Can Hungary become a bioethanol superpower?
Despite last year’s intensifying criticism implying that biofuels have had their time, Political Capital and Green Capital forecast an opposite tendency. We expect sustainable biofuels to gain ground, and foresee no considerable setback in traditional (agro fuels or sugar cane derived) biofuel production over the next years; moreover, we even predict a boost in the next decade. Biofuel production enjoys considerable political backing both in the EU (e.g. Germany, Sweden) and overseas (e.g. president-elect Barack Obama is openly in favour of bioethanol strongly backed by players of biofuel industry) in spite of growing EU scepticism, the fact that new proposals set severe sustainability requirements for biofuels, and that even the Council of Europe would support the abolition of the directive that orders a 10% market share for biofuels by 2020. On the whole, direct anti-bioethanol sentiments seem to ease in the Union, and the general tendency prevails: environmental aspects become secondary behind recession fears. A fresh decision also goes to show this: the EP recently loosened rules aimed at reducing CO2 emission of automobiles (in a great part due to pressure from the auto industry).
Bioethanol production in 2008 and 2017 (million litres)
Forecast: FAO -OECD Agricultural Outlook, Political Capital, Green Capital
Automobile industry development perspectives
According to the most likely long-term prognosis, electric cars (plug-in battery and hydrogen fuel-cell) will squeeze out combustion engine vehicles, which will indeed play down the importance of bioethanol. But it will be a long, multistep process. With the spread of hybrids, plug-ins, hydrogen or methanol fuel-cell cars, transport can become largely independent of oil. Electric vehicles are environmentally friendly as opposed to traditionally-fuelled cars, and the production costs of electricity are less influenced by the volatility of prices of traditional energy sources. It is a further advantage for many nations that falling oil consumption can considerably reduce their energy dependence on oil-producing countries.
However, car manufacturers must remember that mass use of alternative fuel vehicles can be expected only if they are competitive with traditional, fossil fuel cars in performance, reliability, safety, quality, and above all price. This is particularly true in Hungary, where environmental aspects are exceeded by the public’s energy safety needs and price sensitivity.
Source: Joint compilation of Political Capital and Green Capital
Sources: Gallagher Report, OECD, World Bank, UNEP, EnergyWatch
The impact of the crisis on the renewable energy sources – contradictory trends
As a consequence of the world economy crisis, environmental aspects are expected to diminish, while the importance of secure energy supply is due to increase. In countries with considerable biofuel production potentials, this phenomenon is likely to result in a renewed surge in production. Today, biofuels are considered as energy sources that can – at least partly – substitute fossil fuels in the short run in transport and production. Diminished environmental aspects can be offset by environmental investment projects launched by governments in order to fight recession and high unemployment. Similar intentions can be read in European and US politicians’ statements.
We take into account the fact that the drastic fall in oil prices over recent months due to the crisis will cause a setback both in the competitiveness of all alternative energy sources, and in the commitment of car manufacturers towards green technology developments. As a result of the crisis, auto makers will introduce cost reducing measures that may cause a decline in technology development including the research of alternative fuel drive. This latter trend could be inhibited provided the state is willing (as in France, Germany and the US) to require the development of specifically environment-friendly cars in return for the money earmarked for car industry bailout.
Source: MNB, Political Capital, Green Capital
Obama: the saviour of ethanol?
The outcome of the US presidential elections defines the future energy policy of the country: America is likely to continue to support bioethanol production, given Barack Obama considers it as the key to reducing energy dependence.
Nevertheless, we must bear in mind that Obama’s standpoint on energy policy was partly influenced by pure campaign tactics. In 2004, two previously Democrat-leaning states, New Mexico and Iowa, turned Republican. Iowa is the biggest ethanol producer in the US with its 25% share of national production. Obama tried to secure votes in Iowa partly by promising developments in the ethanol industry, and managed to turn the state blue again. However, not long after his victory, there was a slight shift in Obama’s standpoint on alternative energy sources: initially he supported first-generation bioethanol production, but in his video message on November 18, apart from solar and wind energy, he named new generation biofuels as main tools to fight climate change. However, supporting ethanol industry remains a clear goal.
US energy policy can improve the image of bioethanol, and indirectly the future of the bioethanol industry – in Europe also – by shaping public opinion.
Hungary: opportunities and risks
Hungary enjoys excellent agricultural conditions, climate, and economy structure (predominantly large farms) for first-generation biofuel production. Producing energy crops – mainly corn, wheat, potato and, over recent years, ever-growingly canola - suitable for biofuel is traditionally in the focus of Hungarian agriculture. What is more, over the last years, especially in 2008, it has been highly problematic to sell internationally the surpluses of these crops, particularly corn.
