Japan steps up its biofuel drive
By Hisane Masaki

TOKYO - Fueled by concerns over surging oil prices and accelerating global warming, resource-poor Japan is revving up its drive to promote biofuels. Most publicly, tax changes aimed at encouraging motorists to use bio-gasoline are expected in a few months after the world’s second-largest economy and third-largest oil consumer started to sell bio-gasoline at a limited number of gas stations earlier this year on a trial basis.

A preferential tax system for bio-gasoline is expected to be introduced in the fiscal year starting in April 2008, when tariffs



may also be lifted on imports of a key gasoline additive made from biomass ethanol.

Prime Minister Yasuo Fukuda’s ruling coalition is scheduled to release its taxation system revision outline for fiscal 2008 on Thursday. Under the planned tax system, biofuels mixed with gasoline will be exempted from the gasoline tax - currently 53.8 yen US$0.48) per liter - in proportion to the amount of biofuels included. For example, gasoline that contains 3% of bioethanol will be taxed 1.61 yen less per liter than pure gasoline. At present, there is no tax break for gasoline mixed with biofuels, regardless of the ratios involved.

The government is also expected to make imports of gasoline additive ethyl tertiary butyl ether tariff-free, removing the current 3.1% import tax.

Even with the tax changes, the government-set goal of saving 500,000 kiloliters (kl) of crude oil - 3.145 million barrels of oil - per annum by 2010 through the use of biofuels looks ambitious. Two different types of bio-gasoline being sold on a trial basis have the drawback of higher production cost than crude-oil derived fuels and the country also has to rely on imports for almost all of its bioethanol. To reduce this burden, the government has set a target of boosting domestic annual production of the gasoline substitute to 6 million kl by 2030.

It has also established a joint council of government agencies, universities and 16 leading companies, including Nippon Oil Corp, the country's largest oil distributor, and Toyota Motor Corp, its largest automaker, to develop innovative technologies for mass-producing low-cost bioethanol.

The rising oil price is one of the biggest potential threats to the Japanese economy. The country imports almost all of its oil - 4.2 million barrels a day last year - with nearly 90% coming from the Middle East. Domestic gasoline prices soared to their highest-ever levels last week, reaching an average of 154.9 yen, according to the Oil Information Center, after global crude oil prices hit a record US$99.29 a barrel last month.

The New National Energy Strategy, which was compiled last year by the Ministry of Economy, Trade and Industry (METI), set a goal of reducing the nation's reliance on oil for transport to 80% from the current 100% by 2030.

Japan is also feeling the heat over the Kyoto Protocol on curbing global warming. Under the treaty, Japan must reduce its annual emissions of carbon dioxide (CO2) and several other greenhouse gases (GHGs) by 6% to 1.18 billion tonnes CO2 equivalent on average between 2008 and 2012 from 1990 levels.

The country's GHG emissions totaled 1.341 billion tonnes CO2 equivalent in fiscal 2006, according to preliminary figures from the Environment Ministry, down 1.3% from fiscal 2005 levels but still up 6.4% from the fiscal 1990.

Under the Kyoto Protocol, biofuels made from plants are not regarded as sources of GHG emissions since the amount of CO2 emitted during their use matches that absorbed by plants.

In April 2005, two months after the protocol took effect, the government compiled a comprehensive program to reach its Kyoto goal.

Two lanes
The country started its first test sales of gasoline directly mixed with bioethanol in October, with the Environment Ministry commissioning the prefecture government in Osaka to lead the initiative. Gasoline directly blended with up to 3% of ethanol (E3) began to be sold at two gas stations - one in Sakai City and the other in Daito City in the western Japanese prefecture - at the same prices as regular gasoline.

A plant in Sakai, completed in January, produces bioethanol from waste wood and another plant in Okayama city mixes it with gasoline for sale. E3 supplies in Osaka are at present limited to some 100 cars of local companies that have registered with the local government in advance. The number of E3-supplying gas stations will be increased gradually and they will begin selling the product to ordinary motorists as early as fiscal 2008.

The Environment Ministry has provided subsidies of 700 million yen for the test sale project for fiscal 2007. A small test sale has also started on thre island of Miyakojima, southern Japan, using E3 made from sugar cane produced there. Meanwhile in November a ministry-owned filling station in Tokyo’s Shinjuku Gyoen National Garden started supplying E3 to the ministry's cars. The ministry hopes all other government cars will eventually be fuelled by E3.

Tests with ETBE were meanwhile started in April by Japanese oil distributors in the Tokyo metropolitan area. The gasoline additive is made by combining bioethanol - grain alcohol derived from such plants as sugar cane and corn – with isobutylene, a petroleum product.

The bio-gasoline now on sale at 50 outlets in the Tokyo metropolitan area is 7% ETBE-blended - and 3% bioethanol-blended. Prices for the bio-gasoline are at the same levels as those for regular gasoline. The number of ETBE outlets is to be expanded to 100 gas stations next year, increasing to 1,000 bio-gasoline outlets across the country in fiscal 2009.

The Osaka tests sales, originally to be launched in August, were delayed until October because of the petroleum industry’s refusal to supply gasoline for the trials due to a dispute with the Environment Ministry over how it should be mixed with bioethanol. The industry favors gasoline blended with ETBE while the ministry prefers the direct bioethanol-gasoline mixture.

The petroleum industry backs its opposition to direct mixing with the claim that it costs more. "The ETBE formula can be done through existing petroleum-refining facilities," Fumiaki Watari, president of the Petroleum Association of Japan (PAJ), said earlier this year. The direct mixture formula, by contrast, requires additional capital spending and cooperation from many companies, he said.

The Environment Ministry argues, however, that the ETBE formula makes it technically difficult to raise the concentration of bioethanol in bio-gasoline. The ministry plans to raise the legal limit on the percentage of bioethanol in the mix from the present 3% to 10% in the future.

With METI backing, the petroleum industry plans to blend 360,000 kl of ETBE with gasoline in fiscal 2010 to save consumption of 210,000 kl of crude oil. That will still be far less than the government's target of saving 500,000 kl of crude oil through the use of biofuels. The Osaka project is one of the key steps to save the remaining 290,000 kl.

More fuel
Other roadblocks to meeting the crude oil saving target are the negligible domestic bioethanol production and high production costs of bio-gasoline. The 6 million kl goal for annual biothenal production by 2030 is equivalent to about 10% of present annual gasoline consumption.

To help to meet the target, the recently inaugurated joint council will aim to develop cost-efficient technologies for mass-producing cellulosic bioethanol by 2015. It will specifically aim to produce bioethanol from rice straw and husks and used construction materials, such as waste wood and wood chips, at a cost of 100 yen per liter.

At present, it costs about 2,000 yen to produce one liter of bioethanol from used construction materials. Production of bioethanol even from sugar cane, seen as the most cost-effective material, costs about 140 yen per liter.

The council will also aim to develop technology for turning out bioethanol from the common silver grass, or susuki, at a cost of 40 yen per liter, a level considered to be internationally competitive. The price takes into consideration a plan by the US to slash bioethanol production costs to around 30 yen to 40 yen per liter in 2012. The US and Brazil are major producers of bioethanol.

Hisane Masaki is a Tokyo-based journalist, commentator and scholar on international politics and economy. Masaki's e-mail address is yiu45535@nifty.com

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