fact you are a Iowa farmer originally and I guess probably will return there once you’re desk duties are completed. I think it’s very notable when you see the tremendous growth in the state of Iowa. The 25 by 25 goal almost looks conservative when you look at the fact that Iowa is already producing more ethanol as I understand it than it is consuming gasoline. This is the kind of transformation of the rural agricultural-based parts of America that are beginning to take place, and I think as your comments suggested there is a real political dynamic underway here and if there is a political tipping point in the energy system, I think it comes at the point at which these industries become so important and particularly with their base in heartland America that the politics which of course have been dominated to some extent by the traditional fossil fuels et cetera, begin to shift, and I think we’re in the middle of a transition like that and I think you gave us a very graphic sense of just how quickly this dynamic is unfolding.
Our next speaker, I will now reintroduce: Viktor Elbling is the director of the International Division of the Foreign Office in the country of Germany and he is going to give us a perspective from his deep background in the German foreign service. Thank you very much.
VIKTOR ELBLING: Well, thank you very much. It’s a big privilege to be here today and talk to you. This is not a German-American conference, I think. On the other hand, it’s important for us, Germans, to be in a country and cooperate in the country which is a leader in questions of biofuel. As very nicely said before, yes, we in Germany have quite some record as far some kind of biofuel is concerned, biodiesel, but here we are really visiting the champions, or one of the two champions of the world, as far as the ethanol is concerned. Speaking of champions of the world, this is the first time in many weeks that I have switched on my TV this morning and didn’t have some news about soccer – the world championship. So this is also a nice break-off. (Laughter.)
I would like – I would like to simply add after all interesting and very passionate pleas that have been for biofuels our German view maybe on the situation. What am I doing here as part of the foreign office? We have a taskforce which has been set up in the foreign office only a short time ago, which somehow will contribute maybe just a very German approach to a comprehensive German strategy as far as energy as a whole is concerned, and we will, of course, include the question of biofuels in these ideas we are defining. We as the foreign office, of course, look very closely to the issues of security of supply, but this is not the only one that is interesting. But of course, in our view, the question of biofuels and their potential is interesting also in the view of the discussions we’ve had only a few months ago. You will remember this as far as question of gas supply, for example, to Eastern Europe was concerned. All Europeans it is a question of the importance.
Interesting to me is to see that only a few years ago in the ‘90s, the question of biofuels and biodiesel, especially in Germany, was always discussed mainly in the framework of discussion, how to improve the income of farmers? This was the main maybe topic of the ‘90s. Then there was a movement to view about more environment-prone situation, which had probably to do with also the Green Party being very prominent to the German government, and now this has changed, as you know, and now we are discussing even taking on board these views we have or these issues we have on these two points that I just mentioned before. We’re talking about biofuels in a much broader context: in the context of energy supply and security of supply and also keeping, as I said, on board the question of environmentally sound energy.
As my ambassador said before, transport is a very important prerequisite for mobility. We are experiencing a very steady rise in global consumption of fossil fuels at the moment. This is partly due to the growing need for energy in developing countries and emerging economies. If we start again from the environmental view, this has led to an important upswing in emissions also. I think this is important to be stressed also. We do not think it is a coincidence that the frequency and severity of extreme weather conditions have increased a lot in the last years. I just left Berlin yesterday and again we had a record for the coldest winter – sorry, the coldest beginning of summer, of calendar summer, in the history of the records of meteorology. So there is a case, I think an important case for a kind of important concentration of extreme weather conditions.
We all remember the images of the disastrous hurricanes of last year you had in 2005, and the capacities of the refinery system had their importance also and a bearing on the oil price. I heard – I hope it’s not true – that for 2006 again bad hurricane season is being previewed. I hope for American friends that this will not be the case – of course, not only for the question of the price of oil.
