metadata: authors: 0: author: Chang, Shiyan
1: author: Timilsina,Govinda R.
2: author: Xiliang,Zhang
3: author: Zhao, Lili
count: China,World
docna: 0: docna: Development of biofuels in China :
            technologies, economics and policies
docty: Policy Research Working Paper
theme: Other rural development,Climate change
majtheme: Rural development,Environment and natural resource management
subtopic: Climate Change and Agriculture,Crops and Crop Management Systems,Rural and Renewable Energy,Food Security,Energy Demand,Energy and Environment,Energy and Mining,Renewable Energy
teratopic: Environment,Energy
abstracts: cdata!: China promulgated the Medium and
            Long-Term Development Plan for Renewable Energy in 2007,
            which included targets of 2010 and 2020 for various
            renewable energy technologies including biofuels. The 2010
            biofuel targets were met and even surpassed except for
            non-grain fuel ethanol; however, there is debate on whether
            and how the country will be able to meet the 2020 biofuels
            target. This paper provides a resource and technological
            assessment of biofuel feedstocks, compares biofuel
            production costs from various feddstocks and technologies,
            and evaluates policies introduced in the country for the
            development of biofuels. The paper also presents the
            projections on the production of biofuels under various
            policy scenarios. The study shows that China can potentially
            satisfy its non-grain fuel ethanol target by 2020 from the
            technology perspective. But it will probably fall far short
            of this target without additional fiscal incentives as
            production costs of non-grain feedstock based biofuels are
            expected to remain relatively high. By contrast, the 2020
            target of biodiesel production has a high probability of
            being achieved because the target itself is relatively
            small. With additional support policies, it could develop
            even further.
repnme: repnme: Development of biofuels in China :
            technologies, economics and policies
display_title: Development of biofuels in China :
            technologies, economics and policies
listing_relative_url: /research/2012/10/16840601/development-biofuels-china-technologies-economics-policies
topicv3: Renewable Energy m1326170 525,Agriculture and Food Security m1326205 435,Energy and Extractives m1326595 507,Biofuels Energy m1326600 532,Crop Production m1326627 174
publishtoextweb_dt: 2015-09-28T00:00:00Z
historic_topic: Environment,Energy
no_of_pages: 36
author_keys: 0: author_key: 940446
1: author_key: 1076152
model_extractions: WPS6243 Policy Research Working Paper 6243 Development of Biofuels in China Technologies, Economics and Policies _Chang Shiyan Zhao Lili Govinda R. Timilsina Zhang Xiliang_ The World Bank Development Research Group Environment and Energy Team October 2012
Policy Research Working Paper 6243

# **Abstract**

China promulgated the Medium and Long-Term Development Plan for Renewable Energy in 2007, which included targets of 2010 and 2020 for various renewable energy technologies including biofuels. The 2010 biofuel targets were met and even surpassed except for non-grain fuel ethanol; however, there is debate on whether and how the country will be able to meet the 2020 biofuels target. This paper provides a resource and technological assessment of biofuel feedstocks, compares biofuel production costs from various feddstocks and technologies, and evaluates policies introduced in the country for the development of biofuels. The paper also presents the projections on the production of biofuels under various policy scenarios. The study shows that China can potentially satisfy its non-grain fuel ethanol target by 2020 from the technology perspective. But it will probably fall far short of this target without additional fiscal incentives as production costs of non-grain feedstock based biofuels are expected to remain relatively high. By contrast, the 2020 target of biodiesel production has a high probability of being achieved because the target itself is relatively small. With additional support policies, it could develop even further.

This paper is a product of the Environment and Energy Team, Development Research Group. It is part of a larger effort by the World Bank to provide open access to its research and make a contribution to development policy discussions around the world. Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org. The author may be contacted at gtimilsina@worldbank.org.

_The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent._ Produced by the Research Support Team
# **Development of Biofuels in China: Technologies, Economics and Policies**

Chang Shiyan<sup>a,b</sup> , Zhao Lili<sup>b</sup> , Govinda R. Timilsina<sup>c</sup> , Zhang Xiliang<sup>b,d</sup>

**Key words** : Biofuels, Energy policies, Renewable energy

## **JEL Classification** : Q28, Q42

**Sectors:** Energy and Mining, Environment, Agriculture and Rural Developments

aLow Carbon Energy Laboratory, Tsinghua University, Beijing, (changshiyan@mail.tsinghua.edu.cn); bInstitute of Energy, Environment, and Economy, Tsinghua University, Beijing, (zhaoll@mail.tsinghua.edu.cn); cCorresponding author, The World Bank (gtimilsina@worldbank.org); dChina Automotive Energy Research Center, Tsinghua University, Beijing, (zhang_xl@mail.tsinghua.edu.cn)
# **Development of Biofuels in China: Technologies, Economics and Policies**

# **1. Introduction**

The total energy consumption of China surpassed 3.25 billion tons of coal equivalent (tce) in 2010, 37.7% higher than the 2005 level (NBS, 2011). This rapid increase in demand has placed significant pressure on energy supplies in China, especially that of oil. From 2002 to 2010, China’s apparent oil consumption increased by 7.8% per year from 249 million tonnes to 455 million tonnes, with the overseas oil dependence ratio increasing to 55% in 2010 (CNPC Research Institute of Economics and Technology, 2011). It is projected that the domestic oil demand will increase to 650 `±` 50 million tonnes by 2030 and 750 `±` 50 million tonnes by 2050 (RGCMLEDS, 2011a). Since the domestic production of crude oil production will, most likely, stabilize at around 200 million tonnes by 2020 (Tong, et al, 2009), the gap between domestic supply and demand provides development opportunities for alternative fuels, including biofuels.

China promulgated the Medium and Long-Term Development Plan for Renewable Energy in 2007, which included sub-targets of 2010 and 2020, broken down into various renewable energy technologies (Table 1).

**Table 1:Renewable energy targets in the medium and long-term planning**

|Target|Unit|2010 Target|2020 Target|
|---|---|---|---|
|Percentage<br>of<br>renewable<br>in<br>energy<br>consumption|%|10|15|
|Sub-targets||||
|Hydro power installation capacity|Million kilowatts|190|300|
|Biomass power installation capacity|Million kilowatts|5.5|30|
|Biomass briquette consumption|Million tonnes|1|50|
|Biogas for heat in rural areas|billion m<sup>3</sup>|15<sup>a</sup>|30<sup>a</sup>|
|Non-grain fuel ethanol consumption|Million tonnes|2|10|
|Biodiesel consumption|Million tonnes|0.2|2|
|Wind power installation capacity|Million kilowatts|5|30|
|Solar PV power installation capacity|Million kilowatts|0.3|1.8|
|Solar water heater installation capacity|Million m<sup>2</sup>|150|300|

Note: The 2020 targets might increase to 500 GW (300 GW of hydropower, 150 GW of wind power, 30 GW of biomass power, and 20 GW of solar PV) from 362 GW mentioned in Table 1 (Martinot and Junfeng, 2010).

