No. 2, 2008

The present and the future of biofuel production in Russia

World economic progress is accompanied by a steady rise in fuel and energy consumption. Our planet’s oil and natural gas reserves have their limits, however. Therefore, the world community sets great store by quests for alternative energy sources, and production of bioethanol is of special interest in this respect.

Problems and solutions

On November 27, 2007, RF President Vladimir Putin called for adrenalizing bioethanol production in Russia and pointed out that “it is necessary to lay the groundwork for the business of setting up biofuel production facilities,” laying special emphasis on the prospects of “Russian biofuel producers gradually taking over certain niches from oil and gas producers… Under the circumstances, those working in the countryside will, to a certain extent, even oust our oil and gas producers from their niche.”

The world is gradually entering the era of a bioeconomy, i.e. the economy based on biotechnologies and using renewable resources to produce energy and materials. The bioeconomy has many advantages: in the social sphere, these are diversification and growth of the rural economy, development of rural areas, improved ecology, human health and quality of life; in the economy, lower production costs, closer monitoring of product properties, emergence of new products and markets, decreased dependence on non-renewable energy resources; and in the sphere of ecology, preventing environmental pollution, reducing discharges of greenhouse gases and other noxious substances, processing biomass into new materials, chemicals and fuels, and utilizing reusable and recyclable products.

In Russia, the bioeconomy and renewable biofuels are promoted by the Russian National Biofuels Association. The main purpose of the Association is to provide an enabling environment for development of the market of renewable biofuels (bioethanol and biodiesel). Russia’s first Fuel Bioethanol and Biodiesel congresses were held in 2006, and on April 24-25, Moscow hosted the Third International Congress Fuel Bioethanol-2008 at which more than 300 participants and more than 30 speakers met to discuss the industry’s problems.

Renewable energy sources obtained from agricultural raw materials are being actively used in the United States, Japan, Brazil, China, India, Canada and EU member states. Many countries have set up special executive agencies to monitor and coordinate implementation of alternative energy production programs. The Agricultural Policy Act adopted in the United States recently, for example, says that construction of bioplants is a national objective and that the nation’s government institutions are obliged to use biofuel. Extensive research into the process of obtaining bioethanol from biomass conducted on the basis of public-private partnership receives every support. In August 2005, U.S. President George Bush, Jr. signed the Energy Policy Act which provides for subsidies and tax breaks for ethanol producers.

The International Energy Agency (IEA) predicts that by 2030, global biofuel production will grow from 40 million tons of oil energy equivalent in 2006 to 150 million tons, and annual production growth rates will constitute 7-9%. As a result, the share of biofuel in the overall volume of fuel used in the transport sphere will amount to 4-6% by 2030. The gain in ethanol production will be the greatest because its production cost is expected to decrease faster than that of biodiesel.

Bioethanol is a liquid alcohol fuel processed from starch or sugar-containing plants (corn, sugar beet). As distinct from alcohol it is processed from, bioethanol contains no water and is obtained by the shortened distillation method, therefore methanol and fusel oils are present in it.

In Europe, a program for bringing the share of liquid (transport) biofuel to 5.75% by 2010 (as against 1.4% in 2005) has been adopted. Europe’s consumption of bioethanol and biodiesel fuels is to grow from 7 million tons to 15 million tons with investments in the construction of 40 new biodiesel and 60 bioethanol plants to amount to at least $4 billion by the year 2010. In Germany, 100-percent biodiesel is available from about 2,000 filling stations. In 15 years, Sweden, where already now each filling station selling over 4 million liters of gasoline a year must have a E85 dispenser (85% bioethanol and 15% gasoline), intends to give up oil altogether in favor of biofuel. Motorists driving bioethanol-powered cars may proceed to downtown Stockholm for free, are not charged for parking and enjoy reduced annual car tax.

The CIS’ first fuel bioethanol plant was launched in Kazakhstan in September 2006, and several more are under construction; the government is drawing up a national bioethanol and biodiesel program. In Ukraine, there is law stimulating the production of motor gasolines with bioethanol additives (reformulated gasolines), with excise tax on such fuels reduced from 60 Euros per ton to 30 Euros per ton. No excise duty is charged on fuel bioethanol produced by Ukrainian plants; large cities with a population of over 500,000 are obliged to sell biofuel from filling stations.