We are noticing that the price of oil and the rise in the price of oil is beginning also to challenge the question of economic growth. This is maybe less the case in America where you have, for us, fantastic growth rates of nearly 5 percent. In Germany, we have a very good growth rate of 1.5 at the moment, which is a very good record compared to last year’s. Fortunately, inflation is staying subdued, but we are starting to see that the rise of oil prices started to dent into our growth – the growth of our economies. As you know, the European Central Bank is going to react to this. Everybody is expecting this by raising the interest rates this week.
Well, I wouldn’t come from the foreign office if I wouldn’t stress also before this auditorium that of course natural occurrences are probably not the only – maybe not the biggest – reason for the hike of the oil price. What we are currently witnessing in the Middle East, some political events facing us with a situation where supplies from difficult, unstable regions concentrate the supply for the West. So this also is a reason why our foreign policy is focusing more and more on energy questions. So I think there’s a case to say that that energy’s closely tied to foreign policy, and maybe it’s interesting also for you partners who are not, maybe, in the foreign policy communities to think how foreign policy instruments can help safeguard energy supplies.
As I said before, we founded this task force in the foreign ministry, working for comprehensive German energy strategy. We are looking very importantly at the question of security of supply but also – this is maybe one point where it is not discussed very strongly today, even by the colleagues of the kind from Germany – European cooperation. This, of course, for us – I mean, I know in the United States the EU is not always only positive address as far as, for example, trade is concerned. But it is, of course, it provides the framework for us, as far as our energy policy is concerned. I will say something about this later on.
In our work towards this comprehensive energy strategy, of course the question of this sphere of fuels will be an important issue. I think our common challenge – and this has been said, and said before very passionately – is to lessen our dependence on oil. President Bush has said this very clearly in his State of the Nation address. I think in German political circles, for the reasons I named before, nobody would dispute that we really need very fast alternatives to fossil fuels. We have a contrast in electricity generation in Germany. Renewable energies already account for a considerable share of the market, but as far as transport, as fuels are concerned, 97 percent are still produced from fossil sources, mainly oil, and to a much lesser degree, in difference to other countries in Europe, gas. So it’s very important for us, too, in Germany and Europe to find alternatives to fuel sources. We think that biofuels are an important alternative. It’s not the only one, but a very important one.
We have the chance to increase our security of supply through biofuels because we find them on our doorstep. We have them under our control. There is some discussion about whether we have enough conservation area in Germany, in Europe, to increase the production significantly of biofuels. But we think this is unfounded at present. We have seen an incredible progress in technology in the last years, in both, actually, production of food and of biomass. If people discuss, I mean, whether one should maybe switch to biofuels production to the detriment of food production, this is not the case. We think that in the future we will have more land available for bioenergy and biofuels. Biofuels, in our opinion, are the regenerative alternative with the greatest potential. We have, as we said before, biodiesel and bioethanol as first-generation biofuels in the short-term. And then – and this is, I think, very important as far as technology is concerned; this was named before already by Susan also – the biomass to liquids: a second-generation biofuels in the course of the next decade.
If we are able to come to market soon – in the next 10-15 years – with this new technology, with the production of biomass-to-liquid fuels, we are going to be able to use a number of raw materials which, until now, are really not at all in the perspective. We think that – this is also important, of course – in Europe, as in the USA, I think, you always have to think also about how well are your farmers off? They are maybe less interested in the security of supply than the foreign office is, but they are always interested in the question, what does happen to my income, to my production? And we think farmers will win from this situation.
Renewable sources promote value-added and also employment in rural areas. This is our German experience, at least. We have been able to create 50,000 jobs in Germany and a rising number of jobs in this area – in a situation in Germany with a lot, as you know, of jobless – nearly 5 million. This is very important for a rural area. The turnover, including investment in the field of bioenergy, amounted to almost €6 billion in 2005.
What have we done in Germany as far as the government is concerned to promote biofuels in the ‘90s? This is, I think, important also for the question market, global market, home market versus what can the state – what can a governments do? We have the feeling – we are quite convinced that we need very active action by the governments to give a boost to this sector which still is, as we said before, in infant stages, at least in Europe. In America it’s probably a little bit different.
