Technology policy and mechanism for the fuels and lubricants sector of the oleochemical industry / Atanacio A. Panahon II

Year : 2006

Number of Pages : 67 leaves

Executive Summary

This project is concerned with the formulation of technology policy and mechanism that directly responds to issues related to the sustainable production and use of fuels and lubricants derived from vegetable oil, particularly coconut oil (CNO). An inquiry into this subject is indeed timely, appropriate and relevant as there are now calls from different sectors of society to pass the necessary legislation reflecting to a certain extent a portion of the policy considerations set forth in this report. From both global and domestic perspectives, the oleochemical industry is assuming its role of increasing importance with consequent positive effects on downstream linkages to the different sectors involved in oil-bearing crop planting, processing and marketing. The global emphasis on the use of environment-friendly and biodegradable products and the need to develop renewable sources of energy, which include vegetable-sourced fuels induced in no small measure a renewed interest in the industry. The Philippines has a growing oleochemical industry composed of firms involved in the further processing or refining of vegetable oil products. In the past, the industry had traditionally served the domestic and export markets for various intermediate and final products ending up as cooking oil and/or ingredients for beauty care items, soaps and detergents. However, practical applications of oleochemicals have become diverse over the past 20 years, brought about by both technology push and demand pull. New formulations in chemical synthesis and the growing shift towards ecologically sound business practices and product applications have enhanced the growth of this industry. Today, oleochemicals find various applications in the production of innumerable pharmaceutical, pharmacological, horticultural and industrial products-including fuels and lubricants. At the turn of the century, local history players started to venture in fuels and lubricants derived from the esterification process of coconut oil. The base product is coco methyl esters (CME). From CME, these firms produce biodiesel (used as a blend to conventional petroleum diesel), bio 2T oil (used as lubricating mix for 2-stroke engines), and bio enhancer (as blend to bunker C fuel). Bioethanol, which is a type of biofuels and applied as mix to gasoline, has not yet entered the production phase, but with the recent passage of the ethanol law, the development of this fuel is expected to speed up. Overall, the prospects for renewable and environment-friendly alternative sources of energy have never been so encouraging in the light of increasing energy costs. Hence, biodiesel and similar products have generated increasing interest from all sectors of society on account of this growing national concern coupled with a similar degree of emphasis on environmental considerations. The coconut and oleochemical industries are equally susceptible to the usual problems associated with new product development. Lest fuels and lubricants from coconut meet their early demise, the right support infrastructure has to be put in place. To this extent, this report is aimed at formulating the necessary policy framework and parameters that should drive a full-scale development of CNO based fuels and lubricants and make this sector of the industry achieve its long-term viability and growth. With the country being a major producer of CNO supplying 60 percent of the world's coconut oil requirements and considering that twenty five million Filipinos invariably depend on coconut for their livelihood, the importance of this study cannot be overemphasized.