Naturally, biofuel will not supersede oil fuel in the foreseeable future. There is simply not enough grain to produce the requisite amounts of bioethanol. At Volkswagen’s estimate, low-sulfur gasoline and diesel oil will constitute about 50% of the fuel used in the world by 2030; liquefied gas and gas-based fluid fuel will occupy a substantial proportion of the market. The share of biofuel will constitute 15-20%.

Russian biodiesel

After the advent of commercially attractive technologies of obtaining bioethanol from biomass, special plantations of rapidly growing plants (willow, poplar, silver grass), arranged in the warm belt of Russia, will come to play an important role. Siberia with its biomass resources will be an important but not the main source of raw materials for such factories because the absence of infrastructure will add heavily to products’ cost. In our country, an excise duty imposed on ethanol of any kind (as distinct from the EU countries) makes it impossible to develop the domestic market.

Does Russia have enough raw stuff to produce ethanol? Russia exports 10-12 million tons of grain a year, most of it as cattle feed and the rest going into bioethanol production in Europe. In January 2007, Alexey Gordeyev, RF Minister of Agriculture, admitted that right now Russia “does not use 20 million hectares of its productive ploughland.” This means that Russian agriculture can easily raise grain production by 20 million tons, which is enough for the production of 7 million tons of bioethanol.

The Russian bioethanol and biodiesel market’s two-stage development scenario – the first stage being the development of biofuels’ production for export and the second, the promotion of domestic biofuel consumption – appears to hold the greatest promise. In this case, the development of the Russian biofuel market will show the following tendencies in the mid-term (before 2012): a rapid increase in the share of modern cars running on high-octane (92-plus) gasoline or on improved diesel fuel; the setting of statutory Euro 4 (plus) fuel standards; imprinting firmly on the public mind the image of biofuel as a reasonable and ecologically clean alternative to traditional fuels; completing redistribution of arable lands from underproductive to efficient farmsteads; concentration of farm produce production in large organizations – firms or farmers’ cooperatives. And, besides: the development of reasonably priced commercial technologies (Russian and foreign) for the production of biofuel from cellulosic biomass; enhancing the nation’s mobility – of gainfully employed population, in particular; boosting average annual per-family fuel consumption; raising gas and fuel prices up to European level.

In the long term (until 2020), we can also expect the appearance of the following development trends: an obvious climate change, with the Moscow-latitude climate becoming much like that of the Lipetsk and Tambov regions’ latitudes; improvement of farming conditions amid an increase in the number of extreme phenomena; formation of the global ecological police force to monitor the discharge of greenhouse gases; commencement of pronounced government action to keep discharges under control; industrial adaptation of innovative renewable fuel production technologies – the technology of fuel and chemicals production from cellulosic biomass, first and foremost.

If this scenario materializes, Russia will be able to firmly establish itself as a supplier of biomass and its derivatives to the world market, and plantations of bioenergetic crops (rape, maize, rapidly growing biomass energy crops) will take up the now vacant arable land plots in the Non-Black Soil Belt. This will reduce migration from the “evergreen tomatoes” belt to the Non-Black Soil Belt and to the Black Soil Belt by engaging local residents in raising and processing biomass. One can also expect an increase in manpower migration from Southeast Asia (China, Indonesia) and Africa to short-handed Russia owing to the deterioration of climate in those regions (droughts) and the resultant famine.

The Second International Congress Biodiesel-2007 conducted on the initiative of the Russian National Biofuels Association under the auspices of the RF State Duma, the Ministry of Agriculture, the Ministry of Industry and Energy, the Ministry of Economic Development and the Biotechnologists’ Society of Russia, came to a close in Moscow on October 8, 2007. The congress, attended by more than 250 participants from 20 countries across the world, became a prominent landmark in the record of the fast-growing biofuel markets of Russia, Europe and the CIS member states. The congress agenda prioritized mapping out national strategies of biofuel market development; much attention was paid to the discussion of development prospects for the domestic biodiesel market, the production of raw materials that go into making biodiesel and new biodiesel production techniques.

The use of the available potential, given government support and the appropriate regulatory and legal framework, will make agriculture and the national economy as a whole less dependent for energy supply on rises of non-renewable energy sources’ prices; extend and change the export pattern and raise the profitability of the agrarian sector; improve ecological situation and obtain an extra source of carbon credits within the framework of the Kyoto Protocol.