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Active ethanol policy for Jobs creation

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The global approach to energy is changing rapidly. The urgency of the challenge that climate change presents has focused significant attention and resources on renewable energy solutions, as countries and companies seek to reduce emissions. One of the ways that an increasing number of countries have found to provide such mitigation, is the addition of a renewable energy resource like ethanol. When blended, fuel ethanol has a low-carbon content compared to traditional petrol, and so it offers immediate and immense environmental benefits through the reduction of greenhouse gas emissions and improving air quality.

Beyond these environmental benefits, ethanol also brings economic and social benefits when adopted widely. Developing countries such as Thailand and Brazil have adopted biofuel policies since the 1980s and 1970s respectively. These policies including blending mandates and fuel quality standards and monitoring have resulted in significant growth in local industries, boosting the agricultural sector as well as increasing ethanol-related employment.

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One study in Thailand has shown that 90% of direct jobs created from bioethanol production were within the agricultural sector[1], and this is believed to be broadly representative. Ethanol is sourced from crops rich in carbohydrates such as cassava, sugarcane, sugar beets, corn, or sorghum. Thus, the widespread use of ethanol creates new demand for these commodities and so new demand for labour on farms.

Nigeria is the largest producer of cassava in the world, yet studies show that post-harvest losses of these crops are as much as 51%, driven by lack of appropriate technology for transportation or storage, amongst other issues[2].  Widespread domestic ethanol consumption and production will provide a solution to lingering issues of post-harvest loss and present an opportunity for farmers to convert agricultural waste into income.  According to Segun Adewunmi, the President of the National Cassava Association, a significant boost in demand and investment within the cassava value chain could lead to a 150% rise in jobs in the medium to long-term for the sector.

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At the manufacturing level, there is also an opportunity for job creation. The expansion of domestic ethanol production would create more direct jobs in factories, processing plants, and refineries, and indirect jobs in R&D, engineering, logistics, and storage.

So how can we translate these benefits into a Nigerian context?
According to the National Bureau of Statistics, the country consumes 20.8 billion litres of gasoline per annum. Thus, if Nigeria was to mandate a 10% ethanol blend for gasoline supply, it would have the potential to create new demand of up to 2 billion litres per annum. The scale of this market opportunity, and its potential social, economic, and environmental benefits, are too big to ignore, prompting the need for active policies that will support the sector’s growth.

“Nigeria’s dual endowment with both fossil fuels and renewable energy resources puts it in a vantage position to reap the benefits of the E10 initiative as the global climate change narrative changes” says Bismarck Rewane, economic expert, and member of the Presidential Economic Advisory Council “I believe it will help to optimally harness the gas, wind and thermal energy potential of Nigeria in the new dispensation.”

An E10 policy (which requires 10% ethanol to be blended with 90% petrol or PMS) would be a catalyst for significant market development. The framework for this is already in place, in the form of the Biofuel Policy, which was introduced in 2007 but suspended shortly afterward due to compliance safeguarding.

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The implementation of such a framework accompanied with an import-based program into policy plans will likely be accompanied with pricing benefits. As an average, over the last ten years, the cost of ethanol has been consistently lower than the cost of oil, and so blended E10 products should be able to get to market cheaper than standard PMS, helping margins in the industry, and creating the potential for a lower price point for consumers.

With the NNPC (Nigerian National Petroleum Corporation) investing heavily in cassava for ethanol production, and the ongoing construction at the Dangote refinery, the possibilities of local blending of E10 at scale is promising; however, this is a long-term goal. In the short-medium term, while the domestic sector develops production capacity, the only way to meet market demand for E10, and take advantage of the associated benefits as detailed above, would be through imports. This approach to biofuel will also provide evidence of market readiness and potential, and a basis on which investors can pump funds into local ethanol processing and fuel blending activities, ultimately supporting the country’s journey to self-sufficiency.

The benefits of an enabling environment for the ethanol industry are clear. The right structures will drive investments into the agricultural and manufacturing sector, as well as auxiliary industries such as transport. This will lead to higher output and job creation across the whole value chain, especially at the agricultural level, where direct opportunities for smallholder farmer income and rural employment, will be created. Costs can be lowered, while simultaneously delivering a marked reduction in carbon emissions, which Nigeria will come under increasing pressure to deliver over the next decade.

Newbold is managing director, Africa Practice Limited.

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