Biofuel policy developments

18th April 2014

  

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The use of biofuels, as a renewable-energy source, presents the potential for numerous environmental, energy security and efficiency benefits to the South African economy, says law firm ENSafrica senior associate environmental law division senior associate Andrew Gilder.

Further, he points out that the biofuels industry also has the potential to be a key source of employment.

“In light of this potential, government has sought, over the last ten years, to put a policy environment in place, conducive to the development of a robust national biofuels industry. These attempts have been only partially successful,” says Gilder.

However, he notes that in the last six months, the biofuels policy debate has been reignited, as a result of the Draft Position Paper on the South African Biofuels Regulatory Framework (the Position Paper), which was released in January, by the Department of Energy (DoE).

Gilder says that one of the first policy interventions related to the biofuels sector was the DoE’s November 2003 White Paper on Renewable Energy (Renewable Energy White Paper), which set a target of 10 000 GWh of final energy production from renewable-energy sources by the year 2013.

“This 10 000 GWh target drove government renewables policy for most of the decade between 2003 and 2013, and notwithstanding that the Renewable Energy White Paper was never put through the process required for the White Paper to become an Act, by the DoE, it indicated that biofuels, made from biomass, was among the renewable-energy sources under consideration.

ENSafrica environmental law division candidate attorney Mduduzi Mamkeli adds that the policy, which made the biofuels industry an “attractive investment opportunity”, was required in light of the strength of the industry’s competitors, such as the crude oil industry, which is characterised by a low cost of supply relative to the costs of establishing a biofuels industry.

Mamkeli notes that, in December 2005, the Department of Minerals and Energy was directed by Cabinet to lead and coordinate the development of the Biofuels Industrial Strategy of South Africa (Biofuels Strategy) through an interdepartmental Biofuels Task Team (BTT).

“The BTT subsequently developed the draft Biofuels Strategy, informed by a detailed feasibility study, which was approved by Cabinet in December 2006,” he states.

Gilder says that the draft Biofuels Strategy made a strong and “deliberate link” between the renewable-energy target and biofuels as it proposed that up to 75% of the target might be achieved through the uptake of biofuels into the economy.

“The draft Biofuels Strategy underwent a public consultation process after which the Biofuels Strategy was revised and again approved by Cabinet in December 2007.

“Over time, the idea of biofuels as the major contributor to the renewable-energy target fell away, and the 10 000 GWh target set in the Renewable Energy White Paper was not achieved by the end of 2013, despite great progress in recent years towards renewable-energy development,” he highlights.

Gilder adds that, the Final Biofuels Strategy provides for a 2% or 400-million-litre-a-year penetration level for biofuels use in the national liquid fuels supply chain, which was revised down from the 4.5% blending target that had been proposed in the draft Biofuels Strategy.

“For the stated purposes of food security and environmental concern, the Final Biofuels Strategy proposes that certain crops be used for the production of biofuels in South Africa. These include sugar cane and sugar beet to produce bioethanol; and sunflower, canola and soya beans for purposes of producing biodiesel,” he says.

Moreover, Gilder notes that, despite the impetus provided by the Final Biofuels Strategy and great energy and investment from the private sector, the South African biofuels industry has remained nascent – “possibly as a result of the persistence of the view that biofuels projects are unattractive, owing to the relatively low cost of crude oil”.

However, Mamkeli points out that with the pending October 1, 2015 deadline for the introduction of mandatory blending of biofuels with petroleum, Energy Minister Dikobe Ben Martins has been prompted to publish the Position Paper in terms of the National Energy Act, No 34 of 2008.

“The Position Paper was published on January 15, for public comment, with a February 10, 2014 deadline for receipt of submissions by government. It is an attempt at fostering a regulatory environment that enables the commercial production of biofuels through the full and proper implementation of the Final Biofuels Strategy, including with financial support for the biofuels industry,” he explains.

Mandatory Biofuel Blending

Meanwhile, Gilder says that among the Final Biofuels Strategy implementation tools are the Regulations regarding the Mandatory Blending of Biofuels with Petrol and Diesel, which have been promulgated in terms of the Petroleum Products Act, No 120 of 1997 (Mandatory Blending Regulations) and the Regulations regarding Petroleum Products Manufacturing Licences under the Petroleum Products Act, No 120 of 1997 (Manufacturing Licences Regulations). 

“The Mandatory Blending Regulations will be implemented from October 1, 2015, and will require that all licensed petroleum manufacturers purchase biofuels exclusively from licensed biofuels manufacturers, as long as the volumes can be blended with the petroleum manufacturer’s petroleum within the minimum concentration of 5% volume per volume (v/v) biodiesel blending with diesel, and between 2% v/v and 10% v/v of bioethanol to petrol,” he explains.

Gilder states that according to the Position Paper, a regulatory framework for the establishment of a financial support programme for biofuels manufacturers will be achieved through a general fuel levy earmarked for the subsidisation of manufacturers of biofuels.

“The levy is currently proposed to be between 4.5c/ℓ and 5.6c/ℓ for a period of 20 years starting from October 1, 2015 to provide a firm 15% return on investment for biofuels manufacturers,” he says.

Gilder notes that Manufacturing Licences Regulations-licensed manufacturers will be eligible for financial support provided by the levy. 

“Unlicensed biofuels manufacturers will not only be precluded from receiving financial support, but will be in contravention of the Petroleum Products Act, No 120 of 1997, which prohibits the manufacturing of petroleum products without a manufacturing licence,” he points out.

He says that to be licensed, a prospective petroleum manufacturer must lodge true and correct information to the DoE’s deputy director-general for hydrocarbon and energy planning.

“Moreover, the prospective petroleum manufacturer must publish a notice of application in local and national newspapers and must comply with Section 2B (2) of the Petroleum Products Act, which promotes the advancement of historically disadvantaged South Africans in the petroleum industry,” Gilder concludes.

Edited by Megan van Wyngaardt
Creamer Media Contributing Editor Online

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