In 2010, the installed capacity of hydro power (213 million kilowatts), wind power (44 million kilowatts), biomass power (6.7 million kilowatts), solar PV power (0.8 million kilowatts) and solar water heater (168 million square meters), and the consumption of biomass briquette (2.5 million tonnes) have already surpassed the corresponding targets for 2010 (see Fig.1). And the consumption of biogas (14.26 billion m<sup>3</sup> ) in rural area was almost achieving its targets for 2010. However, the only exception is the fuel ethanol. The realized fuel ethanol production in 2010 was only 1.86 million tonnes with only 0.37 million tonnes 2
# using non-grain feedstocks.

<!-- Start of picture text --> 880.00%<br>2005 Value/2010 Target Value 2010 Value/2010 Target Value<br>320.00%<br>250.00%<br>200.00%<br>112.11% 121.82% 112.00%<br>95.07%<br>61.58% 25.20% 36.36% 28.00% 53.33% 46.67% 25.00% 18.50%<br>0.00% 0.00%<br><!-- End of picture text --> Fig. 1. Achievement of 2010 targets for various renewable energies in China Source: the 2005 data are from _Medium and Long-term Development Plan for Renewable Energy in China_ ; the 2010 data of solar PV power generation is from Shi et al. (2011), non-grain fuel ethanol is from Liu et al.(2011), and biogas consumption is from DSERE(2011); other data of 2010 are from Zhao et al.(2011).

There are numerous challenges facing the development of biofuels in China, including the potential impact of biofuels production on the grain security and agriculture development (Huang, et al., 2009; Huang, et al., 2010; Fu, et al., 2011), uncertainty of available land potential for biofuels development (Tian, et al., 2009), economic supply of feedstock (Zhang, et al., 2009) and potential ecological environment problems caused by large-scale cultivation of energy crops (Yan and Zhao, 2009). Much of the debate has now been focused on what the impact of meeting the 2020 targets. Some existing studies have analyzed this issue. For example, Shi, et al.(2010) projected that to meet the target of 15% non-fossil energy by 2020, set by the State Council, about 11 million tonnes of ethanol and 2 million tonnes biodiesel will be required. Qiu et al. (2011) argued that the target of 10 million tonnes of fuel ethanol by 2020 seems to be a prudent target, causing no major disturbances in China's food security. And the results of Wu et al. (2011) presented that the achievement of 2020 fuel ethanol target is necessary to keep the oil independent ratio lower than 60%.

The objective of the paper is to make an assessment of potential technology pathways and policies that might help achieve the 2020 targets. The paper is organized as follows. Section 2 presents current status of biofuels development in China, followed by discussions on potential technological pathways to meet the biofuels targets in 2020 regarding their respective resource potential, supply cost and challenges in Section 3. In Section 4, after the review of current policies and major barriers in China based on broader literature analysis, policy options needed to achieve the target are provided. Section 5 presents an overview of results from the biofuels projection scenarios, and provides insights into the comparison of results. Section 6 summarizes the results in this paper.

3
<!-- Start of picture text --> 250 H H|<br>1 1 |<br>1 i |<br>} 1 i 1 |<br>1 1 ' 1 i ' |<br>200 1 i |<br>i';<br>'' 1 |<br>1'1|<br>11 1 |<br>11 1i = 11 ||<br>FS cz: | Biodiesel<br>3 1 ' 1 |<br>3 ! ' ! | EB Non-grain fuel ethanol<br>= 100 ' 1 a —o | H i H |<br>i 1 1 '11 '11 \1||Corn/Wheatfuel ethanol<br>'1 ' |<br>'1;|<br>11 1 |<br>'11|<br>11 1 |<br>50 1 ' 1 |<br>111|<br>11 i |<br>111|<br>11 1 |<br>111|<br>'1 t |<br>i 1 ' ' i 1 1 |<br>0 \ 1 \<br>2002 2003 2004 2005 2006 2007 2008 2009 2010<br><!-- End of picture text -->
tonnes in China (4.81% and 8.41% of fuel ethanol productions in U.S. and Brazil by volume<sup>1</sup> ), including a 200,000 tonnes fuel ethanol project using cassava as feedstock **.** Two major oil companies - China National Petroleum Corporation (CNPC) and China Petrochemical Corporation (SINOPEC) - and a large agri-business company - China National Cereals, Oil & Foodstuffs Corp (COFCO) - have engaged in the production of fuel ethanol through stipulated investments, stock holdings and other mechanisms. SINOPEC, CNPC, and another major oil company – China National Offshore Oil Corp (CNOOC) - are also involved in the production of biodiesel (Table 2).

**Table 2: Designated Biofuels producers in China**

||Location|Initial Capacity<br>Approved(1000<br>tonne)|Current<br>Capacity (1000<br>tonne)|Supply region|Feedstock|
|---|---|---|---|---|---|
|Fengyuan|Bengbu, Anhui<br>Prov.|320|440|Anhui ,<br>Shandong,<br>Jiangsu, Hebei|Corn|
|Tianguan|Nanyang, Henan<br>Prov.|300|500|Henan, Hebei,<br>Hubei|Wheat, Cassava|
|COFCO<br>Zhaodong(Former as<br>Huarun)|Zhaodong,<br>Heilongjiang<br>Prov.|100|280|Heilongjiang|Corn|
|Jilin Fuel Alcohol|Jilin, Jilin Prov.|300|500|Jilin, Liaoning|Corn|
|Guangxi Bioenergy|Beihai, Guangxi<br>Prov.|200|200|Guangxi|Cassava|
|CNOOC|Hainan Prov.|60<sup>a</sup>|60|Hainan|Jatropha/waste<br>oil<sup>b</sup>|
|CNPC|Nanchong,<br>Jiangsu Prov.|60<sup>c</sup>|-|-|Jatropha|
|SINOPEC|Guizhou Prov.|50<sup>c</sup>|-|-|Jatropha|

Note: a. The project has been completed in 2010, but production is suspended for modifications in 2011; b. Planned feedstock is jatropha, but according to authors’ field survey, the current feedstock is waste oil due to the jatropha planting base is still under construction; c. The project has been approved by government, but hasn’t initiated yet.

The biodiesel productions in China are now carried out mostly by private enterprises using waste oil as feedstocks. Total capacity is about 1.5 Million tonnes (Liu et al. 2011), and even 2 million tonnes (CRES, 2010). About 10 enterprises’ capacity are higher than 100,000 tonnes, i.e., Zhuoyue (100,000 tonnes) in Fujian Province. And some companies adopted advanced technologies (i.e., biological enzyme catalysis process by River in Hunan province (20,000 tonnes)).

> 1 Fuel ethanol productions in U.S. and Brazil are 49 and 28 billion liters respectively in 2010 according to REN21 (2011).

