IFPRI Forum

September 2006

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FORUM: How will biofuels influence energy markets in developing countries?

Rob Routs: We can't predict how all the players in the value chain will influence all developing countries. However, we recognize the positive contribution that biofuel components can potentially make toward addressing economic and sustainable transport challenges, including local air quality, diversity of affordable energy, and the reduction of greenhouse gas production on a well-to-wheel basis. In order for the biofuel industry to have a positive impact in developing countries, consumers, governments, and industry leaders must work together to identify an economically viable, sustainable route to low-carbon biofuels for road transport. This requires a constructive and consultative dialogue to understand and address challenges such as cost, competition with the food chain, consumer acceptance, technology development, fiscal incentives, and investment costs. Also, not all biofuels yield the same CO2 reduction; it is important that countries consider a 'well-to-wheel' carbon dioxide certification for biofuels and minimum standards for carbon dioxide performance from biofuels. This will help to ensure that policy is delivering economic and sustainability objectives and help to establish consumer confidence in the biofuel industry. It is also important that countries establish tightly defined minimum standards for fuel quality. This will help to ensure fuel system compatibility and further build consumer confidence. To develop a competitive industry, it is important that regulators avoid requiring biofuels in all grades of fuel, but instead allow manufacturers and marketers to compete to their strengths in grades, products, and processes.

FORUM: Are biofuels a viable alternative to fossil fuels? Do they have real potential, or is it just media hype? What role will established energy companies, such as Shell, play in the biofuels arena?

Rob Routs: Unfortunately, there is no "silver bullet" to address the world's sustainable mobility challenges. Fossil fuels remain the primary option for providing the energy needed to meet the rapidly increasing demand for transport over the coming decades, although more efficient vehicles and more sustainable fuels will play an important role. However, biofuels are one of several promising and realistic contenders to be major low-carbon fuel sources in the future. For over 100 years, Shell has been developing one of the broadest fuel technology portfolios to deliver cleaner fuels to market. In addition to being one of the world's leading distributors of first generation biofuels, we are investing in advanced or second-generation biofuel technology, such as cellulose ethanol and biomass-to-liquids production, which have advantages in that the feedstock is taken from agricultural byproducts and not from food sources.

FORUM: Brazil is the world's largest producer of ethanol. What can be learned from its success and can the Brazilian example be a blueprint for other developing countries?

Rob Routs: Brazil's long-term commitment, vision, and experience can serve as a valuable guide for other new markets. In particular, the Brazil experience is a lesson in how to build confidence in investments for biofuels technology. Brazil has been developing its industry for more than 30 years and has demonstrated the long-term potential of biofuels as a new fuel source for road transport. It is important to note two particularly interesting aspects of the Brazil experience. First, the industry has developed through gradual and sustained changes to supply infrastructure and vehicle technology. The second interesting aspect has been the way in which Brazil has capitalized on synergies with sugar production. By building ethanol production capacity based on synergies with sugar production, Brazil has been able to achieve efficiency in its use of biomass energy. Countries like Brazil have to ensure that the rapid growth in sugarcane production does not take away from fertile agricultural lands or rainforests.

FORUM: Some people believe biofuels can help reduce poverty. What are your views on this?

Rob Routs: Biofuels have the potential to help address some of the contributing factors associated with poverty, such as new sources of employment and new sources of affordable fuel. Biofuels can generate a significant number of jobs in the agricultural sector. However, this is dependent on the availability of productive land and the degree of mechanization in production techniques. Biofuels can also contribute positively to a country's trade balance. The production of indigenous fuels can reduce a country's reliance on imported primary energy sources. However, solutions are truly dependent upon the extent of engagement, planning, and coordination among industry, government, and communities.

FORUM: How would you respond to the allegation that the cars of the rich will burn the food of the poor, leading to increased poverty and hunger in developed countries?

Rob Routs: Shell recognizes this concern and supports the efforts of all stakeholders to pay greater attention to the social, economic, and environmental aspects of biofuels. Shell is evaluating biocomponents, such as cellulose ethanol and biomass-to-liquids, that have the potential to offer the lowest overall greenhouse gas production without taking resources away from the food chain for feedstocks. However, commercialization of these technologies is still in development. In the meantime, we are working to better understand the options for sourcing agricultural feedstock in a sustainable manner.

FORUM: On a global scale, who will be the winners and who will be the losers of a growing biofuel supply?

Rob Routs: I think it is incorrect to assume that there will be losers associated with the growth of biofuels supply. As we look to the future, it is clear that to meet the increasing demand for fuels globally, we will need to ensure that there is a diverse range of supply options.