Edwards, Canada, and now South Africa 4

Former Senator John Edwards (D-N.C.) -- now a presidential hopeful -- has just published his latest energy plan. One important plank of that plan foresees the nation producing (not just consuming, which would allow for imports) 65 billion gallons a year of ethanol by 2025. ("I'll meet your bid for 2030, Barack, and raise it by five billion!")

If the 51 cents a gallon volumetric ethanol excise tax credit (VEETC) is extended beyond the end of 2010 -- as most commentators and even the USDA expect will happen -- here's what the cumulative cost to the U.S. Treasury would be from 2007 through 2025, assuming straight-line growth:

Almost $350 billion (=$0.51 x 19 x [7+(65-7)/2]).

And that's not counting any additional subsidies provided through the 10 cents a gallon small producers' credit (if it, too, is extended), or state-level production incentives, or loans or grants for the construction of new plants, or crop subsidies, or extra subsidies for E85 or lignocellulosic ethanol ...

These kinds of proposals threaten to bust the budget not only of the United States. They have also, through example, strengthened the hand of ethanol producers in other countries, who are now busy lobbying for their own subsidies.

North of the border, the pro-biofuels lobby has been arguing for at least a year that Canada: (a) needs biofuels; and (b) should not become dependent on imported, subsidized biofuels from its NAFTA partner, the United States. Their solution? Subsidize Canadian biofuels, of course!

Thus, on Monday, the Federal Government of Canada announced a new, seven-year, C$1.5 billion (US$ 1.3 billion) program to support producers of "renewable" alternatives to gasoline (such as ethanol), and diesel (such as biodiesel). The government will be offering incentives of up to C$0.10/liter (US$0.325/gallon) for ethanol and up to C$0.20/litre (US$ 0.65/gallon) for biodiesel during the next three years (the rates are scheduled to decline thereafter). Bear in mind, the Canadian economy is about 1/10th that of the U.S.A.'s, so US$1.3 billion is a hefty chunk of change.

Meanwhile, down in South Africa, a "windfalls tax team" ...

... has recommended investment incentives for the manufacture of biofuels.

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It also says domestic biofuel production should be given precedence over new facilities from synfuels from coal or gas.

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Tax credits would apply when the oil price falls below $45 a barrel, but investors would have to pay in tax at an oil price of more than $65 a barrel, although the exact figures still need to be debated. But, earlier this week, the South African Biofuels Association publicly criticized the plan, saying it needed between R 2 billion and R 5 billion [$270 million to $675 million] a year in subsidies for at least 10 years.

Again, this in an economy about 4.5 percent the size of the U.S.'s. That would be equivalent to a subsidy in the United States of around $10 billion a year.

There are skeptics, such as James Blignaut, a professor of environmental economics at the University of Pretoria, but what country ever let such spoilsports influence biofuels policy, eh?

Crops grown for fuel purposes impact on biodiversity, on food security and on the water supply. Maize is largely rain-fed, [Blignaut] says.

"This initiative [bioethanol production from maize] started when we had a surplus, in a wettish year. Now we don't have a surplus and it's a dry, hot year," says Blignaut, alluding to the present drought conditions. He is also concerned that dormant land, which has an environmental benefit, might be used for maize production.

There is one bright, albeit flickering light on in the international news front, however: Chile. According to Keith R's (Keith Ripley's) report on the situation:

Shortly after the German firm Südzucker announced in October its interest in making a massive investment in biofuel production in Chile if the regulations and policy were adjusted, the Government created a public-private commission in order to develop a national biofuels policy for Presidential consideration. The commission was originally slated to deliver a report by year-end so that the President could draft a biofuels law by end-January 2007.

Given the Government's apparent haste to slap together a report and draft law -- plus public statements by the Agriculture Minister extolling Chile's potential to be a biofuels power, and press reports of German Government pressure on Chile to adopt a regime favorable to investments like that proposed by Südzucker -- I expected an unbalanced report proclaiming biofuels' benefits for Chile and playing down its possible shortcomings or pitfalls.

...

Instead the resulting report released in late January is a pleasant surprise: one of the most most cautious, thoughtful and nuanced discussions of the biofuels option I have seen from a nation in Latin America and the Caribbean (LAC).

For one thing, it points out that what works for Brazil and perhaps for other tropical nations will not necessarily work well for Chile. For another, it admits that even in the best scenario domestically-produced biofuels could only provide a small portion of Chile's projected energy needs ...

I'll let any interested readers read the rest. While the Public-Private Commission on Biofuels does recommend a blending target, the caveats it mentions -- should not adversely affect the use of soil and water resources, should not lead to concentrating ownership, etc. -- suggest that wise heads may prevail.

We shall see. As Keith R concludes:

To her credit, President Bachelet did not immediately pounce on the report, pronounce biofuels to be Chile's energy salvation, and quickly release an already drafted biofuels bill. Given the "biofuel fever" that has been sweeping LAC [Latin America and the Caribbean] lately, and the pressure on this issue she has been getting from certain quarters, it would not have been a surprise if she had.

...

That said, the Bachelet Administration is feeling the pressure to "do something" about Chile's dependence on imported energy.

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