By Andrew Gilder (senior associate) and Mdududuzi Mamkeli (candidate attorney) in the environmental business area at ENSafrica.
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. The biofuels industry also has potential as a key source of employment. In light of this potential, government has sought, over the past few years, to put in place a policy environment conducive to the development of a robust national biofuels industry. These attempts have been only partially successful. However, very recently the biofuels policy debate has been re-ignited by the release of the Draft Position Paper on the South African Biofuels Regulatory Framework (the “Position Paper”).
One of the first policy interventions related to biofuels was the White Paper on Renewable Energy, November 2003 (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 target drove government renewables policy for most of the decade between 2003 and 2013, notwithstanding that the Renewable Energy White Paper was never put through the process required for the White Paper to become an Act. While the Renewable Energy White Paper indicated that biofuels made from biomass was among the renewable energy sources under consideration, in order for industry viability it was clear that biofuels policy needed to be developed at a much deeper level than is the case in the Renewable Energy White Paper. In particular, policy which made the biofuels industry an attractive investment opportunity was required especially in light of the strength of the industry’s competitors, e.g., the crude oil industry which is characterised by a low cost of supply relative to the costs of establishing a biofuels industry.
In December 2005 the erstwhile Department of Minerals and Energy was directed by Cabinet to lead and co-ordinate the development of the Biofuels Industrial Strategy of South Africa (Biofuels Strategy) through an inter-departmental 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. The draft Biofuels Strategy made a very deliberate link between the renewable energy target and biofuels in that 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 it is worth noting that the 10,000 GWh by 2013 target set in the White Paper on Renewable Energy was not achieved by the end of 2013 despite great progress in recent years towards renewable energy development.
The Final Biofuels Strategy provides for a 2% (or 400 million litres per annum) penetration level of biofuels in the national liquid fuels supply – revised down from the 4.5% blending target that was proposed in the draft Biofuels Strategy. For the stated purposes of food security and environmental concern, the Final Biofuels Strategy proposes the following crops for the production of biofuels in South Africa:
• Sugarcane and sugar beet in order to produce bioethanol; and
• Sunflower, canola and soya beans for purposes of producing biodiesel.
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 due to the persistence of the view that biofuels projects are unattractive due to the relatively low cost of crude oil. However, with a pending deadline on 1 October 2015 for the introduction of mandatory blending of biofuels with petroleum, the Minister of Energy has been prompted to publish the Position Paper in terms of the National Energy Act 34 of 2008. The Position Paper was published on 15 January 2014 for public comment, with a 10 February 2014 deadline for receipt of submissions by government, and 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.
Among the tools for implementation of the Final Biofuels Strategy are the Regulations regarding the Mandatory Blending of Biofuels with Petrol and Diesel promulgated in terms of the Petroleum Products Act 120 of 1997 (Mandatory Blending Regulations) and the Regulations regarding Petroleum Products Manufacturing Licenses under the Petroleum Products Act 120 of 1997 (Manufacturing Licences Regulations). As alluded to above, the Mandatory Blending Regulations commence on 1 October 2015 and will require that all licensed petroleum manufacturers purchase biofuels exclusively from licensed biofuels manufacturers, so 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.
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 4.5 cents per litre and 5.6 cents per litre for the 20 years commencing on 1 October 2015 in order to provide a firm 15% return on investment for biofuels manufacturers.
Only biofuels manufacturers that are licensed in terms of the Manufacturing Licences Regulations will be eligible for the financial support to be provided by the levy. Unlicensed biofuels manufacturers will not only be precluded from acquiring financial support but will be in contravention of the Petroleum Products Act 120 of 1997 which prohibits the manufacturing of petroleum products without a manufacturing licence. In order to be licensed, a prospective petroleum manufacturer must lodge true and correct information to the Deputy Director – General: 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 120 of 1997 which promotes the advancement of historically disadvantaged South Africans in the petroleum industry.
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