China is considering a change in its energy policy
to encourage the wider use of ethanol, a clean fuel made from agricultural
products, to target the nation's worsening air quality, a leading trader of the
commodity said.
Fabrizio Zichichi, head of ethanol at Noble Group, one of the world's largest
commodities traders, said he had been told by government policymakers on a
recent trip to China that Beijing could set a target by the end of this year for
the share of ethanol in the nation’s energy mix.
Such a move would indicate crucial political support for investment in the
production, import and distribution of the biofuel in China and could have an
impact on world ethanol prices, which experts say will soon peak on current
consumption patterns.
"It makes sense for Beijing to look closely at ethanol. Not only will it help
the country wean itself off its dependence on oil and coal but a large ethanol
market in China could help spread wealth to the rural poor, as Brazil has
shown," he said.
China is already the third-largest ethanol producer in the world behind the
US and Brazil, using mainly corn, cassava and sweet potatoes. Currently, eight
of its provinces have made E10, a 10 per cent ethanol and petroleum blend,
mandatory at local petrol pumps.
Mr Zichichi brushed off criticism that a programme to encourage farmers to
sell their products to ethanol plants would cause food shortages.
"A higher profit margin could only encourage farmers to raise their yield,"
he said. "And the benefits in Brazil have shown that there is little to fear."
China’s central government, however, has had limited success in driving the
use of more environmentally-friendly fuels. For years, it has tried to
popularise the use of natural gas but its efforts have been curtailed by the
difficulty of securing supplies and developing a substantial local market.
But analysts say it is easier to implement an ethanol policy in China by
making E10 mandatory at petrol stations and by encouraging local production.
“There is talk of the National Development and Reform Commission introducing
E10 in three key cities – Beijing, Shanghai and Tianjin,” said Christine Pu, a
researcher at Deutsche Securities Asia.
She added that there remained a number of barriers to the production of
ethanol in China. Owing to pricing regulations, ethanol producers are dependent
on government subsidies to avoid losses.
