Biofuels debate - Is Brazilian ethanol an option?

The Global Subsidies Initiative have come out with a report, Biofuels - At what cost?, that outlines the complex cornucopia of policies that are in place in the US to promote biofuels. The report concludes, “The bewildering array of incentives that have been created for biofuels in response to multiple (and sometimes contradictory) policy objectives bear all the hallmarks of a popular bandwagon aided and abetted by sectional vested interests.”

There are a few things that seem to clearly emerge out of this article,
1. The cost of support per litre of ethanol varies between $0.29 and $0.36 per litre in the US and $1 in the EU. Support for biodiesel varies between $0.2 per litre in Canada and $1 in Switzerland. But the cost of petrol, in terms of equivalent energy units, is $0.34 and of diesel is $0.41. Thus, the subsidy to biofuels is often greater than the cost of the fossil fuel equivalent. Not surprisingly, the production costs of subsidised biofuels are also generally much higher.
2. The net greenhouse gas emissions of expensive European rapeseed oil-based diesel are a mere 13 per cent less than those of conventional diesel. Similarly, net emissions from US corn-based ethanol are only 18 per cent less than conventional petrol.
3. In 2007, the increase in US demand for corn-based ethanol will account for more than half of the global increase in demand. Much the same is true for US and EU use of soyabeans and rapeseed in biodiesel. The rising price of food is good for producers.
4. Brazil, the most efficient supplier of bioethanol, faces tariffs of at least 25 per cent in the US and 50 per cent in the European Union.







Martin Wolf of the FT, lists out the five common justifications for promoting bio-fuels in Biofuels: a tale of special interests and subsidies

"Rationalisation one: biofuel subsidies reduce farm support payments. But, in fact, US evidence strongly suggests that these subsidies are being piled on top of existing farm subsidies, not replacing them.

Rationalisation two: mandating biofuels will lower petrol prices. But it is obviously mad to try to lower the price of a commodity by subsidising the production of more expensive alternatives.

Rationalisation three: subsidising biofuel is an efficient way to reduce reliance on risky fossil fuels. But biofuels are, under current technologies, complements to, rather than substitutes for, fossil fuels and are also vulnerable to their own risks of weather and disease.

Rationalisation four: subsidising biofuel is an efficient way to reduce greenhouse gas emissions. According to the report, the cost of eliminating a tonne of carbon dioxide equivalent through biofuels varies from a low of about $150 to as much as $10,000. Even the lower of these figures exceeds almost all estimates of the marginal benefit of reducing a tonne of emissions. It certainly much exceeds the cost of many alternative ways of doing so.

Rationalisation five: subsidies are only needed to establish the infrastructure. But if biofuels are to be competitive, it will be unnecessary to subsidise the infrastructure. Investors can do that for themselves."

There is only one thing that is interesting. The graphs show that the Brazilian sugarcane based ethanol is not only the cheapest at $0.28 per litre, it also reduces greenhouse gas emissions by 90%. It appears that sugar cane based ethanol is far superior to the US corn based and the European wheat and sugarbeet based ethanols. In fact, the other biodiesel alternatives from soyabeans, rapeseed and palm oil, are no better. Does this all indicate that Brazilian sugracane based ethanol, is the most efficient and environmentally sustainable alternative? Should this not be given a try, and the restrictions to its import lifted?

Update 1
Here is an article in the NYT, The Carbon Calculus.
Lee Schipper, an energy and transportation expert at the World Resources Institute, refers "closet carbon" or the CO2 embedded in the production of any supposedly renewable product. Corn ethanol is made using natural gas or coal that also contains carbon, but could have stayed in the ground if not for the ethanol manufacture. It has been observed that corn ethanol has twice as much closet carbon as others. In contrast, it is argued that Brazilian sugarcane ethanol requires far less energy to make and also emits only 10 percent as much CO2.

The US federal government offers a 51-cent-a-gallon tax credit to ethanol producers and maintains a 54-cent-a-gallon tariff on ethanol imported from Brazil thereby distorting the incentives and generating a clearly undesirable outcome.