Sweden looks to Indonesia for green fuels

An ambitious goal to halve Sweden's dependence on fossil fuels by 2020 has prompted it to actively seek out countries that can meet its rising demand for biofuels - an increasingly viable fuel alternative to pricey crude oil. Sweden already imports 75% of its ethanol from Brazil (earlier post). Now it is looking for biodiesel supplies from the South.

Indonesia is primed to benefit, as the tropical archipelago can be one of the leading contenders to meet Sweden's need for green fuel for motor vehicles, Swedish Minister for Foreign Trade Sten Tolgfors said during a tour of the country. The minister also called for the removal of trade barriers for biofuels.

The island state has launched a massive bioenergy plan, which it wants to use as a lever to revitalise its agricultural sector and increase its energy security. The country plans to inject a total of US$ 12.4 billion into the sector over the coming 3 years (overview), and so hopes to generate some 2.5 million jobs (earlier post). So far US$1.42 billion has been invested, with more than 67 projects for the production of liquid biofuels signed so far, and with 114 biomass power plants under construction across the archipelago (earlier post). More than 11 biodiesel plants are under construction. A considerable amount of the output is destined for exports.

Currently, in Sweden, biofuel accounts for 3% of the fuel used in motor vehicles, with ethanol from Brazil accounting for most of that. But the government aims to soon have cars and buses in the Scandinavian nation running on palm oil and jatropha curcas oil based biodiesel from Indonesia. Sweden also aims to decrease its use of fossil fuels in motor vehicles to 50% of current usage by 2020, to safeguard depleting global fossil fuel supplies and help stem climate change by lowering the country's carbon dioxide emissions.

Tolgfors, who was in Indonesia for a three-day visit to discuss trade relations between the two countries, said Sweden's demand for biofuel can only increase as its government has adopted aggressive measures to encourage the use of environmentally-friendly flex-fuel and biodiesel-capable cars. Sales of such cars now account for 13.5% of all newly registered vehicles in the country.

Jatropha investment
Along with palm oil, Sweden is also looking at other feedstocks to produce biofuel. Swedish company Scanoil is already in the process of acquiring vast tracts of land in Indonesia to grow jatropha. The investment, which is estimated in the millions, could be the single largest Swedish investment in Indonesia, according to Swedish officials:
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Increased investment in biofuels and the feedstock used to make it are a direct result of already soaring biofuels sales in the country.

Norway's Statoil, a company that produces E85 biofuel - containing 85% ethanol and 15% gasoline - and sells it through 170 of its service stations in Sweden, reported sales growth of 270% on year to 19.5 million liters in 2006 (earlier post).

Environmental and social concerns
Such strong sales figures reflect the results of an aggressive biofuel promotion program the Swedish government has launched in recent years.

The government offers owners of biofuel-powered vehicles special benefits such as lower excise duties, free parking spaces and exemption from city congestion charges.
In 2006, a total of 36,700 vehicles, or 13.5% of all newly registered vehicles in Sweden, were fitted with engines specially designed to run on biofuel, a 156% increase in biofuel-powered vehicle sales from 2005.

But growing biofuel demand presents its own risks that must be managed to ensure Sweden's emissions improvements don't take a heavy toll on the nations that produce its biofuel.

Tolgfors expressed concerns over the environmental and social repercussions associated with growing global demand for biofuel.

Indonesia and neighbor Malaysia together produce around 83% of the world's palm oil, and soaring demand for palm oil-based biofuel has fueled charges of excessive deforestation in the two countries to make way for palm oil plantations.
In Indonesia alone, environmental groups estimate that tens of millions of people derive their livelihood from the country's forests, which also provide a home for many rare plant and animal species.

Due in part to plantation expansion, Indonesia's forests are disappearing at an estimated 2.8 million hectares a year, one of the world's highest deforestation rates - and increasing demand for biofuel feedstocks could increase that rate.
Tolgfors raised such concerns Sunday during a meeting with Indonesia's Trade Minister, Mari Elka Pangestu, saying biofuel's potential environmental risks have to be addressed to prevent a backlash from consumers in the future.

"There needs to be a process of quality control that ensures each step, from the planting of trees, right up to biofuel production, has been carried out with minimal destruction to the environment," said Tolgfors. "Consumers want to be assured that the environmentally-friendly product they bought is indeed environmentally-friendly or they are likely to not buy it in future."

International coordination needed
Tolgfors also touched on how increased demand for biofuels has raised prices of certain staples, such as cooking oil in Indonesia. He said more dialogue is needed on an international level to address such issues.

At an annual OECD ministerial meeting in Paris two weeks ago, Tolgfors called for the creation of a world market for biofuels, and for the dissemination of better knowledge of the challenges facing biofuel trade.

"The goal (of the world market) should be to standardize, if not, lower tariffs on biofuel across countries, and this should eventually lead to a free market for biofuel," he elaborated.

Ending EU farm subsidies
In a related development Sweden on Tuesday urged the European Union to scrap farm subsidies in future reforms of the bloc's agricultural policy. Such subsidies distort global biofuel markets.

Export subsidies and production quotas should be eliminated in the long term to make European agricultural production more market-oriented, the government said in a letter to the European Commission. The EU should continue, however, to promote biodiversity and rural development, the center-right government said.

Agricultural spending accounts for about 40 percent of the EU's budget. Handouts to farmers will not change until at least 2009, when the long-term budget will be reviewed by member states.

France, the top recipient of EU farm subsidies, has been hesitant to consider cuts to agriculture payments until after 2013.