Biofuel Backlash

==Background==
All that is green is not always good.
==The Biofuel Backlash==
:By Bart Mongoven
The Organization for Economic Cooperation and Development (OECD)
released a scathing report Sept. 11. 2007, calling for a dramatic drawdown in
the subsidies and preferential trade laws granted to biofuel producers
in OECD countries. In Europe, Friends of the Earth hailed the report,
saying it has focused attention on the negative issues surrounding
biofuels, while libertarian groups on both sides of the Atlantic
applauded its call for a reduction in subsidies.
The report is one of a number of efforts designed to deflate support for
biofuels in the United States and Europe. Increasing numbers of groups,
especially in Europe, are beginning to question the wisdom of the
current move toward biofuels as a replacement, at least in part, for
gasoline and diesel in vehicles. They argue that these fuels offer
little benefit and have serious drawbacks. Specifically, they question
the wisdom of burning food crops for fuel. They point to a "tortilla
crisis" in Mexico caused by rising corn prices and a "bread crisis" in
France caused by rising wheat prices. Inflation in China is now running
above 6 percent, largely due to increases in the price of foodstuffs.
In other words, the backlash against biofuels is in full swing. The
critics, however, are running head on into the powerful agricultural
lobbies in the United States and Europe that so successfully championed
the issue in the first place. These advocates say that ethanol,
biodiesel and other nonpetroleum-based transportation fuels reduce
pollution, help fight climate change and improve national security by
reducing dependence on foreign oil. Though many policymakers find these
arguments compelling, the biofuels issue would not have achieved the
political momentum it has without the intense lobbying by the
agricultural sector.
In fact, the fate of the current wave of biofuel mandates and the pace
at which industrialized countries offer biofuels at the pumps will
largely be determined by agriculture interests. The implications are as
strong and lasting for developing countries as for the industrialized
countries involved. Moreover, advancements in biofuel technology over
the next decade or so could convert some of the current critics to
supporters.
===Plant-based Fuels===
The term "biofuels" refers to any number of combustible liquids derived
from plants that can be used to create energy. Most biofuel development
is directed at use in transportation, where biofuels are envisioned as a
replacement for gasoline or diesel fuel. The most prevalent sources of
biofuel now are corn ethanol (predominantly in the United States), sugar
ethanol (mostly from Brazil) and rapeseed oil for biodiesel in Europe.
Among the other current sources are palm and soy oil and various waste
products (such as cooking waste) for diesel. In the future, researchers
hope to make ethanol from unused portions of agriculture produce --
cellulosic ethanol from corn stalks and waste from wood processing.
The creation of biofuels produces dramatically different levels of
pollution, depending on the plant used. Ethanol is the same and burns
similarly regardless of its source, but the pollution and emissions
associated with the specific plant's production cycle vary widely. Corn
ethanol, for instance, produces 0 percent to 3 percent less greenhouse
gas emissions than gasoline when the factors of planting, fertilizing
and harvesting the corn are taken into consideration along with the
processing and transportation of the fuel, which in the best case
requires dedicated pipelines and currently requires overland
transportation. Sugar ethanol from Brazil, over its lifecycle, produces
50 percent to 70 percent less greenhouse gas emissions than gasoline.
Early indications are that the next generation of cellulosic ethanol
will produce more than 90 percent less emissions than gasoline over its
lifecycle, though there are significant infrastructural and technical
obstacles to the realization of such breakthrough technology.
According to the U.N. Food and Agriculture Organization, the countries
of Southeast Asia, Central Africa and South America, especially Brazil
<http://www.stratfor.com/products/premium/read_article.php?id=285065>,
have the highest potential for producing the fast-growing woody crops
that will be used in the next generation of biofuels. Over the long
term, biofuels could emerge as a way for the economies of many poor
countries to gain a solid footing by increasing the agriculture sector
generally and diversifying national economies. That is, of course, if
major consumers will import their biofuels.
In the United States and Europe, corn currently provides the bulk of
ethanol. Europe has recently adopted a stringent biofuel mandate that
calls for an escalating percentage of biofuel in its transportation fuel
mix. With this, it is looking beyond corn to other sources, such as
Brazil's sugar-based ethanol -- though a solution that benefits
Brazilian farmers but offers little to EU farmers is highly
controversial. Meanwhile, in the United States, where imported ethanol
is saddled with a 53-cent-per-gallon tax, biofuel produced outside of
the United States is uncompetitive.