The EU’s intervention buy up has been an answer to this problem. However, this is going to cease, and the volume of domestic animal husbandry is insufficient to use up crop surpluses. That is why first-generation biofuels are the tool to ease Hungary’s severe energy dependence, and a remedy for the structural problems of agriculture without painful reforms.
With the dynamic increase of ethanol production, a cut-back in seemingly excessive crops is not necessary, and no farmers would be forced to give up or change their activity; what is more, increasing biofuel demand in the future may provide a better livelihood for more farmers, since biofuel crops normally sell for higher prices than export crops.
Energy crops suitable for bioethanol production in Hungary, 1990-2007, thousand tons
Source: KSH, Political Capital, Green Capital
Consequently, neither climate protection, nor economic or energy political reasons would justify putting first-generation agro fuels (raw materials and ingredients in food processing) at the centre of Hungary’s energy strategy, or their subsidies. As long as domestic bioethanol production utilizes crop surpluses, it is particularly beneficial for the national economy. Cost-effective mass bioethanol production can be provided by boosting sustainable, predominantly second-generation (using residual non-food parts of current crops, cellulose) biofuel production instead of subsidizing first-generation biofuels.
Based on international trends, domestic traffic and energy politics must calculate with a considerable increase in electric vehicles in the long run. Even now several European (e.g. Spain and Portugal) and non-European (e.g. Israel) countries support the use of electric cars with different governmental programmes.
Government preferences: bioethanol vs. electric cars
Source: Political Capital, Green Capital
Environmental awareness in Hungarian public thinking
Hungarian consumers prefer low prices and secure supplies to environmental aspects when it comes to energy policy. Improving their environmental awareness and changing their energy use habits are only possible with a convincing campaign and energy policy that takes into account the following aspects:
- As the majority of Hungarian consumers are price-sensitive, they are more likely to opt for the cheaper but probably more polluting option.
- Hungarian society is fully aware of the problems of traffic pollution. By emphasising this environmental hazard, environmental awareness of the public can be improved, their energy use attitudes and habits changed, and it also may help in the field of traffic.
- Campaigns to change traffic and energy use habits could only be efficient by emphasizing threats to long-term insecurity of energy supplies, and by connecting both reduction of energy dependence and improvement of secure supplies to renewable energy sources.
Source: Eurobarometer, Political Capital, Green Capital
Proposals to develop an environmentally-friendly traffic and energy strategy
In order to adopt a systemic approach to traffic, we recommend the government should develop a “green traffic” concept. This concept should include the reduction of traffic demands by developing infrastructure, the development of public transport, and the encouragement of those opting for individual traffic to choose environmentally-friendly traffic options.
- The government should not subsidise first-generation biofuels, their risks (predominantly due to volatile crops production) should be taken by market players.Bioethanol market should not be distorted by subsidies; nevertheless, as long as domestic bioethanol production utilizes the crop surpluses of the agriculture, it is particularly beneficial for the national economy. The government in cooperation with the producers and the consumers must urge the utilization of domestic bioethanol in domestic traffic in order to stop today’s doubtful practice when home-grown bioethanol is to export while domestic demand is satisfied by imported ethanol. The country’s bioethanol capacity should be utilized by Hungarian vehicles.
- The best way to produce first-generation biofuels is to utilize part of the annual crop surpluses as biofuels. The government should directly subsidize farms in locally turning redundant biomass into energy (bio alcohol or biogas).
- The government should encourage economical production of second- and third-generation biofuels by biotechnological research programmes. The government should initiate and develop a new generation bioethanol programme with the cooperation and support of research institutes, energy industry companies and governmental players.
- The government should encourage economical methanol production. Methanol fuel engine, the “invention” of Nobel prize winner chemist Dr György Oláh, is seen as one of the most promising energy sources of the future (e.g. China recently started a methanol programme); what is more, methanol can be utilized in electric vehicles, too (direct methanol fuel-cell directly turns methanol into electricity).
- The government should start the development and adjustment of an infrastructure to help the spread of electric cars.
- The government should prepare a strategy to introduce certain hybrid types in Hungary, and the details of the government’s role in it. In the frame of the “green motoring programme”, through long-term agreements with the producers, the government encourages mainly the spread of electric (fuel-cell, hybrid) cars, while in the public transport the purchase of biofuel vehicles.
- In order to become more influential in the European energy politics, the government should submit more initiatives to the EU, and should take advantage of both Hungary’s 2011 EU presidency and the opening of the European Institute of Innovation and Technology (EIT) in Budapest.
 The complete concept can be read in the strategic study; here we only cite certain proposals.