The last couple of months I've been busy preparing two major reports on government support for biofuels, both for the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD). These reports follow on from our October 2006 report on support for biofuels in the United States, which we commissioned from Doug Koplow of Earth Track, and which has been cited numerous times on these pages.
Last month, we issued what we call our "Synthesis Report," our overview of government support for biofuels in selected OECD countries. Coming out right on the heels of the so-called "OECD Paper" (actually, a discussion document for a meeting of the Round Table on Sustainable Development, to which I contributed), "Government Support for Ethanol and Biodiesel in Selected OECD Countries" hasn't yet attracted much attention in the press. It is rather dense in parts, I'll admit. But it contains some crunchy numbers.
For example, we estimate that total support to biofuels in OECD countries was at least $11 billion in 2006, with most of that provided by the U.S. and the EU. Expressed in terms of dollars per greenhouse-gas emissions avoided, the levels vary widely, but in almost all countries, whether for ethanol and biodiesel, they exceed $250 per tonne of CO2-equivalent. That is several multiples of the highest price of a CO2-equivalent offset yet achieved on the European Climate Exchange.
Then, last week, we released our long-awaited report on "Government Support for Ethanol and Biodiesel in the European Union" ...
The release of the EU report took place at a luncheon hosted by GLOBE-EU, an organization of European legislators with an interest in environmental policy. Some 11 Members of the European Parliament (MEPs) showed up to the luncheon meeting, as well as at least one reporter, and of course a member of the European Commission. The corresponding story, posted by the Inter Press Service, can be read here. (And for those of you who understand Swedish, you can check out the news coverage on SVT by clicking here and scrolling to 19'25".)
The reaction from the European Commission representative (Directorate General for Agriculture) was one that we did not expect: the EU's policies supporting (mainly domestically produced) biofuels have nothing to do with supporting the incomes of crop farmers, he insisted. Truly! Our guess is that the Commission, seeing that Brazil is now starting to challenge the U.S.'s ethanol support policies at the WTO, may feel the need to maintain a consistent story that their biofuel subsidies are all about, and only about, energy and the environment.
Even if one were to accept that the EU promotes biofuels primarily as a way to reduce greenhouse-gas emissions, it is an expensive policy. The study finds that transfers (i.e., subsidies and related support) per tonne of CO2-equivalent removed in 2006 were between 575 and 800 euros for ethanol made from sugar beets (and far higher than that for ethanol made from grains), around 215 euros for biodiesel made from used cooking oil, and over 600 euros for biodiesel made from rapeseed. So, as we found for the United States, EU subsidies to biofuels also fare poorly in terms of cost effectiveness.
Here, in brief are the recommendations we make to the EU and the Member states:
- Resist instituting new consumption mandates for biofuels, at least without first undertaking a thorough examination of the costs and benefits of doing so.
- Eliminate all tariffs on imported fuel ethanol.
- Avoid providing new specific subsidies to the industry, and move to re-instate fuel-excise taxes on biofuels where this has not already been done.
- Improve the information available on support provided to the biofuels industry, and the effects of such support, as well as on production, capacity and trade in biofuels.
- Put in place an evaluation process that can thoroughly assess the cost-effectiveness of each Member State's support policies in attaining all three of the objectives behind the EU biofuels policy.
Meanwhile, unbeknownst to us at the time we were working on the EU report, the International Food & Agricultural Policy Council (IPC) was also working on a report critiquing U.S. and EU biofuel policies. That report, "An Examination of U.S. and EU Government Support to Biofuels: Early Lessons," by Charlotte Hebebrand and Kara Laney, was released yesterday. It is nice and concise. Here is a quote from its executive summary (italics are in the original):
U.S. and EU policies that shelter domestic agriculture risk limiting efforts to expedite cost-effective and sustainable uses of biofuels.
Although energy demand is increasing most rapidly in emerging economies, the United States and the European Union remain by far the largest energy consumers. The transport sectors in these economies rely on oil, but this comes with the price of high greenhouse gas emissions. Biofuels, produced from agricultural feedstocks, have come to the forefront of the energy agenda on both sides of the Atlantic as a means of decreasing reliance on oil. However, because biofuels are more expensive than fossil fuels, their utilization in the U.S. and EU depends upon government incentives. While these policies should promote biofuels that have an economic and environmental comparative advantage, the political reality is that domestic agricultural interests want policies that support the use of domestic feedstocks, regardless of energy efficiency or environmental sustainability. The objective of promoting domestic production, therefore, may undermine efforts to rapidly develop the most efficient, sustainable energy resources.
