Biofuels: When Subsidies and Special Interests Collide

Few debates have proved as highly contentious as the one pitting those who believe biofuels have a role to play in fighting global warming and securing our energy independence and those who view it as little more than a subsidy-laden boondoggle for farmers and politicians. Noted economist and Financial Times commentator Martin Wolf recently waded into the fray with a firmly anti-biofuel column. Citing a report released by the Global Subsidies Initiative of the International Institute for Sustainable Development, Wolf writes:

"Energy security and climate change are two of the most significant challenges confronting humanity. What we see, in response, is the familiar capture of policymaking by well-organised special interests. A superb example is the flood of subsidies for biofuels. These are farm programmes masquerading as answers to energy insecurity and climate change. Not surprisingly, they have the depressing characteristics of such programmes: high protection, open-ended support to producers, and indifference to economic rationality."

He describes most of the policies and legislation in place as being highly irrational; for example, he explains how Brazil, one of the few efficient producers of bioethanol, faces huge markups in the U.S. and European Union - a consequence of prohibitive tariffs - while much less efficient corn ethanol-based technologies receive large government subsidies. As he points out, the subsidy to ethanol is often greater than the cost of petrol equivalent - often leading to much higher production costs.

Far from having a substantial impact on reducing net emissions of GHG, Wolf says, European rapeseed oil-based diesel and U.S. corn-based ethanol have in fact only made small contributions - 13% less than conventional diesel and 18% less than petrol, respectively. As we've argued at length in several past posts, most biofuel schemes would have a devastating impact on developing, food-importing countries:

"The rising price of food is good for producers. It is dreadful, however, for consumers, particularly for those in poor food-importing countries. Increased production of biofuels also adds stress on existing land and water supplies."

Listing several of the well-worn rationalizations policymakers have used to justify the continued production of biofuels, Wolf goes on to call the schemes a "costly system of transfers looking for a rationale" - equating them to the typical farm program. His proposed solutions: create a single global price of carbon, define more clearly the overall goals of reductions in GHG and let the markets determine which biofuels will work.

Though we remain dubious of many biofuel production schemes, we agree with Wolf that they can have a role to play - if the policies are designed rationally and efficiently with poor countries' interests kept in mind. One need not look at the current regime primarily through an economic lens, as Wolf does, to see it has many fallacies.

What's clear is that we need to move away from policies that favor hare-brained, special interest-abetted boondoggles that do little, if anything, to address our immediate concerns. It would be a shame for poor implementation to sink otherwise promising technologies.

Via ::Financial Times: Biofuels: a tale of special interests and subsidies (newspaper)

See also: ::Quote of the Day: David Suzuki on Biofuels, ::Biofuels Not Enough to Offset Damage Caused by Deforestation, ::The Dangers of Biofuel
Images courtesy of FT and the Global Subsidies Initiative

Tags: Biodiesel | Biofuels | Corn | Ethanol