As far as biodiesel is concerned, we had a high rise in consumption, a growth that reached nearly 2 million tons in 2005. That’s already around 5 percent of the total sales of diesel in Germany. We think this will rise to nearly 2.5 million tons of biodiesel in Germany this year. Interesting is that the demand is so great that it’s almost outstripping production. We have 15,000 filling stations for biodiesel in Germany working, which is, I think, an interesting number. We are not big as far as ethanol is concerned still, but we have quite important efforts going on. We have built, in addition to lots of small facilities, three large-scale plant producing the ethanol at the rate of around 500,000 tons per annum.
In short, I think it’s correct to say that Germany is among the most active, let’s say, partners in Europe when it comes to biofuels.
Why was this possible? As I said before, we needed government action for this. And this might be also part, maybe, of the discussion mainly this afternoon, but maybe also later on: What can we do to help this industry?
In fact, Germany in the past has exempted biofuels from mineral oil taxes. As was said before, we are now in a process of converting this whole tax exemption into a partial exemption – it’s being done by the government at the moment – and of replacing this with an obligation to blend biofuels and mineral fuels. We’re going a little bit on the basis of experiences we’ve seen in other countries of the world: in Brazil and also in the United States.
These measures – we are very convinced of this – even increase the use of biofuels, and we think that the obligation of mineral oil companies to bring biofuels onto the market will help achieve also the EU directives who, as it was said before this morning – I will again maybe stress this – who target a level of 5.75 percent of biofuels by 2010. We are very optimistic in Germany to be able to reach this target even before. In addition to this, the German government is working at EU level to increase the current limit of 5 percent, which is input of blending biofuel in European fuel legislation.
One project which I find very interesting, and which will be discussed this afternoon, is the CHOREN project. Michelle Deutmeyer here will be discussing in one of the panels this afternoon about these activities. Germany is funding the establishment of the pilot plant to produce biomass-to-liquid in the state of Saxony. This is, I think, one of the most important, most interesting actions of the German government. And then there are the activities like the German Energy Agency drawing up a feasibility study for large-scale biomass-to-liquid plants, not on a small pilot scale but larger biomass-to-liquid plants.
As I said before, it would not be correct to just look at what is happening in Germany, but we have also to see what is the framework Europe is giving to us? I think it’s safe to say that the European level too – not in all countries are the same scale. The use and further development of biogenic fuels is being strongly promoted. We have had, as I said before, directives which impose 2 percent – impose is wrong because actually it’s not binding. It’s a proposal, or a target, by the EU to fix 2 percent of total fuel sales by 2005 by biofuels. One has to say that this has been achieved in Germany but not in other countries, and in the EU as a whole, it has not been achieved either. And then there is the target I named before: 5.75 percent until 2010. As I said, these targets are not binding on member states. We Germans would like to have binding targets in the future – not easy with all partners, of course, as you can imagine. We are 25.
At the beginning of the year, the EU and commission presented a communication that maybe some of you are aware of, which is called “A EU Strategy for Biomass,” and this strategy contains some interesting objectives. On the one hand, it’s the creation of a framework for the comprehensive use of biofuels by enhancing competitiveness and stepping up research. On this I think we are very near also with our American friends. What is also interesting, I find – also picking up the discussion we had before – is the support is asking support for developing countries, in which biofuels can help foster sustainable economic growth. I think this is a very important target that the European Commission is putting to itself, which we really subscribe completely in Germany. To sum this up, I think one can say that biofuel is also moving up the European agenda.
I would like to finish by giving just a quick look at the international scene, where we also have the feeling that things are developing very positively. We’ve talked about U.S. – I don’t have to stress this again – but we also have other countries where biofuels are really having increasing importance. This is not only China, India, Thailand and other known examples – and of course, Brazil, the world champion, until now at least – is a pioneer in the production of ethanol since the ‘70s. I found it very interesting to hear that in Africa there’s a lot also quite a number – “a lot” may be exaggerating, but quite a number of countries having programs in biofuels. This is, I think, an interesting development and we will have, in Europe, to come to terms with the question: What is our interest as far as the exports of biofuels by this country is concerned? And I think we have not come to that point yet in Europe.
