While some ecologists question whether producing ethanol and bio-diesel fuel from corn and other crops is worthwhile in terms of the amount of energy produced and the cost involved, the Chinese Government is facing the same issue from a different perspective: balancing its energy strategy with grain security.

Yushu City in northeast Jilin Province has been the country's top grain producer for the last three years, yielding a total of around 2.4 million tons of grain every year, of which 1.8 million tons is corn. However, the mayor's assistant Sun Linqi is worried that the city will be a net grain importer in the near future. "When the two bio-fuel projects [in the city] are completed, we need to import corn from other cities to meet their demand," he said.

According to Sun, the two projects will eventually each consume up to 1 million tons of corn every year upon completion.

A bio-fuel boom is going on throughout China, which is notable, considering that the concept only has a 10-year history in the country. Globally, against the background of rising tension between economic growth and energy shortages, bio-fuel is seen as representing the future of alternative energy sources. People have been attracted to the idea of extracting a seemingly inexhaustible energy source.

China, which became a net oil importer in 1996 and is growing increasingly dependent on foreign oil, has embarked on an adjustment of its energy strategy by raising the proportion of alternative energies in the overall energy portfolio. Therefore, the government has actively encouraged the development and expansion of bio-fuel in a bid to reduce the country's reliance on fossil fuels such as crude oil and coal.

In seeking alternative energies, China has given priority to fuel for vehicles, which currently account for about 50 percent of China's total oil consumption. For the time being, ethanol is regarded as the most promising bio-fuel option and has the largest production scale worldwide. In addition to its environmental benefits, ethanol is preferred by the Chinese Government for another reason: the raw material for ethanol production is agricultural byproducts and farmers can make a profit by being the suppliers.

So far, the government has designated four plants in four provinces in central and northeast China for ethanol production using stale grain as material. The product is blended with gasoline at a ratio of 10 percent. Besides reducing the demand for oil, the blended fuel also helps to control pollution through its lower sulfur content and greater combustion efficiency. China is now the world's third largest producer of ethanol as bio-fuel. The government has subsidized the sale of blended fuel in nine provinces.

Food supply concerns

However, out of concern for grain security, the government has launched no new subsidized ethanol production projects since the end of 2001. But the business opportunities in producing ethanol have spurred the business community and local governments in major grain-producing regions to invest in plenty of new projects.

Of all grains, corn is the most favorable raw material for producing ethanol in China because of its high content of starch. In most bio-fuel plants, producing one ton of ethanol consumes three to four tons of grain. Currently, China's annual production capacity of ethanol for bio-fuel is 1.5 million tons. Moreover, Chinese businesses have planned to gain an extra production capacity of 10 million tons per year-far beyond the projected 5 million tons in the government's 11th Five-Year Plan (2006-10)-and the calculation of grain to be consumed has raised concerns about the excessive consumption of corn and wheat.

Using corn and wheat to produce ethanol represents China's earliest exploration of alternative energy sources. According to a government official who requested anonymity, the production of ethanol as bio-fuel started with the processing of China's surplus of nearly 100 million tons of stale grain. However, as that supply was used up, ethanol production shifted to fresh grain. "This obviously poses hidden trouble for China's grain security," said the official.

The increasing momentum of producing ethanol from grain was finally checked by a circular from the Central Government at the end of last year. In this document on tightening administration over bio-fuel, the Central Government mandated that governments at all levels should suspend the sanctioning and registration of grain ethanol projects under construction or in the planning stage. The document demands that ethanol production should be based on the specific situation in various regions and should not use grain as a major raw material.

Corn is one of China's three pillar cereals and its production has accounted for over 20 percent of the total grain production for a long time. An analysis on www.jcce.cn, a website that monitors the corn market, predicted that the circular will dampen the growth in demand for industrial-use grain in the future and the price of corn will remain stable in 2007 due to a basic balance between supply and demand.

Some people are concerned that the document may slow down China's strategy of developing bio-fuel. Yue Guojun, Manager of the Bio-fuel Department of the China National Cereals, Oils and Foodstuffs Import and Export Corp. (COFCO), however, said, "On the contrary, I understand it as an active force." He noted that although corn is the key bio-fuel source for his department now, it will not be the primary raw material in the long run. "It is a very timely policy adjustment for China's burgeoning ethanol fuel industry, which will propel a new shift to bio-fuel production with non-grain material."

Alternative resources

Even before the government's circular was issued, finding the ideal alternative source has been high on the agenda of bio-fuel companies. Other forms of biomass, such as straw, leftovers of agricultural and forestry processing, animal waste, organic industrial sewage and residue, and urban garbage, have been transformed into different kinds of energy, such as electricity and fuel in gas, solid or liquid forms.

"Our company started to nurture bio-fuel production out of non-grain material as early as three years ago and we have confidence in further diversifying our sources," said Yue.

In 2005, Wang Mengjie, a research fellow with the Chinese Renewable Energy Society, received an award from the United Nations Industrial Development Organization (UNIDO) for energy conversion technology in producing ethanol from sweet sorghum stems. UNIDO believes that sweet sorghum is an outstanding biomass source with greater tolerance for drought, water saturation, salinity and alkalinity so that the ethanol production from the product can save arable land and greatly reduce costs. The popularization of this technology has been formally incorporated into China's medium- and long-term plan on developing renewable energy.

