Is fretting about US and EU biofuel policy missing the point?

By Steve Wiggins and Henri Leturque

With food prices rising again, concern rightly mounts over land being used to grow biofuels. The culprits, some think, are the US and EU mandates and subsidies for replacement of transport fuels from oil by biofuels. While there is good reason to criticise these policies, this rather misses the point.

With oil prices currently rising to more than US$85 a barrel, biofuels produced from tropical feedstock — sugar cane, oil palm, for example — are competitive without subsidies or mandates. In Brazil, ethanol from sugar cane becomes profitable when oil prices are above U$50 a barrel, while ethanol from cassava in Tanzania is competitive above US$60 a barrel, according to a recent FAO study. Looking at six developing countries, an ODI study suggested that returns to land and labour used to produce oil palm and sugar cane for biofuels could be much higher than for most other agriculture production at US$65 a barrel. This is all great news for biofuels investors; and for smallholders in developing countries as well, with the potential to lift many out of poverty.

But there’s clear danger here: left to the market, huge areas could be converted to cane, oil palm and other feedstock. How much is at risk? In 2007, the world consumed around 86 million barrels of oil every day (about 37% of world energy consumption), and this was expected to rise quickly in the coming years. If these fossil fuels were replaced by biofuel, the world would need at least one billion hectares to meet current consumption. This is two-thirds the area currently under arable and permanent crops across the world: probably larger than the remaining tropical forest as well.  With ready profits in oil palm plantations, what price the forests? 

The US and EU mandates and subsidies are beside the point. The real issue is to think how, in a world of private enterprise and free markets, we are to protect tropical forests and other suitable lands from mass conversion to oil palm groves and sugar cane fields.

The new EU biofuels certification policy  is one step forward. Its aim is to exclude feedstocks that threaten high biodiversity areas fromthe European market, as well as those with low greenhouse gas saving counts. But, with tropical biofuels competitive in world energy markets, it will take a bit more than this well-meaning and isolated regulation if market forces are not to remove tropical forests within a generation.

Yes, we need to worry about biofuels, but OECD policies are not the biggest concern.

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9 November 2010
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