As I said before, we think we have to find and strike the right balance. This is an industry which is still in its infancy, on the one hand. On the other hand, this is a big chance. Like UNCTAS, the UN agency, said some months ago, to really do something against global poverty – biofuels are a chance against global poverty. So this is also our interest.
Now, we have to analyze the global potential of liquid biofuels, and we are very interested in highlighting the opportunities in biofuels. Questions remain, of course; questions going in the direction of what is sustainable production? What is sustainable use of biofuels? What can we do together and have concerted international efforts in this sphere of research, for example, as far as biofuels are concerned? There are big synergies I think we can find here. I think we have a big interest in a closer cooperation with the United States on this question. And we wondered whether it wouldn’t be a good idea to have a kind of a regular exchange of German and American experts dealing with this question. I think we could probably, in some way, say something about our experiences in biodiesel. We have very good scientists in this sector and I think we could learn a lot about your experiences with bioethanol. Why don’t we start an exchange on a regular basis on this?
I said before that one key international aspect which is not really resolved or answered at the moment, in my opinion, is the question of the trade with fuels. At the moment we’re looking very much into the domestic production of biofuels, but we think the discussion is going in the direction that says that imported biofuels, coming also from developing countries – and when I talk about developing countries, I don’t primarily speak about newly industrialized countries like Brazil or India, but I’m speaking more about real developing countries, countries which under the definition of the World Bank – we have Mr. Wolfowitz here today.
We think, in the end – and as I said, this discussion is not over yet in Germany and not over in Europe, of course. There are some partners who are very difficult as far as the tariffs situation is concerned. We think that fewer restrictions on imports can encourage the use of biofuels, and we should try to use this path also because we are going to insure falling prices, we’re going to be able to help development, at the same time insuring if we are able to able to strike an accord about common standards, I think, also to have a sustainable standard as far as production and processing of biofuels is concerned.
I would like to close by saying that we Germans have the luck – or maybe also the bad situation, I don’t know – to be president, the presidency of the European Union in the first six months of the next year, which is a very important task, and where I think the energy question in general will play an important role. What we can do as far as biofuels is concerned, this will be one part of our task. But I think we will have to look closely into what we can really move ahead during this time. As you know, the a question of who’s presidency in the European Union is always an important chance to move things forward.
And then – I don’t know if it’s more important, but at least it’s more global – we have the presidency in the G-8 process also during the whole year of 2007. This year we had the first presidency by the Russians, and they have stressed very much the energy question – not the biofuels, in this case, but other questions of security of supply. And what’s also interesting – and maybe we did not discuss today – the question of security of demand, which is one thing that some producer countries like to underline. The question is, how will they react if we are able to cut off strongly our dependency from their energy supplies? They are not – if you look at what the OPEC and to what Russia has been declaring in the last weeks and months, it was not very friendly when we said we would like to cut down on our dependency. I think this is an important question that has been looked into, and which has not been discussed very much until now, I would say.
Well, I think I talked too long already. Thank you very much for your attention and I look forward to the discussion.
MR. FLAVIN: Okay, now it’s your chance. Questions, thoughts, discussion? We’ve got a microphone set up here in the center. If you have a question, why don’t you come and start a line behind that microphone? Unfortunately, I think that’s the only way that we’re going to be able to hear your thoughts and questions.
If you want to direct a thought to a particular speaker, you can do that. If not, you can just make a general comment. The only thing I would ask is that each of them be relatively short. And please identify yourself as you make your question, please.
Q: There’s been mention of a common standard several times today. I’d be interested in an elaboration on that concept – any of the speakers – all of them?
MR. FLAVIN: Why don’t we take a few comments and questions, and then I would ask each of the panelists to take notes and you can sort of select which ones – assuming they weren’t directed at an individual – you want to take, and then hopefully we won’t have everybody answering every question.
