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Are Bio-fuels the Right Choice for the Transport Sector?

Flex Fuel VehicleOn March 26, Lee Schipper, Director of Research at EMBARQ, waded into the cacophonous debate over biofuels during a presentation at the World Bank.

Biofuels like ethanol and biodiesel are often touted as a panacea for a host of environmental and energy-related problems. This hot topic has even become a centerpiece of high level geopolitics, as evidenced by President Bush’s recent trip to Brazil, where ethanol was a principle area of discussion. Brazil is currently one of the world’s leading ethanol producers, and during Bush’s visit the two countries agreed to collaborate on improving the technologies and markets for this alternative fuel.

In addition to Brazil, many other developing countries are dabbling in biofuels – as the economic and environmental side effects of oil dependency become more and more obvious. However, despite this substantial buzz, questions about the science and policy of biofuels remain.

At his talk, Dr. Schipper discussed how biofuels can achieve many of their stated goals if “the prices are right.” Possible benefits of biofuels include increased fuel security, reduced GHG emissions, improved urban air quality, and economic growth. But Dr. Schipper noted that placing heavy subsidies on biofuels may actually erode their utility. A review of past and present alternative fuel projects illustrates that they succeed only where they are cheaper than traditional fuels, or “almost economic.”

The corn-based ethanol industry in the US has recently come under particularly heavy fire. For example, a report released last month by the International Institute for Sustainable Development (IISD) complained about the high subsidies and uncertain benefits of corn ethanol.

According to these and other critics, the present subsidies in the US are a poor model for developing countries to follow. There is mounting evidence that US ethanol production based on corn gives only modest net reductions in GHG emissions due to the fossil fuels used during the ethanol production process. Since most of the input fuel is natural gas or coal, using ethanol results in a net reduction in oil use, but this comes at a very high price (estimated to be at least $35 per barrel of oil saved, and even higher if the IISD subsidy figures are accepted.)

Worse, current incentives allow vehicle manufacturers to get extra credit in their Corporate Average Fuel Economy calculations for the “flex fuel” vehicles they sell. This, in effect, allows them to sell more of their low-fuel economy gasoline vehicles, regardless of whether any of the flex-fuel vehicles are ever used with ethanol. The intent of the provision – to promote biofuel consumption in place of oil consumption – was justifiable, but by promoting biofuels at the expense of efficiency, the policy has in fact had an adverse impact on fuel consumption and emissions.

Instead of relying on subsidies, as the US does, Schipper advocated implementing taxes on pollution, oil, and carbon emissions in order to better define the value of increasing oil security, lowering GHG emissions, and cleaning local air. This approach does not constrain possible solutions (as do subsidies, which are essentially earmarks that can be captured and exploited by powerful lobbies) but can still achieve the same critical end goals.

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