Discussions
Prospects for a regional biofuels industry in Southern Africa
Taku Fundira, tralac Associate, discusses the political economy, trade and policy issues involved in the potential development of a biofuels industry in SADC
The benefits of industrialization cannot be overemphasized and for Southern Africa to fully realise maximum benefit from its vast natural resources, countries in the region have to develop and strengthen their industries. The biofuels industry has been identified as a potential sector for development at the regional level. This is based on the longstanding interest in leveraging the perceived abundant land resources in Southern African countries to produce feedstocks for biofuels. Biofuels are a complementary and alternative energy source to fossil fuels and have the potential to generate energy from; i) forestry, timber, wood and waste streams; ii) food crops and plant feedstock (bioethanol and biodiesel); iii) gas produced from renewable sources and waste; and iv) hydrogen and other energy carriers, produced from renewable sources.[1]
It is important to note that biofuels’ demand has been largely spurred by the transport sector and more especially by road vehicles, which use biofuels either in pure form or blended into conventional fossil fuels. From a national economic perspective, proponents have argued that domestic production can reduce the dependence on the imports of fossil fuels for the transport sector, which saddle oil importers with high bills during periods of high oil prices. Producing fuel domestically could lessen exposure to external oil price shocks, removing the threat of fuel shortages and pressure to subsidise fuel: which could help stabilise government spending during periods of crisis. These economic arguments have underpinned several governments’ (e.g. Malawi and Zimbabwe) decisions to develop biofuels.
In recent years, the impetus for decarbonising energy as part of efforts to combat climate change has provided further support to developing biofuel sectors. Given early optimistic expectations surrounding the potential of low or zero-carbon biofuels, it was hoped that biofuel sector development could both help decarbonize home countries’ transport energy sectors, and also enable them to take advantage of various streams of low-cost development and climate finance to expand their energy sectors. Under ambitious scenarios of straightforward and preferential access to EU markets, firms and governments also contemplated biofuel exports generating foreign currency earnings.
Furthermore, biofuel feedstock development has been proposed as a means of contributing towards rural development and poverty reduction. Since the production of feedstocks requires investment in infrastructure, promotes job creation and brings more actors into value chains, as well as its promise of additional source of investment, this was welcomed by governments and development partners who recognised the importance of agricultural transformation and expanding rural markets to broader economic development and poverty reduction.
In the context of Southern Africa where a large proportion of the population continues to be employed in the rural sector, where economic growth has stagnated and where fuel and broader energy demand is expected to grow continuously in coming years, the attraction of biofuels was therefore particularly high. This led to new legislative and regulatory frameworks in several countries that sought to expand production and consumption of biofuels, including in countries such as Malawi, Mozambique, South Africa, Zambia and Zimbabwe.
Since biofuels are generally more expensive to produce and consume than fossil fuels, stimulating the development of the market requires government intervention, such as subsidies and mandatory use of biofuels. Despite the interest and potential of the sector, the legislative developments to date have been insufficient to spur development of production and consumption as projected would happen a decade ago. Production in Southern African countries such as Mozambique, South Africa and Zambia has remained marginal. Reasons for this include factors related to developments in global energy and commodity markets in general and biofuel markets in particular.
For example, the EU, which was envisaged as a potential export market, made significant reforms to its biofuels policy post 2011 out of concern of the sustainability of external supply of biofuels. These reforms created barriers to entry such as standards and certification requirements which made exports from Southern Africa less profitable. Furthermore, declining commodity prices of feedstock made it cheaper for EU producers to produce locally and as of 2014, the EU became 99% and 97% self-sufficient in it bioethanol and biodiesel requirements respectively. Other constraints were related to domestic experiences of attempting to implement land-intensive feedstocks such as jatropha. Experiences from Mozambique and Zambia on this particular feedstock are classic examples.[2]
Despite these challenges, evidence from research indicates[3] that there is scope for the development of a regional biofuels industry, where countries such as South Africa have high demand for fuel especially for the transport sector can act as a market for regional producers, and more specifically Mozambique, Zambia and Zimbabwe which have abundant land and labour resources and which also have lately been promoting the development of this sector using various policy tools and/or instruments. However, it is important to note substantial variation in demand for biofuels exists depending on evolution of the transport sector and economic growth.