The study includes a conceptual approach to policy formulation and takes into consideration the internal and external technological environment of the industry thereby making the analysis more comprehensive and systemic. From the model development in this report, it was found out that indeed the CME fuels and lubricants sector has a pervasive influence and effect upon other sectors of society. Necessarily, the technology policy and mechanism as formulated in this paper incorporated the intricate linkages the sector has on the coconut farmers and millers, the transport sector, the energy sector, the government, and the environment advocacy group. The growth of CME fuels and lubricants sector shall be driven by two significant factors : concern on the environment (hence, the health of the population) and concern on energy security due to persistent increases in crude oil prices and dwindling supply. While it cannot as yet supplant the role of the traditional oil companies, it has to get its act together now and take a long-term strategic posture in anticipation of the greater role it will definitely play in the foreseeable future. The sector has to address first and foremost the issue of stable feedstock supply. This paper recommends that the sector directly intervene with coconut farming and milling to ensure volume and quality of feedstock. As a technology issue, it has to initiate tissue culture of high-yield coconut seedlings. Experts here and abroad agree on the observation that supply of feedstock (which accounts for 70-80 percent of biodiesel cost) appears to be the most critical factor in determining the long-term viability of the sector. Mere planting of more coconuts is not enough. The CME fuels and lubricants sector has to conduct research on what other suitable oil-yielding crops may be introduced for cross-cropping to achieve maximum oil yield per hectare in a given coconut farm. Jatropha is deemed a candidate. To support technology innovation and competitiveness in the marketplace, the sector should develop a preferential bias towards research and development. Product and process innovation should be a continuing activity through internal research and collaboration with outside research agencies here and abroad. The sector players should take a decisive stand on setting aside a budget of at least 20 percent of their operating profit to concretize a worthwhile research effort. With respect to product research, the objective is to diversify applications of biodiesel and its derivatives such as bio 2T oil and bunker C enhancer. Process innovation shall involve research activities on chemical synthesis in ester technology as well as engineering design to achieve efficient configuration of reactors, distillers, separators and similar equipment used in biodiesel processing. The production process and the product itself have to be subjected to strict quality criteria. This paper calls for the industry-wide installation of a total quality management system (TQM), leading to eventual ISO accreditation of the members. Tools such as Six Sigma and Baldrige CPE should govern the operations of the plants and activities of the company personnel. If critics, competitors, and allies see that the industry has disciplined itself with strict TQM system, then a lot of skepticism harped against coco biodiesel quality and performance characteristics will be minimized, if not totally eliminated. On the industry level, the Philippine Biodiesel Association (TPBA) and the Philippine Oleochemical Manufacturers Association (POMA) should take a more pro-active stand, especially in policing its ranks and engaging in media campaign. In coordination with the government agencies concerned, they should set up a system of accreditation for biodiesel producers and sellers. The industry should likewise establish a Knowledge Center, serving as the industry data bank particularly on best practice documentation covering biofuel manufacturers abroad. The data and information build-up is designed to allow a more effective benchmarking of practices followed by members of the local oleochemical industry. Part of the industry's research objectives should be to counter negative reports or findings about biodiesel such as the reported power loss of 7 percent when 100 percent biodiesel (B100) is used, the corrosive effect of biodiesel on gaskets and rubber, the incremental nitrogen oxide emission when biodiesel is burned, and the relatively low storage life of biodiesel. Due to the environment and energy issues that the industry addresses, both of which are vested with public interest, the government has to be more forthright in extending its support. While the members of the industry are not so vocal about subsidies and tax breaks, they are however quite emphatic in calling for the immediate passage of the pending legislation on the compulsory use of biodiesel blend. The existing directive covering only government vehicles is not enough (not to mention its flawed structure due to absence of penal provisions). Existing biodiesel bills passed into law will once and for all eliminate the guarded resistance that the big oil companies have put up to the disadvantage of the biodiesel proponents. The government should likewise take the lead in launching a massive coconut replanting program, as it has the machinery, logistics and infrastructure to do so. The Philippine Coconut Authority (PCA) together with the Coconut Industry Investment Fund (CIIF) and the industry association should tap idle lands and convert them into coconut plantation. The military with their huge tract of lands can introduce a coconut replanting program among their ranks. The technology aspect of the government's intervention should include the setting up of a budget to fund a focused research unit (either thru DOST or PCA), which shall enter into critical collaboration with industry and academic researchers focused on a research program for high-yield oil crops and biodiesel product and process improvement. The survey and interviews made on the CME producers, suppliers, and users, both existing and prospective, seem to indicate a relative unfamiliarity about the product. However, most of the respondents, when briefed about biodiesel, expressed their willingness to try the product. Those who are knowledgeable about biodiesel expressed their concern on the lack of proper information as a significant drawback to pushing the promotion of biodiesel on a national level. A more aggressive information campaign, both by the government and the industry, is what a successful biodiesel program needs at this time. The CME fuels and lubricants sector came into existence in the Philippines almost at the same that the US biodiesel consumer market appeared in 2001, but some ten years after Europe started to promote the wide use of biodiesel. When Rudolf Diesel invented the diesel engine over a hundred years ago, he had in his mind the vegetable-derived oil or biodiesel as his engine's fuel. The original intent of the inventor was to make it a liberating force for ordinary people and small businessmen ranged against big businesses monopolizing the steam engine. Against this historical backdrop, the Philippines may yet take the lead in developing and promoting a world class technology in biodiesel something we already achieved in the area of geothermal power technology.