The biofuels industry is set to fuel economic growth in the next five years and bring savings for SA's balance of payments, according to a new Accenture study.

In SA, where government's biofuels policy has set a modest target of two percent of all fuel consumption by 2013, the study forecasts that 25 000 sustainable jobs will be created, mainly in rural areas. This is expected to boost economic growth by 0.05 percent.

Increased biofuels production will reduce SA's imports of crude oil and will result in a US$223.7-million saving on SA's balance of payments. The country will also benefit from a greenhouse gas emission saving of an estimated $13.2-million/year, says the study.

Just 1.4 percent of arable land in SA will be used by the industry – only 10 percent of the amount of arable land underutilised. "There is thus sufficient land available to sustain the predicted growth in biofuels in the long term," states the study.

SA's biofuels strategy specifically targets investment in underdeveloped regions, such as parts of the Eastern Cape. Additional benefits from a biofuels industry will include an increased supply of animal feed, energy for cooking and lighting and feedstock for electricity generation, the study says.

Oil-cake from soybeans

Protein oil-cake from soybeans, a by product of the biofuels industry, is used as animal feed and is imported. There are also uses for these by-products in gasification plants and fertiliser production.

Several initiatives are under way to promote ethanol gel lamps and stoves. These are cost-efficient, healthier and safer than paraffin alternatives. The gel lasts longer, burns with a carbon-free flame that eliminates the risk of respiratory illnesses and will extinguish the wick if overturned.

The study suggests that ongoing technological development in the global biofuels industry might help clear the main hurdles to widespread adoption. With the use of food crops to manufacture fuel, the industry has been accused of being a big contributor to the soaring global food price increases, and to climate change.

Though the industry continues to tout the environmental benefits of biofuel as its main advantage, its many detractors say its contribution to limiting greenhouse gas emissions is negligible. They blame it for the continuing destruction of the Amazon jungle - the world's main consumer of carbon dioxide - as Brazilian farmers clear vast tracts to cash in on the demand for fuel and food crops.

But the vast amounts of money and resources already invested in the global biofuels industry - and the promise of lucrative returns - mean that the road ahead is now the only route industry players can realistically consider.

Overcoming economic hurdles

And the new technological developments in the industry will probably result in it overcoming the environmental and economic hurdles it faces.

Anoop Patel, senior manager of Accenture SA's resources operating group, acknowledges the arguments against the industry but insists that, one way or another, it will endure. "There is a will to make this industry succeed," says Patel. "But consumers must be convinced purchasing biofuels reduces global warming, and the supply of fuel is sustainable."

The study, which concentrates on the demand side of the industry, argues that the impact of biofuels on food supplies has been exaggerated. It says price increases for maize and sugar - the main feedstocks for biofuels - have been smaller than for a nonfuel food such as rice.

This is probably simplistic. A serious analysis would take into account at least the competition for agricultural land between food and fuel crops and the degree to which consumers substitute various grains for each other as prices change.

Second-generation nonfood feedstocks

But Patel says much of the debate will become irrelevant with the use of second-generation nonfood feedstocks, such as cellulosic material and waste, and new biofuels under development, such as butanol – a fuel that is closer to petrol than ethanol and can be produced from algae.

"Technology will continue to be the wildcard," the study says. "Current players have perhaps 10 years to make this industry truly global and efficient before the competing technologies start to challenge first- and second-generation biofuels."

These competing technologies include plug-in hybrid cars that run on electric and/or hydrogen alternatives.

"Supporting technologies will make the position of the current players in the market stronger, supporting the creation of a global agriculture-based (but not necessarily food) biofuels industry," the report says. "Competing technologies will threaten the position of players in the market today and fundamentally challenge any assumptions and forecasts of the growth of biofuels."

Financial Mail