Biofuels
Until recently, I’ve been dismissive of biofuels (the paradigm example of which is ethanol, derived either from food crops such as sugar and corn, or from grasses such as switchgrass), a viewpoint shared by most economists I know. The ethanol industry in both Australia and the US has relied more on government subsidies than on meeting market needs. Some subsidy to ethanol might be justified as the equivalent of a carbon credit, but the existing processes are so opaque that it’s hard to tell. There’s also been criticism based on the claim that the production of ethanol uses more fossil fuel energy than it saves.
It’s now time to reconsider this issue. With oil prices at $US75/barrel, it seems likely that biofuels can be economically competitive without the existing subsidies, and there are serious suggestions that biofuels could replace 20 to 30 per cent of existing fuel consumption. Since I’ve previously argued that demand-side measures could easily reduce consumption by 60 per cent relative to current levels, that suggests the possibility of cutting our current consumption of petroleum in transport by 80 percent or more, with only modest adjustments, over time, to our current patterns of transport.
There are still plenty of unanswered questions here. While the view that ethanol production uses more energy than it saves appears to be based on some dubious calculations, current production methods rely heavily on natural gas. If large-scale savings are to be achieved, it would be necessary to use biowaste inputs such as corn stover instead.
Then there’s the question of effects on food supplies, which is most obvious if food crops like corn and sugar are used as inputs, but also arises if arable land is diverted to the production of feedstock. Producing substantial quantities of biofuel, while expanding food output to meet the needs of 9 billion rather than the current 6 billion (of whom at least a billion are undernourished as it is) will be a big challenge. Still, there is plenty of room to increase output in the developed countries through continued progress in crop breeding, and much more in less developed countries and the former Soviet Union.
On a related issue, demand for transportation is growing rapidly outside the developed world and that demand needs to be addressed one way or another. However, given that this growth seems likely to take place in a context of permanently high fuel prices, developing countries have a strong incentive not to emulate the patterns of the developed world in this respect.
Wednesday 23 Aug 2006 | John | Climate change
[...] Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this for w, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US. [...]
[...] Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this for w, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US. [...]
[...] Even if supplies have peaked (or, more plausibly, flattened out at the top of the curve), I doubt that prices will go much higher than this, though $100/barrel is certainly possible. If current prices are sustained, a lot of alternatives will become cost-competitive, as already seems to be happening with biofuels in the US, and long-run demand reductions will be substantial. [...]
Biofuels open up interesting scenarios also in global trade. With high petrol prices and established biofuel technologies, countries have less and less interest in opening their economies to international trade. Farmers would have new domestic markets, would rely less on subsidies to sustain their standard of living, and would increase their political power within a country . This could lead to more regionally integrated markets and less global trade. It may actually lead to a second agrarian age.