Q: (Off mike.)
MR. FLAVIN: Could you identify yourself, please?
Q: Arthur Hunt
I travel around the Adirondacks and we’ve seen an awful lot of damage from acid rain from coal fire plants. I’m really excited about this biofuel conference and the implications of it. I’m really pleased to see that the USDA has been a long-term supporter of the biofuel efforts. And you’ve mentioned that the technology is in place to produce clean-burning coal plants. We have the carrot; I would like to urge you to – urge the administration to reinstitute the stick.
The environmental safeguards were relaxed for the benefit of a few coal plants and energy companies. I think it’s time it reinstitute them, and that will help also reduce the carbon emissions. Thank you. Thank you for your support of this conference.
MR. FLAVIN: Thank you.
Q: Jodie Roussell with the American Council on Renewable Energy. I have a question for Mr. Elbling.
You commented that there are now 15,000 biodiesel filling stations in Germany, and we’ve keenly watched the tax exemption of biofuels in your country. I’m wondering if you can comment more on the historical development of filling stations in terms of the numbers over the past 10 years and how the tax exemption spurred the development of additional filling stations? Thank you.
MR. FLAVIN: Let’s just take one more and then we’ll turn back to our panel.
Q: Yes. Harry Stokes, Stokes Consulting Group, working with Winrock and other partners in Africa and other places in the developing world.
Would the Worldwatch Institute be interested in expanding the scope of this study to look at the applications for alcohol in household energies, especially cooking?
MR. FLAVIN: Thanks for that leading question. Let me first ask the undersecretary if he’d like to respond to one or more of those questions. Why don’t you please come up here for the microphone?
MR. DORR: Well, on the issue of standards, it’s clear to me that all of the producers that we’re working with are very focused on the need to migrate to appropriate standards to make sure that all the products we’re producing are interchangeable, as any other hydrocarbon-based fuel is. And so we completely agree with the issue there.
On the situation relative to the standards on coal-fire plants, obviously there are reasons the administration has taken the position they have, and I think they’re very cognizant of trying to be a good steward of the environment, and I would expect they would continue to be.
MR. FLAVIN: Suzanne, do you want to –
MS. HUNT: Yeah, the standard question, I would say that this is an issue for the producers but largely for the car companies. They want to insure that the fuels meet certain standards so that they can assure that the cars are compatible, the emissions releases meet certain standards, et cetera. It’s actually more a concern with biodiesel than ethanol. The variation in feedstocks with biodiesel with different oil saturation levels lead to differing characteristics of the biodiesel. So it’s more an issue there. With ethanol, it’s a much more homogeneous fuel but water content can be an issue. There are already standards in place in the United States and in Europe, and other countries have adopted those standards, but for this to become a truly global market and a global industry, internationally accepted and aligned standards are going to be needed.
In terms of expanding the scope of the study, we actually felt like we had our hands a little bit tied with the study being limited to liquid biofuels for transportation because there are so many other types of bioenergy and applications of bioenergy. But we were also quite relieved because it was already such a broad study. But we would be very pleased to expand it in the future and look forward to working with many of you.
MR. FLAVIN: Viktor Elbling?
MR. ELBLING: Yes, thank you for the questions. As far as the common standards are concerned, I think there are two points to differentiate. On the one hand you have the question of what standards the fuels have to reach in order to be operable in different systems, different countries. At the moment you have different standards in the U.S. and in Europe, and you might not be able to really reach a global market if you don’t have common standards for the fuel itself.
Then on the other hand – and this is the second question, the second part of the problem – is, as we said before, especially tropical countries have the possibility to further the product on the markets to much more interesting prices than we do in our more temperate countries normally. And I think it’s important to ask the question, how are the labor conditions in these countries that export – how are they treating the environment? How are they treating the water supply? What happens with deforestation? Take Brazil, for example. I think we really need to have – this will be the ideal thing, if we could be able to agree on common standards when you are talking about the exportation of biofuels.
