Frost: Agrarian Policies Provide Fresh Impetus to China's Biofuel Market

April 26, 2008 // Published as a news service by IHS

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China's quest for renewable energy options has opened new avenues for its biofuel market. According to Frost & Sullivan, China has intensified efforts to find suitable energy solutions, and biofuels are emerging as the answer.

Recent analysis from Frost & Sullivan of the Chinese biofuel market found earned revenues of $1.26 billion in 2007, with estimates to reach $4.02 billion in 2014.

China is crafting an environmental-centric economy, analysts said, sparing no efforts to grow in this direction. Since 2005, the government has formulated various plans, strategies and guidelines pertaining to the biofuel industry, particularly feedstock.

"Under China's long-term development plans for renewable energy, tax exemption and financial subsidies were offered to encourage biofuel production, since the market is currently constrained by the shortage of feedstock and the lack of a complete regulatory system," said Frost & Sullivan consulting analyst Frank Xie.

China revolutionized its biofuel market by picking up cues from the U.S. and Brazil, world leaders in biofuel production. Analysts said a series of policies and regulations have been mapped out to support the development of bioethanol. Meanwhile, China is also reviewing the first national biodiesel standard, which will streamline market conditions.

These measures emerged in the aftermath of the realization that biofuel is vital to secure the country's energy supply stability, analysts said. However, since the Chinese biofuel market only took shape in 2000, biofuel feedstock cultivation is still in the experimental stage and large-scale supply of feedstock is not currently available.

Keeping in mind the security status of food in China, analysts said a ban has been imposed on the use of food crops for the manufacture of biofuels. A fallout of this move is the reduction in the availability of land for biofuel cultivation, making feedstock supply fall short of production demand.

"The government is looking to remedy this situation by encouraging rural residents to cultivate biofuel energy crops by offering subsidies," said Xie. "Not only does it provide cleaner fuel, but also creates more job opportunities and increases income levels in the rural sector."

Analysts said China is continuing to explore pragmatic solutions to scale up production in the short term, and investing a great deal of effort on the implementation of tactical strategies, such as technological advancement, subsidies allocation, tax exemption and reorientation of government policies.

Source: Frost & Sullivan.