5
# **3. Potential technology options of biofuels**

The Chinese government highly emphasized the non-grain (non-food oil) development path in various policy documents, i.e., the Medium and Long Term Renewable Energy Development Plan by NDRC, the Agricultural Bioenergy Development Plan (2007-2015) by the Ministry of Agriculture, and the Issues on Development and Promotion of Oil Plants by General Office of State Council. In this study, we discuss different technology options allowed under these plans. These options include: (i) fuel ethanol from non-grain starch and sugar crops, (ii) biodiesel from oil bearing trees, (iii) biodiesel from waste oils, and (iv) biofuels from cellulosic biomass (second-generation biofuels). For each technology, we first present resource potential followed by supply costs and key challenges.

# **3.1 Fuel ethanol from non-grain starch and sugar crops**

Starch and sugar crops are currently the dominant feedstocks for the production of biofuels, and ethanol is by far the most important fuel derived from these crops. Corn-based ethanol accounts for more than 89% of fuel ethanol production in the United States (calculated based on RFA, 2011). The same is true for China, where the major feedstocks are by far corn and wheat with market share of more than 80%. However, as discussed above, no new projects based on these feedstocks are allowed; therefore, this paper focuses on alternative non-grain sugar and starch energy crops, involving cassava, sweet sorghum and sweet potato.

# **3.1.1 Resource potential**

The available land resource for feedstock production is one of the major determinants of the development of biofuels. China has limited land resources but huge population. To meet the growing food demand and grain self-sufficiency rate target<sup>2</sup> , the land management policies are very strict. Therefore, it is necessary to find available land for biofuels development, which compliances with current land management and food security policies. In line with the Land Administration Law, RGCREDS (2008) classifies marginal land into two parts: (i) unutilized land and (ii) part of low-productive arable land. Based on some preliminary researches on land suitability assessment, the marginal land available for three types of feedstocks is shown in Table 3. The total marginal land available for these feedstocks is 23.73 million hectare and corresponding potential for ethanol production could be 65.48~88.57 million tonnes. Although there might be high uncertainties on the yields, the available marginal land indicates that land supply would not be a barrier to meet China’s biofuels targets in 2020. Note however that marginal lands do need water resources, fertilizers and so on. If these resources are provided, one might argue that the land can be used for production of food instead of biofuels, if food security is the primary concern of the country.

> 2 Grain self-sufficient rate is defined as the ratio of domestic consumption and domestic productions of grains. According to the _National Framework for Medium- and Long-term Food Security_ , grain self - sufficiency rate is required above 95% by 2020.

6
**Table 3: Potential marginal lands available for non-grain sugar & starch energy crops**

||Unit|Cassava|Sweet sorghum|Sweet potato|
|---|---|---|---|---|
|Current planting area|Million ha.|0.387<sup>a</sup>|0.0033-0.0067<sup>b</sup>|4.76<sup>c</sup>|
|Current production|Million tonne|7.94<sup>a</sup>|n.a.<sup>d</sup>|102.2<sup>c</sup>|
|Current utilization||70% for starch &<br>alcohol, etc.<br>30% for feed<sup>e</sup>|n.a.<sup>d</sup>|50% for feed<br>15% for industry<br>processed<br>14% for food<br>6% for seed<sup>f</sup>|
|Unutilized land available|Million ha.|0.124<sup>b</sup>|5.31<sup>g</sup>|1.30<sup>g</sup>|
|Low-productivity<br>arable<br>land available|Million ha.|7<sup>h</sup>|7<sup>h</sup>|3<sup>h</sup>|
|Marginal land available|Million ha.|7.12|12.31|4.3|
|Land<br>productivity<br>of<br>feedstock|Tonne /ha.|20.55<sup>a</sup>|45-75<sup>b</sup>(60)|21.47<sup>c</sup>|
|Starch or sugar content|%|25|15|20|
|Assumed<br>conversion<br>efficiency|Tonne<br>(ethanol)/tonne<br>(feedstock)|0.14|0.625|0.112|
|Land<br>productivity<br>of<br>ethanol|Tonne /ha.|2.88|2.81-4.69 (3.75)|2.4|
|Ethanol yield potential on<br>unutilized land|Million tonne|0.36|14.93-24.91(19.93)|3.13|
|Ethanol yield potential on<br>low-productivity arable land|Million tonne|20.14|19.69-32.81(26.25)|7.21|
|Ethanol yield potential on<br>marginal land|Million tonne|20.5|34.63-57.72(46.18)|10.35|

Notes: a. the 2008 value; data from Fang, et al (2010); b. Data from EB (2009); c. the 2008 value; data from DRST, et al. (2009) ; d. the value is not available; e. data from Tian et al.(2010); f. the 2008 value with other 15% of sweet potato was rotting; data from Jin et al. (2011); g. data from EB (2009), but because North China is suitable for both sweet sorghum and sweet potato, unused land here is assumed to be divided evenly between both crops; h. data from Shi (2011);

# **3.1.2 Supply cost**

The production of ethanol from starch and sugar crops is a relative mature technology, widely employed at commercial scale. The economic viability of these processes largely depends upon the price of feedstocks as feedstock accounts for over 50% of the total cost (see Table 4). Although the production costs of fuel ethanol are higher, they have certain cost advantage 7
compared to gasoline, based on the wholesale pricing mechanism between fuel ethanol producers and gasoline wholesaler<sup>3</sup> .

**Table 4: Typical cost and related assumptions by energy crop**

|Items|Unit|Cassava|Sweet sorghum|Sweet potato|
|---|---|---|---|---|
|**Feedstock cost**|**Yuan/tonne (ethanol)**|**2,857-4,643**|**3,840-4,364**|**2,727-3,636**|
|Assumed feedstock pricing<br>mechanism||Market-based<br>pricing<sup>a</sup>|Cost-based<br>pricing<sup>b</sup>|Market-based<br>pricing<sup>a</sup>|
|Assumed feedstock price|Yuan/tonne (feedstock)|400-650<sup>c</sup>|240<sup>d</sup>|300-400<sup>e</sup>|
|Starch (sugar) content|%|25|10-16|20|
|Conversion efficiency|tonnes<br>ethanol/tonne<br>feedstock|0.14|0.055-0.0625|0.11|
|**Non-feedstock cost**<sup>**f**</sup>|**Yuan/tonne (ethanol)**|**2,160**<sup>**g**</sup>|**1,609**<sup>**h**</sup>|**2,160**<sup>**i**</sup>|
|Conversion technology||Traditional<br>fermentation|Advanced solid<br>state<br>fermentation<br>(ASSF)|Traditional<br>fermentation|
|Investment cost<sup>j</sup>|Yuan/tonne (ethanol)|4325<sup>k</sup>|n.a.|4325<sup>i</sup>|
|Ethanol total production cost|Yuan/tonne|**5,017-6,802**|**5,444-5,968**|**4,887-5,796**|
|Share of feedstock cost|%|56.95-68.25|70.54-73.12|55.8-62.74|
|Designated<br>fuel<br>ethanol<br>wholesale price from January<br>1, 2008 to April 7, 2011|Yuan/tonne||||
|-<br>Min<br>-<br>Average<br>-<br>Max||4,956 (January<br>6, 238<br>7,816 (April 7,|15, 2009)<br>2011)||

