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Failure to Comply with Mandated Ethanol-gasoline Blend

19 July 2013
USDA Foreign Agricultural Service

PHILIPPINES - The Philippines is a global leader in renewable energy (RE) use and production. When the Renewable Energy Act or Republic Act 9513 (RA 9513) was signed in 2008, the country was already the second largest producer of geothermal energy (next to the US), and had established the first commercial wind farm in Southeast Asia.

The country had, likewise, set up the first grid-connected solar photovoltaic power plant in the region. In 2011, RE sources accounted for 41 per cent of the country’s primary energy supply. The Philippine government (GPH) has set a goal to triple RE capacity through 2030 under the Philippines energy plan.

The Philippines Biofuels Act of 2006 (Republic Act 9367) mandated the blending of biodiesel and ethanol in all locally distributed diesel and gasoline (currently at 2 per cent and 10 per cent, respectively). Sugarcane and coconut oil are the preferred Philippine ethanol and biodiesel feedstocks, respectively. Since 2007, when RA 9367 took effect, compliance with the mandated biofuels blends has been mixed, with biodiesel doing well and ethanol encountering more challenges.

The Philippines success in biodiesel is primarily due to it being the world’s top coconut oil producer. In 2012, there were nine biodiesel producers operating with an aggregate annual capacity of 393 million liters (Ml). There have been no compliance issues with the mandated 2 per cent biodiesel blend in diesel fuel due to adequate feedstock and refineries.

The local coconut industry successfully lobbied for a higher 5 per cent blending requirement, which has been incorporated in the country’s national energy and biofuels programs. While the new 5 per cent blending requirements is scheduled to take effect by the end of 2013, some analysts think this could be delayed if coconut oil prices are too high.

Compliance with the current mandated 10 per cent ethanol-gasoline blend, on the other hand, continues to be unmet due to the inadequate capacity and competitiveness of existing sugarcane distilleries. The Philippines’ four ethanol refineries have a combined annual capacity of 133 Ml, but produced just 16 million in 2012, roughly 6 per cent of total ethanol consumption.

Despite the incentives offered to potential biofuel (and RE) investors and an assured market, investments have been inadequate. Although the country is a major sugarcane producer, low productivity and high production costs erode the competitiveness of locally grown sugarcane. Local average sugarcane production of 60 tons/hectare is one of the lowest in Asia.

These competitive challenges are compounded by trade liberalization commitments under existing regional free trade agreements, specifically, the ASEAN-FTA or AFTA. Under the AFTA, Philippine tariffs on sugar will go from 18 per cent in 2013 to 5 per cent in 2015. As a result, imported ethanol is expected to satisfy the gap between local production and mandated blend requirements.

Further Reading

You can view the USDA GAIN: Philippines Biofuels Annual 2013 report by clicking here.

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