Fuel of Uncertainty

Biofuels are either essential to our energy independence and efforts to combat climate change or a boondoggle that threatens global food security. The World Bank’s Govinda R. Timilsina and Ashish Shrestha analyze this disconnect in “How Much Hope Should We Have for Biofuels?”, which weighs findings from dozens of studies and sources and represents a far-reaching summary of the technology’s potential and tradeoffs.

Production of biofuels began shooting upward in 2004: volume more than tripled between 2004 and 2010, with about 80% of annual production in 2010 coming from ethanol. Biodiesel, the primary alternative to ethanol, is a smaller player but has grown more quickly, expanding by a factor of eight in the same span. It seems that every country has designs on energy independence and reasonable fuel prices; two dozen countries have blending mandates for either ethanol, biodiesel, or both.

It’s rare that biofuel can compete on the open market without direct subsidies. But are these mandates and the massive government incentives that go with them justified? Timilsina and Shrestha’s paper wrangles with the masses of data on biofuels’ costs of production, effects on food prices, and impacts on land use and the environment. Their analysis states that before anyone can answer questions about whether biofuels reduce air pollution or greenhouse gasses, they must know the plant source used, the type of land it was grown on, how it’s processed, and the transportation infrastructure used to bring it to market.

Land use often gets overlooked but makes a marked difference in biofuels’ net value. Converting forests to cropland for biofuels directly or indirectly — as has happened in Brazil, Indonesia, and Argentina — essentially nullifies net reductions in greenhouse gases. (Estimates differ widely on how much additional arable land we need to meet rising, policy-driven demand for biofuels.) There’s an argument for turning to marginal land, but such areas are usually just as poor for growing biofuel feedstock as they are for growing other crops.

Biofuels’ competition with food crops for arable land also risks raising food prices. The most significant example is the price of U.S. corn, which makes up two-thirds of global exports. By one account, between 2006 and 2008, U.S. biofuels production accounted for 14 percent of the rise in corn prices on the world market and almost 10 percent of the rise in soybean prices. Yet, how big an issue this is depends on whether a study measures the agricultural industry alone, where the impact appears major, or whether it gauges interactions with the larger economy, where increases seem more tolerable.

The authors conclude that greenhouse gas reduction depends in part on how a feedstock is harvested, such as whether last season’s plants are burned before the planting of a new crop. There may be long-term promise in more speculative, second-generation technologies that derive diesel from biomass such as micro-algae or the drought-resistant, oil-rich jatropha plant (used in India, China, and Brazil) and that don’t divert food crops to energy production.

On balance, however, Timilsina and Shrestha are not hopeful that second-generation biofuels will be economical or scalable in the near future. Despite widespread public-sector support for biofuels and their rapid growth, in 2010 they supplied just 2.7 percent of the world’s fuel for road transportation. The authors stop short of reviewing any comprehensive cost-benefit analyses, but someone preparing to analyze a proposed policy might start by reviewing the trade-offs they cover. In other words, the paper’s findings should make policymakers think hard about the net benefits of supporting biofuels.

Bradley Crawford
Bradley Crawford is a 2013 MPP graduate of the Harris School of Public Policy. He is interested in energy and environmental policy.

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