To some people biofuels look like a brilliant idea – a renewable source of fuel that we can grow on demand – reducing our demand for oil and saving the planet at the same time. Now there are two ways you could look at this – the first is that the people who really believe that have horrendous foresight, the second is that they’ve got a hand in the production of biofuels and seek to exploit its financial potential. The reality is probably a combination of the two.
Here’s my first problem with biofuels: the worlds population is growing at an unprecedented rate, from 2.5 billion in 1950 to well over 6.5 billion today with the majority of this increase taking place in less developed or “developing” countries. All these extra people are going to need food or else they’ll die, and it needs to be affordable or they simply won’t be able to feed themselves or their families. So in no way does it make sense to begin diverting scarce farmland and resources away from farming corn for use in foodstuffs to farming corn for biofuel production. Basic textbook economics clearly states that if you reduce the supply of a good (in this case the supply of corn for foodstuffs) then prices will rise, the same is true if demand is also rising (a common side-effect of having a population that has increased 260% over 50 years) – so common sense and economic theory would suggest that this diversion of resources makes no sense whatsoever; but textbook economics rarely satisfies the majority, and common sense is all too often a scarce resource in itself – so lets have a look at the figures.
Firstly, some concrete evidence of the reduction in supply: in 2009 the US set aside nearly 1/3 of it’s corn output to make 9.3 billion gallons of ethanol. Secondly, further concrete evidence of the rise in prices: between 2006 and 2011 the price of corn has risen 163%. In 2007 a classified report from the World Bank was leaked to the Guardian newspaper, in it was the shocking revelation that the WB believe biofuels have forced world food prices up by 75%. Now, in recent blogs i’ve talked about barriers to less developed countries progressing in the modern world, and rising food prices is about as high a barrier as you can get – if your people can’t eat, they can’t work, they can’t innovate, they can’t work machines or build new roads and schools, without affordable foodstuffs your economy risks grinding to a halt.
Having looked at the consequences of an increase in biofuel production you would have to presume that the benefits of biofuels must outweigh the costs to the billions affected by rising corn prices. The party line on this issue from supporters of biofuels is that the new fuel leads to a dramatic reduction in CO2 emissions and is a sustainable long-term alternative to crude oil. However, more and more research seems to doubt this claim, the following is an extract from a report from experts at Princeton University:
“Prior analyses made an accounting error, There is a huge imbalance between the carbon lost by plowing up a hectare [2.47 acres] of forest or grassland from the benefit you get from biofuels. Ethanol demand in the U.S., for example, has caused some farmers to plant more corn and less soy. This has driven up soy prices causing farmers in Brazil to clear more Amazon rainforest land to plant valuable soy. Because a soy field contains far less carbon than a rainforest, the greenhouse gas benefit of the original ethanol is wiped out. Corn-based ethanol, instead of producing a 20 percent savings [in greenhouse gas emissions], nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. We can’t get to a result with corn ethanol where we can generate greenhouse gas benefits.”
– Tim Searchinger
So why do governments still insist on setting targets for biofuel usage? I strongly believe that the answer lies, particularly in the US, in the size of the agricultural lobby because it’s important not to forget that in amongst all this there is one very clear group of winners: farmers in the developed world. By reducing the supply of corn available for use in food stuffs the price will naturally rise – making it far more profitable for farmers, in agriculture an increase in profitability in one area (e.g. corn plantations) often leads to an increase in competitors joining the market (as the study mentioned in the above paragraph highlighted – soy farmers switching to corn) which over time would in theory drive down the price, however with the price increasing on such a massive scale this is unlikely to reduce the price by a noticeable amount and any reduction could be cancelled out by rising prices in the markets they’ve left (like the Brazilian soy plantations mentioned earlier). An increase in biofuel production is therefore in the best interests of farmers’ across the US and last year they spent a massive $60m lobbying the government trying to align its point of view with theirs’.
The biofuel lobby are probably right when they argue that our demand for oil will fall – what they fail to tell you is as will the life expectancy of those living in less developed countries. To summarise what is going on in a line: the majority are suffering for the benefit of a minority who use the veil of global warming to mask the shortcomings of biofuels – to invest in biofuels is to risk the economic development of the developing world which in turn is to risk the development of the world economy as a whole.