David Jessop
LOOK CLOSELY at the detail of the action plans produced by Caribbean governments to transform their sugar industries. There you will find in every single case a proposal to turn over a part of cane production to green energy in the form of bio-ethanol, the seemingly alchemic process whereby organic matter can become fuel to power cars, trucks or turbines.
Ethanol offers the world an ecologically sounder way to address the ever-increasing price of energy. It also has particular appeal at a time of uncertainty about the political stability of key oil-producing states, a shortage of global oil refining capacity and increased demand as emerging powers such as China and India race to become developed.
SUBSTITUTE ETHANOL
AND BIO-DIESEL
The consequence is that nations around the world are introducing policies that substitute ethanol and bio-diesel for gasolene and fossil fuels. Despite this, uncertainty remains in many high-energy-consuming nations. Japan and South Korea, for example, are agonising over how rapidly they should introduce such measures when a significant imbalance exists between ethanol supply and demand.
Global requirements for ethanol are growing by 11 per cent per annum. In 2000, the world market for ethanol was 7.4 billion gallons. By 2005, it was 13 billion gallons. In 2004, Brazil, the world's largest producer, produced four billion gallons of ethanol from cane and was able to meet some 37 per cent of the world's needs. In total it exported 634 million gallons, of which 112 million went to the United States (U.S.), which itself produced 3.4 billion gallons of ethanol from corn. Now, in response to demand, Brazil's ethanol producers are racing to increase sugar cane production in order to achieve by 2013 production levels of around nine billion gallons per annum, and are clearing a vast acreage of land for cane production.
Others too, including China, India and France, are seeking to expand output. But a measure of how far worldwide ethanol production has to go is contained in data produced by the U.S. Energy Information Administration. This indicates that at present, the world only produces enough ethanol to displace around two per cent of total gasolene consumption.
For the Caribbean all this may seem tantalising. The idea that a crop that the region has been growing for centuries can now be used to offset energy imports or even eventually exported as fuel to the U.S. or Europe, seems too good to be true.
Of late, the stories about external interest in ethanol production in the Caribbean have been legion. Last month, St. Kitts revealed that despite ending the production of cane, it was considering proposals from American and Norwegian companies to look at the potential of the use of the cane standing in the fields to produce ethanol. Elsewhere, Brazil has spoken, about the possibility of its companies investing in Cuba, the Dominican Republic, Jamaica, Belize and Guyana, to produce bio-ethanol as a fuel additive, as well as for exportation to the Caribbean area.
While it is hard to judge how real some of these discussions are, it is clear that in the case of Jamaica where Government and industry have developed a coherent ethanol strategy, discussions with Brazilian companies are advanced. In contrast, Trinidad already has a fully functioning export-oriented, ethanol dehydration facility.
Last month, the European Commission (EC) adopted a strategy for promoting greater use of bio-fuels. This involves stimulating demand, enhancing awareness of their environmental benefits, encouraging member states to develop bio-fuels in rural areas, and increasing the availability of feedstock.
It also announced an assessment of the possibility of putting forward a proposal for separate customs codes for bio- fuels; a bio-fuels assistance package for developing countries to examine how best to support national and regional bio-fuel facilities; and amendments to Europe's bio-diesel standard to help ethanol replace methanol in its production.
NEW COMMERCIAL POSSIBILITIES
Speaking recently about the possibilities bio-fuels may offer regions like the Caribbean, the EC Development Commissioner, Louis Michel, noted that a greater market in Europe represented new commercial possibilities for developing countries, particularly in tropical areas. Bio-fuel offered he said, a viable alternative for ACP countries hit by European sugar reforms and would be the subject of specific EU assistance. He cautioned, however, about the need for realism. Developing the internal market in ACP nations for ethanol would be important, he said, but it would be "practically impossible" for developing countries to compete with the bio-ethanol produced by Brazil.
Sadly, Commissioner Michel is correct. Some Caribbean nations with well-thought through and private sector-led plans, will be able to produce ethanol primarily as a domestic fuel additive as long as the appropriate legislation is in place.
But exporting will be another matter. Here the cost of the cane feedstock, the efficiency with which it is harvested and processed, the volumes produced and the subsequent transport costs will determine whether this is an attractive option.
THE PRICE OF RAW SUGAR
This is especially so when the price paid by the EU for raw sugar, even after the forthcoming price cuts, remains significantly above world market prices, to say nothing of the fact that in some cases, EU quotas cannot be met.
Much too will depend on technical issues such as the rules of origin for non-originating feedstock, as well as on global tariffs and quotas although it is important to note that ethanol produced in ACP nations enters Europe quota and duty-free.
There are also opportunities in the U.S. market. Under the Caribbean Basin Initiative (CBI), countries in Central America and the Caribbean have had duty-free access to the U.S. since 1989 for ethanol made from regional feedstock. Ethanol derived from non-regional feedstocks has been limited by a quota equal to seven per cent of total U.S. ethanol consumption. Strict rules of origin prevent transhipment of ethanol from other countries. Despite this, only Costa Rica, El Salvador, Jamaica and Trinidad have ever exported ethanol under the CBI quota, and typically at least 50 per cent of the 120 million gallon has gone unused.
There are also other clouds on the horizon. The U.S. Department of Agriculture suggests that if ethanol is to become a major part of the U.S. or world's fuel supply its primary source will not be grains or sugar. Rather it will be more-abundant and land-efficient cellulosic feedstocks, such as forest residues and fast-growing trees.
What all of this seems to point to is the need for a high degree of caution about the conditions under which ethanol production for export is viable or sustainable in most Caribbean sugar- producing nations.
David Jessop is the Director of the Caribbean Council and can be contacted at david.jessop@caribbean-council.org. Previous columns can be found at www.caribbean-council.org.