As far as the German filling stations are concerned, this of course concerns biodiesel in Germany only. As we said before, this is mainly produced from rapeseed, and interesting is it’s an oil. And the interesting thing is that you can use this fuel practically without any change to the engine, any diesel engine. This is the interesting thing. And that is why the markets have accepted it. So it’s pure – it’s pure rapeseed oil in this case, which is filled into a normal diesel engine at these filling stations.
Why is this attractive? Because the tax breaks made this in principle more expensive production of this fuel, competitive against the taxed fuels as gas, for example, where the difference to the United States, 50 percent of the price of gas at the filling station comes from taxation, from mineral oil tax. That is the reason why it was interesting. There is in Germany an interest for environmentally safe or safer fuel, and that is why it was a success I think to move to these fuels. Thank you.
MR. FLAVIN: The last time I was in Germany it was $6 a gallon. So that does provide a powerful incentive.
Let’s go ahead and take some additional questions and comments.
Q: Hi. Ian Monroe from Winrock International. It seems like, as has already been articulated, striking the appropriate balance between supporting domestic energy security and agriculture versus the economic efficiencies of global trade and supporting developing countries’ development of biofuels and increased revenue is going to be a major challenge. And I’m just curious to get the opinion specifically of Mr. Dorr and Mr. Elbling regarding how we strike that balance. And we have seen specifically, Ms. Hunt has put up, the tariffs that are in place as barriers to trade currently. When should we start seeing those tariffs going down and eliminated, if that is something eventually we want to do? Obviously this ties into the whole Doha negotiations that have been going on and the major challenge there.
MR. FLAVIN: Thanks. Sergio, I’m not sure if it’s fair for an author to be asking a question, but we will give you a special exemption here.
Q: No restriction was mentioned; that is why I stood up. (Laughter.)
First a comment on the technical specification. Our German colleague talked about much broader standards than technical. But I think there are two sources here. One is the world fuels chart. All of the fuels in the world are decided, defined by the world fuels chart. And the other thing is when you go into international trade, you have to specify the fuel in a futures and options contract. The New York Board of Trade has such a specification, and other future commodity traders will have that defined. So I think we are migrating into that.
But the question itself is although the United States has not signed Kyoto – as some would say in Texas, “Cyoto (sp)” – (laughter) – there is trade going on even in the United States in carbon. And of course those countries like Germany and others who have signed a device called the CDM, the clean development mechanism, that allows trade in carbon coming from developing countries to developed countries. And it is very, very well – there is no problem with that. But when it comes to biofuels, it seems to be an issue. Now, the question is, in summary, why can you trade emissions and not trade biofuels? Thank you.
MR. FLAVIN: Good question. Next please.
Q: Hi. I am Jahim Fandon (ph), of the International Food Policy Research Institute.
Congratulations to a great study, to GTZ and Worldwatch. It raises a number of very important science and technology questions. And my question relates to how can we move the science and technology agenda forward in a coherent way with sufficient exchange mechanisms? I fail to see a global clearinghouse mechanism which especially would facility fast exchange of knowledge to developing countries. We have talked a bit about competition between, say, Germany, U.S., Brazil, and so on, and who is at the frontiers with biofuel and so on, but maybe the panel, and especially you, Ms. Hunt, can comment on that. How can we establish a global mechanism to facilitate fast technology transfer in that field?
MR. FLAVIN: Thank you. And one final question.
Q: Thank you very much. Charlotte Hebebrand from the International Food and Agricultural Trade Policy Council. I would like you to address a little bit more the development dimension of biofuels. Clearly Brazil has done a tremendous job, and it’s a big powerhouse. But let’s not forget that Brazil also benefited from an enormous amount of government support. So how can we sort of replicate the success Brazil has had in other developing countries and least developed countries? And what is the role that the donor countries can play here? And I’m thinking with regard to perhaps the EU change in the sugar regime. What is the thinking in terms of helping some of the ACP countries switch from sugar to ethanol production? And also in the aid-for-trade debate taking place in the WTO, is there not something that could be looked at in this regard? Thank you.