Note: a. as mentioned in Table 2, there are other utilizations for cassava and sweet potato in China, therefore their assumed prices are equal to current average market prices, which are not only for energy use, but also for the use of food, feed, starch, and so on; b.as mentioned in Table 2, there is almost no sweet sorghum market in China, therefore, the pricing mechanism of sweet sorghum is cost-based pricing involving farmer’s profit; c. Feedstock price is assumed to be the average value from 2007 to 2008, data from Sun et al (2008); d. data from Wei, et al. (2010); e. data from Cai et al (2011); f. non-feedstock cost includes capital costs, fuel costs, operation & maintenance costs, and auxiliary material costs; g. Data from EB (2008); h. data from Han et al. (2010); i. Costs assumed to be the same as those for cassava; j. Investment cost is for the conversion process only (excluding the investment cost to establish a planting base); k. Survey data based on the cassava project of Guangxi Bioenergy Company with total investment as 0.865 billion Yuan.

# **3.1.3 Challenges**

# **Economic supply of feedstocks**

Ensuring low and stable feedstock costs is one of the major challenges facing the development of starch- and sugar-based biofuels in China. Since crops used for biofuels

> 3 st Wholesale price of fuel ethanol is the ex-factory price of 90# Gasoline multiplied with a factor as 0.911 before Mar.1 , 2011, and is the ex-factory price of 93# Gasoline multiplied with the factor of 0.911 after Mar.1<sup>st</sup> , 2011.

8
feedstocks (e.g., cassava and sweet sorghum) also follow market prices, production costs of biofuels are sensitive to the current market and future demand for these crops. A relatively mature cassava market currently exists in China as shown in Table 3. If domestic demand for cassava increases following the current trends, its price would put pressure on the production of cassava-based ethanol. Besides this demand side factor, supply of cassava would be also a concern as China depends on import for cassava supply. In 2001, China became the largest cassava importer in the world, by 2006, China’s share of worldwide cassava (fresh or dry) imports reached its peak of 88.5%. Although the share decreased to 42.96% in 2008, China still remains as the largest cassava-importing country in the world (Zhan et al, 2010). One of the most important processed products of cassava, cassava starch, also relies heavily on import (Fig. 3). The higher dependence on imports might have discouraged Chinese famers to plant domestically (Chai et al, 2009).

<!-- Start of picture text --> 120.00%<br>100.00%<br>96.57% 97.00% 96.34%<br>93.09% 93.25%<br>89.02% 90.83%<br>84.59%<br>80.00%<br>76.66%<br>60.00%<br>45.40%<br>42.31%<br>40.00%<br>37.13%<br>32.87% 35.20% 33.53%<br>29.59%<br>20.00% 19.93%<br>5.73%<br>0.00%<br>2000 2001 2002 2003 2004 2005 2006 2007 2008<br>Share of cassava import in cassava consumption Share of cassava starch import in starch import<br><!-- End of picture text --> Fig.3 Imports of cassava and cassava starch Source: the values of domestic Cassava Production are from Fang, et al (2010); the values of import cassava are from Zhan, et al.(2010); the cassava consumption is calculated by domestic cassava production plus cassava import; the values of starch are from DRST, et al. (2009).

In the case of sweet sorghum, domestic production is very limited due to lack of existing domestic market. Currently it is grown for the purpose of animal feed in Mongolia and alcohol in Heibei, Shandong, and Xinjiang provinces. Zeng et al. (2009) shows that plantation of sweet sorghum is very sensitive to perceived risk and comparative economic advantage. The storage and pretreatment of sweet sorghum also presents challenges. Sweet sorghum can be planted only once a year, and the traditional fermentation time is very long taking about 14 days (Li & Chan-Halbrendt, 2009). An increase in fermentation concentration and a decrease in fermentation time are necessary to lower the cost of producing ethanol from sweat sorghum (Li & Chan-Halbrendt, 2009).

9
# **Uncertainty of emission reduction of starch & sugar energy crops-based ethanol**

Although biofuels are treated as “carbon neutral” under the Kyoto Protocol, their actual Greenhouse Gas (GHG) emissions are the subject of much debate. Recent life cycle analysis (LCA) studies in China indicated that fuel ethanol derived from sugar and starch energy crops have possibility to less sustainable than fossil fuels(Fig.4) due to large indirect consumption of coal during planting process. Sustainable regulations are required.

<!-- Start of picture text --> 1200<br>Cassava<br>1000<br>800 Corn Wheat<br>600<br>Sweet sorghum<br>400 Gasoline FFV:E85<br>SI:E10 Cellulose<br>SI<br>SI:E100<br>SI:E85<br>200<br>DISI SI:E85 FFV:E85 FFV: E85<br>FFV: E85 FFV: E85 FFV: E85<br>0 DISI HEV: E85<br>g/km<br><!-- End of picture text --> Fig.4. Fuel ethanol Well-to-Wheels (WTW) GHG emissions(CO2 eq. g/km) Notes: SI: Spart Ignition; DI: Direct Injection; DISI: Direct injection spark ignition; PISI: , FFV: Flexible Fuel Vehicle; DISI HEV: Hybrid Electric Vehicle Source: based on analysis of three published Well-to-Wheels (WTW) studies in China; data from Zhang, Shen & Han, et al. (2008), Ou et al. (2009), and CATARC/GM(2007).

# **3.2 Biodiesel from waste oil**

Waste oil from food oil is major feedstock of current biodiesel production in China.

# **3.2.1 Resource potential**

The consumption of food oil was about 26.8 million tonnes in China in 2010 (Chang, et al.2012), and it is annually increasing due to population growth and income rise. It is estimated that 20%-30% of waste oil generated every year. And if 50% of them can be collected, the technical availability for biodiesel production is about 2.68 ~ 4.02 million tonnes (Guo, et al, 2010).

# **3.2.2 Supply cost**

Although termed as ‘waste oil’, it has commercial value and find competitive applications in 10
feed industries, chilling oil in leather or rolling industry and even illegal refining for cooking oil. Therefore, waste oil takes market price and takes major share of biodiesel production costs (Table 5). The total supply cost is still higher than that of diesel in most cases. The relative high cost of this feedstock is also contributed by the lack of economic drivers and policy instruments for the construction of collection system.

