Interesting Article on Biofuels

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Biofuels can match oil production
By Ricardo Hausmann

Published: FT November 6 2007 18:51 | Last updated: November 6 2007 18:51

Peering into the future seldom produces a clear picture. But this is not the case with bio-energy. Its long-term impacts on the global economy appear to be pretty clear, making many long-term predictions quite compelling, including the demise of the price-setting power of the Organisation of the Petroleum Exporting Countries and the end of agricultural protectionism.

Can these predictions become reality?

First, technology is bound to deliver a biofuel that will be competitive with fossil energy at something like current prices. It probably already has. Brazil has been exporting ethanol to the US at an average delivery price of $1.45 for an amount with the energy equivalence of a gallon of petrol. It is doing so profitably and in increasing amounts, in spite of a 54 cents a gallon tariff to protect American maize-based ethanol producers. Many countries are following suit.

But ethanol is an inconvenient chemical compound that is corrosive and soluble in water, thus limiting its immediate market to that of a gasoline additive. However, this is just the Betamax phase of the industry. There is plenty of private venture capital money being poured into finding more efficient ways of extracting energy from biomass and delivering it to transport and power systems. Over time, the technology will also become more flexible, allowing more crops to be used as feedstock, not just the current choice of sugarcane, maize and palm oil. New technologies will be able to extract energy from cellulose, allowing the use of pastures such as switch grass as well as the refuse of current food production. The cheque is in the mail.

Second, the world is full of under-utilised land that can grow the biomass that the new technology will require. According to the Food and Agriculture Organisation, the world has a bit less than 1.4bn hectares under cultivation. But using the Geographic Information System database, Rodrigo Wagner and I have estimated that there are some 95 countries that have more than 700m hectares of good quality land that is not being cultivated. Depending on assumptions about productivity per hectare, today's oil production represents the equivalent of some 500m to 1bn hectares of biofuels. So the production potential of biofuels is in the same ball park as oil production today.

Third, even if only partially used, this large potential biofuels supply will cap the price of oil because its supply is much more elastic than the supply of oil. This will cause the price of oil to be set at the marginal cost of bio-energy, independently of the production decisions of Opec. If Opec tries to raise prices above the price at which biofuels become highly profitable, it will only crowd in more biofuels. Oil producers will still be rich, but they will not have incentives to form a cartel.

Fourth, the price of agricultural land will be influenced by its potential use for bio-energy. As farmers choose what crop would suit them best, they will change what they produce and hence the whole system of relative prices of agricultural produce. This will imply a very large increase in the demand for agricultural land. Its price and that of the products that use it intensively – such as food and cotton – will go up. By how much? This will depend not only on the cost of bio-energy but also on how much additional land is put to use and the degree to which food crops will be complements or substitutes of bio-energy: they would be substitutes if switch grass were planted instead of soybeans; they will be complements if biofuels are made out of wheat stalk. My bet is that they will tend to be more substitutes than complements and the relative price of food will go up.

Fifth, the increase in the price of agricultural land and of food will relieve governments from the current political pressure to protect the agricultural sector. Governments that, as a consequence of the land glut, have been protecting and subsidising farmers will see them grow rich either because they "plant" biofuels themselves or because other producers switch into them, lowering the supply and increasing the price of other crops.

By contrast, consumers will be less enthusiastic and demand that something be done about the price of food.

The obvious solution will be to cut back on protectionism and liberalise trade in agriculture.

Sixth, the countries that have the largest endowment of under-utilised lands are in the developing world, especially Africa and Latin America. Putting that land into production will require a type of infrastructure that – as opposed to the dedicated variety required by extractive industries – usually crowds in other forms of investment by lowering transport costs in ample regions of the country.

Bio-energy will make those infrastructure investments socially profitable, creating a possible stepping stone into other industries.

Some policy action in industrialised countries will be required to make this world possible. Biofuels policy needs to stop being seen through the prism of agricultural support policy – which justifies a 54 cents a gallon US tariff on Brazilian ethanol – and instead become the purview of energy and environmental policies. Standards will have to be developed to allow the energy and automotive industries to co-ordinate technologies. To make this scenario appealing, the impact of the expansion of the agricultural frontier on the environment and biodiversity, and the distributive effects of the rise in food prices will have to be addressed.