MR. FLAVIN: Suzanne, do you want to lead off in this round?
MS. HUNT: You know, I meant to plant some questions and I just never got around to it. (Chuckles.) But the question about the exchange is actually one of the recommendations that we did make that I didn’t have time to talk about in my presentation, was that we actually did recommend in the full report that there be a clearinghouse mechanism.
And, you know, certainly we need to look at the best way to do that. One idea is that there is a – one of the things that came out of the Bonn 2004 conference, renewable energy conference, was the REN 21, renewable energy network for the 21st century. And that kind of model, which is a dispersed network of people; there isn’t an organization with people who have to continually raise their funds and whatnot. And actually, Chris has been quite involved in that and can talk more on that with individuals later. But that is one idea.
One idea that actually we were talking about this morning is farmer exchanges, actual direct exchanges. Certainly the World Bank and other development agencies, GTZ, can play a role in getting the lessons that have been learned and the experience that we already have out there. Certainly in the countries that have extension services like ours, that is an institution that can play a role.
But that is a very important point. One of the things that is needed is research development, and demonstration. I think any farmer - if they are going to change what they are growing, what equipment they are using - they are only going to take that risk if they know that there is going to be a market there, and if they can see how it is done and how it works, how it has grown in their region. So there is a significant need also for on-the-ground demonstration and pilot projects.
In terms of replicating Brazil’s success, this is a really good question, and thank you for raising it, Charlotte. One of the things that I would like to point out is often we – you know, we look at how much money Brazil spent in terms of subsidizing their industry, but they also saved a significant amount of money, actually more. The numbers that we have show that they actually saved a lot more money in terms of avoided petroleum imports than they spent on their subsidies. And that doesn’t even count the benefits that they gained in terms of environmental gains. Certainly early on there were environmental costs, but environmental gains, job creation – estimates range from a million jobs being created to more or less depending on how you count them.
So in terms of the cost of the subsidies, I think that is an issue that needs to be looked at much more carefully. And in terms of replicating that success, Brazil has shown leadership in terms of being very willing to share their experience, share their technologies. So there is a huge amount of interest both on the sides of countries in the Caribbean and Africa and other areas that have similar climates, but also on the side of Brazil in terms of being willing to share this experience directly with those countries. And we have already seen – there are delegations from all over the world going to Brazil on seemingly a daily basis to learn and see the plants and talk about technology trends.
One of the kinds of lessons that can be learned I think from Brazil’s success is that they did have leadership from the highest levels in their government, and that is certainly a critically factor. And they coordinated amongst their industries – this is a really unique energy source in that it crosses many of our government agencies and ministries. So the transportation ministry has to coordinate with the agricultural ministry and the energy and rural development, et cetera. And that is something that is notoriously difficult for governments to do. So strong leadership from the highest levels and the willingness to coordinate was certainly important there.
MR. FLAVIN: Go ahead.
MR. DORR: Those are a series of great questions and observations. I think the thing that I generally think about when I am involved in policy decisions is that, really, markets do work; they work very, very well. And I made a couple of observations.
Number one, one of the things that has also occurred relative to exchange of information is I think we tend to – particularly those of us who deal with it every day – tend to underestimate or at least have lower expectations of the value of the deployment of broadband technology and the ability to move information very, very quickly, even to very remote Internet cafes. We are moving information and money and ideas in a much more unique and rapid manner than we ever have in the past.
I also reflect back in 1974 when we passed the first check-off in Iowa for the purpose of promoting market development. And one of the things that I talked about was ethanol development. And at the time we were working to pass that check-off, we were literally standing on hayracks at seed corn field days in the fall telling our producer members that we needed to pass this check-off because some day we were going to have to sell a $10-billion bushel corn crop. And they all looked at me and those of us who were doing this as though we had been smoking something that we forgot to pull out in the fence line earlier in the summer because we were only producing 5 billion bushels of corn at that time. We have produced two 11-billion-bushel corn crops since then.