**Table 5: Typical cost and related assumptions of waste oil-to-biodiesel in China**

|Items|Unit|Waste oil|
|---|---|---|
|**Feedstock cost**|**Yuan/tonne(biodiesel)**|**3,556-5,556**|
|Assumed feedstock pricing mechanism||Market-based pricing|
|Assumed feedstock price|Yuan/tonne|3200-5000<sup>a</sup>|
|Feedstock conversion efficiency|Tonne<br>biodiesel<br>/<br>tonne<br>feedstock|90%|
|**Non-feedstock Cost**|**Yuan/tonne(biodiesel)**|**1444.4**<sup>**a**</sup>|
|Conversion technology||acid catalyzed process|
|Investment cost|Yuan/tonne(biodiesel)|3000<sup>a</sup>|
|**Total production cost**||**5,000-7,000**|
|Share of feedstock cost|%|71.11-79.37|
|Designated biodiesel wholesale price from<br>January 1, 2008 to April 7, 2011<sup>b</sup>|Yuan/tonne||
|- Min<br>- Average<br>- Max||4,425.2 (January 2009)<br>5,644.2<br>7,111.6 (April 2011)|

Notes: a. Survey data of a project with 50,000 tonnes capacity by author in 2010; b. the designated diesel price multiplied by the fixed factor 0.92, which is the suggested factor by Hainan project based on the survey of authors.

# **3.2.3 Challenges**

As mentioned in section 2, the current conversion capacity of waste oil-based biodiesel is more than 1.5 million tonnes in China, but most of them are not operated due to lack of collection system from the residential and commercial sectors (Liu et al.2011).

# **3.3 Biodiesel from oil-bearing trees**

# **3.3.1 Resource potential**

There are more than twenty species of oil-bearing tree species that can be used to produce biodiesel feedstock in China. Approximately one-fourth of these species are found in the northern part of the country, while the rest in the southern part, especially in the tropical and subtropical zones (Lv, et al. 2008). The main species include jatropha curcas, xanthoceras sorbifolia, Chinese pisache, varnish tree, sapium sebiferum, S. wilsoniana Sojak, idesia, sumac, euphorbia tirucalli and tung tree. The land productivities of typical oil-bearing trees are shown in Table 6. As in the case of non-grain sugar and starch energy crops, the marginal land available for oil-bearing trees should be in compliance with current land administration policies. It is estimated that, among the available forest barren lands, barren mountains, barren sand areas, and unutilized land resources, there are more than 36 million hectares that 11
can be available for oil bearing trees, of which more than 14 million hectares is from forest land alone (Table 7).

**Table 6: Land productivities of oil-bearing trees**

||Unit|Ja|tropha|Xanthoceras<br>sorbifolia|Pistacia<br>chinensis|
|---|---|---|---|---|---|
|Land<br>productivity<br>of<br>feedstock|Tonne feedstock/ha.|1.5-3<sup>a</sup>|6-9<sup>b</sup>|1.5-5<sup>c</sup>|7.5<sup>d</sup>|
|Oil content|%|35-40|35-40|35-45|30-46|
|Assumed<br>conversion<br>efficiency|tonne<br>(feedstock)<br>/<br>tonne (biodiesel)|<br>3|3|3|3|
|Land<br>productivity<br>of<br>biodiesel|tonne biodiesel/ha.|0.5-1|2-3|0.5-1.67|2.5|
|Total forest land area in<br>2009|Million ha.|||30.38<sup>e</sup>||
|Total oil-bearing tree base<br>by 2010|kha.|||200<sup>f</sup>||

Notes: a. 3-5 years after forestation in southwest area, source from Zhang, Lv & Lv, et al., 2008; b. 3-5 years after forestation in Hainan, source from Zhang, Lv & Lv, et al., 2008; c. 5 years after forestation, source from Zhang, Lv & Lv, et al., 2008; e. source from Xie, et al.2011 c. data from the newly 7<sup>th</sup> forest resource survey from 2004 to 2008 by State Forestry Administration (SFA, 2009); d. data from Wang (2011).

**Table 7: Land resources distribution and potential for developing oil-bearing trees**

|Province|Main Oil Species|Area of<br>Available<br>Land|Available<br>forest land|Biodiesel<br>potential on<br>marginal land|In which, potential<br>on available forest<br>land|
|---|---|---|---|---|---|
|U|nit|Milli|on ha.|Mill|ion tonne|
|South<br>China<br>and<br>Southwest|Jatropha,<br>euphorbia<br>tirucalli, etc.|2|1|1-4|0.5-2|
|North China, Central<br>China and East China|Chinese pisache, tung<br>tree,<br>varnish<br>tree,<br>sapium sebiferum,<br>Idesia,<br>euphorbia<br>tirucalli|4|3|2-8|1.5-6|
|Northwest, North of<br>North China and west<br>of Northeast|xanthoceras sorbifolia,<br>Chinese pisache, robur|30|10|15-60|5-20|
|Total||36|14|18-72|7-32|

Note: Calculated based on the assumed land productivity as 0.5-2 tonne biodiesel/ha.

Source: Lv, et al.2008 12
# **3.3.2 Supply cost**

The supply cost of biodiesel produced from oil-bearing trees is relatively higher than that of diesel due to the high cost of feedstock (Table 8).

**Table 8: Typical cost and related assumptions of jatropha-based biodiesel in China**

|Items|Unit|Jatropha|
|---|---|---|
|**Feedstock cost**|**Yuan/tonne(ethanol)**|**3,000-6,000**|
|Assumed feedstock pricing mechanism||Cost-based pricing<sup>a</sup>|
|Assumed feedstock price|Yuan/tonne(feedstock)|1,000-2,000<sup>b</sup>|
|Assumed conversion efficiency|Tonne (feedstock) / tonne<br>(biodiesel)|3|
|**Non-feedstock Cost**|**Yuan/tonne(biodiesel)**|**2,000**<sup>**c**</sup>|
|Conversion technology||super critical fluid transesterification<br>without catalyst|
|Investment cost|Yuan/tonne(biodiesel)|2,300-2,500<sup>d</sup>|
|**Total production cost**||**5,000-8,000**|
|Share of feedstock cost|%|75|
|Designated biodiesel wholesale price<br>from January 1, 2008 to April 7, 2011|Yuan/tonne|See Table 5|

Note: a. there is no mature market for jatrapha in China, while there are some jatrapha planting contract between company and farmers with protect price range from 1000 to 2000; b. estimated by expert; c. data from field survey based on Hainan project; super critical fluid process is expensive on capital and operation costs compared with conventional acid/basic catalyzed process according to Hainan project; d. data from Wu et al.(2008).

# **3.3.3 Challenges**

The feedstock cost again is one of the major challenges to the development of biodiesel. For example, jatropha has a gestation lag of 3-4 years and the amount of capital required is substantial (Pradip, et al 2010), particularly when it has be grown in marginal lands. Although about 0.2 million hectares of planting base have been built in China, only 40 tonnes of jatropha-derived oil has been produced so far (Wang, 2010). Farmers do not plant jatropha unless they see explicit return from it. According to the case study in Panzhihua, the capital cost of planting base is about 4500-6000 Yuan/ha. (Xin & Zhang, 2011). Due to high risk, the actual development of Jatropha industry in Panzhihua shows sharp contrast to initial expectation (Liu et al., 2010).