But these problems seem solvable given the expected political benefits in terms of lower net carbon emissions, more energy security, more efficient agricultural policies and greater opportunities for sustainable development.

[MishaK]

Wow, this is fantastically idiotic!

Second, the world is full of under-utilised land that can grow the biomass that the new technology will require. According to the Food and Agriculture Organisation, the world has a bit less than 1.4bn hectares under cultivation. But using the Geographic Information System database, Rodrigo Wagner and I have estimated that there are some 95 countries that have more than 700m hectares of good quality land that is not being cultivated. Depending on assumptions about productivity per hectare, today's oil production represents the equivalent of some 500m to 1bn hectares of biofuels. So the production potential of biofuels is in the same ball park as oil production today.

Brilliant! Now what amount of land is left for forests that are needed to turn all that CO2 we are pumping out into the atmosphere back into O2 and Carbon?

Fourth, the price of agricultural land will be influenced by its potential use for bio-energy. As farmers choose what crop would suit them best, they will change what they produce and hence the whole system of relative prices of agricultural produce. This will imply a very large increase in the demand for agricultural land. Its price and that of the products that use it intensively – such as food and cotton – will go up. By how much? This will depend not only on the cost of bio-energy but also on how much additional land is put to use and the degree to which food crops will be complements or substitutes of bio-energy: they would be substitutes if switch grass were planted instead of soybeans; they will be complements if biofuels are made out of wheat stalk. My bet is that they will tend to be more substitutes than complements and the relative price of food will go up.

Oh, how we love the word "choice". It suggests freedom that rarely exists in reality. In the real world, farmers will plant lucrative fuel crops for export to the rich countries instead of planting food to feed the poor locals. Famines are pre-programmed. It's already happening.

Fifth, the increase in the price of agricultural land and of food will relieve governments from the current political pressure to protect the agricultural sector. Governments that, as a consequence of the land glut, have been protecting and subsidising farmers will see them grow rich either because they "plant" biofuels themselves or because other producers switch into them, lowering the supply and increasing the price of other crops.

Hardly. Corporate agribusiness has plenty of lobbying power to pressure politics, and will have even more so once it acquires the strategic importance of being a fuel provider. It is already behind the boneheaded subsidies for ethanol.

Sixth, the countries that have the largest endowment of under-utilised lands are in the developing world, especially Africa and Latin America. Putting that land into production will require a type of infrastructure that – as opposed to the dedicated variety required by extractive industries – usually crowds in other forms of investment by lowering transport costs in ample regions of the country.

This person needs to look into the causes of conflicts in Rwanda and Sudan. Underutilized land?!?! Who will feed overpopulated Africa if African farmers turn toward "biofuel" production?

Some further reading:

http://www.commondreams.org/archive/2007/11/07/5088/

http://www.guardian.co.uk/environment/2007/apr/04/energy.indonesia

http://www.guardian.co.uk/international/story/0,,2095338,00.html

http://www.commondreams.org/archive/2007/11/06/5057/

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Brilliant! Now what amount of land is left for forests that are needed to turn all that CO2 we are pumping out into the atmosphere back into O2 and Carbon?

Mature forests and particulary rain forests are carbon neutral, rather than sinks so they do not enter into the global CO2 equation unless they are burned or the carbon they hold is released by some other method.  I do not think the author is proposing destroying forests, rather that there is marginal land for food crops that will grow switchgrass and other cellulose conversion biofuel crops

Oh, how we love the word "choice". It suggests freedom that rarely exists in reality. In the real world, farmers will plant lucrative fuel crops for export to the rich countries instead of planting food to feed the poor locals. Famines are pre-programmed. It's already happening.

The farmers are poor now because Western crop subsidies make their products uncompetitive in international markets.  More revenue from fuel crops will enable investment in more productive farming and greater yields as well as create multiplier effects and satellite industries that will create wealth and reduce poverty, although of course there are always individual winners and losers even if the net effect is positive.

