Biofuel scam

UPDATE (11 Feb 2014): This article has been substantially revised since initial posting.

One popular idea for addressing energy security, energy "independence," and the trade balance, is biofuels.

The idea is to use modern farming technology to grow sugars that can be converted to fuel for modified car engines, or even biomass energy (e.g., growing plants to be burned for electric energy; the carbon released will be sequestered by plants being grown for more fuel).¹ The carbon released in biofuels, likewise, is supposedly captured by the process of renewing them. A major dilemma, however, has been the energy return on energy invested (EROEI) of biofuels in non-tropical regions.²  If EROEI is less than 1, then even very high market prices for gasoline/diesel fuels will not make biofuels economically viable: the energy deficit has to come from somewhere--most likely, the gasoline or diesel the fuel was supposed to replace in the first place.  If the EROEI is greater than 1, but not by much, then erosion and other emissions will more than offset any greenhouse gas reductions from the enterprise.³

In "The Clean Energy Scam," author Michael Grunwald reports on the disastrous impact the biofuel sector has had on the Brazilian rainforest.

Time: But the basic problem with most biofuels is amazingly simple, given that researchers have ignored it until now: using land to grow fuel leads to the destruction of forests, wetlands and grasslands that store enormous amounts of carbon.

Backed by billions in investment capital, this alarming phenomenon is replicating itself around the world. Indonesia has bulldozed and burned so much wilderness to grow palm oil trees for biodiesel that its ranking among the world's top carbon emitters has surged from 21st to third according to a report by Wetlands International. Malaysia is converting forests into palm oil farms so rapidly that it's running out of uncultivated land. But most of the damage created by biofuels will be less direct and less obvious. In Brazil, for instance, only a tiny portion of the Amazon is being torn down to grow the sugarcane that fuels most Brazilian cars. More deforestation results from a chain reaction so vast it's subtle: U.S. farmers are selling one-fifth of their corn to ethanol production, so U.S. soybean farmers are switching to corn, so Brazilian soybean farmers are expanding into cattle pastures, so Brazilian cattlemen are displaced to the Amazon. It's the remorseless economics of commodities markets. "The price of soybeans goes up," laments Sandro Menezes, a biologist with Conservation International in Brazil, "and the forest comes down."

Deforestation accounts for 20% of all current carbon emissions. So unless the world can eliminate emissions from all other sources--cars, power plants, factories, even flatulent cows--it needs to reduce deforestation or risk an environmental catastrophe. That means limiting the expansion of agriculture, a daunting task as the world's population keeps expanding.

It's difficult to to make this connection obvious, especially given the amazingly pervasive greenwashing of biofuels by investors like BP.

The Problem with "Energy Independence"

Ever since the Nixon Administration (and the Arab Oil Embargo of 1973), US leaders have paid lip service to the goal of "energy independence." The concept is willfully vague, in part because ambiguous goals are easier to meet than explicit ones; but one metric of energy dependence might be the share of transport fuels that have to be imported. So, for example, if most transport was powered by domestically-produced electricity, it would be all right if a country imported most of its crude oil since its crude oil consumption played a small economic role anyway.

That's obviously not the case for the United States.

Oil is an extremely important economic input in the US industrial system and will remain so for a long time to come. This is widely recognized, so a lot of advocates for energy independence have called for either increasing domestic production, or else for subsidizing energy substitutes like biofuels.

Increasing domestic production is a motivation behind long-standing tax subsidies for producers, such as the oil depletion allowance.⁴ This subsidy is quite expensive and consists of a huge subsidy to investors for exploration (especially on federal lands). It has had the effect of increasing the rate of US oil extraction above market levels, meaning that tax policy has stimulated oil depletion of US territory. If nothing had been done, then presumably oil would have been slightly costlier, and the USA would have greater reserves than it actually does. Very likely it would have developed an economy less dependent on cheap oil, and today we would consume less and have more.

In other words, the pursuit of energy independence has, in practice, meant a commitment to more oil of US provenance now, at the expense of more oil in the future. It's meant cheaper oil, but higher taxes, meaning that the US government has intervened elsewhere--just as it did with agriculture--to support prices made artificially low by exploration subsidies. At the pump, oil is taxed less than it is in other industrial countries, but Americans pay higher taxes to subsidize exploration and recovery (since the oil companies pay hardly any taxes, and they can get substantial rebates from the US government just for depleting the government's own oil). This has resulted in greater oil dependency, leading to a secular trend--over long periods of time--to costlier oil, more imports (as domestic output exhausted the low-hanging fruit).

