Thereâs stupid, and then thereâs Washington.
The U.S. government is ending a three-decade-old policy of subsidizing corn ethanol, dating back to the Carter administration, which in the aftermath of the 1979 Islamic revolution in Iran pushed development of alternative fuels to lessen U.S. dependence on oil from the Middle East.
The tax credits are now 46Â¢ per gallon. Congress mandated that the United States produce 36 billion gallons of renewable fuel by 2022, of which nearly half must be corn-based ethanol, which had the ethanol lobby in ecstasy when it was introduced. Furthermore, many states now require gasoline to contain up to 10 percent ethanol.
The silver lining of the end of subsidies is that many analysts see the statesâ requirement as sufficient to enable producers to get by without federal subsidies.
Try telling that to Iowa farmers recently stroked by the Republican caucus. In farming states, agricultural subsidies are effectively the âthird railâ of local politics.
So, whoâs left to fly the biofuel banner?
Well, China donât need no stinking subsidies, and Beijing is investing $1.78 billion in developing Nigerian biofuels.
The project, the first in Africa, would cover a total landmass of 3250 square miles of Nigerian territory.
Nigerian Minister of Trade and Investment Olusegun Aganga stated that the project is expected to create a total of 120,000 direct and 750,000 indirect jobs in addition to linking the 15 federal states to inexpensive biofuel generated electricity. Construction work on the pilot plant, which will be established in Ekiti State, will begin immediately with a completion date by the end of the year. An additional 14 plants are scheduled to be establishedÂ in 14Â other statesÂ after the completion of the pilot project in Ondo, Osun, Kwara, Kogi,Benue,Â Gombe, Bauchi, Zamfara, Kano, Kaduna, Nasarawa andÂ Plateau states.
The projected cost for the initial pilot plant is $108 million, with full-scale plants are expected to cost $183 million apiece. According to Global Biofuels, 70 percent of the financing will come from the Chinese government and the remaining 30 percent will be providedÂ by NEXIM Bank, ECOWAS Bank for Investment and Development, Africa Finance Corporation; Fond Gari, and First Bank of Nigeria.
Global Biofuels Limited Managing Director and CEO Felix Obada said, âThe project is an agro-industrial project which will use sweet sorghum as raw materials to produce ethanol.
Nigeria is one of the largest producers of grain sorghum in the world. Approximately 7.8 million hectares is under cultivation by small holder peasant farmers. Sorghum belt exist across latitudes 7Â° and 14Â°, north of the equator. Sorghum yield per ha is approximately 90 tons of biomass and can be harvested twice a year without irrigation. Sorghum biomass decomposition, if not properly controlled, is capable of releasing several billions tons of methane (CH4) into the atmosphere. Nigeria is signatory to the Kyoto Protocol which demands that we should blend 90 per cent gasoline with 10 per cent ethanol for transportation. Since that Protocol was signed, Nigeria has not done much towards actualizing it. However, this is the opportunity for us to make the desired impact.â
When the project is in full production, it is expected to achieve, production of 1,950,000 tons of grains per annum, producing 72 million liters of ethanol from sweet sorghum.
The Chinese-Nigerian biofuel deal underlines a number of reasons why China is advancing its business interests into Africa, moving ahead of Western concerns.
First, China is willing to go into risky markets that have caused Western interests, preoccupied as they are with quarterly returns, to avoid.
Secondly, China studiously avoids criticizing local governmental and business practices, in stark contrast to many Western governments and firms. China deals with all the local realities on the ground, including corruption, which, from Western concerns, usually elicit lectures about superior business practices even as backroom deals attempt to secure the best terms.
Last but not least, devolving from the point above, china thinks beyond quarterly balance sheets, and becomes involved for the long term.
So, as Washington becomes mired in an election year over the political fallout from the withdrawal of ethanol subsidies, the worldâs leading export nation invests in the worldâs leading continent providing raw materials.
While nothing is certain, given Chinaâs interest in Africaâs potential, it would seem more than possible that in short order Chinese-underwritten African ethanol production will give both the U.S. and Brazil a run for their money â or, yuan.
By. John C.K. Daly of Oilprice.com