Hardly. Corporate agribusiness has plenty of lobbying power to pressure politics, and will have even more so once it acquires the strategic importance of being a fuel provider. It is already behind the boneheaded subsidies for ethanol.

Right, and agribusiness is all for the currently entrenched farm subsidy program.  I agree that using corn whiskey as a fuel is ridiculously wasteful and totally dependent upon government subsidy, but the author is making the point that cellulose conversion will enable a wider range of crops and more efficient fuel production.

This person needs to look into the causes of conflicts in Rwanda and Sudan. Underutilized land?!?! Who will feed overpopulated Africa if African farmers turn toward "biofuel" production?

If the majority of the population is engaged in substinence agriculture then there is no one to feed them now anyway.  Having a cash crop like biofuel will enable more specialization and economic growth.  The same argument you make could just as well be made against cotton (which is grown extensively in Africa but subject to tariffs from Western countries) or any other cash crop.

[MishaK]

Mature forests and particulary rain forests are carbon neutral, rather than sinks so they do not enter into the global CO2 equation unless they are burned or the carbon they hold is released by some other method.  I do not think the author is proposing destroying forests, rather that there is marginal land for food crops that will grow switchgrass and other cellulose conversion biofuel crops

Errm... wrong! Forests put out more O2 than they take in. If forests didn't take in more carbon than they produced, no trees would ever grow. Wood is a carbon sink. Also, they help clean the air of other pollutants. Your author did not explain what lands were used in his calculation, so given the extremely low percentage he assignes to land currently used efficiently for agriculture one has to assume that he is including lands that are currently not used for agriculture (wilderness) that could be used for intensive agriculture. Even assuming he isn't including wilderness lands, such intensive agricultural use would cause a whole host of problems, from vastly increased water use for irrigation to pollution from fertilizers and pesticides (both of which could be used with greater abandon since the crop grown is not being used for human consumption).

The farmers are poor now because Western crop subsidies make their products uncompetitive in international markets.  More revenue from fuel crops will enable investment in more productive farming and greater yields as well as create multiplier effects and satellite industries that will create wealth and reduce poverty, although of course there are always individual winners and losers even if the net effect is positive.

I didn't say "poor farmers", I said "poor locals". I.e. the local population that doesn't have the buying power to compete with 1st world car drivers. Thus 3rd world farmers have an incentive to plant biofuel crops over food crops to feed the local population. It's cars vs. people. 

Right, and agribusiness is all for the currently entrenched farm subsidy program.  I agree that using corn whiskey as a fuel is ridiculously wasteful and totally dependent upon government subsidy, but the author is making the point that cellulose conversion will enable a wider range of crops and more efficient fuel production.

No, the author was making the argument that biofuel development would relieve pressure for agricultural subsidies. A blatantly idiotic argument in the face of the fact that the entire ethanol industry is being developed with generous government subsidies and is once again principally benefitting big agribusiness. There is not a single bit of reality in the author's argument.

If the majority of the population is engaged in substinence agriculture then there is no one to feed them now anyway.  Having a cash crop like biofuel will enable more specialization and economic growth.  The same argument you make could just as well be made against cotton (which is grown extensively in Africa but subject to tariffs from Western countries) or any other cash crop.

But the majority of the population isn't engaged in subsistence agriculture and cotton and other cash crops are used to produce durable goods. Biofuel is the opposite of all that. It is not used for anything durable and therefore demand is much more intensive, especially as the price of oil increases and output (following peak oil) declines.

Biofuels are the single most idiotic idea with the single greatest potential for global social and environmental upheaval. It's just plain stupid.

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Errm... wrong! Forests put out more O2 than they take in.

Forests are only sinks when they are increasing area.  Decay and other process release carbon so mature forests tend to be carbon neutral
http://en.wikipedia.org/wiki/Carbon_dioxide_sink#Forests_2
Anyway that land is going to be eventually taken over by population growth regardless of whether there is a market for biofuels.  It will be better for everyone if there is a higher return on the land than substinance farming

I didn't say "poor farmers", I said "poor locals". I.e. the local population that doesn't have the buying power to compete with 1st world car drivers. Thus 3rd world farmers have an incentive to plant biofuel crops over food crops to feed the local population. It's cars vs. people. 

