China to put corn into gas tanks to clean up

By Nao Nakanishi

JILIN, China, October 21, 2003 -- CropChoice news-- Reuters, 10/17/03: Jilin province, home to China's first car factory and also its biggest corn producer, is putting corn and cars together in a project to ease the country's exploding pollution ahead of the 2008 Beijing Olympic Games.

Like many other agriculture giants such as Brazil, the United States, and India, the northeast province is using its huge farm surplus to make organic fuel that cuts pollution, and reduces dependency on petroleum imports at the same time.

Industry sources say, China, which is the world's fastest growing car and energy market, could extend the use of ethanol gasoline throughout the country by 2005 if initial exploratory steps are successful.

An Olympics shrouded in smog is not a scene China wants to show the world, but that is what it will look like, unless the traffic pollution in major cities is brought under control.

Turning grains into fuel also happens to allow the government to continue to subsidize agriculture outside its obligations under the World Trade Organization (WTO), avoiding more social unrest from farmers who are now exposed to global competition.

In Jilin, not far from the provincial capital Changchun, one of the world's largest fuel ethanol plants is currently gearing up for full operation.

From October 18, all car, truck and bus drivers in the province must blend into their gasoline 10 percent of the biofuel distilled from corn. A similar policy nationwide would make a significant dent in regular gasoline consumption, which totaled more than 37 million tons last year.

Fuel ethanol cuts greenhouse gas emissions that are held responsible for global warming. It can be produced also from wheat, sugar, rapeseed, palm oil, cassava or even recycled food oil, such as old frying oil collected from fast food restaurants.

Subsidies

Jilin Fuel plant is one of four Chinese ethanol plants under construction, including one in neighboring Heilongjiang, one in the eastern province Anhui, and another in wheat-producing Henan.

"Such projects are viable only in grain-producing areas," Liu Yi, technical department manager told Reuters at the plant in the outskirts of Jilin city, from where the hills of the province's vast corn fields roll off far away and out of sight.

Jilin, which is three times the size of Austria, accounts for more than 10 percent of China's annual corn output of about 120 million tons, the second biggest after the United States. It takes about three tons of corn to produce one ton of ethanol.

Jilin Fuel will purchase corn from farmers and store it in silos at the sprawling complex. The air here is filled with a sweet smell, similar to a brewery, as it conducts test runs.

The plant cost 1.94 billion yuan (about $235 million) and is equipped with its own power generators as well as water treatment facilities, still a rarity for China.

Along with Beijing, the local government has provided favorable taxes and low-interest loans to the company. It has also promised subsidies to make up for the difference between gasoline and ethanol prices.

Liu calculated ethanol to cost about 4,000 yuan ($484) per ton, compared with gasoline at 2,700 yuan ($327) a ton.

With car sales doubling this year to over two million, the International Energy Agency forecast that China would overtake Japan next year as the second largest oil consumer after the United States.

Jilin Fuel Ethanol, a joint venture between the China National Petroleum Corp (CNPC), China Resources Enterprises Ltd and Jilin Grain Group (JGG), is to convert 900,000 tons of corn into 300,000 tons of fuel ethanol each year. It plans to double its capacity to 600,000 tons after that.

Ethanol equals happy farmers

China has recently been trying to pull back from grain export markets because it cannot continue to pay out the export subsidies it used to under WTO trade rules.

"To help the fuel ethanol company is to help improve farmers income, restructure the old agriculture system and help maintain social stability," Hong Hu, governor of Jilin province, said. "It's a top government agenda item."

Over the past decade, China accumulated massive grains stocks as results of its policy of food security but these are now costing a fortune in storage fees, and are depressing prices of new crop, which hurts farmers.

Jilin alone is estimated to have over 20 million tons of corn in stock.

"Maybe they are willing to say 'Okay this is in the name of fuel security and environmental protection ... we'll do this'," said one source in Beijing, who declined to be named. "And if the prices of grains go too high, that's good for the farmers."