===Politics of Ethanol===
The energy bill that passed the U.S. House of Representatives in August
includes a call for more than 7.5 billion gallons of biofuels to be sold
in the United States by 2009 and for the amount to escalate to 36
billion gallons by 2022. The catch is that most of the ethanol in 2022
will have to be from "advanced" sources, which is to say from
next-generation cellulosic processes. (Europe's emerging policy has a
similar clause.) The U.S. numbers will likely be scaled back in the
conference committee, but some requirement to increase the use of
biofuels will go forward. Once passed and signed, biofuels will be
cemented in the national energy mix.
Among the most intriguing aspects of the political wrangling over the
biofuel mandate in the United States has been the disappearance of the
environmental lobby. When pressed, it says it generally supports a
mandate and emphasizes the importance of next-generation sources. This
is an important turn because for the past 20 years environmentalists
have battled appeals by farm states to mandate the use of corn ethanol.
Major environmental groups are among those that have commissioned and
brought attention to studies showing negligible or negative
environmental benefits from ethanol.
Environmentalists' support for biofuels is tied directly to their
support for action on climate change. For environmentalists, imposing a
cap on greenhouse gas emissions on the United States is their primary
objective. They see a carbon cap as the prize, and they figure that
anything done in the process of achieving that goal can be fixed later.
To achieve a carbon cap, supporters recognized that they needed not just
the political backing of lawmakers from the West Coast and Northeast,
but that they also needed a certain amount of political support from the
middle of the country. Policymakers in Michigan, West Virginia and
Colorado seemed unlikely to come on board because of the stake their
states have in the automobile and coal industries. States such as Iowa,
Nebraska and South Dakota, however, have no clear stake in the climate
issue so those battling for a carbon cap offered billions of dollars in
subsidies and a guaranteed market for corn ethanol. That was something a
farm-state senator could support.
The issues were similar in the European Union, though the politics were
slightly different. While the EU environmental lobby is much stronger
than its U.S. counterpart, it pales in Brussels compared to the farm
lobby. In Europe, the important energy issues
<http://www.stratfor.com/products/premium/read_article.php?id=289770>
are energy security and climate change. Environmentalists were helpless
when the farm lobby flexed its muscles in the most recent energy policy
discussion and won a dramatic increase in biofuel use, having used both
energy security and climate change as justification. Though
environmentalists were livid, for EU politicians it was an easy
decision: the policy supports farmers while dovetailing with the urgent
call for a diversification of energy sources. As in the United States,
support for biofuels addressed a problem rhetorically and allowed
politicians and interest groups to score important political points.
The political support for biofuels already is paying dividends in both
Europe and the United States. Corn prices are now more than 40 percent
higher than they were a year ago, despite a 15 percent increase in
planting. The rising price of corn meant reduced acreage of wheat
planting, and this has coincided with a terrible drought in Australia
and a falling dollar. As a result, wheat prices have doubled in the past
year, to $9 per bushel for the first time ever (more than $10 in
France). These are good times for farmers, and ethanol is playing a role
in it.
In Europe, environmentalists are more outspoken in their frustration --
as Friends of the Earth's clear support for the OECD report suggests --
though many rest with the knowledge that they have at least reduced
oil's share of the transportation fuels' market, which for many is
better than a Pyrrhic victory.
===Brazil's Challenge===
For Brazil, the existing or proposed barriers to the importation of its
biofuels present a severe challenge. It invested heavily in research and
development of biofuels and has perfected a system
<http://www.stratfor.com/products/premium/read_article.php?id=289831>
that provides a replacement for gasoline at a competitive price and with
a significant reduction in greenhouse gas emissions (corn-based ethanol
offers little to no greenhouse gas benefits). Brazil is moving its
vehicle fleet to ethanol, which will take most of the country's output,
but it has developed capacity to export ethanol as well.
Seeing its ethanol exports blocked by the United States and Europe,
Brazil is learning that energy security and climate change were only a
part of the reason countries looked to biofuels. Certainly, these
arguments were important, but biofuel mandates would not have happened
if not for the power of agriculture in both the United States and Europe.
Brazil's problem, then, is that it merely solved the problem politicians
talked about -- it has developed a fuel that reduces greenhouse gas
emissions and comes from a place that is politically stable and friendly
to both the European Union and United States. In solving the rhetorical
problem without offering a political fix, it has placed U.S.
environmental activists and EU politicians in a difficult position, and
has not necessarily won markets. The larger problem, a problem that the
OECD suggests but does not explicitly state, is that there is little
interest in either the United States or Europe in staring down the
agricultural interests.
==PUBLIC POLICY INTELLIGENCE REPORT, 09.13.2007==
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==Links==
* Ethanol
category:future