One could argue that the quest for "energy independence" has been amazingly void of serious public discussion. It's a bromide that no one takes seriously.

This is far from unusual, incidentally. Many countries have policies that, taken altogether, are astonishingly perverse. But that's not the point.

The point is that "energy independence" has never been taken seriously by its proponent, other than as a scheme to get more perverse and destructive policies. It can be used to contrive "successful" arguments, or rationales, for "green" subsidies that actually make environmental problems worse. If the object is merely to replace imports of energy with anything, however costly, then "energy independence" is an insidious folly. If the object is to mitigate an actual problem with national accounts, or with environmental impact, then a serious discussion of costs and benefits is far more likely to ensue.

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Notes

1. For an introduction to the concept of "biomass" as a source of electricity generation, see Zia Haq, "Biomass for Electricity Generation," US Department of Energy: Energy Information Administration Annual Energy Outlook (Dec 2001--accessed 11 Feb 2014)



2. For estimates of EROEI for various energy sources, some options are: Dana Visalli, "Getting a decent return on your energy investment," Resilience blog (12 Apr 2006). Unfortunately, this article does not examine biofuels in detail; it merely introduces the concept of EROEI. One study of Brazilian cane sugar ethanol is Edward Smeets, Martin Junginger, André Faaij, Arnaldo Walter, & Paulo Dolzan, "Sustainability of Brazilian bio-ethanol", Copernicus Institute--Utrecht University  (Aug 2006), whose findings are summarized in Robert Rapier, "Report: Brazilian Ethanol is Sustainable," The Oil Drum blog (6 Oct 2006).  I will freely admit that I have not read the entire 135-page report and am wholly reliant on the summary in The Oil Drum.  Rapier concludes that an estimated EROEI of 8.3(or more) is valid for Brazilian sugar cane.
   
   Rapier helpfully includes analysis of soil erosion from corn versus sugar cane; Brazilian cane has an erosion rate of about 1.24 t/ha/yr, compared to US corn erosion of 12 t/ha/yr. So even if the EROEI were sharply increased in corn ethanol, this would have a disastrous impact on North American land fertility.
   
   Estimates of EROEI for corn ethanol in the USA seem to range from 0.9 to 1.65; see Roel Hammerschlag, "Ethanol’s Energy Return on Investment: A Survey of the Literature 1990−Present" in Environmental Science & Technology, 2006, 40 (6), pp 1744–1750. The lower estimate factors in the costs of farm machinery.


3. For those interested in the subject, there are several issues. Suppose (for sake of discussion) the EROEI for some ethanol cycle is 2. This means for every joule of energy used to produce the fuel, 2 joules worth of energy are "created" (technically, the energy is not created at all, but captured from sunlight by photosynthesis).  That particular sector will consume energy equivalent to its entire output for the rest of the economy, since half of its output--or equivalent--will need to be plowed back into the production process. Even the most optimistic estimates of corn biofuels suggest an EROEI much less than 2 in North America.  "In theory," this would be sustainable, if goofy--if the only environmental impact were greenhouse gas emissions from direct consumption of fuel.


4. The oil depletion allowance is an exceptionally sweeping tax exemption that allows many profitable oil companies to avoid most taxes. The method of assessing it was changed (supposedly removing some of the oil companies' tax advantages) in 1975, but in fact it was merely re-arranged. The oil depletion allowance was created in 1926 and has survived, and even become more baroque with time. David C. Johnston, Daniel Johnston, Introduction to Oil Company Financial Analysis, PennWell Books (2006), p.67ff. For analysis, see Gary Zatzman & Rafiqul Islam, Economics of Intangibles, Nova Publishers (2007), p.179ff. One does not need to accept Zatzman's and Islam's overall ideological conception to benefit from their explanation of the financial returns accruing from the oil depletion allowance.

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Sources & Additional Reading

Michael Grunwald, "The Clean Energy Scam," Time (27 Mar 2008) (via LunchoverIP, Bruno Giussani)

US Energy Information Administration website--extremely valuable source of data for energy price history, global consumption, and so on.