The research notes that in South Africa, the main driver of variation is whether flex-fuel vehicles are introduced or not. Therefore, with little change from existing vehicles in South Africa, demand for biofuels is not expected to require large land change from the current 300 000 hectares (1.4% of arable land) that is proposed in South Africa’s Biofuels Industrial Strategy for achieving 2% blending of total fuel required, however the introduction of flex fuel uptake will likely require imports from the region given that land required to produce for the market will be in excess of 440 000 hectares.[4] The importation of biofuels from the region is in line with South Africa’s 2015-2020 Department of Energy Strategic Plan “We would also look at opportunities of sourcing these [biofuel] projects from the SADC region to meet our demand.”
While the prospects and potential for a regional biofuels industry exists, this is fraught with a myriad of constraints. The main challenge for SADC is the lack of policies, strategies as well as the existence of weak institutions to ensure that the renewable energy projects identified in the Regional Infrastructure Development Master Plan are implemented. Furthermore, the complex connection of biofuel with diverse issues such as energy, agriculture, industry, environment, land and natural resources, which call for different responsibilities and contributions at different levels and capacities provide further impediments. This is reinforced by the lack of action plans or explicit priorities as an indication of the policy at national level.
It is important therefore to emphasise that while the Protocol on Energy and the Regional Indicative Strategic Development Plan address SADC’s broad energy objectives, they make little mention of renewable energy aside from hydropower and there is no region-wide regulatory framework that specifically addresses renewable energy. Moreover, although the regional agreements focus on adopting coordinated approaches for bioenergy development, there is little indication that trade in bioenergy products is envisaged, or seen as a major driver for countries to develop the sector. In addition, a further reason for the lack of movement on biofuels is that this hasn’t received the necessary prioritisation and action by Member States, who are more focussed on deploying their scarce resources to issues of higher priority in the energy sector, namely electricity power sharing.
Beyond the challenges highlighted above is also the perverse culture inherent amongst SADC states of not honouring commitments and the lack of monitoring and enforcing regional agreements. A case in point is the collapse of the SADC Tribunal which was initially established to ensure that member states abide by regional agreements, but was suspended after Zimbabwe had an unfavourable ruling against its land reform policy. Furthermore, at the national level, while some SADC countries have made some progress in launching biofuels policies, they have not been finalised to a level where they have stimulated processing and blending of biofuels. In the case of South Africa for example, the lack of a pricing formula and final approach for how to apply for subsidies has delayed progress and made the government miss its 2015 deadline for mandatory blending.
As most feedstocks are also sources of food, the issue of food security and competition for land makes biofuels production a tough sell in an environment where countries are constantly experiencing hunger due to drought related food shortages. Furthermore, in SADC, the typical African problems such as severe poverty, low-levels of investment, poor infrastructure, and socio-economic challenges related to health care and education are high on the priority list for SADC governments. Consequently, topics such as biofuels have a low priority and receive little attention. According to SADC’s Regional Indicative Strategic Development Plan (RISDP), sectoral cooperation and integration intervention areas include; i) Trade/Economic Liberalisation and development; ii) Infrastructure support for regional integration and poverty eradication; iii) Sustainable Food Security; and iv) Human and Social Development. Energy is mentioned under the infrastructure support, however, this is targeted mainly at electricity generation and supply.
Going forward, it is important to note that, for a viable biofuels market in SADC, there needs to be large scale production of ethanol. Traditional markets in the North such as the US, EU and the emerging markets such as Brazil and China are already big producers and therefore would be well placed to supply to a nascent southern African market. Thus for an initial period at least, effective, coordinated import measures and other forms of regulation may be necessary across SADC to encourage the development of national production bases. A regional renewable fuel policy could call for member states to promote and support the production and consumption of SADC bioethanol, similar to Annex VII to the Protocol on Trade which seeks to support SADC sugar production.[5] This position by member states would have to extend to new trade negotiations by member states such as the Tripartite Free Trade Area (TFTA) which comprises SADC, COMESA and EAC as well as the envisaged Continental FTA to ensure an expanded market.
[2] Fundira, T. Henley, G. (forthcoming). Biofuels in Southern Africa – political economy, trade and policy environment. United Nation University (UN-WIDER), Finland
[3] Stone, A. Henley, G. Maseela, T. (forthcoming). Modelling Growth Scenarios for Biofuels in South Africa’s Transport Sector, United Nation University (UN-WIDER), Finland
[4] Important to note that these figures assume high yields of 10 000 litres/ hectare, with blending of 10% bioethanol on conventional cars and 85% bioethanol on flex cars.
[5] For more details, see http://www.tralac.org/files/2011/11/SADC-Trade-protocol-Annex-VII.pdf