Petroleum is of great significance in industrial society; however, the amount is limited as petroleum is a kind of non-renewable resource. Recently, the price of petroleum has reached US$70 per barrel with the possibility to continue going up. Therefore, it's imperative to study and develop a strategy to substitute petroleum. After an analysis, we conclude that there are mainly two ways to substitute petroleum at present: one is Coal-to-Liquids; the other is to develop biomass energy.

With the development of economy and society, environmental pressures in China are continually increasing. With biomass energy introduced, pollution can be sufficiently reduced. Test results from the fuel ethanol experimental area show that with ethanol gasoline rather than ordinary gasoline used, the exhalation of CO is reduced by 7% and that of hydrocarbon by 48%. Biochemical diesel oil is abundant of oxygen; when mixed with ordinary diesel oil, it can be burnt more sufficiently. It was concluded based on test results in the USA that Biochemical diesel oil is not poisonous at all but can be biologically degraded; by adding 20 percent biochemical diesel oil, the exhalation of sulfur dioxide can be reduced by 70 percent and the toxicity in the air by 90 percent. Biological plastics can help to solve the problem of white pollution. So the development and usage of biomass energy agreeing with the theory of recycling economy can meet the requirements to protect the environment and realize sustainable development.

Mature opportunity for developing biomass energy industry

China has great potentials in developing and utilizing biomass energy, which includes mainly the following four categories. The first are grain crops like corn, which are easily utilized and can be moderately developed without affecting the grain safety. The second are other crops apart from grain crops like cassava and sugar sorghum, which will not fight with the crops for soil. Cassava and sugar sorghum can stand against drought, water logging, leanness and salt-alkali stress. Also, rape can be revaccinated with rice. They have a strong exploitability with a potentiality of producing 30 million ton biological fuel. The third are woody oil plants for biomass fuel oil. According to statistics from the State Forestry Administration, there are more than 30 kinds of plant seeds which contain oil at a percentage of 40 percent or above in China. They can be cultivated in a large scale. If further directionally cultivated, six species including barbadosnut (Jatropha curcas L.) and tung trees will have a large resource potential. More than 10 billion ton biological liquid fuel can be produced. The fourth are straw and agricultural and forestry wastes whose amount is rich and high as 1.5 billion ton. 375 million ton liquid fuel can be produced out of such wastes.

High costs are a problem when developing biomass energy.

As the oil price increases and the cost gap decreases, part of biochemical products have got favorable economic benefits. Take the ethanol fuel as an example. At present, the subsidization level for fuel ethanol produced out of corn has reduced by half when compared with that in the very beginning.

The production of cassava and sugar sorghum is gradually approaching the balance point of gain and loss. Take the Biochemical diesel oil as an example. Though the cost of biochemical diesel oil which takes rapeseed as raw material is still much higher, the production of biochemical diesel oil which takes restaurant waste oil as the raw material has got some benefits; especially part of the biochemical products, like L-lactic acid, have got great economic benefits.

Four problems to be solved with efforts

Since 2002, the national finance has appropriated RMB2 billion yuan as deficits subsidies, which guaranteed the regular production and operation in fuel ethanol pilot factories with obvious achievements. The author believes that to further promote the development of biomass energy in China, the following four problems must be well solved with great efforts:

Firstly, to strengthen guidance, make clear the object for developing biomass energy and break the bottleneck for the development strategy. Similar to the development and utilization of other resources, it should be insisted that programming goes beforehand in the development and utilization of biomass energy resources. In the first place, concrete objectives at present and for the near future should be made clear; and in the second place, the focus for the development at present and in the near future should be made clear. At present, the development of fuel ethanol, biochemical diesel oil and biological chemicals are at respective stages with respective economic and technical conditions. Therefore, they need to be treated differently with corresponding policies adopted. Based on pilot extension of fuel ethanol during the Tenth Five-Year Plan period, the use of fuel ethanol needs to be further extended in order to improve the economical efficiency of this industry itself. The imminent thing to do for biochemical diesel oil is to launch pilot projects and project demonstration. As for the biochemical industry, the focus lies in creating a benign environment with systems and policies for biological plastics.

Secondly, to establish a cost allocation mechanism and risk sharing mechanism so as to break the bottleneck for economic cost. Biomass energy may cause outstanding external effects. As for the high productive cost, cost allocation strategy should be established; in other words, the cost should be shared among all the consumers so as to realize the internalization of the external profit gained by developing biomass energy. Foreign countries have exempted ecological tax (or fuel tax) on fuel ethanol and Biochemical diesel oil. By linking fuel tax reform, our country should take into consideration the ecological profit gained from developing biomass energy and from reducing petroleum consumption when designing fuel tax policy. Under present circumstance, it is hard to collect fuel tax; thus, it is better to collect ecological affixation on petrochemical resources consumption. All the income can be used to subsidize the development of biomass energy. On the other hand, the development of biomass energy is facing high risk of change in oil price. Take the present high price. Most biomass energy projects can reach breakeven or even great profit. However, preparation must be made to deal with fall in oil price. Factories should set up risk premium fund when the international oil price is rather high, so as to use it for subsidization in case the price sharply decreases.

Third, to increase inputs on research and development so as to encourage technical progress to break the technical bottleneck. At the moment, the technical bottleneck is still a major factor constraining the development of biomass energy. Some of the core technologies, like enzyme preparation technology, are still in the hold of foreign companies. It is necessary for the government to take effective measures to accelerate technical progress. The first step is to increase inputs on research and development, get critical technologies of energy, e.g. producing alcohol from cellulose, by-producing hemi-cellulose, and improving breeds of energy crops etc., listed into the National Natural Science Fund and the 863 High-tech Program. Push forward industrialized production when the technologies are relatively ripe. Then, integrate resources to tackle key problems.

Fourth, to actively create conditions for the consummation of matching policies to break through the systematic "bottleneck". Presently, the internal motivation for the industrial development keeps building up, which eagerly requires enlargement of productive and usable scale. However, some factors in the current system are restricting the development of biomass energy. For example, it is hard to find appropriate areas in which the use of fuel ethanol will be extended; there is no national standard for biochemical diesel oil products, and as a result, biochemical diesel oil has not been included in national transport fuel system and thus there exist difficulties in sales. The next step is to quickly establish policies and regulations and create conditions for ordering product oil sales companies to restructure their compounding and refueling systems, and fully purchase fuel ethanol and biochemical diesel oil.

Editor: Yan