The Organization for Economic Cooperation and Development (OECD) today released an Economic Assessment of Biofuel Support Policies. Several findings should be of interest to Planet Gore readers.
First, taxpayers are paying a pretty penny for biofuel subsidies and tax breaks. EU, U.S., and Canadian government support was $11 billion per year in 2006, and will rise under current policies to $25 billion per year during 2013-17.
Second, in most countries, biofuels remain highly dependent on government support. “The sometimes predicted improved economic viability of biofuel production and use associated with higher crude oil prices so far has not materialized in many countries. Most production chains for biofuels have costs per unit of fuel energy significantly above those of the fossil policy they aim to replace. Despite the rapid and substantial increase in crude oil prices and hence in the costs for gasoline and fossil diesel, the cost disadvantage of biofuels has widened in the past two years as agricultural commodity prices soared and thereby feedstock costs increased.”
Third, “The medium-term impacts of current biofuel policies on agricultural commodity prices are important, but their role should not be overestimated.” The report estimates that current biofuel support measures “increase average wheat, maize and vegetable oil prices by 5 percent, 7 percent, and 19 percent, respectively, in the medium term.” These are bigger impacts than ethanol proponents acknowledge, although smaller than those estimated by former USDA chief economist Keith Collins. Corn averaged $2 a bushel in 2006 and is forecast to remain about $6 a bushel in 2008-2010. Collins estimates that ethanol accounts for 25-55 percent of the increase in corn prices under one analytic method, and 40-60 percent under another method.
Fourth, the OECD acknowledges as “real” the concern raised some in recent studies that land conversions associated with expanded ethanol production could release huge amounts of carbon dioxide stored in forests and soils, making ethanol a significant net contributor to greenhouse gas emissions. However, the OECD finds these studies controversial and methodologically immature, and does not endorse their findings.
Nonetheless, even assuming that corn ethanol delivers net emission reductions, the costs far outweigh any potential climate benefit. The OECD comments: “Biofuels produced from wheat, sugar beet or vegetable oils rarely provide GHG emissions savings of more than 30 percent to 60 percent, while corn (maize) based ethanol generally allows for savings of less than 30 percent. Current budgetary support, mandates and trade restrictions . . . reduce net GHG emissions by less than 1 percent of total emissions from transport. Fossil fuel use is also reduced by less than 1 percent for most of these transport sectors by 2-3 percent in the EU diesel sector. These relatively modest effects come at a projected cost equivalent to about $960 to $1,700 per ton of CO2-equivalent saved, or of roughly $0.80 to $7.00 per liter of fossil fuel not used.” For perspective, $960 per ton is 15 to 17 times more expensive than the American Council on Capital Formation and the National Association of Manufacturers estimate carbon permits would cost in 2020 under the Lieberman-Warner bill — legislation that the Senate in its wisdom considered too costly to pass.