Memorandum submitted by the D1 Oils plc
We have restricted our answers to Questions
1 and 7, the sub questions of which have most bearing on our core
business, the production of sustainable inedible oils in developing
countries.
D1 OILS PLC
D1 Oils plc is a UK-based global producer of
biodiesel. Our operations cover the agronomy, refining and trading
of biodiesel. We are pioneering the science and planting of energy
crops that produce inedible vegetable oils to make biodiesel.
We have identified a low-cost feedstock, Jatropha curcas, as a
non-food oil crop that can be grown on a wide range of soil types,
including marginal land. We are pioneering the plant science of
commercial jatropha production by working with world-leading plant
researchers. We have also established a joint venture with BP
to create a world leading business in jatropha. D1-BP Fuel Crops
aims to plant 1m hectares of jatropha worldwide over the next
four years. D1 Oils has developed its own biodiesel refinery technology
in the UK, where we currently have 42,000 tonnes of refining capacity.
We expect the first modest volumes of jatropha oil to be delivered
for refining in the UK in 2008.
Currently the global economy is dependent on
the internal combustion engine. Although commercial electric cars
are beginning to reach the market, it could be decades before
electric vehicles replace cars and trucks running on diesel and
petrol. Hydrogen vehicles may take longer to become established.
As long as the internal combustion engine is the main means of
vehicle power, the global economy will require high energy liquids
as fuel.
We need to reduce our dependence on oil as a
source of high energy liquids because oil reserves are finite
and by using them we are changing the Earth's climate. The challenge
is to find a cost-effective alternative to oil that does not damage
the climate or have other environmental disadvantages. We believe
that liquid biofuels can offer an answer. Because they are produced
from plants, burning them simply returns to the atmosphere the
CO2 the plants used as the grew. Although expensive today, we
believe the cost of biofuels could over time converge with that
of oil.
Today's biofuel industry depends largely on
two established techniques—fermenting and distilling sugars
to give ethanol (alcohol) and crushing seeds to extract an oil
and converting that into its esterified from (biodiesel). These
so-called "first generation" biofuels are made from
food crops such as corn, soya, sugar, rapeseed, palm oil, etc.
However, in future these feedstocks may become progressively less
viable; they compete with other food crops for land and water
and increasing the amount of land cultivated for their production
could threaten valuable carbon-rich and biodiverse habitats. It
is already recognised that there could be a serious negative trade-off
between the climate change benefits of increasing biofuels production
and use and the preservation of virgin rainforest and grassland.
In the case of production of vegetable oils
to produce biodiesel, there is increasing concern that expanding
soya production in Brazil and palm oil production in Indonesia
could result in a further acceleration of rainforest destruction.
In the last two years we have seen prices of
food-grade oils increase significantly. Soya oil has risen from
$700 per tonne in mid 2006 to almost $900 today. In the same period,
palm oil prices have risen from $417 per tonne to $770 per tonne.
Only 3% of world food oil production currently goes to produce
biodiesel, so we cannot attribute this increase in prices solely
to the new demand for feedstock oils. By far the most significant
driver of rising price increases is increasing demand from the
food industry, particularly in the increasingly wealthy economies
of India, China and South East Asia. However, we can expect demand
for food oils as raw material for biodiesel to increase and this
is likely to exacerbate the impact of higher prices in the longer
term. Increasing food prices and their impact on the world's poor
presents another potentially negative impact of the expansion
of biodiesel production.
The increase in feedstock prices is also a problem
for the industry. Feedstocks account for around 80% of the input
costs of biodiesel production. Given current oil price levels,
higher prices increases are making it difficult to refine biodiesel
profitably in the UK and EU markets.
D1 Oils believes that the potential negative
consequences of basing biodiesel production on edible oils necessitate
an alternative solution. We believe that in order to meet the
growing demand for biofuels as a replacement for mineral fuels
for transport, greater use will need to be made of non-edible
oils that can be grown more sustainably and that are not subject
to the same price pressures as food grade oils. We should not
reply solely on traditional edible vegetable oils as biodiesel
feedstocks from plants, shrubs and trees which produce inedible
vegetable oils that do not directly compete with food crops. D1
Oils has a committed, long-term strategy to develop such feedstocks.
Some of these oils, in particular jatropha curcas, are capable
of being brought to commercial production relatively quickly and
could begin to replace food oils as a renewable source for high-energy
liquids for transport.
We also believe that jatropha has the potential
to address many of the negative social, environmental and economic
consequences of increase use of biodiesel. Moreover, the beneficial
characteristics of jatropha could offer a means to address the
key social and economic issues of rural unemployment, depopulation,
land degradation and fuel security that face many developing countries.
