|Full lifecycle environmental impact of fuels based on UBP (UmweltBelastungsPunkte) indicator from The Swiss Institute. The UBP represents environmental impact on human health, ecosystems and the depletion of natural resources. Click to enlarge.|
A study, prepared for discussion by the OECD (Organization for Economic Co-operation and Development) Roundtable on Sustainable Development, concludes that the potential of current biofuel technologies—ethanol and biodiesel—to deliver a major contribution to the energy demands of the transport sector without compromising food prices and the environment is very limited.
The report—Biofuels: Is the Cure Worse Than the Disease—suggests that although second-generation technologies are promising, they may never be viable; that the economic outlook for biofuels is “fragile”; and that government policies are “inefficient”, "not cost-effective” and are setting ambitious market shares without an in-depth understanding of a sustainable production level and from where these biofuels could be supplied.
The report, which was leaked prior to public release, is to be discussed today and tomorrow by ministers and representatives meeting in Paris.
The report notes that global production of biofuels amounted to 0.8 EJ in 2005, or roughly 1% of total road transport fuel consumption. Technically, up to 20 EJ from conventional ethanol and biodiesel, or 11% of total demand for liquid fuels in the transport sector, has been judged possible by 2050, with another 12% potentially coming from second-generation biofuel technologies.
Biofuels could thus theoretically achieve a market share of nearly a quarter of the liquid fuels market in 2050 (11% from conventional and 12% from advanced technologies). However, it seems unlikely this potential will be realised, as concerns over food prices and environmental degradation caused by first generation technologies suggest that the potential of conventional technologies might be closer to current production levels. Furthermore, commercialisation of second-generation technologies is still a (distant) possibility with only several pilot and demonstration plants currently being built.
But this is only part of the reason. The unfavourable economics of biofuels also suggests that the market share of nearly a quarter is unlikely to be realised. More realistic is the roughly 13% market share in 2050 calculated by the IEA (2006a)—an estimate that takes relative fossil fuel prices into account. If that target were to be met, the avoided CO2 reduction from increased biofuels would be almost 1.8 Gt, or 3% of energy-related CO2 emissions in a business-as-usual scenario. Given the projected growth in demand for transportation fuels, this will not reduce overall petroleum fuel consumption below current levels but only moderate the growth in demand.
|Subsidies (in red) at different points of the biofuel supply chain. Click to enlarge.|
Furthermore, the study concludes, this 3% reduction would come a large cost in the form of required government subsidies.
The cost of obtaining a unit of CO2-equivalent reduction through subsidies to biofuels is extremely high, well over $500 per tonne of CO2-equivalent avoided for corn-based ethanol in the United States, for example, with other researched countries not performing much better. The score is also not very favourable in terms of displacing fossil fuels. In most cases the use of biofuels roughly doubles the cost of transportation energy for consumers and taxpayers together.
The report suggests the following policy directions for discussion:
The strategic importance of and objectives for first generation biofuels need to be refocused and refined. International organizations such as the IEA, OECD, FAO and World Bank need to continue to adopt a soundly-based, common understanding of the limits of both traditional and second-generation biofuels in their analysis of energy futures.
Priority should be given to research into second-generation biofuels— not only technologies, but also the assumptions regarding the cost and long-term availability of their feedstocks. Domestic policy efforts should be redirected from (subsidy) instruments aimed at the deployment of biofuels in general back to the R&D and demonstration phase of advanced biofuel technologies.
Further research is needed to verify the environmental benefits for each biofuel production pathway, feedstock and location.
National governments should cease to create new mandates for biofuels and investigate ways to phase them out, preferably by replacing them with technology-neutral policies such as a carbon tax. Such policies will more effectively stimulate regulatory and market incentives for efficient technologies.
Policy efforts to develop certification of biofuels must be unified. Only a global and coherent approach stands a chance of making a positive difference.
Certification of biofuels—and the design criteria to use them in combination with GHG emissions reduction regulations and preferential tax treatments—should be urgently placed on the WTO agenda. A special committee on trade and environment has been created to channel these discussions and could possibly be used to this end.
The WTO should also be used to step up efforts to lower trade barriers to biofuels imports, allowing developing countries that have ecological and climate systems more suited to biomass production to use their comparative advantage.
More work needs to be done to assess the relative importance of biofuels in developing countries as an export commodity and as a means to provide excess to modern, more efficient and less polluting energy sources. It may be that in many developing country circumstances it would be more productive to channel efforts to developing other forms of bioenergy than liquid fuels. More help should be provided to developing countries in identifying opportunities to use biofuels to enhance economic progress.