# **3.4 Second-generation biofuels**

# **3.4.1 Resource potential**

The cellulosic resource for 2<sup>nd</sup> generation biofuels includes agriculture and forest residues (Table 9).

13
**Table 9: Cellulosic biomass in China**

||Generat<br>Mill|ion Potential<br>ion tonnes|Current Utilization|
|---|---|---|---|
||Current(2008/2009)|2020(estimated)||
|Agriculture residues|650.55<sup>a</sup>(2010)|679.22<sup>b</sup>|15% for burning, 15% for<br>returning to the field, 24% for<br>fodder, 43% for fuel wood, 3%<br>for industry use.|
|Forest residues|854.56<sup>d</sup>(2010)|965.39<sup>b</sup>|Part of bush residues was used<br>to feed, fiber, etc.|

Note: a. data from Chang, et al. 2012

# **3.4.2 Supply cost**

The production cost of 2<sup>nd</sup> generation biofuels is full of uncertainties. Production cost for 2<sup>nd</sup> generation biofuels in the literatures range between USD 0.60/liter and 1.30/liter (4937.4 and 10697.7 Yuan /tonne<sup>4</sup> ) (Ralph, et al, 2010). The pilot scale cost in China is about 7845 Yuan/tonne based on the techno-economic analysis of 300 tonnes project (Table 10). The supply cost is higher than that of gasoline, and lacks of comparative economic advantage. The feedstock cost is relative low, about 19.8% of total production cost. This is partly because the feedstock requirement of 300 tonne demonstration project is not very high. With the increase of production scale to deployment & commercialization stages, the feedstock price will inevitably increase due to long collection radius. Therefore, government subsidies are required.

# **3.4.3 Challenges**

The technology uncertainty is the biggest challenges. Although the Chinese government has put lots of attention on technology R&D of 2<sup>nd</sup> generation biofuels, and it is expected that the 2<sup>nd</sup> generation biofuels will become commercially viable within 7~10 years, it will not play vital role on target achievement by 2020.

# **4. Policies needed to achieve 2020 targets**

# **4.1 Screening of current policies on biofuels deployment relevant policy**

A large number of policies, ranging from command and control instruments (i.e., standards, mandatory and entry regulation) and fiscal and economic measures (tax exemptions and subsidies) have been introduced in China to support the development of biofuels (see Appendix Table A). These policies are aimed at different stages of the biofuels chain can be summarized in Table 11, covering production of feedstock, and conversion of feedstock to biofuels and consumption of biofuels. For fuel ethanol, most of the policies were drafted before 2007 and applied to designated projects only. Since 2007, there are several preferential policies for biodiesel, especially for waste oil-based biodiesel.

> 4 Exchange rate is 6.5 Yuan/ USD; the density here used is 1266 l/tonne

14
**Table 10: Techno-economic analysis of a pilot cellulosic ethanol project with capacity as 300 tonne in China**

|Cost category|Unit|Value|Assumptions/remarks|
|---|---|---|---|
|**Feedstock Cost**|Yuan/tonne|**1,550**<sup>a</sup>|1Corn straw price is 220 Yuan/tonne;<br>2Transportation collection radius is about 8 km, and<br>transportation & crush cost of corn Stover is 65-70<br>Yuan/tonne;<br>2Main components of corn straw:<br>Cellulosic: 37.2%;<br>Hemicellulosic: 25.3%;<br>Lingo: 18%<br>4Key indicators of conversion process:<br>Corn straw saccharification rate: 51.6%;<br>Ethanol concentration: 23g/L;<br>Ethanol production rate: 18.1%|
|**Non-feedstock cost**|Yuan/tonne|**5,835**|1Conversion technology is dilute acid pretreatment and<br>enzymatic saccharification and fermentation;<br>2Enzyme cost is most expensive part, which accounting<br>for 31.8% of unit total production cost.|
|**Total production cost**|Yuan/tonne|**7,845**||
|Share of feedstock cost|%|19.8%||
|Investment cost|Yuan/tonne|8,700||
|Designated fuel ethanol<br>wholesale price|Yuan/tonne|See Table 3<br>||

Source: Song, et al (2010) 15
**Table 11: Synthesis of selected policies and measures for supporting biofuels during process chain**

|Process Chain|Measures||Fuel ethano|l||Biodiesel||
|---|---|---|---|---|---|---|---|
|||Corn/Wheat<br>designated|Cassava<br>designated|Non-designated<br>starch-sugar<br>energy crops|Oil-bearing<br>trees/waste oil<br>Designated|Non-designated<br>oil-bearing<br>trees|Waste<br>oil|
|**Feedstock**|**Subsidies**|||||||
||-Subsidies<br>for<br>aged-grain used|Χ||||||
||- Subsidies for energy<br>crops planting||Χ|Χ|Χ|Χ||
|**Conversion**|**Tax Exemption or**<br>**Refund**|||||||
||-Consumer Tax|Χ|Χ||Χ||Χ|
||-Value added Tax|Χ|Χ||Χ||Χ|
||-Income Tax||||Χ||Χ|
||**Subsidies**|Χ|Χ||Χ|||
||**Wholesale**<br>**Price**<br>**Guarantee**|Χ|Χ||Χ|||
|**Distribution**|**Mandate**|Χ|Χ||Χ|||
||**Subsidies**|Χ|Χ|||||
||**Retail**<br>**Price**<br>**Guarantee**|Χ|Χ||Χ|||

# **4.2 Barriers and options for policy response**

Comparing recent progress to the required growth for meeting the 2020 targets, it appears that there are additional policies needed on biofuels development. In this sector, an overview of major economic and non-economic barriers of biofuels development will be analyzed based on broad literature reviews and our own analysis in section 3 (Table 12). Then potential policy responses are provided. The method is similar as Klessmann, et al. (2011) used to evaluate the barriers and policy options of European Union.

