In an era in which oil prices are soaring and governments around the world are looking for ways to reduce greenhouse gas emissions, biofuels are a tempting proposition. But, as the McKinsey Quarterly asked recently, "Can biofuels deliver?"
Companies around the world are betting they can.
In the UK, biofuels developer D1 Oils and oil company BP announced a cooperative venture last month to plant jatropha trees for use as biodiesel. And last Monday, McDonald's said it would convert its British delivery fleet to run on biodiesel made from its own recycled cooking oil.
Last week, Canada announced a US$1.5 billion plan to develop its biofuel industry, while the 27-nation EU said it would allocate foreign aid to help developing countries grow sugarcane and other crops that advanced nations can use to manufacture biofuels.
Malaysia said last month it might make the use of palm oil-based biodiesel mandatory by next year, and Argentina said it would offer tax incentives in a bid to see biodiesel or ethanol-based fuel account for at least 5 percent of its fuel supply in three years.
At home, biofuels have attracted the interest of state-owned CPC Corp, Taiwan (CPC). Last Friday, CPC announced it would invest NT$460 million (US$14.02 million) to develop biofuels and other sources of renewable energy over the next four years.
In addition, from July 27, 82 CPC gas stations in Taoyuan and Chiayi counties will dispense fuel containing 1 percent biodiesel. This service will expand to all CPC gas stations next year, before the move to 2 percent biodiesel in 2010.
CPC will also pump ethanol for use in government vehicles at eight gas stations in Taipei from September. If all goes to plan, gasoline blended with 3 percent ethanol will be available at all CPC stations by 2011.
The desirability for Taiwan to develop biofuels couldn't be higher, as the country imports almost all of its oil for energy use -- making it particularly vulnerable to rising oil prices.
Caught up in this "green fever," the Ministry of Economic Affairs is targeting a 25-fold increase in the consumption of biodiesel -- a diesel equivalent made from biological sources -- to 100,000 kiloliters in 2010. The ministry also plans to offer incentives to motorists who switch to gasoline blended with sweet potato-sourced ethanol.
But are the government's ambitious biofuel goals attainable? Given limited farmland, it is doubtful that farmers can grow enough crops to provide a stable source of biofuels without driving up food prices.
This is a global problem. In a report last Wednesday, the UN warned that demand for biofuels is likely to affect food prices for the next 10 years. The Economist Intelligence Unit, meanwhile, has warned that demand for corn will continue to exceed supply until at least 2009.
As in the case of other countries, Taiwan's biofuel industry is still in its infancy. Unpredictable availability and cost of crops, changeable and possibly prohibitive government regulations and conversion technology teething problems will all pose significant challenges.
Despite the rapturous reception agrifuels have received, this is a volatile market. The government would do well to focus on conserving energy, rather than betting the farm on biofuel.