Only to the point where they can buy food.  Its ridiculous to claim to be know with such foresight the macroeconomic effects of giving farmers options on the markets for the crops they grow. Supply and demand will work just fine in determining the limits and tradeoffs of food vs. fuel production.  Furthermore biofuels offer a viable alternative for a cooking fuel in developing countries to replace dwindling supplies of wood.  http://practicalaction.org/?id=biogas_expertise

No, the author was making the argument that biofuel development would relieve pressure for agricultural subsidies. A blatantly idiotic argument in the face of the fact that the entire ethanol industry is being developed with generous government subsidies and is once again principally benefitting big agribusiness. There is not a single bit of reality in the author's argument.

The point is valid that increased demand would support a higher floor on grain prices, reducing the surplus production in the US and other developed countries thus removing the economic rationale for subsidies.  It is premature to conclude based upon a couple years of ethanol production that this cannot come to fruition.

Biofuels are the single most idiotic idea with the single greatest potential for global social and environmental upheaval. It's just plain stupid.

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The single most idiotic idea?  c'mon, you are flailing at the air here. This extreme view does not even seem to be shared by the public critics of the policy.  Jean Zigler for example says there is adequate agricultural resources to feed 12 billion people - which obviously enables a considerable surplus for fuel stocks. 

[MishaK]

Forests are only sinks when they are increasing area.  Decay and other process release carbon so mature forests tend to be carbon neutral
http://en.wikipedia.org/wiki/Carbon_dioxide_sink#Forests_2
Anyway that land is going to be eventually taken over by population growth regardless of whether there is a market for biofuels.  It will be better for everyone if there is a higher return on the land than substinance farming

That calculation cannot be right. If all carbon stored in trees is eventually released through decay, then how does carbon ever end up as coal? Clearly, there is some carbon that escapes decay and ends up stored in the soil.

Your logic behind "that land  is going to be eventually taken over by population growth regardless" is also flawed. It assumes constant growth is sustainable and it assumes that the ecology of the planet and its climate are sustainable essentially without forests and other wilderness areas. Both of which evidence that you haven't the faintest clue about ecology.

Only to the point where they can buy food.  Its ridiculous to claim to be know with such foresight the macroeconomic effects of giving farmers options on the markets for the crops they grow. Supply and demand will work just fine in determining the limits and tradeoffs of food vs. fuel production.  Furthermore biofuels offer a viable alternative for a cooking fuel in developing countries to replace dwindling supplies of wood.  http://practicalaction.org/?id=biogas_expertise

I don't have to claim to have a crystal ball, when the effects around the world are already visible today. I might add that the free market approach to development has been shown time and again as flawed. As long as developing countries lack the power to protect themselves and subsidize their own economies, instead of purely producing for foreign consumption (especially when they are dependent on the export of just a few natural resources), they do not develop. All successful late developers developed under an umbrella of tarriff protection of their own economies and subsidies of their own industries. No late developer developed by first completely opening up its borders.

The point is valid that increased demand would support a higher floor on grain prices, reducing the surplus production in the US and other developed countries thus removing the economic rationale for subsidies.  It is premature to conclude based upon a couple years of ethanol production that this cannot come to fruition.

You are missing the point. Ethanol production would not develop and would remain economically unsustainable without subsidies. At best, you are shifting subsidies from food crops to fuel crops. Either way, there is no reason to believe that the lobbying power of agribusiness would be diminished when it gains another important leg to stand on in the form of biofuels. If anything, it's political power to lobby government would increase and become more entrenched.

The single most idiotic idea?  c'mon, you are flailing at the air here. This extreme view does not even seem to be shared by the public critics of the policy.  Jean Zigler for example says there is adequate agricultural resources to feed 12 billion people - which obviously enables a considerable surplus for fuel stocks. 

