Towards bio-diesel
The state-run Pakistan State Oil, which successfully carried out an experiment of blending ten per cent of ethanol with gasoline in 2006, has now started work on a similar project under which five per cent of bio-diesel will be mixed with diesel and offered for sale by 2015.
The ministry of water and power has allowed exemption of customs duty and sales tax on import of plant, machinery, equipment and specific items used in production of bio-diesel. A decision to this effect was taken by the Economic Coordination Committee (ECC) of the Cabinet in May. Federal Board of Revenue issued an SRO on May, 21, 2008, allowing the exemption.
Under the previous venture, called E-10 pilot project, three PSO petrol stations were chosen –– one each at Karachi, Islamabad and Lahore–– to provide gasoline blended with 10 per cent ethanol on a trial basis for six months. The trial came to a close in April, 2007 and along with it the project itself. No reason was assigned for not further pursuing it. Although Pakistan has been the second biggest exporter of ethanol to Europe till 2005, it never thought of producing and using bio-fuel at home from this ethanol because of strong influence of oil sector on the bureaucracy.
Bio-fuel, which was hitherto regarded a prudent way out of partially beating the ever-rising price of crude oil — President Bush had vowed to turn entire America into an ethanol-producing country for his hatred towards Arabs — is now being cursed for having destabilised the food situation the world over.
A World Bank report, prepared in April but not released on Bush Administration’s pressure because Robert Zoellick, Bush’s man in the seat of presidentship, didn’t want so, says that bio-fuel cultivation, especially in the US and Europe is directly responsible for the current explosion in food prices worldwide. Its author, Don Mitchell’s thinking is different from that of Zoellick and is closer to that of the International Monetary Fund which blames bio-fuels.
The US had claimed at the recent Rome UN Food Summit that rise in food prices due to bio-fuels was only three per cent. But Mitchell, the World Bank’s top agricultural economist, estimates that the growing use of food for fuel, combined with low grain stocks, market speculation and export food bans, contributed as much as 75 per cent of the 140 per cent rise in prices between January 2002 and February 2008. The rest of the increase is due to a weakening dollar, higher energy prices and related increases in fertiliser costs.
But even in his calculation the 75 per cent figure is not alone for bio-fuel; it covers other factors as well.
However, what Mitchell overlooks is the fact that institutional investors have purchased over two billion bushels of corn futures in the last five years and have enough stockpiles to fuel the entire United States ethanol industry at full capacity for a year, as has a leading portfolio manager informed the Senate Committee on Homeland Secu-rity in a recent testimony. That is equivalent to producing 5.3 billion gallons of ethanol which would make America the world’s largest ethanol producer. And current wheat futures stockpile, 1.3 billion bushels, is enough to supply every American with ‘all the bread, pasta and baked goods they can eat for the next two years,’ the committee was told.
The conclusion is that of all the factors contributing to food crisis, speculation ranks higher and is the major culprit. The Senate Committee was further told by Michael Masters that today index speculators are pouring billions of dollars into commodities futures markets thinking the prices will increase. As a result, the assets allocated to commodity index trading strategies have risen from $13 billion at the end of 2003 to $260 billion as of March 2008 and prices of the 25 commodities that compose the indices have risen by an average of 183 per cent in the five years. A turn to commodity futures came about after mainline financial industry consultants advised the large institutions, who suffered because of severe equity bear market of 2000-2002, for the first time to ‘buy and hold’ them as is done in case of stocks and bonds. The advice unleashed a rush for commodities futures.
However, a positive aspect of Pakistan’s new effort is that it wants to produce second-generation bio-fuels. The effort is aimed at producing bio-diesel, not ethanol. And it is to be extracted from Jatropha oil and other non-edible plants which would not affect food crops. But the problem with this project is that it is still on paper and there is nothing on the ground. So, it will take a long time to take off, unless not shelved, only after plants are sown and cultivated on a large scale.
When bio-fuels became a need, it was assumed that these would be distilled from farm waste and residues, and fuel crops would be grown on marginal land. But incidentally these were cultivated on the land previously farmed for food. Curently, bio-fuels are mainly produced from food crops such as wheat, maize, sugar cane and vegetable oils. And, what one should not overlook is that the drastic increase in biofuel production has been achieved through vast subsidies that make fuel production more attractive than producing food. These subsidies were an attempt to encourage carbon reduction which has not worked. But the subsidies continue.
Now a great hope is being placed in second-generation bio fuels, not yet in commercial production, that would use biomass from forest and crop waste, and algae, without competing with food production. Many countries in Europe, US, Brazil, Malaysia, and India are using Jatropha as well as other edible and non-edible plants/seeds for production of bio-diesel. Japan supports production of second-generation bio-fuels.
Jatropha curcas, one of 175 different plants, shrubs, and trees in the Jatropha family, produces seeds containing up to 40 per cent oil. When the seeds are crushed and processed, the resulting oil can be used in a standard diesel engine, while the residue can be used as an organic fertiliser or be burnt for power generation.