Jatropha curcas is an oilseed tree that has
the potential to be produced sustainably in regions within a 30
degree latitude band either side of the equator, including Central
and South America, Sub-Saharan Africa, the Indian subcontinent
and South East Asia. The seeds of jatropha can be crushed to produce
high-quality biodiesel. D1 has established a global joint venture
with BP, D1-BP Fuel Crops Limited, which aims to create a world-leading
business in the production of jatropha oil as a raw material for
biodiesel.
Jatropha curcas probably originated in Central
America. Its oil is not edible and was used as a purgative in
the traditional medicine of Pre-Columbian Indians. It is believed
that it was taken by the Portuguese to West Africa in the sixteenth
century, and had since been widely dispersed throughout the tropics.
Because of mild anti-nutritional compounds present in jatropha
leaves, the plant is not grazed by animals. Its anti-nutritional
characteristics and relatively rapid growth have led to its adoption
in Sub-Saharan Africa, India and South East Asia as a hedge to
protect crops from livestock. Jatropha trees can have a lifespan
of up to 50 years. Jatropha is environmentally elastic and can
grow on land which is sub-optimal for food crop production.
Jatropha trees bear large numbers of fruits,
about the size of golf balls, which contain three and sometimes
four dark seeds. Oil is extracted from the seeds by crushing or
pressing. The crop was farmed in Cape Verde to provide lamp oil
for the Portuguese market in the mid-nineteenth century and elsewhere
as a source for soap production. However, it has undergone little
development since. Selected sources of jatropha show a potential
oil content of up to 40% under good management practices.
The extracted oil has compositional properties
which allow it to be refined into high-quality biodiesel that
meets the European EN14214 biodiesel quality standard. Unless
very low temperature usage is required, there is no need to blend
jatropha biodiesel with biodiesel produced from other crops. The
residual seedcake or meal left after oil extraction has a very
high protein value. At present, it is either used as a simple
fuel or as fertilizer. However, D1 is currently investigating
methods whereby residual anti-nutritional compounds in the seedcake
can be removed to enable its use as animal feed.
Jatropha can be cultivated and pruned to a manageable
height for the fruit to be picked by hand. At present, it is not
possible to automate harvesting of jatropha seeds as the uncultivated
varieties of the tree fruit and flower simultaneously. Manual
harvesting of jatropha therefore has the potential to create significant
employment in rural areas. D1's first managed plantations of jatropha
in Swaziland have already created welcome additional jobs in communities
where there was previously little employment opportunity and which
were suffering from rural depopulation.
In addition to planting jatropha in larger managed
plantations, a significant proportion of future production is
likely to come from small farmers working as outgrowers and contract
farmers. In India, for example, D1 is working with small farmers
who typically plant jatropha on areas of a few hectares that were
previously uncultivated, usually because of poor soil or inadequate
water supply. These farmers are now successfully intercropping
millet and sunflower with jatropha. This planting is additional
to food cultivation that such farmers are undertaking. Farmed
in this way, jatropha has the potential to provide additional
income to small farmers in developing countries.
Agriculture is one of the economic activities
with the requisite scale to make a difference to the living standards
of the populations of many developing countries. Far from bringing
poverty, biofuels grown from crops produced on currently unproductive,
water of marginal land could improve agricultural viability in
the developing world. Jatropha in particular could offer much
needed employment for rural communities and enable small farmers
to diversify their production and bring uncultivated land into
useful production. The potential therefore exists for commercial
production of jatropha on both the small and large scale, and
D1-BP Fuel Crops will operate both managed plantations and contract
farming with small producers.
Land to grow jatropha is widely available in
the developing world. Given its ability to tolerate poorer soils,
jatropha could enable developing countries to use significant
portions of areas of land that are currently classified as waste
or marginal. Such land has often been cleared for agriculture
in the past and then abandoned for food crop production due to
soil exhaustion, erosion or lack of water. The Indian Government
estimates that at least 30% of the 60m hectares of land in India
classified as waste could be suitable for jatropha production.
High rainfall environments are not suitable for jatropha, and
its cultivation on a commercial scale is unlikely to threaten
rainforest.
JATROPHA—YIELD
POTENTIAL
Based on existing jatropha planting in different
areas of the world, we believe that yields from mature, uncultivated
lines of jatropha can reach up to 1.7 tonnes of oil per hectare.
This already compares favourably with yields from soya (around
0.5 tonnes per hectare and rapeseed (1.1.5 tonnes per hectare).
Although the yields from jatropha are currently lower than those
of oil palm (over five tonnes per hectare), it is expected that,
with the application of conventional breeding and agronomy techniques,
yields will increase substantially and could approach those of
palm in the long term.
In pioneering the commercial development of
higher-yielding varieties of jatropha, D1 has gathered a wide
range of jatropha material to develop cultivars best adapted to
the different cultivation zones. We expect the first generation
of jatropha cultivars selected from these accessions has the potential
to deliver oil yields of up to 2.7 tonnes per hectare under properly
managed conditions when trees attain maturity.