A bio-fuel company from central Anhui Province has designed equipment that can produce 550 kg of bio-diesel fuel by processing 1,000 kg of rice chaff per hour. "This machine is equivalent to an oil well with an annual production capacity of 3,700 tons if it can get a steady supply of material," said Liu Hu, the chief designer of the equipment. He said the byproducts of inflammable gas and carbon dust are used to drive an internal-combustion engine to generate power; the final residue of plant ash is a good organic fertilizer. "We are now working on developing equipment with an hourly production capacity of one ton of bio-diesel," said Liu.

There is a huge stock of straw during the harvest season throughout the country. In some places, people bring straw home as fuel for cooking or simply burn it in the field, which causes an enormous waste of energy and serious air pollution. Actually, straw is an environmentally friendly fuel because its average sulfur content is less than 0.4 percent, much lower than the 1 percent of coal. Some regions have started to use straw as an economical fuel to generate power.

"After years of research, we have found the best raw material for bio-diesel is rapeseed," said Wang Hanzhong, Director of the Institute of Oil Crops Research under the Chinese Academy of Agricultural Sciences. He said the bottleneck for developing bio-diesel in China is finding enough cheap raw material.

For the time being, bio-diesel production in China, which is limited to less than 50,000 tons per year, faces the high expense of raw material, which accounts for 60 percent of the total cost. While soybeans and peanuts can be sources for bio-diesel, the expansion of their planting would be at the cost of major cereals in China, such as rice and corn.

Wang said, "Rapeseed has unique advantages as a raw material for bio-diesel." He noted that rapeseed's chemical composition is similar to that of diesel; more importantly, rape can be planted in the winter off-season for farming, which solves the dilemma between developing bio-fuel and grain security.

Developing the industry

Jatropha curcas, also known as the physic nut, which grows in vast areas in south China, is also regarded as an excellent potential source for bio-diesel. It can be planted on barren land unsuitable for grain cultivation. And the trees don't require watering, fertilizer or pesticide.

In a development plan of the State Forestry Administration, the southwestern provinces of Sichuan, Yunnan and Guizhou have been listed as the key areas for cultivating jatropha curcas. In less than one month in 2006, three energy companies from China, Britain and the United States respectively launched programs to plant physic nut trees in Sichuan Province and to build several bio-diesel plants with an annual production capacity above 100,000 tons. The total investment in these programs is more than 20 billion yuan.

So far, there still are obstacles to using the fruit of jatropha trees to produce bio-diesel. A major one is the scattered planting of the crop, which raises the problem of high cost. "Although the industrialization of planting jatropha curcas requires a lot of investment, only large-scale plantation and marketing can push down the cost for bio-diesel material and ease planters' worries over a shortage of buyers as well as bio-diesel companies' worries over a shortage of suppliers," said Wu Guojiang, a research fellow on jatropha curcas in the South China Botanical Garden under the Chinese Academy of Sciences.

"Forests will supply over 30 percent of the bio-fuel raw material the country needs by 2010 and if forestry residue is included, the proportion is expected to reach 50 percent," Zhu Lieke, Deputy Director of the State Forestry Administration, said at a recent bio-fuel forum. He said the industry will seek to be a greater force in the national strategy of developing bio-fuel.

Of China's 54 million hectares of unused land that could be forested, around 15 percent could be used for cultivation as bio-fuel forests. Moreover, China has nearly 100 million hectares of reclaimable land, most of which could be developed into bio-fuel forests. Nonetheless, China still lacks a tree-planting plan. An expert from the Chinese Academy of Forestry who requested anonymity said the lack of water on unused land could cause a bottleneck.

"The time is ripe for China to develop its bio-fuel industry," said Zhu Zhigang, Vice Minister of Finance. At a national economic conference in June 2006, he said China would fully support research, development and use of renewable resources, including bio-fuel, solar power and wind power.

China's landmark Renewable Energy Law took effect on January 1, 2006, which could pave the way for rapid development of bio-fuel. For the time being, related government agencies are working on drafting the guidelines for implementing the law. According to Wang Mengjie of the Chinese Renewable Energy Society, the guidelines will include the following aspects. First, non-crop plants will be the raw material and priority will be given to cultivating bio-fuel plants on deserted land on mountains and saline or alkaline land. Second, the government will provide financial and tax incentives for the bio-fuel ethanol industry. "The Central Government will have a higher market entry threshold to reward companies with higher efficiency. The government won't withdraw from the market until the industry matures," said Wang.

At the end of 2006, the Ministry of Finance, the National Development and Reform Commission, the Ministry of Agriculture, the State Administration of Taxation and the State Forestry Administration jointly issued guidelines on granting preferential treatment to the bio-fuel and biochemical industries.

First, the government will establish a risk management scheme to subsidize companies for their losses when petroleum prices stay low for a long time. Second, the government will give preferential treatment or subsidies to raw material suppliers using idle land, saline or alkaline land and deserted land. Third, the government will encourage model projects using high and new technologies. Fourth, the government will give preferential tax treatment to bio-fuel and biochemical companies that face operating difficulties.