Biofuels: Great green hope?

Spotlight on agriculture
OECD Observer

Once hailed as the imminent successor to fossil fuels, biofuels are hitting some rough patches. Is it time to apply the brakes? 

On 27 May 2007, Dario Franchitti won the Indy 500, the US’s most prestigious car race, using an engine running on pure ethanol, a high octane fuel made from corn. The win showed that the technology could compete with more conventional designs and contributed in its own way to the positive feelings surrounding biofuels. That same year, BioWorld’s Biofuel Report was decidedly upbeat: “The world doesn’t often collectively agree on anything; however, there are not many dissenting voices advocating abandonment of the quest to seek biotechnology-driven alternatives to gasoline and diesel for running automobiles and other transportation vehicles.”

In fact, the world did not collectively agree. In the very month Franchitti was whizzing around the Indianapolis racetrack, Foreign Affairs published an article called “How biofuels could starve the poor”, voicing concern about food security. There were other dissenters too. Environmentalists had a number of complaints about biofuels, including the amount of fossil fuel, fertilizer and other chemicals needed to grow the feedstock and produce the final product, and the impacts on biodiversity and ecosystems.

The rise in the price of agricultural commodities in 2008 sharpened the debate, and over the past two years or so the downsides of biofuels have gained more attention. A report published in January 2010 by the Earth Policy Institute is typical of the criticisms, especially regarding food security, claiming that the grain grown by US farmers in 2009 to make biofuels was enough to feed 330 million people at average world consumption rates.

So should governments be supporting biofuels? Subsidies are much higher per litre (as high as 50% of the total cost of production) compared to subsidies for fossil fuels, which are less than 5% of the consumer price. The reasons given for support are to protect the environment, foster rural development, create new markets for farmers, and improve national energy security.

Although biofuels do have an impact on greenhouse gas emissions, the benefits are small. Biofuels now account for 2% to 3% of road transport fuels in the US and EU. They reduce net GHG emissions by less than 1% of total emissions from transport, at a cost of about $960 to $1,700 per tonne of CO2 equivalent saved.

Assessing the environmental impact of biofuel production is not simple. Life cycle analyses that take into account the entire production chain suggest some fossil energy could be saved, even with firstgeneration biofuels. However, the savings are relatively limited and vary between different situations in different locations.

The European Commission’s Biofuels Taskforce has analysed the costs and benefits of biofuels regarding GHG reductions, energy security and jobs under various scenarios. The net cost to society was calculated to range from €33-€65 billion over 2007-2020, and €38.5 billion in the business-as-usual scenario with a 6.9% share of biofuels. The report’s conclusion is clear: “Despite all the uncertainty… there is virtually no chance of benefits exceeding costs!”

Moreover, environmental pressures could increase. As demand from increased biofuel production raises prices for cereals, oilseeds and sugar, fragile land may be brought back into production and forests could be cleared. This is already becoming an issue in certain countries in Southeast Asia where the expansion of palm oil plantations largely comes at the expense of existing forest area and biodiversity. Also, greater demand for biofuels may lead to an increase in more intensive and single-cropping practices, reducing water levels, damaging soil quality, and introducing more pesticides and fertilizers into the environment.

Higher demand for biofuel crops is certainly good for producers, but not for consumers facing higher feed costs and increased food bills, particularly in developing countries. At the same time of course, consumers of biofuel by-products–mainly meat producers and consumers, particularly in developed countries–benefit from the increased availability of protein feed.

The past few years have seen high volatility in agricultural commodity markets. This affects the profitability of biofuel production from one year to another, complicating farmers’ decisions on whether or not to plant biofuel crops. This in turn makes biofuels a less safe option for increasing energy security, especially given the fact that any agricultural production can be seriously affected by the weather.

Overall, the economic case for firstgeneration biofuels does not seem very sound, and the environmental benefits appear limited. There are claims that this will change thanks to second-generation products using agricultural waste and the non-food parts of current crops, as well as non-food crops and industrial waste.

Studies by the IEA and the OECD are more cautious. Some plants have been built to demonstrate the technological feasibility of biochemical or thermochemical conversion of lignocellulosic feedstocks. But even if these prove successful in the next year or so, wider commercial production is unlikely before the middle or end of the decade, which for the IEA means that biofuels will probably not contribute that significantly to global biofuel demand anytime soon: while the target for biofuels in the US and the EU is to reach around 25-30% of the transportation fuel market by 2030, the IEA estimates that by 2030 biofuels may account for only 4-7% of road transport fuels.

The climate change benefits of second generation fuels can be challenged too. A study published in Science in December 2009 linked economic and terrestrial biogeochemistry models to examine direct and indirect effects on GHG over the 21st century of possible land-use changes from an expanded bioenergy programme. Indirect emissions occur when biofuels displace agricultural production and cause additional land-use changes that lead to an increase in net emissions, for example when forests are cleared to sow biofuel crops.

The model predicts that indirect land use will be responsible for substantially more carbon loss (up to twice as much) than direct land use. However, because of increases in fertilizer use, nitrous oxide emissions will be more important than carbon losses in terms of global warming potential.

So should we just abandon the use of biofuels altogether? Not if they can be integrated into a policy that considers the energy, environmental, economic and other aspects in a coherent manner. Until that happens, using agricultural resources to fuel Indy cars and other forms of transport is unlikely to be a “green” solution, or particularly cost-effective. PL

References

Actionaid (2010), “Meals per gallon”, available at www.actionaid.org.uk/

IEA (2010), Sustainable Production of Second- Generation Biofuels: Potential and perspectives in major economies and developing countries, Paris.

International Transport Forum (2008), “Biofuels: Linking Support to Performance”, Roundtable discussion paper, Paris.

Joint Research Centre, European Commission (2008), Biofuels in the European Context: Facts and Uncertainties, available at ec.europa.eu/

Melillo et al (2009), “Indirect Emissions from Biofuels: How Important?” in Science 4 December: Vol. 326. no. 5958, pp. 1397-1399.

OECD (2008), Biofuel Support Policies: An Economic Assessment, Paris.

See also www.oecdinsights.org

©OECD Observer No 278, March 2010




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