The absence of internationally agreed and scientifically valid biofuels standards will further increase the disproportionate focus on domestic production. Moreover, a lack of clarity about whether and, if so, how international trade obligations apply to the biofuels sector could strengthen this tendency. An overemphasis on domestic production by the United States and the EU risks trumping their policy objectives to improve energy efficiency, increase energy security, and reduce environmental degradation. Additionally, given the size of their economies, the ramifications of insular policies could have significant ripple effects worldwide, particularly for food and feed prices and for biofuel and agricultural opportunities in developing countries.
I won't repeat all of the IPC's observations and recommendations here, but list the first three by way of a teaser:
Governments must clarify their intent for supporting the biofuels industry:This intent should be mirrored in the setting of EU and U.S. mandates, tax incentives, and tariffs:
- It is unrealistic to view biofuels alone as a panacea for achieving energy security, reducing GHG emissions, and establishing new markets for politically powerful agricultural sectors
- Energy security should not be mistaken for energy self-sufficiency.
- In the absence of viable second-generation biofuels, incentives, tariffs, and standards that are structured primarily to promote domestic production of certain biofuels will retard the procurement and development of other more energy -- and cost-efficient -- biofuels.
And the reports keep on coming. Just today, the National Research Council has come out with a study that concludes that if projected increases in the use of corn for ethanol production occur in the United States, "the harm to water quality could be considerable, and water supply problems at the regional and local levels could also arise."
Another group, the Meadowland Project, has produced a rather dystopian-optimistic set of future scenarios for the rural northern Great Plains region in 2050. Here's a taste of two of the four:
There's No Place Like Home
This is a world in which a long-term drought caused by climate change has a catastrophic impact on the robust ethanol industry, which leads to economic and social collapse within the northern Great Plains. This collapse and struggle spawns renewal and a new, more equitable and just way of life for all people and species.
The Big Empty
This is a world in which the region sees an expansion of ethanol and biofuel production, which provide short-term growth for rural communities. But advances in technology lead to improved efficiency and increasing economies of scale. As the ethanol facilities grow larger, fewer and fewer employees are needed to operate them. Family farms disappear and rural economies falter as corporate farming and mega ethanol plants take over. A third of the region's population dies and is not replaced. Lack of proper services and loss of rural communities lead to a region empty of people and hope.
I'd better stop there. I'll have some more reports to report on in a couple of weeks.
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Comments
View as Flat
Biodiversivist Posted 8:59 am
10 Oct 2007
In the end, it all comes down to biodiversity. Poison Darts--Protecting the biodiversity of our world
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Ron Steenblik Posted 11:05 am
10 Oct 2007
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Jason D Scorse Posted 2:48 pm
10 Oct 2007
I teach environmental economics and blog at http://www.voicesofreason.info.
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Ron Steenblik Posted 5:36 pm
10 Oct 2007
We have also provided a database of various studies on subsidies. That can be found by going to this web page and then, under the sector you choose (agriculture, energy, fisheries, services, transport, investment incentives), click on the photo where it says "Click here for the ... literature database".
You might also want to procure copies of the OECD studies. Go to their on-line bookshop and type in "Environmentally Harmful Subsidies" in the search box.
Finally, there are several other books I can recommend. I've described them on my Amazon.com list of books on subsidies.
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justlou Posted 9:42 pm
10 Oct 2007
Much of the wealth garnered by farmers from higher crop prices will leave the farm and flow into industries providing production inputs. Input costs are rising rapidly with higher crop prices. Farm equipment manufacturers will prosper and dealers of tractors and combines will be able to maintain their already consolidated positions. The absentee owners of farmland, many who do not live in the same rural communities, will gain from higher farm rents.
So, I do not see the potential for much of the added prosperity to actually stay on the land and do the local communities that much good. But the base of industrial crop production will be bolstered at least temporarily.
It really is time to end the myth of the family farm. This only furthers bad farm policy.
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Ron Steenblik Posted 11:22 pm
10 Oct 2007
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CIMark Posted 5:35 am
11 Oct 2007
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justlou Posted 8:14 am
11 Oct 2007
And what impact does this have on the conversion of natural ecosystems into monoculture fuel plantations in Brazil?
