There exists today a significant demand in industrialized countries for biofuels, driven largely by regulatory mandates for blending of biofuels into petroleum fuels. This demand is likely to grow considerably in the years ahead, driven by increasingly ambitious regulatory mandates, sustained high oil prices, and energy security concerns. Biofuel demands in many developing countries will also grow, driven by similar factors. Opportunities for trade in biofuels or biofuel feedstocks will be expanding. The technologies described in this publication imply a number of issues relating to the development of biofuels industries in developing countries supplying domestic and/or global Markets.
The limitations of first-generation biofuels in terms of direct food vs. fuel conflict, costcompetitiveness, and greenhouse gas emissions reductions are not likely to be substantially different in developing countries than in industrialized countries. While the climate in many developing countries is better suited than in many industrialized countries to growing first-generation biofuel feedstocks, agricultural productivities are generally lower. Higher agricultural productivities thus would help mitigate food vs. fuel conflicts to some extent, and targeting biofuel feedstock production on lands less suited to food crop production also would be helpful. In any case, the economics of firstgeneration biofuels may not be much better than can be achieved in industrialized countries, because global commodity markets may set prices for first-generation biofuel feedstocks. In addition, smaller scales of production that might be favoured in developing countries (to reduce investment capital needs) would tend to raise unit costs for biofuels production. Clean Development Mechanism credits may help improve economics, but credits for first-generation biofuels (other than for sugar cane ethanol on the Brazilian model) will be modest without innovation in production techniques that reduce fossil fuel use compared to current industrialized-country norms.
Considering second-generation biofuel technologies, given that they are primarily being developed in industrialized countries, issues concerning technology relevance for developing countries are important. Technologies developed for industrialized country applications will typically be capital-intensive, labour-minimizing, and designed for large-scale installations to achieve best economics. In addition, the biomass feedstocks for which technologies are designed may be quite different from feedstocks that are suitable for production in developing countries. To capitalize on their comparative advantages of better growing climates and lower labour costs, developing countries will need to be able to adapt such technologies. Tailoring feedstocks to local biogeophysical conditions will be important for maximizing biomass productivity per hectare and minimizing costs. In addition, adapting conversion technologies to reduce capital intensities and increase labour intensities will be important for providing greater employment opportunities and reducing the sensitivity of product cost to scale. If such adaptations can be made successfully, second-generation biofuel industries in developing countries should be competitive with those that will be established in industrialized countries.
The sustainable application in developing countries of technologies developed in industrialized countries also raises issues for technology transfer. For successful technology adoption and adaptation, it is essential to have a technology innovation system in place in a country. For smaller countries, regional innovation systems may serve this purpose. An innovation system refers to people involved in a broad set of activities and institutions, including (a) research universities/institutes generating fundamental knowledge and assimilating knowledge from the global community; (b) industries with the capacity to form joint ventures with foreign companies and to introduce innovation and learning into shared technologies; (c) government agencies able to recognize and support the required research and technology adaptation needs; and (d) a technology-informed public policymaking system. Technology innovation ideally would begin with involvement in the earliest (pre-commercial) stages of technology development. Such an innovation system is one of the key reasons for the success of the Brazilian ethanol program , and such systems are in place in a few other large developing countries, including India and China.
There are important roles for Government in fostering the development of biofuels industries in developing countries. Given that first-generation biofuel technologies are already relatively well developed but still face economic and other limitations, emphasis of government efforts on secondgeneration biofuels may be appropriate. The development of competitive second-generation industries will be facilitated (especially in larger countries or regional clusters of smaller countries) by establishing regulatory mandates for biofuels use. Direct financial incentives – including grants for research, development and demonstration, or biofuel price subsidies – could also be considered, but clear “sunset” provisions and/or subsidy caps (e.g. tied to oil prices and with finite durations) should be designed into such provisions. Policies supportive of international joint ventures would also help provide access for domestic companies in developing nations to intellectual property owned by international companies. With a natural favourable climate for biomass production, developing country partners in such joint ventures might contribute host sites for demonstrations and first commercial plants, as well as avenues for entering local biofuels markets.
Even with effective government support and an effective technology innovation system in place, time will be needed before second-generation biofuels will be able to make a significant impact in any developing country. To quantify this, consider Macedo’s estimates for the time that will be required before a commercial second-generation biofuel industry could be established (defined by Macedo as having 5 to 15 commercial production facilities operating) in Brazil using the lignocellulosic portion of sugar cane. Considering all of the steps needed to reach that point (including research, development, pilot-scale demonstration and commercial-scale demonstration), he estimates that a competitive thermochemical biofuel industry (producing FTL or DME) could be in place by 2020, while a competitive biochemical biofuel industry (producing ethanol by consolidated bioprocessing) might be established between 2020 and 2030. Considering the Brazilian context for these estimates – one of the lowest-cost lignocellulose production systems in the world, a wellestablished and competitive first-generation biofuels industry, major sugar cane production expansion plans that provide opportunity for rapid introduction of innovations, an established technology innovation system in the country and supportive government polices – the time to establish secondgeneration biofuels industries in an “average” developing country will likely be at least this long. On the other hand, with today’s unprecedented level of global activity aiming at commercial development of biofuel technologies, research and development surprises could shorten these time estimates.
Finally, for there to be sustainable domestic biofuels industries, there is a need for strong international biofuel and/or biofuel feedstock trading systems, since countries relying on domestic production alone would be subject to weather- and market-related vagaries of agriculture. In the context of global trade, sustainability certification may be instrumental to ensure that widespread biofuel production and use will be conducive to the achievement of social and environmental goals, without, however, creating unnecessary barriers to international trade.
Given the still-early point in commercial development of second-generation biofuel technologies, it is difficult to project the role that developing countries will take in a global biofuel economy in the long term. One possibility is that they will simply become exporters of secondgeneration feedstocks, taking advantage of their favourable natural climates and low labour costs for growing biomass. A more attractive evolution would be their becoming producers, users and exporters of finished biofuels, thereby retaining domestically more of the considerable added value involved in the conversion of the feedstocks to finished fuels.