And when you tie that into the discussion about food and fuel, and some of these trade issues that in my view tend to take on a tone of, well, we have to be careful that we don’t infringe in everyone’s market, I hasten to point out that what happens in developing countries is the food component, the caloric intake, goes down. I don’t need 3,500 calories when I’m not – when I’m riding in a tractor versus walking behind a mule. On the other hand, demand for liquid and electric energy has almost been linear.
And so consequently, we are recalculating, we are reworking the direction of the caloric production that we are getting from the sun and from the earth and otherwise. So I think those things are important to keep in mind. And then other things – I mean, this is just from an old Iowa farmer’s perspective, but one of the ways that we establish standards for things like hydraulic couplers and three-point hitches and loader tractor adapters was through a series of ISO standards that ultimately came through the various international processes, and I’m assuming that that will occur again.
So I think when you look at the fact that these are literally brand-new infrastructures built around some either, depending on how you look at it, old or new technology but technology that has not historically been part of the energy structure, we’ll work through these systems, and there are going to be some very bright quick kids coming out of some colleges all over the world who are going to figure out ways to solve these problems and make a lot of money.
MR. FLAVIN: It’s hard to shake that enthusiasm. (Laughter.)
MR. ELBLING: Yes, thank you again for the questions. What will we be able to move as far as tariffs are concerned in the Doha round now – very difficult to answer. I think it’s correct to be careful with the predictions at the moment. One shouldn’t lose hope, but I think with some reason we are a little bit skeptical about the result of this round at the moment. But if we are able to lower tariffs in important industry and crop industries for the developing world, then we are very – we Germans at least are very much willing to go forward with that. As I said before, there are other partners who have some problems with this who have a stronger agricultural background maybe than we had.
One question was already answered with the question. It was the question of aid for trade. And the European Union is engaged very strongly already with, for example, especially countries of the Caribbean, about how to change their exports in sugar after reform of the sugar markets, especially countries who had a preferential entrance into the European Union after this. And we are using very much the aid-for-trade instruments of the Doha, of the WTO to do this. So I think this is going on quite well.
Market and states – well, I think you heard from what I said before that we have the feeling that the state has to play a very important role giving incentives in the beginning for these kinds of industry to make the competitive. The markets have to be created probably, have to be put in place in order to function. I think they are not always already there functioning perfectly. So I think it’s important through mandates, through other measures like the buying up by the government of a certain amount of biofuels, for example, for the car fleet of the government – things like this – all things that have happened in Brazil could be interesting ideas to follow. So I think the state has to play an active role if we have a – want to reach a target on this.
Why do we have trade on carbon emissions and not on biofuels? I think that is a good question. I think the Kyoto Protocol gives some possibilities to work with – to promote biofuel development through the instrument of the clean-development mechanism. And we have the chance to get emission-reduction credits, as you know, for investments in all kinds of emission-reducing projects. And if this emission-reducing project is in the biofuel area, this is a good possibility for developing countries. As far as transformation countries are concerned, for the countries especially Eastern Europe, well, you have the second-important instrument with this disjoint implementation, which more or less functions the same way.
So I think there is something in place if you have projects that go well with the idea of the clean-development mechanism and then of the biofuel emissions reductions. Thank you.
MR. FLAVIN: Well, thank you all for the wonderful questions. And thanks to the panel for the equally cogent answers, and for everybody for keeping the responses very tight because we now have lunch and I expect many of you are eager to get onto that, not only because I think we have a pretty good lunch plan, but our luncheon speaker, Jim Woolsey, I think is going to probably, if anything, take the energy level up a notch because he tends to do that.
There is a map in your packet indicating where the lunch is being held. It is at the Holiday Inn on New Jersey Avenue. It should be about a 10- to 15-minute walk. I look forward to seeing you all in just a few minutes.