16
**Table 12: Barriers and policy responses to address these barriers**

|**Barrier**|**Options for policy response**|
|---|---|
|**Economic and market barriers**||
|-<br>Not cost-competitive under current market conditions||
|High cost for non-grain sugar and starch fuel-based<br>ethanol and oil-bearing trees-based biodiesel (Wang,<br>Zhao, & Zhang, et al., 2010)<br>`·`<br>Inefficient subsidies policies for energy crops<br>planting (Wang, Zhao, & Zhang, et al., 2010);<br>`·`<br>Lack of support policies for non-grain-fuel ethanol<br>conversion;|`· `Increase<br>subsidies<br>to<br>feedstock<br>production,<br>especially that of oil-bearing trees(Wang, Zhao, &<br>Zhang, et al., 2010);<br>`· `Financial support to build new demonstration<br>projects of non-grain fuel ethanol(Wang, Zhao, &<br>Zhang, et al., 2010);<br>`· `Tax exemption for fuel ethanol derived from<br>non-grain feedstocks(Wu, et al., 2010);<br>`· `Increase subsidy or establish special subsidy fund<br>for non-grain fuel ethanol development (Wu, et al.,<br>2010; RGCMLEDS,2011);<br>`· `Encourage technology penetration of energy crops,<br>and enhance the land productivity through scientific<br>research(EBSDEC,2009);<br>`· `Encourage international cooperation to introduce<br>good<br>species<br>of<br>energy<br>and<br>support<br>their<br>demonstration projects (EBSDEC,2009);|
|High feedstock cost for waste oil biodiesel<br>`· `Lack of recycling mechanism of waste oil|`· `Build recycling mechanism of waste oil for biodiesel<br>production(Ji & Wang, 2007; Chang, et al.2012)|
|High capital costs and production costs for 2<sup>nd</sup>generation<br>biofuels<br>`· `Lack of transparent support policies on 2<sup>nd</sup><br>generation biofuels(RGCREDS, 2008)|`· `Financial support demonstration projects of 2<sup>nd</sup><br>generation biofuels (Wang, Zhao, & Zhang, et al.,<br>2010; Qiu & Wang, 2010; Qiu & Huang.2010;<br>Chang et al. 2012);<br>`· `Provide higher subsidies to 2<sup>nd</sup>generation biofuels<br>than that for existing grain-ethanol(Song, 2010);|
|-<br>Limited access to finance||
|Limited access to finance on non-grain sugar and starch<br>fuel ethanol|`· `Establish stable and long-term policy framework and<br>targets to build trust in future markets (Chang,|
|Limited access to finance on oil-bearing trees biodiesel|Zhang, Chai, 2008);|
|Limited access to finance on 2<sup>nd</sup>generation biofuels<br>(Chang, Zhang, Chai, 2008; Song,2010)|`· `Set up venture capital fund for non-grain fuel<br>ethanol (Wu, et al., 2009);<br>`· `Set up industry development fund for 2<sup>nd</sup>generation<br>biofuels (Song,2010)|
|**Administrative and legal barriers**||
|Lack of strategy guideline and technology roadmap on<br>biofuels development (Wang, Zhao, & Zhang, et al.,<br>2010)|`· `Specific planning on biofuels (RGCREDS, 2008;<br>Wang, Zhao, & Zhang, et al., 2010; Wu et al. 2010,<br>RGCMLEDS,2011)|
|Lack of policies on access of newly added biofuels<br>(Wang, Zhao, & Zhang, et al., 2010)|`· `Clarify approvement indicators or guidelines for<br>non-grain fuel ethanol projects;|
|`· `Lack of transparent approvement procedure for|`· `Clarify policies on access to the distribution system|

17
<!-- Start of picture text --> non-grain sugar & starch fuel ethanol projects for non-grain fuel ethanol and biodiesel(Wang,<br>(Wang, Zhao, & Zhang, et al., 2010) ; Zhao, & Zhang, et al., 2010);<br>· Lack of transparent access policy for biodiesel; · Permit more competitor in the processing and<br>retailing sectors(Li & Chan-Halbrendt,2009);<br>Lack of standard and regulations for sustainable · Set standard and regulations on sustainable<br>production of biofuels (i.e., what kinds of marginal land production of biofuels (Wang, Zhao, & Zhang, et al.,<br>is available for energy crops from the sustainable 2010);<br>perspectives ) (Wang, Zhao, & Zhang, et al., 2010) · Integrate the environmental and social performance<br>of biofuels with economic and non-economic<br>incentives;<br>Information and acceptance barriers<br>Lack of knowledge on environmental and social · Further improve Life cycle analysis methodology for<br>externality of biofuels (RGCREDS, 2008; Wang, Zhao, biofuels (Wang, Zhao, & Zhang, et al., 2010;<br>& Zhang, et al., 2010; Chang, et al.2012) IEA,2012; Chang, et al., 2012);<br>· Potential impact of biofuels production on the grain<br>security and agriculture development(Huang, et al.<br>2010, Fu, et al. 2011)<br>· Potential ecological environment problems caused by<br>large-scale cultivation of energy crops (EBSDEC,<br>2009)<br>Lack of resource assessment (i.e., quantity and · Further improvement of method on resource<br>distribution of marginal land in China for energy crops) assessment; Carrying out resource assessment,<br>(Wang, Zhao, & Zhang, et al., 2010) especially in resource rich provinces; (EBSDEC,<br>2009; Wang, Zhao, & Zhang, et al., 2010)<br><!-- End of picture text --> Each technology faces respectively the different barriers, but supply cost is one of the major barriers faced by all pathways, especially that of feedstock cost. Non-grain fuel ethanol attracts more concerns to address their economic barriers as policies suggested shown in table 12. Second-generation biofuels are projected as the most promising pathway in medium- and long-term. Several countries have preferential provisions that encourage the use of second-generation biofuels (e.g. specific policy target in the United States). Policy support for second-generation biofuels in China focused mainly on research and development (R&D), while there are almost no specific policies for deployment of second-generation biofuels in China. It is necessary to shift gradually from R&D to market deployment policies.

Non-economic barriers still exist in China, like administration. Most of existing policies related to fuel ethanol are aimed at grain based ethanol (i.e., corn or wheat). Without central government permission, new fuel ethanol companies have no access to the biofuels industry, no financial subsidies, tax exemptions and bank credits support, even no access to the distribution channel. Despite the existence of the entry regulation, there are still no transparence indicators or guidelines on what kind of starch and sugar energy crops should be designated.

Considering the uncertain impacts of large scale biofuels production on climate security, as 18
discussed in section 3.1.3, introduction of sustainability criteria might be needed to ensure that Chinese biofuels industry help reduce GHG emissions. The U.S. Renewable Fuel Standard (RFS) and the EU Directives both placed efforts on measures to ensure that renewable fuel is indeed reducing GHG emissions and to require minimal lifecycle GHG threshold compared to equivalent fossil fuel consumption (Sorda, et al. 2010).

Another non-economic barrier is information. More science-based analysis to provide knowledge and increase acceptance to public is necessary.

# **5. A review of the biofuels projection and its implications**

An overview of existing literatures regarding biofuels projections in the medium- and long-term is presented here. A comparison of these studies including scenario designs and key assumptions is shown in the Appendix Table B. To show the role of policies, these scenarios are grouped as Reference Storyline (RSL) and Policy Storyline (PSL). RSL includes scenarios designed as business as usual scenarios or current policy scenarios which are following current policies; and PSL includes scenarios with additional policies on energy conservation or that address climate change modeled. Figure 5 summarizes the key results of these studies.

