Can we fix biofuels?

Neil Baker

It’s remarkable how quickly biofuels have fallen out of favour. For years, the green lobby argued they were an answer to global warming – or at least part of a solution. Instead of burning carbon-based fuels that pumped harmful greenhouse gases into the environment, we could use fuels derived from plants, they claimed. It would need a bit of state encouragement to kick things off, but farmers could soon be growing new crops for an exciting new green fuel market.

For European policymakers, the idea had obvious appeal. Faced with a growing grain mountain and a risk that food prices would fall too low, the EU had for years been paying farmers to stop growing crops on arable land. Surely, subsiding them to grow biofuel crops instead would be a better use of public money? Everyone thought so. In 2003, the EU agreed a Biofuels Directive, under which its Member States set ambitious targets for biofuel use. By 2010, biofuels are supposed to account for 10 percent of EU energy use.

The US was quick to jump on the biofuel bandwagon too. President George W Bush is more oil baron than eco-warrior, but he used his 2006 State of the Union address to declare that the US was “addicted to oil” and something needed to be done about it. By 2025, the US should replace 75 percent of the oil it imported with alternative energy sources, he said. Mostly that meant biofuel. Legislation soon followed. The Energy Independence and Security Act of 2007 required US fuel companies to blend biofuel into their oil and petrol products. To hit a target set for 2022, they would need to use five times more biofuels, said Mr Bush, proudly.

Even when Mr Bush signed that law, there were already concerns about where all the needed biofuel might come from, and what knock on impact its production might have. “We understand the hog growers are getting nervous because the price of corn is up,” said Mr Bush. But the move to biofuel was worth it, he claimed: Energy prices would fall, the US would be more secure because it would have broken its dependence on foreign oil, and the country would have done its bit to address climate change.

But that is not how things have played out. The hog growers were right to worry – and Mr Bush was wrong to be so complacent. The rush to biofuels has been a global disaster.
    
Growing concern
Certainly, the encouragement to develop biofuels has worked. Production has rocketed. Global production of ethanol and biodiesel increased from below eight million gallons in 2004 to 18 million gallons this year, according to Benjamin Senauer, a professor of applied economics at the University of Minnesota. Ethanol derived from US corn has nearly trebled in that time. This year, 30 percent of the country’s entire corn crop is forecast to go into ethanol production.

However, at the same time basic global food commodity prices rose by 220 percent. The rapidly increasing cost of basic foods could spark worldwide unrest and threaten political stability, according to Sir John Holmes, the UN’s undersecretary general for humanitarian affairs. There have already been riots in Egypt, Haiti, Ivory Coast and Cameroon – the last of which left 40 people dead in February.

The US maintains that these two facts are entirely unrelated. The startling increase in global food prices has nothing – or very little – to do with the increased use of land to grow crops for fuel use. Agriculture Secretary Edward Schafer said in May that biofuel production accounted for about two percent to three percent of the rise in food prices. Mr Bush has blamed the higher food costs on growing demand for India and China. In Washington, lawmakers have suggested that speculators are to blame – they have shunted billions of dollars into the commodity market. Yet the IMF says there is “no compelling evidence” that this is a cause.

Which brings us back to those hog farmers. A slew of independent studies has shown they were right to be concerned. Incentives that have benefited biofuels have been to the detriment of other land uses.

Damage
The IMF and the OECD made their concerns clear in May. They published a report calling on governments to reconsider their biofuels policies in the wake of soaring food prices. “The energy security, environmental and economic benefits of biofuels production based on agricultural commodity feed stocks are at best modest, and sometimes even negative,” it said. “Alternative approaches may be considered that offer potentially greater benefits with less of the unintended market impact.”

The World Bank has also pointed to the role that biofuel production has played in food prices. It warned about the link in April and its researchers have since written a report detailing the damaging impact of EU and US biofuel policy. As World Finance went to press, the bank was still refusing to publish this report, details of which were leaked to the Guardian newspaper (the paper said officials had balked at publication because it would be acutely embarrassing for Mr Bush).

The report says that without the increase in biofuels, global wheat and maize stocks would not have declined appreciably and price increases due to other factors would have been moderate. The basket of food prices examined in the study rose by 140 percent between 2002 and this February. The report estimates that higher energy and fertiliser prices accounted for an increase of only 15 percent, while biofuels have been responsible for a 75 percent jump over that period.

