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There can be little doubt that alongside the Covid-19 pandemic, climate change is the biggest challenge of our time. In fact, the recent G7 meeting in the UK was largely dominated by these two issues. But, unlike the coronavirus, climate change is likely to be the biggest long-term challenge that confronts us.

In responding to that challenge SA and the EU have ambitious goals to achieve climate neutrality. These, in turn, open opportunities for decarbonising the  fuels used in transport, including the increased use of biofuels.

During the negotiations of the EU-Southern African Development Community economic partnership agreements, SA pushed hard to secure a customs-free 80,000 tonne bioethanol allocation for export to the EU. While there is strong demand for bioethanol in the EU, to date only about 12,000 tonnes (15%) of this allocation has been exported.

The EU Renewable Energy Directive (RED II) of 2018 targets 32% of its total energy to come from renewables by 2030 — 14% of this is planned to support sustainable transport. RED II favours the use of advanced biofuels, mostly from waste, algae and microbes, as they are allocated double the points towards the EU’s RE target. Consequently, many sectors, will be looking closely at bioethanol.

Aviation, which accounts for 14% of the EU’s transport emissions and is reliant on liquid fuels as no alternative currently exists, is one of these opportunities. Investment in sustainable aviation fuel, approved since 2009, could thus generate long-term returns. The aviation industry has set a goal to have a 2% blend with non-fossil-sourced fuels.

More generally, the EU target for advanced biofuels by 2030 will require 100 such plants, each producing 200-million litres per annum. Given that there are only a few bioethanol plants in the EU, many member states will either need to build new capacity and/or identify partners globally to meet their mandates. This opens the door for countries, including SA, to develop biofuel value chains that will help grow their economies and create jobs.

In SA biomass waste is abundantly available from agriculture, forestry, sawmills, the paper and pulp industries, invasive alien plant species, fuelwood and domestic solid and liquid waste. Some estimates show SA producing billions of litres of bioethanol from crops and biomass waste.

For example, SA’s sugar sector has the potential to produce 1-billion litres of bioethanol from its lignocellulosic biomass waste if it changes to green cane harvesting. There is growing interest from various companies to use the industry’s biomass waste streams, and the waste streams of others, as feedstock.

Non-biological sources are also available. An SA company, Swayana, has successfully pilot-tested the production of advanced bioethanol from off-gases of the ferroalloy sector. It estimates it can produce billions of litres of ethanol fuel from the 16 ferroalloy facilities in the country while significantly reducing greenhouse gases emissions. 

So, where is SA with regards to developing a viable biofuels industry? The price of bioethanol in SA is linked to the basic fuel price of petrol, which is volatile. Added to this is uncertainty around the country’s regulatory framework.

SA gazetted the Biofuels Industrial Strategy in 2008 and the mandatory blending of biofuels in 2015, but the latter has not yet been enforced. The Bioethanol Regulatory Framework was gazetted in early 2020, providing for producer support and manufacturing subsidies, but the details have yet to be published. The Sugar Masterplan published in November 2020 provides for diversification into bioethanol for transport, including aviation fuel, but it is not yet clear how the strategy will support the biofuel sector.

The failure to provide details of the support that will come from government and the non-enforcement of the 2% bioethanol blending mandate have contributed to the slow development of the bioethanol value chain in SA. What is known is that support for domestic use will only be available for first-generation bioethanol produced from food and feed crops.

Some bioethanol produced from food or feed crops is limited to use in renewable energy transport by the EU. At present, producers there provide the bioethanol market supplemented by imports from Brazil and the US. The main trade opportunity for local ethanol suppliers is from advanced bioethanol produced according to EU RED II requirements. Taking advantage of this opportunity could boost economic growth and create jobs.

The production of advanced biofuels requires much capital investment and given all of the above-mentioned constraints, investors will expect an internal rate of return of about 20% to cover their risks. Efforts to interest local oil refineries have failed thus far, even though they have the technology to convert and refine ethanol into jet fuel.  Resolving this will be critical to building a viable biofuel industry as this sector is an important cog in the sustainable aviation fuel supply chain.

Brazil and other countries have moved from subsidies to a market-based approach, with stronger compliance requirements for carbon reductions by industry. SA has begun to apply a similar approach by introducing a carbon tax which aims to promote the use of climate-friendly fuels, but it is not significant enough yet to incentivise a switch by industry to low-carbon production. Carbon trading could offset some of the costs of production, facilitating the development of the sector, particularly within companies that produce large volumes, but carbon prices are too low at present to incentivise this.

The rapidly changing policy environment in the EU, together with the tariff rate quotas under the economic partnership agreement, gives SA the opportunity to sell advanced bioethanol into the large European market. But to take advantage of this and to stimulate the development of a vibrant bioethanol sector requires strategic direction and support from the government, together with greater regulatory and pricing certainty. 

• Sugrue is bio-economy expert at the EU-funded EU-SA Partners for Growth project and director of consultancy EcoSasa Developments.

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