Oenon Holdings Inc., a maker of sake and liquor, will start ethanol production this year at the nation’s largest biofuel plant using rice imported by the government.

Oenon plans to produce 5,000 kiloliters of ethanol by the end of December by processing 12,000 tons of foreign rice from government stockpiles, Masumi Ushigome, the firm’s communications department manager, said in a recent interview.

The Tokyo-based company plans to double production next year and boost output to the plant’s capacity of 15,000 kiloliters a year in 2011, he said.

The government aims to boost biofuel output almost fivefold in four years to 50,000 kiloliters to help meet a Kyoto Protocol treaty commitment on cutting emissions of greenhouse gases blamed for global warming. Japan is the world’s biggest net food importer and lags behind a global shift to biofuels because of scarce local farm product supplies.

“We will start ethanol production with imported rice,” Ushigome said. In the future, Oenon plans to make biofuel from higher-yielding rice grown in Hokkaido, where the company’s ethanol plant is located, he added, without giving a timetable.

The ethanol plant was built under a government project to test the commercial viability of technology to produce the fuel from local crops including rice, wheat, sugar cane and beets. The government subsidized about half the ¥4.9 billion capital spending on the plant, Ushigome said.

Oenon estimates the cost of producing ethanol, a type of alcohol, at the plant may reach ¥50 per liter including wages. If the company buys rice at ¥20 a kg, the total costs for the fuel could reach ¥100 a liter, Ushigome said. The retail gasoline price averaged ¥115 a liter as of April 20, according to the Oil Information Center.

The company aims to reduce production costs to less than ¥100 a liter, Ushigome said. Oenon plans to sell the ethanol to a domestic producer of ethyl tertiary butyl ether, or ETBE. The country’s oil industry sells gasoline blended with ETBE, an additive made by compounding ethanol and isobutane.

Japan committed under the Kyoto Protocol climate treaty to cut its emissions of greenhouse gases by 6 percent from 1990 levels by the end of fiscal 2012. Plans for meeting this target include increasing carbon-free power generation and boosting production of biofuels.

Biofuel output was 10,090 kiloliters in the fiscal year ended March 31, 2008. Auto fuel consumption during the year was 59.07 million kiloliters of gasoline and 35.55 million kiloliters of diesel, according to the Ministry of Economy, Trade and Industry.

Rice shipments to Oenon would be the first sale of the grain imported by the government for ethanol production, said Masaaki Edamoto, director at the rice policy planning division of the Agriculture, Forestry and Fisheries Ministry.

Japan, which has surplus rice, is required to buy 770,000 tons of the grain from overseas under a World Trade Organization accord.

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