Business must see beyond the biofuels bonanza

By Chandran Nair

This column by Chandran Nair appears in the July 2007 issue of the Ethical Corporation magazine.

The craze for the biofuel buck will likely burn itself out before too long. But the destructive frenzy can leave irreparable losses unless businesses see the contradictions in this renewable energy, and pick the opportunities with great care

Renewable energy

Advocates of biofuels assume naively that because biomass has a carbon-neutral life cycle its use as fuel will ease climate change.

Typically, biofuels require more energy to produce than they contain, leaving no net environmental benefit. A growing chorus details grave consequences of unsustainable production.

Without strict and universal codes of control and enforcement, producing and purchasing biofuels will leave critical net losses in existing carbon sinks and eco-systems.

Biofuels will also release CO2 and methane. Nor is there certainty that expanded bio-fuels production will benefit growers or protect social fabrics in fragile communities.

What makes the race to biofuels so volatile is a high-octane mix of scale of demand, driving profit incentives, and a distortion to the urgency of climate change.

Counting the negatives

A recent UN report, "Sustainable Bio-energy: A Framework for Decision Makers", says: “Where crops are grown for energy purposes the use of large-scale cropping could lead to significant biodiversity loss, soil erosion, and nutrient leaching. Even varied crops could have negative impacts if they replace wild forests or grasslands.”

This is happening now. The report suggests that 98% of Indonesia’s natural rainforests will be degraded or gone by 2022. Five years ago, the forecast was 2032.

Since then, Indonesia and Malaysia – which make 83% of the world’s palm oil, a key bio-fuel – have cleared primary forests to meet Europe’s requirement that bio-fuels make up 10% of all fuel used in the union by 2020.

Though this means better prices, traditional users suffer: Malaysians are going without for the first time. Like many countries relying on palm oil’s great versatility for food products and cooking, Malaysia cannot compete with the purchasing power of markets that want it for fuel.

A critical balance is at stake: food prices and production must be secure from fuel production. Transport demand for another key biofuel, ethanol, has driven up the price of food staples it is made from: in Mexico maize is 6% more expensive, and soy costs 13% more than last year.

This publication has argued that biofuels in China, too, are problematic.

Now, US President Bush has turned on an oil dime to Brazil, the world’s largest producer of ethanol, to ease America’s reliance on fossil fuels.

According to the WorldWatch Institute in 2006, Brazil and the US produce 70% of all ethanol for biofuels. Brazil grows 37% (from sugarcane) and the US 33% (from corn).

In 2006, Brazil’s exports to the US grew six-fold in just a year, and, as Ethical Corporation reported in June, look like they “could grow exponentially”.

Sao Paulo has a germ of an idea. The Brazilian state requires sugarcane farmers set aside a percentage of their land as natural reserve: this can be applied to all bio-fuel production.

Global certification mooted

Other attempts to regulate production include at least one European research project to develop a global certification system for a sustainable bio-energy trade.

Last year, the EU adopted its biofuels strategy, but NGOs had serious reservations.

They believed it failed to ensure the environmental integrity of the agricultural raw material. And there is now a "round table" on palm-oil supply chain issues.

But these efforts are fragmented. Universal certification is needed immediately. Asia must get involved. Even now, farmers in Asia, South America, and Africa say fuel planters are stealing their land.

Not only are virgin forests and the biodiversity they contain under threat, but also water catchments: biofuel crops strain already tight freshwater supplies; stripped of trees, these areas will suffer incalculable losses.

Lacking a global biofuel sustainability certification architecture it is vital companies in the supply-and-demand frenzy fully understand these issues. These include both agribusiness and plantation companies and buyers, most of whom are still western.

They must not promote net environmental loss. They need clear guidelines for buying bio-fuels from developing countries. Climate change makes it an ethical issue. Stringent in-house sustainability criteria are vital.

This means:

- virgin forest areas are off limits, for production or as product sources. In the oil industry BP shareholders voted in 2004 for a no-go zone policy for sensitive areas

- using already acquired large land banks more efficiently

- innovating technologically for more efficient production

- being vigilant against exploiting illegal land. Chief executives can claim the moral high ground, especially in growing their business. The potential to exploit loose, lax laws is greater in developing nations, where investment in bio-fuel plants has risen sharply recently

- adopting organic practices as far as possible. Pesticides, herbicides and fertilisers, all carbon intense, can damage extensively at such scales.

Tellingly, the UN report concludes that bio-fuels are more effective when used for heating and power, not transport.