At the crossroads of bioenergy and agriculture in developing countries : Challenges and prospects for fossil fuels replacement and CO2 abatement in the case of Thailand

Licentiate thesis, 2007

Studies estimate that the potential contribution of biomass to the global primary energy supply from cultivation of crops for energy is substantial in the long term, from about 50 to 240 EJ/year in 2050. Most of this biomass is projected to come from cultivation in developing countries. Yet, most studies estimate the theoretical potential from a top-down perspective and there is a lack of detailed analyses and understanding of the present development of various bioenergy plantations in developing countries. Major challenges in implementing bioenergy plantations involve other competitive sources of energy, competitive uses of biomass and land, and impact on food crops production and environmental impacts of production. A better understanding of these challenges would help realize the “practical” potential of biomass from plantations for energy as well as help in designing policies to assure that the plantations will lead to global and national benefits without compromising local livelihood and environment. This licentiate thesis investigates these challenges and the prospects for substituting biomass from plantations for fossil fuels and CO2 abatement at the local and country level in the case of Thailand. In the first paper, we analyze 1) the levelized cost of production of eucalyptus wood, 2) to what extent the economics of the production improve if the biospheric carbon stock changes are credited, and 3) the abatement cost of substituting eucalyptus wood for fossil fuels for electricity generation. The levelized cost of wood is estimated at 1.2-1.7 USD/GJ. We find that, given a carbon permit price of 10 USD/ton-C, carbon crediting could reduce the establishment cost of the plantation by 100 USD/hectare (20-50%) or reduce the levelized cost of wood by 0.2 USD/GJ (10-20%). The cost of substituting a wood-fired plant for a coal-fired and a gas-fired power plant is estimated at 107 and 196 USD/ton-C. The prospects of eucalyptus plantations for electricity generation and CO2 abatement also depends on several factors that affect farmers’ decisions to plant eucalyptus. In the second paper, we seek to answer the following questions: 1) what are the characteristics of farmers who commercially plant woody energy crops? 2) what determines their planting decisions? and 3) on which types of land are the crops planted? We survey the characteristics of the commercial growers and non-growers of eucalyptus trees by interviews and apply econometric models to analyze the determining factors of, first, the farmers’ decision to plant eucalyptus and, second, how large an area to plant with eucalyptus. We find that eucalyptus growers have on average three times larger farm size and a higher annual family income. The most important factor that increases the likelihood of planting eucalyptus is having a large farm. We show that who cultivates a given parcel of land—several small-scale subsistence farmers or a single wealthier farmer—significantly determines the amount of land used for wood cultivation. In addition, eucalyptus and cassava price is the most important factor determining the fraction of the total land used for eucalyptus. Land quality does not significantly affect the planting decisions, and eucalyptus is planted both on lands unsuitable and suitable for food crops (mainly cassava). In the third paper, we analyze the trade-offs in achieving the government’s national ethanol program target of replacing all conventional gasoline with E10 gasohol (gasoline containing ethanol at 10% by volume), by 2012. Achieving the target leads to the following impacts over the period 2005-2012: 1) a displacement of the areas of maize and rice up to 0.2 million hectare; 2) a net trade change ranging from negative 110 MUSD to positive 190 MUSD per year; 3) an increase in the self-sufficiency rate of gasoline from 10 to 20% and a decrease in the self-sufficiency rate of molasses from 165 to 100%, and of cassava and maize from 420 to 330% and from 120 to 95% at the lowest, respectively; and 4) a total GHG emissions reduction of 4.0 million tons CO2 equivalent (CO2e). The annual average cost of substituting gasohol for gasoline is estimated at 25-195 USD/ton-CO2e and is high compared with the price of project-based certified emissions reductions traded during 2006 but low compared with estimates of the cost of substituting biofuels for fossil fuels in Europe. The cost of tax revenues foregone in implementing the program is estimated at 2-4 times higher than the gasoline substitution cost. Compared to proposed projects on biofuels for blending with fossil fuels under the clean development mechanism (CDM), the ethanol program could avoid the issue of additionality and double counting and also has some other advantages.