Business & Policy
All Things Considered: November 2007
By Jim Knisley
Inefficient Ethanol. Governments in North America and Europe have done their best to bury and ignore the [OECD] report.
After plowing through a 57-page report by the Organisation for Economic Co-operation and Development (OECD) roundtable on sustainable development on ethanol the first word that springs to mind is idiotic.
That word doesn’t apply to the report itself, which is a clearly written indictment, but does apply to the politics, economics and environmental impacts of ethanol.
To make a long report short using ethanol as a motor vehicle fuel (except in Brazil) wastes billions of dollars, raises the cost of food – wasting billions more – does little or nothing for the environment and makes politicians captive to a now huge industry.
This is startling stuff. The OECD is generally seen as a sombre, sober, conservative economic talk shop that seldom makes political waves. This time it released a potential tsunami.
Governments in North America and Europe have done their best to bury and ignore the report. If pushed they resort to rhetorical trickery and trot out a maze of argument that doesn’t refute the OECD effort, but simply muddies the waters.
The multi-billion-dollar ethanol industry has also rallied to protect itself. And North American corn and grain producers – who are seeing the highest prices in years with more to come – have joined in to protect their interests.
The report also runs counter to virtually everything the public has been told in recent years.
The public has been told that ethanol is an environmental fix all. It has also been implied that ethanol can be a long-term replacement for gasoline and biodiesel can replace regular diesel. Wrong on all fronts.
The report asks and then answers the question: “BIOFUELS: IS THE CURE WORSE THAN THE DISEASE?”
The answer – except for ethanol made from sugar cane in Brazil – is yes.
The authors of the report assert and then show that “the rush to energy crops threatens to cause food shortages and damage to biodiversity with limited benefits.”
Here are the facts from the report: Global production of biofuels amounted to roughly one per cent of total road transport fuel in 2006. Technically, up to 11 per cent of total demand for liquid fuels in the transport sector, has been judged possible by 2050.
But an expansion on this scale could not be achieved without significant impacts on the wider global economy.
“Any diversion of land from food or feed production to production of energy biomass will influence food prices from the start, as both compete for the same inputs. The effects on farm commodity prices can already be seen today. The rapid growth of the biofuels industry is likely to keep these prices high and rising throughout at least the next decade.”
Even without taking into account carbon emissions through land-use change, only sugar cane-to-ethanol in Brazil, ethanol produced as a byproduct of cellulose production (as in Sweden), and manufacture of biodiesel from animal fats and used cooking oil, can substantially reduce greenhouse gas (GHG) compared with gasoline and mineral diesel, the report says.
“The conclusion must be that the potential of the current technologies of choice — ethanol and biodiesel — to deliver a major contribution to the energy demands of the transport sector without compromising food prices and the environment is very limited.”
In a case of extreme understatement the report says: “Government policies supporting and protecting domestic production of biofuels are inefficient….”
In the U.S. government subsidies to the ethanol industry are hard to calculate, because they range from direct cash, to tax incentives, to tax reductions, to input (crop) supports and tariffs designed to keep out Brazilian ethanol. But a modest estimate is $7 billion today and expectations of $10 or $11 billion in a few years.
There are also regulations mandating usage or blending percentages and fuel-tax preferences to stimulate production.
In the end governments “could end up supporting a fuel that is more expensive and has a higher negative environmental impact than its corresponding petroleum product.”
There is also much more that could be done on the demand side of energy consumption. “A litre of gasoline or diesel conserved because a person walks, rides a bicycle, carpools or tunes up his or her vehicle’s engine more often is a full litre of gasoline or diesel saved at a much lower cost to the economy than subsidizing inefficient new sources of supply.”
The OECD report is available on the Canadian Poultry magazine website, under November 2007 Features. n