The scenario projections cluster relatively during the near-term (by 2020) rather than long-term (by 2050) (Table 13). The minimum value of 2020 biofuels projection is 4 Mtoe from the Current Policy Scenario (CPS) of IEA (2011a), while the maximum value is 29.8 Mtoe from Active Scenario (AS) of RGCMLEDS (2011)<sup>5</sup> . In order to meet the proposed sub-targets of fuel ethanol and biodiesel, a minimum 8.18 Mtoe should be produced given the heat value of fuel ethanol as 0.6377 toe/tonne and biodiesel as 0.903 tone/tonne.

> 5 Not all data are available for each time points for comparison. Liner Interpolation was carried out to provide data that are not explicitly specified in these literatures.

19
<!-- Start of picture text --> 73.62<br>IEA,2011a(CPS) Chang,et al.,2012(M1)<br>65.44<br>Chang,et al.,2012(M2) Zhang,et al.,2012(RS)<br>57.26 RGCMLEDS,2011b(RS)<br>49.08<br>40.9<br>32.72<br>24.54<br>16.36<br>8.18<br>0<br>2010 2015 2020 2025 2030 2035 2040 2045 2050<br>(a)RSL<br>163.6<br>155.42 Qiao, et al.2010(Low) Qiao, et al.2010(High)<br>147.24<br>IEA,2011a(NPS) IEA,2011a(450 scenario)<br>139.06<br>IEA,2011b(BMS) Chang,et al.2012(L1)<br>130.88<br>122.7 Chang,et al.2012(L2) Zhang,et al.2012(BA)<br>114.52 RGCMLEDS,2011b(AS) RGCMLEDS,2011b(MS)<br>106.34<br>98.16<br>89.98<br>81.8<br>73.62<br>65.44<br>57.26<br>49.08<br>40.9<br>32.72<br>24.54<br>16.36<br>8.18<br>0<br>2010 2015 2020 2025 2030 2035 2040 2045 2050<br>Mtoe<br>Mtoe<br><!-- End of picture text --> (b)PSL

**Fig.5. Review of biofuels projections**

20
**Table 13: Comparison of biofuels projection from reviewed studies**

|<br>|Units<br>|2015<br>|2020<br>|2025<br>RSL<br>|2030<br>|2035<br>|2040<br>|2045<br>|2050<br>|
|---|---|---|---|---|---|---|---|---|---|
|Max|Mtoe|8.89|16.26|28.58|40.90|48.18|55.45|62.73|70.00|
|Min|Mtoe|2.52|4.00|6.50|9.00|12.00|15.04|16.72|18.24|
|||||PSL||||||
|Max|Mtoe|15.66|29.80|58.55|87.30|100.73|114.15|127.58|153.58|
|Min|Mtoe|2.00|5.00|8.00|12.00|16.00|35.14|42.11|49.08|

As to the sub-targets of fuel ethanol and biodiesel, almost all scenarios provide optimistic projections on biodiesel, while great difference on fuel ethanol projections by 2020 (Table 14). The minimum projection is from M1 scenario of Chang et al. (2012), which assumed a most pessimistic development of fuel ethanol by 2020. The maximum projection is from Most Optimistic Scenario (MOS) of Li & Chan-Halbrendt (2009), which is identified as the most optimization scenario by the authors.

A Bundle of additional policies were modeled to show the effectiveness to trigger biofuels development in the following years by 2020. These policies include less regulation coupled with sustainable guidelines(MOS from Li & Chan-Halbrendt (2009); L1&L2 from Chang, et al.(2012)); speeding up of technology development (M2 & L2 from Chang et al. (2012); BA from Zhang, et al. (2012); MS & AS from RGCMLEDS (2011); MOS from Li & Chan-Halbrendt (2009)); increasing renewable energy share binding target (NPS from IEA(2011a); AS from RGCMLEDS (2011)); energy security (Qiao, et al., 2010); and climate change addressing (450 Scenario from IEA(2009), NPS and 450 Scenario from IEA(2010), NPS and 450 Scenario from IEA(2011a), AS from RGCMLEDS (2011)). Notwithstanding the modeling methodological difference, all scenarios demonstrate the perspective of biofuels development by adopting different policy options.

**Table 14: Comparison of fuel ethanol and biodiesel projections in 2020 under reviewed scenarios.**

|Storyline|Target|||Scenario com<br>|parison<br>||
|---|---|---|---|---|---|---|
|||Max|Min|Average|Variance|Standard Deviation|
||||Fuel ethano<br>|l<br>|||
|Unit|Mtoe|Mtoe|Mtoe|Mtoe|-|-|
|RSL|6.38|12.00|2.44|5.81|18.80|4.34|
|PSL|6.38|32.00|3.48|10.72|69.17|8.32|
|All Scenarios|6.38|32.00|2.44|9.08|55.58|7.46|
||||Biodiesel<br>|<br>|||
|Unit|Mtoe|Mtoe|Mtoe|Mtoe|-|-|
|RSL|1.81|3.00|1.80|2.64|0.32|0.56|
|PSL|1.81|13.55|2.80|6.59|14.27|3.78|
|All Scenarios|1.81|13.55|1.80|5.15|12.64|3.56|

21
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10 million tonnes for 2020. This study shows that a number of non-grain feedstocks such as cassava, sweet sorghum and sweet potato grown in low productive arable lands or marginal lands have enough potential to meet ethanol targets in 2020. The costs of ethanol production from these feedstocks vary from 4,887 Yuan/tonne to 6,802 Yuan/tonne. Which are comparable to existing wholesale prices of ethanol in China. However, should these lands be used for biofuels is not an easy question to answer as these lands could be utilized to produce grains to meet china’s self-sufficiency target on grain supply. On other hand, cellulosic feedstocks, such as agricultural and forest residues have a much higher technical potential of supplying ethanol, but their costs are much higher as compared to those non-grain crops mentioned above. In the case of biodiesel, the target set for 2020 is 2 million tonnes. Alternative feedstocks, such as waste oil and oil fruit bearing non-edible shrubs (e.g., jatropha), each would have more technical capacity to meet the targets. Again, production costs are the major barriers as costs of biodiesel produced from these feedstocks would be higher compared to diesel price in China. Various policy measures, particularly, financial incentives, such as direct subsidies to non-grain sugar and starch based ethanol and cellulosic ethanol, building up recycling system to reduce the feedstock cost of waste oil-based biodiesel, and increasing subsidies to oil-bearing shrubs would be needed to overcome the costs barriers to biofuels in China.

This study also reviews several studies that projects production of biofuels for China. Due to differences on underlying assumptions and structures of models used, the projections vary widely across the studies. Nevertheless, most studies predict that China could not meet its biofuel targets in the business as usual scenarios. However, with the introduction of additional policy interventions, the country would meet those targets.

# **Acknowledgements**

The authors acknowledge the financial support of the Knowledge for Change (KCP) Trust Fund of the World Bank. The authors would like to thank Scott Paap, Carter Brandon, Ximing Peng and two anonymous reviewers for their constructive comments. The views expressed are of authors and do not represent funding organizations.

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