Uncharted Territory

July 29, 2008

Biofuels: an Energy Security (and Price) Own Goal?

Filed under: Biofuels, Economics, Global warming, Oil price, Politics — Tim Joslin @ 12:13 pm

Here‘s the written form of the BBC story about the Obama campaign team’s second thoughts about biofuels, which I heard on the radio and wrote about yesterday. I wasn’t dreaming!

The written piece includes a couple of points I don’t recollect hearing in the radio version. Apparently, “[Obama] has also said in the past that the subsidies help with energy security and climate change” and he “has also backed President Bush’s controversial coal-to-liquid fuel programme which benefits coal miners in the south of his home state.”

Obama’s advisor, Professor “Kammen’s paper says that a car will emit more greenhouse gases [GHGs] driving on corn ethanol processed with coal than it will using normal petrol.”

What the BBC report (or Professor Kammen) doesn’t mention is the energy balance (or the energy returned on energy invested, EROEI) for corn ethanol. We established yesterday that biofuel subsidies do not help with climate change, so perhaps Obama should stop saying they do. If they don’t help with energy security either, then that would remove Obama’s entire rationale for supporting them. Not that, given the wonders of the political process, he couldn’t get away with simply falling back on the apparent European (and probably US) historic position that farmers (“ours”, not those in poorer countries, of course) are different to the rest of us and their lifestyle should be subsidised, period. At least we’d then all know where we stand.

What we also have to bear in mind is that, although some forms of energy are more useful for some applications than others, different forms are interchangeable, at the margin. Here in the UK, natural gas and electricity prices are rising steeply in step with the oil price. In fact, you more often here about the “energy crisis” than the “oil crisis”, since whereas the overwhelming priority in the US seems to be to carry on driving, here it’s simply to keep our poorly-insulated homes warm. There is a lot of concern about “fuel poverty” in the coming winter. Indeed, as Bush and Obama realise, over the longer term, coal can be converted to oil (if you don’t care about the GHG emissions).

Oil is the most valuable fuel, and, all else being equal (i.e. if the price at the pump doesn’t change enough to compensate), we may well be able to reduce national consumption by displacing some with biofuels, though, globally, we will likely simply use the oil elsewhere – the Displacement Fallacy (pdf). If every country produces biofuels, though, then the oil price will drop and consumption will rise. The oil price will in turn tend to rise again because of the increased consumption and we’ll simply be back where we started from. Oil will still be expensive, but we’ll simply be consuming biofuel as well, that is, more fuel in total (there’s nothing “closed” about the global warming problem). Clearly, there is a complete lack of clarity as to what we’re collectively trying to achieve even in terms of the oil market. More on this another time.

What I want to stress here is that, because some uses of oil are interchangeable with other forms of energy, there is a basic energy price even though oil is at a premium. So, if producing biofuel does require more energy than the oil it “displaces”, then, sure, we might reduce the premium commanded by oil, at least temporarily, but we’d be likely to increase the basic price of energy by a greater amount. Biofuel may be an energy security, and price, own goal.

Now, we can’t simply say that the EROEI is negative for corn ethanol, just because Professor Kammen has shown that the use of corn ethanol results in more GHG emissions than “normal petrol”. The corn ethanol inputs include coal which produces more emissions per unit energy than oil. But not much more – we’re not talking about the difference between oil and natural gas (i.e. methane) here. The link to their original source is broken, but the Energy Information Administration (EIA) notes that: “According to the United Nations Environment Program, coal emits around 1.7 times as much carbon per unit of energy when burned as does natural gas and 1.25 times as much as oil.”

But, when answering the question as to whether the American taxpayer gets any energy security in return for their corn ethanol subsidies, we need to include all the energy consumed in producing corn ethanol. We need to include the (amortised) energy cost of all the facilities required, from ethanol refineries to improved roads and vehicles. We need to include the energy consumed directly and indirectly by the people receiving the subsidies, compared to what they may have done otherwise. We would have to base “what would have happened otherwise” on the energy consumption of the average American. That is, we need to add in, as an energy cost of biofuel subsidies, all the energy, above that used by the average American, consumed by the owners, employees and contractors of the farms, refineries and distribution infrastructure required for corn ethanol production. We would also need to make an allowance for the extra energy consumption – made possible by the subsidy bonanza – by the communities in corn ethanol production regions. And, as I noticed one wit observe on a blog recently, we might need to allow for all the flights to Washington by corn ethanol lobbyists. I could add that we should also account for all the hot air expended on the campaign trail.

And water is important. We may find that we are reducing river flows by taking water to produce biofuels. Further downstream we may be having to put in energy to get water – either by building salination plants or using energy to import water.

Fully determining the EROEI for corn ethanol is a tricky exercise. I don’t believe it has been or can be done to a high level of accuracy. That’s why subsidies and quotas are evil. If the energy value of all the inputs and outputs was represented by their cash value we would know whether it was “worth” producing ethanol from corn, at least in energy terms. (Don’t forget I’m just talking about energy value here – I’ve already established that biofuels make the global warming problem worse. Once we put a cash value on carbon storage and other ecosystem services – which I advocate – then growing biofuel crops is for Tin Men: you’d only do it if you had straw for brains).

As it is, it is quite likely that we are putting more useful energy into corn ethanol than we are getting out. As the price of oil increases, many countries – not just the US – are instituting quotas and subsidies for biofuels without knowing whether they actually save energy. If they don’t, this will end up pushing up the market cost for all forms of energy. Or reducing energy security, for those who prefer to frame the issue that way. Panicking governments into even more generous incentives for biofuels…


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