Under double pressure, the fuel ethanol industry is uncertain
In the current context of rising global oil prices and energy shortages, governments around the world are actively investing in and promoting bioenergy as a sustainable alternative. A recent report by Kearney, a leading global consulting firm, titled "Industry Research White Paper on China's Fuel Ethanol Industry," highlights some challenges facing China’s fuel ethanol sector, primarily due to high production costs and inefficiencies. Industry experts and entrepreneurs note that the sector is currently grappling with resource constraints and an uncertain policy environment.
During the "Eleventh Five-Year Plan" period, China aimed to produce 6 million tons of bio-liquid fuel, including 5 million tons of fuel ethanol. An official from the National Development and Reform Commission mentioned that China's fuel ethanol projects were initiated eight years ago to address surplus grain. After efforts between 1999 and 2005, the first four designated ethanol producers completed construction of a total capacity of 1.02 million tons, fulfilling the goals set during the "Tenth Five-Year Plan" of "supporting agriculture, protecting the environment, and replacing energy."
However, food security has become a major bottleneck. China is now the third-largest producer and consumer of biofuel ethanol globally, following Brazil and the United States. With the expansion of fuel ethanol, the use of aged grains surged from 70,000 tons in 2003 to 1.32 million tons in 2006—equivalent to about 4.36 million tons of corn. This has led to a significant strain on corn supplies, driving up prices and creating competition between fuel ethanol and food production. Experts argue that using large amounts of grain for fuel ethanol could lead to conflicts over land and resources, which is not aligned with China’s national conditions.
To address this, the State Council issued two key notices in December 2006, emphasizing the need for non-grain-based development of biofuel ethanol. The policies stress the importance of exploring alternative biomass sources to avoid competing with food crops. The "11th Five-Year Plan for the Development of Biofuels Ethanol and Automotive Ethanol Gasoline" also supports the principle of "developing according to local conditions and avoiding the use of grain."
While producing ethanol from non-food materials like fibrous crops is feasible and less competitive with food production, challenges remain in terms of raw material collection and processing technology. Experts suggest that marginal lands can be utilized for growing energy crops such as sweet sorghum or cassava, but this requires supportive government policies.
Currently, only four state-approved enterprises are allowed to sell fuel ethanol nationally, and market access remains limited. Companies face hurdles due to unclear regulations and slow approval processes. Despite a positive outlook, many firms have exited the market due to lack of support and sales channels.
China’s Renewable Energy Law, implemented in 2006, aims to promote renewable energy, but detailed implementation guidelines are still lacking. International experiences show that successful renewable energy policies often involve target setting, financial incentives, and regulatory support.
Experts believe that developing non-food biomass, such as cassava and sweet sorghum, could significantly contribute to China’s energy strategy. With proper policies, the industry has the potential to grow substantially, offering both economic and environmental benefits. However, without clear direction and support, it will be difficult to make a meaningful impact on the country’s energy system.
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