Greenhouse gas
There is also evidence that increased use of biofuels will actually increase the volume of greenhouse gas emissions – the opposite of the stated aim – because clearing grassland or forest to plant them releases carbon dioxide. Studies from US academics have shown that large amounts of trapped carbon are released into the atmosphere when vegetation burns or decays as land is cleared. This up-front “carbon debt” can take centuries to claw back via emissions gradually avoided by using biofuels instead of fossil fuels. Biofuels only have a positive impact if they are made from waste products or grown on abandoned land that doesn’t have to be cleared. At present, those criteria do not apply to most biofuels. “Simply put, most of the biofuels people think will save greenhouse gases, won't,” says Tim Searchinger, of Princeton University, who co-authored one of the studies.

Biofuel policies are actually helping to accelerate climate change, while deepening global poverty and hunger, says Rob Bailey, biofuel policy adviser at the charity Oxfam. “Rich countries’ demands for more biofuels in their transport fuels are causing spiralling production and food inflation. If the fuel value for a crop exceeds its food value, then it will be used for fuel instead. Thanks to generous subsidies and tax breaks, that is exactly what is happening. Grain reserves are now at an all-time low.”

Rich countries must stop the rush to biofuels now, says Mr Bailey, as the evidence about their damage is overwhelming. “Even in poor countries where biofuels may offer some reward, the potential costs are severe and they should proceed with caution.”

No future?
But this doesn’t mean that there is no future for biofuels. A report from the UK Renewable Fuels Agency (RFA) points to a way forward.

The report agrees that demand for biofuels is accelerating land-use change, could reduce biodiversity and may cause greenhouse gas emissions rather than savings. And it calls for a significant slowdown of the introduction of biofuels, so that any side effects can be controlled – with time to show that those controls work. But it concludes that “There is probably sufficient land for food, feed and biofuels.”

The review examines both the likely levels of future demand for agricultural land and how much land might be available. Both of these variables are cloudy. Feedstocks for biofuel occupy just one percent of arable land currently. But as the world population grows, and as more people adopt a Western diet, the report says demand for biofuels is estimated to increase demand for cropland by between 17 percent and 44 percent by 2020. However, it believes there will be enough land available to meet this demand.

The key, it says, is to make sure that biofuel policy encourages the use of land that is currently unused, or that doesn’t require a lot of conversion effort. Better still, production would use agricultural wastes or other organic residues. There are emerging technologies that could potentially produce biofuels with higher greenhouse gas savings and use a wider range of feedstocks, such as algae and waste vegetable oil.

Some of these technologies actually require more land than current biofuel feedstocks. That means they could provoke greater land-use change, not less. For now, these technologies are “immature, expensive and will require specific incentives to accelerate their market penetration,” the report says. However, they could be the future. The RFA says the European Union should oblige its members to encourage these new technologies, with a view to them providing one to two percent of energy by 2020.

The review concludes that it “should be possible” to establish a genuinely sustainable biofuel industry. But that will require “robust, comprehensive and mandatory sustainability standards”. In the meantime, the rate of introduction of biofuels should be slowed, so that those standards and controls can be put in place.

That means the EU and the US should scrap its current medium-term biofuel targets. The review advises the UK government to keep its goal of using 2.5 percent biofuel in petrol for this year and next, for example, but should rein in its plan to increase that goal each year by 0.5 percent a year until it hits five percent in 2010. A better target would be five percent by the end of 2013. It calls for a review before then to check that biofuel targets are being achieved in a way that is sustainable. If everything looks okay, then the targets for post-2013 could be increased. The EU might still be able to meet its target of 10 percent use by 2020, but whether it can do so in a sustainable way is in doubt. We’ll have to wait and see, the report says.

That sounds like a sensible conclusion. In their initial enthusiasm for biofuels, policymakers in the EU and the US clearly made some bad decisions. They created incentives aimed at increasing the production of biofuels that have been hugely successful. But they failed to take into account the side effects of the behaviours that they encouraged. If they accept that they got things wrong, they will have taken the first step to putting things right. Biofuels can deliver their promised benefits, but not within the current policy framework.

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