If you believe that wild landscapes and biodiversity are more important than filling the fuel tanks of our grossly inefficient vehicles then keep the freaking ethanol in Brazil and find zero liquid fuel solutions here. When you are up shit creek without a paddle changing the name of the stream doesn't create a paddle.
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Ron Steenblik Posted 8:48 am
11 Oct 2007
The environmental merits of biofuels are currently the subject of heated debate. Although Northern governments currently receive strong political support for subsidising biofuel production, the ethanol produced in those countries, generally produced from corn, wheat, and rye, is less efficient at curbing energy use and greenhouse gas emissions than sugarcane-based ethanol produced in tropical countries such as Brazil. Giving the two different tariff treatment would be problematic, due to strictures against differentiating between products on the basis of 'process and production methods.'
Ronald Steenblik, head of research for the Global Subsidies Initiative, which has heavily criticised subsidies for biofuel production, allowed that the Brazil's blanket qualification of biofuels as environmental goods was "not very nuanced." Nevertheless, he said that "cane-based ethanol from existing cane plantations has good energy balance and greenhouse-gas mitigation properties." Given that "many countries have mandated the use of biofuels for environmental reasons, it is right and proper for Brazil to take them at their word, and ask them to level the playing field" between domestic and imported ethanol, he said. Steenblik did caution that the emissions-saving benefits of replacing fossil fuels with biofuels could potentially be compromised if large areas of savanna or forest land were to be brought under cultivation, either to directly produce biofuel feedstocks or to make up for displaced food, fibre or feed production.
I agree that there are questions to be asked regarding the environmental merits even of Brazilian ethanol, especially if production were to expand significantly. Just yesterday, the International Herald Tribune reported that "Brazilian agricultural officials and biofuel industry representatives [are now defending] using already devastated parts of the Amazon rainforest to grow sugarcane for ethanol, denying such cultivation would harm the region." Are we looking at a slippery slope here? Perhaps.
But who created the demand for exports of ethanol from Brazil in the first place? It is hypocritical of industrialized countries to skew their internal markets towards agro-fuels in the name of environmental improvement, but then to accuse countries like Brazil, who preceded them in this game, of being less environmental than they are.
The problem is, also, that the existing tariffs help prop up the existing subsidies. Indeed, the Renewable Fuels Association in the United States refuses even to call the $0.54/gallon secondary duty a "tariff", and regards it as simply a claw-back of -- an entry fee for access to -- the $0.51 volumetric ethanol excise tax. Eliminate the tariff, and domestic political support for subsidizing biofuels is likely to wither like a corn stalk on a hot August day.
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justlou Posted 12:09 pm
11 Oct 2007
Ron, I would not say environmental improvement is the main driver of ethanol in the US. Energy security/independence is the primary stated goal. But the main driver is, of course, improving the bottom line for corn farmers, ethanol producers, and the ag production input industry.
Kill the demand instead of growing the supply. There is no way to justify any conversion of wildlands in Brazil from a net energy or carbon point of view.
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Ron Steenblik Posted 5:32 pm
11 Oct 2007
Indeed, even during the 1980s and 1990s, successive administrations kept trying (and sometimes succeeding) to change fuel-quality regulations to favor ethanol ... all in the name of (but we know motivated more by appealing to farm-state voters) air-quality improvement.
A few days ago, C. Boyden Gray, the U.S. Ambassador to the European Communities, in a letter to the International Herald Tribune (8 October 2007, p. 9), defended the current administration's policies on climate change, saying that it was indeed very active in combating global warming. What was the main concrete policy to which he could point? The President's plans to reduce gasoline consumption 20% by 2017, most of which we know is based on big increases in mandated "alternative fuel" use.
Advocating the lowering of trade barriers for biofuels (which means, mainly, ethanol) is not the same as arguing for increasing supply. It is a challenge to the big users of biofuels to do something that is consistent with their public rationale for mandating (and subsidizing) biofuels. Since levelling the playing field for developing countries would knock the struts out from under policies designed to encourage domestic production in OECD countries, the latter group's resistance to such a change (NB: Canada, which already has low tariffs, is an exception) exposes their policies for what they truly are: agri-business subsidies in disguise.
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