I don't know who you consider the "public critics", but I provided a few links above. There are plenty more, which I would be happy to provide in due course. Bottom line is humanity has too large of a footprint already at the moment to live sustainably on this planet if it doesn't change its current habits. Biofuel production would increase this footprint by adding additional agricultural exploitation of the planet to the already in many areas unsustainable intensive agricultural exploitation on account of food and other cash crops (wood, cotton, drugs, etc.), while further threatening the survival of remaining wilderness areas whose existence is essential to the maintenance of a balanced global climate (not just in terms of O2 production, but also in terms of humidity flow control and weather patterns). In addition, the competition between fuel and food crops threatens serious social instability and human suffering as already in evidence in many places around the world today. Finally, biofuel production causes massive amounts of greenhouse gas release (through the use of fertilizers and the distilling process), so that in the end it is no more green than fossil fuels. So, yes, I stand by my judgment that biofuels are plainly idiotic. The money spent on subsidizing this folly could be used far more usefully and lucratively (in the long term at least) by investing in further development of renewable energy sources like solar and wind energy, as well as increasing the efficiency and reducing the waste in our current energy use.

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That calculation cannot be right. If all carbon stored in trees is eventually released through decay, then how does carbon ever end up as coal? Clearly, there is some carbon that escapes decay and ends up stored in the soil.

Your logic behind "that land  is going to be eventually taken over by population growth regardless" is also flawed. It assumes constant growth is sustainable and it assumes that the ecology of the planet and its climate are sustainable essentially without forests and other wilderness areas. Both of which evidence that you haven't the faintest clue about ecology.

The point is that forests are a sink when they are expanding because there is net growth and net carbon sequestration.  They level out in an equilibrium where decay and other carbon releasing process equal the uptake of CO2 from photosynthesis.  In a mature forest a new tree can only grow where one has died and decayed.  I did not say that all the carbon is released through decay - clearly all the carbon taken up in the creation of the forest remains, its just that the uptake levels off and the forest becomes carbon neutral as it matures.  The carbon remains there to be released if the forest is destroyed.  So take some time to educate yourself and check your facts before accusing me of "not having the faintest clue about ecology", there is no reason to be so condesending.  I have documented my sources and leave it to you to provide evidence to the contrary.

As to the other issues I will leave it to my previous points. Obviously we have differences of opinion about free markets and economic growth and any further discussion will only digress away from the topic at hand.  Biofuels IMO represent part of a broad range of solutions to moving away from hydrocarbons, but like anything are not perfect and present potential challenges

[MishaK]

The point is that forests are a sink when they are expanding because there is net growth and net carbon sequestration.  They level out in an equilibrium where decay and other carbon releasing process equal the uptake of CO2 from photosynthesis.  In a mature forest a new tree can only grow where one has died and decayed.  I did not say that all the carbon is released through decay - clearly all the carbon taken up in the creation of the forest remains, its just that the uptake levels off and the forest becomes carbon neutral as it matures.  The carbon remains there to be released if the forest is destroyed.  So take some time to educate yourself and check your facts before accusing me of "not having the faintest clue about ecology", there is no reason to be so condesending.  I have documented my sources and leave it to you to provide evidence to the contrary.

Look, sorry for the condescension, but the calculation is not accurate. If "not all carbon is release through decay", then the forest is not completely "carbon neutral as it matures". If the new tree that replaces the dead tree doesn't replace the dead tree's carbon 1:1 (because the dead doesn't decay perfectly 100%), then it's not carbon neutral. I agree that the uptake level is reduced. But you're still looking at a forest only as regards its carbon balance. They are as important (or more important) inregulating climate, capturing humidity, providing habitat for animals whose ecological services are needed elsewhere in different seasons, etc. It's these little sleights of hand and inaccuracies in the calculations that make biofuels seem better than they are.

As to development and the effects of unregulated markets on third world nations, please see Joseph Stiglitz "Globalization and its Discontents". Stiglitz is an econ Nobel laureate and former chief economist of the World Bank. The book is a good start for the problems that I barely touched upon above.