6 OCTOBER 2007, Page 25

Find another planet and plant it with soybeans

Elliot Wilson says there isn't enough arable land in the world to make plant-based fuels a viable alternative to oil C B iofuels?' Ricardo Leiman gives an imperious snort, his eyebrows wobbling. `Biofuels?' he repeats in an offended tone, as if asked to perform a lewd act. 'There's about 20 million tonnes of processed edible oil on the planet right now — not enough to fulfil 5 per cent of Europe's energy needs, let alone any of the huge demand in the US, China, India or anywhere else.'

If Leiman doesn't believe that biofuels are a viable solution to our energy needs, one wonders why anybody does. As chief operating officer of Noble Group, a Hong Kong-listed trading giant that crushes and refines close to 2.5 million tonnes of soybean and vegetable oil each year — much of it destined to fuel hybrid cars and buses — Leiman has much to gain from the budding industry. Noble posted revenues of £5 billion in the first half of 2007, up 60 per cent on 2006.

These days, everyone seems to have an opinion on biofuels. Broadly defined as any solid, liquid or gas fuel derived from any biological mass — from palm oil and rapeseed to human waste — the biofuel industry has become a subject as divisive as genetically modified food in the 1990s, or crop-spraying in the 1960s.

Proponents view biofuels as vital both to energy security—because it reduces dependency on Middle Eastern oil and Russian gas — and to energy sustainability. Fossil fuels are finite, but the only limitation on biofuels is the availability and fecundity of land. This side of the argument boasts powerful political and industrial backing. In January 2006, President Bush announced in his State of the Union address that America would replace no less than 75 per cent of the oil it imports from the Middle East with biofuels such as corn-based ethanol by 2025 — there are, of course, lots of votes in corn-growing states. This year he upped the ante, demanding that the US generate 35 billion gallons of alternative fuels per year by 2017.

Not to be outdone, the European Commission voted in March 2007 to generate 10 per cent of the region's transport power from biofuels by 2020, with most of the ingredients to be sourced from Brazil and Argentina. China in turn set an internal target of 12 million tonnes of biofuels by 2020, mostly by 'buying' access to land in neighbouring countries, including Indonesia and the Philippines. Japan, India and Brazil have also set out plans to generate significant portions of their energy needs from biofuels over the next ten years.

The other side of the argument is less well co-ordinated and funded, but all its advocates start from the position that biofuels are a ticking moral and ethical time bomb. Is it really a good thing, they ask, to set aside huge tracts of land to plant crops that will be used not as food, but as fuel for cars and power stations? A single tonne of refined palm oil generates 33 tonnes of carbon dioxide emissions — 10 times more than petroleum. Stripping out tropical forests to plant sugar cane for ethanol — of which Brazil plans to double its output by 2015 — only makes the planet's ecological systems struggle harder to absorb rising carbon dioxide levels.

To be fair, both sides of the argument contain elements of reason. No one denies that energy sustainability is a pressing issue — and that wind, wave and solar energy, though theoretically unlimited, will only get us so far. Besides, biofuels have been around for centuries. They first appeared in Britain in the 1630s when farmers set aside land to grow hay to feed drayhorses raised to pull canalboats. The first cars, ironically, were designed to be powered by biofuels — the German inventor Rudolf Diesel designed his eponymous engine to run on peanut oil, while Henry Ford wanted his Model T to run on ethanol. Then huge petroleum reserves were discovered in the US, and biofuels were largely forgotten.

There are also huge profits to be made: Hong Kong-based brokerage CLSA predicts the global biofuels market to be worth £75 billion a year by 2020. The main beneficiaries will be the giants of agribusiness — the likes of Cargill of the US, France's Louis Dreyfus Group, and rising powers such as Noble Group and China's COFCO. Others expected to profit are the world's leading oil and gas groups. BB Shell and ExxonMobil have all been playing both sides of the game — lobbying against biofuels via non-government organisations such as the Asian Clean Fuels Association, while simultaneously upping their own biofuel interests in order not to lose out.

Yet there's a distinct sense of blind hope about the way most governments have gone about setting biofuel targets. For a continent that has consistently set the global tone on emissions, pollution and land conservation, Europe's breathless estimates on biofuels seem particularly misguided. To hit its target of 80 billion litres of biofuels by 2020, Europe will need to ramp up its imports enormously, notably of soy and soymeal. Inevitably, most of that increase will come from South America, in particular from 200,000 square miles of land encompassing southern Brazil, northern Argentina, and parts of Paraguay and Bolivia. Once semi-arid rainforest, it is now mostly cleared, creating a semi-autonomous region known locally as the 'Republic of Soy'.

Using arable land to grow biofuel crops also pinches global food supply, pushing up the prices of everything from Mexican tortillas to British pork and Japanese curry. Corn prices alone have doubled since mid-2005. Rabobank estimates that to produce enough corn-based ethanol to meet just 10 per cent of all global energy demand, we would need to plant onethird of all of the world's farmland with corn. That rises to 91 per cent of all available land for rapeseed oil (one of Europe's few homegrown biofuels) and an impossible 200 per cent for soybeans. In other words, you would need to find another, identical Earth and plant all its usable farmland with soy, just to satisfy one tenth of current global energy demand.

Mitigating this gloom is, as always, technology. A group of financiers led by the venture capitalist (and founder of Sun Microsystems) Vinod Khosla has been pumping money into cellulosic ethanol, a fuel produced from the stalks and stems of any cellulose-based plant. Cellulosic ethanol generates twice as much ethanol per acre of land than corn, in part because it uses the entire plant. Companies across the world are racing to become what one analyst calls `the Google of cellulosic ethanol'. Among the contenders are Mascoma and Celunol, two small firms based in Cambridge, Massachusetts, Dutch chemicals maker DSM, and — guess who — our own Sir Richard Branson. Yet cellulosic technology is years from being realised — and it would still demand very extensive use of arable land to grow crops destined to be burned in automobiles and power stations.

Biofuels, love them or loathe them, are here to stay. Yet the industry's future remains a black box even for the people who work in it. Noble Group's Ricardo Leiman suggests his own, rather alarming theory. 'If we want to make biofuels work at all, we need to tear up all the wheat in Canada and blanket the country in canola oil,' he says. 'Then we transfer all of Canada's wheat production to Russia, Kazakhstan and the Ukraine.' Most disconcertingly, he says it all without a trace of a smile.