Even if we assume a conservative future yield
for jatropha of two tonnes of oil per hectare, the potential production
capacity of developing countries would be significant. If India
is capable of producing such yields from the 20m hectares that
it estimates is viable for jatropha, it could produce 40m tonnes.
At present India, along with many other developing countries,
imports the bulk of its diesel demand. The potential benefits
in terms of reducing foreign exchange outgoings and enhancing
energy security could be considerable.
D1 PROTOTYPE EXPELLER—TAMIL
NADU
D1 estimates that it will be possible to land
crude jatropha oil in northern Europe for prices in the region
of $575-$625 per tonne. This would be very competitive against
the prices of food oils noted above. Given the energy that a substantial
proportion of the biodiesel produced will remain in the country
of production for local use with any surplus shipped to market
such as the UK. For operational purposes we have assumed that,
on average, around 50% will stay in the production location and
50% be shipped to other markets. In countries with significant
diesel demand such as India, the vast majority is likely to remain
in country. African producers, with lower domestic consumption
of diesel, could be in the position to be net exporters.
JATROPHA CURCAS:
SUSTAINABILITY
Jatropha curcasis is a highly adaptable plant
and can grow successfully under a variety of soil conditions—as
a crop it is "environmentally elastic". It favours a
sandy, well-drained soil and lower overall rainfall than found
in areas of rain forest. As such it is suitable for growing on
land that is less suitable for arable crops because of lower moisture
levels.
Given these characteristics, jatropha need not
directly compete with food crops for prime agricultural land or
require the clearing of rainforest.
D1's policy is not to encourage farmers to replace
food crops with Jatropha curcas. We recommend that planting is
additional to food crops. We consult with growers to ensure that
the land used is not high value arable land and it can be spared
for planting and to evaluate the land's suitability. D1's Sustainable
Oil Supply Programme (SOSP), which we are introducing across our
planting worldwide, monitors the land use of the area of planting
we undertake.
D1 supports planting of jatropha as an option
to replace cash crops that are either no longer economic of sustainable
in terms of land use, scarce water resources, or changing climate:
eg tea in North East India, cane sugar in Africa, pineapples in
Philippines and Thailand.
D1 is also encouraging farmers to intercrop
developing jatropha with food crops. Jatropha can enable soil
to remain moisture and allow the growing of food crops that require
lower levels of moisture, eg ground nut, sunflower and millet,
on land that would otherwise be unproductive. Intercropping enables
farmers to increase their incomes while jatropha planting is reaching
full fruiting maturity.
D1's work to date indicates that the potential
for job creation and poverty alleviation in rural communities
through commercial jatropha production in developing countries
is significant.
In a number of countries, international organisation
sand NGOs have used Jatropha curcas for rehabilitating degraded
land.
As a perennial crop, jatropha also has the potential
to sequester carbon when planted on a significant scale. We do
not yet have any data as to the amount of atmospheric CO2 that
jatropha may be able to absorb. However, we believe that the crop
also has significant potential to act as a carbon sink and to
earn carbon credits for doing so.
D1'S COMMITMENT
TO SUSTAINABILITY
D1 is committed developing sustainable production
of energy crops, like jatropha, that have a net environmental
benefit. Our core principles in carrying out jatropha planting
are:
— Fuel crops should not displace food
crops.
— Energy crops should not displace
carbon-rich rainforest or grassland.
— Energy crops must be sustainable
in terms of how they impact upon land use, water supplies and
biodiversity.
— Planting, refining, trading and other
operations should be conducted in accordance with the best practice
in terms of social responsibility.
— Countries that grow the crops should
benefit from their produce. We require all of joint venture partners
and suppliers to abide by these principles.
CONCLUSION
D1 Oils believes that biodiesel from non-food
crops, particularly Jatropha curcas, offers the best foundation
on which to build a sustainable biodiesel industry. We believe
that over time jatropha will deliver commercial yields that make
it a viable crop for feedstock production both for large and small
scale production in developing countries. We estimate that jatropha
biodiesel will deliver energy and greenhouse gas savings that
compare favourably with biodiesel produced from edible oil crops
and with ethanol produced from wheat. Because jatropha is an environmentally
elastic crop that can be grown on land sub-optimal for food production
and does not threaten biodiverse habitats such as rainforests,
its production should not be associated with the potentially negative
impacts that are feared from the expansion of food oil production
for biodiesel. Jatropha offers the prospect of significant additional
incomes to rural communities in some of the world's poorest countries.
We believe that jatropha could be a solution to the potentially
negative social, environmental and economic tradeoffs that could
result from increased use of biodiesel.
1 October 2007
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