Battle brews over Japan's push for ethanol fuel

Tokyo: A regional Japanese government is locked in a head-on battle with the country's oil industry to take the lead in the green auto fuels market, a contest that could push up costs to meet Kyoto Protocol emissions targets.

Japan could end up importing thousands of barrels of gasoline to blend with ethanol if the government does not find a distributor in coming months, since domestic oil refiners are promoting a different type of alternative fuel.

The Japanese refiners' reluctance to supply the gasoline needed could create export opportunities for regional exporters such as Taiwan's Formosa and South Korea's S-Oil, and could be another setback in Japan's struggling efforts to cut emissions using voluntary measures.

Japan lacks farm products to produce biofuels but is looking to its unused bio-mass, including forests which cover 70 per cent of the country and that can be harvested in a sustainable way.

The project in Osaka uses cellulosic ethanol, which can be produced from biomass feedstocks including branches cut from planted forests and used timbers from demolished houses.

But it faces resistance from the country's powerful oil industry, which is instead promoting gasoline blended with ethyl tertiary butyl ether, a popular renewable fuel in Europe.

The oil sector is anxious to defend its nationwide network through its own alternative fuel - launching its trial sale at 50 pump stations in Tokyo and surrounding areas last week - on top of ordinary gasoline, as it wrestles with a shrinking petrol market.

"The two sides are critically in dispute," said a government source, who declined to be named.

"The oil industry does not like the idea of an alternative auto fuel distribution in cities. The fact that anyone can now sell gasoline under the liberalised market irks them," he said.

Japan, the world's No. 3 gasoline consumer, is the biggest polluter among the countries with Kyoto caps. It aims to cut greenhouse gas emissions by 6 per cent from 1990 levels by 2008-2012.

Japan's largest business lobby Keidanren, which opposes mandatory emissions caps, told the government last month that given the country's high energy efficiency it will have to spend 60-90 per cent more than other nations in achieving Kyoto targets.