CONGRESS WAKES UP TO THE BAD NEWS ABOUT BIOFUELS

This story first appeared in Bloomberg Businessweek.

A few weeks ago, Democratic Senator Diane Feinstein of California and Republican Senator Tom Coburn of Oklahoma introduced legislation to free the fuel industry from requirements to blend their gasoline with ethanol made from corn. Usually the only proposals to attract bipartisan support in Congress are naming post offices or rushed approvals of poorly designed palliatives in the aftermath of a crisis. In this case, the rarely matched senators are tackling a seriously flawed policy which wastes money, harms the environment, and raises food prices worldwide.

Only a few months ago, their parliamentary peers in the European Union voted to rein in similar biofuel legislation across the Atlantic—only to see those efforts stymied by the agriculture lobby. That makes it all the more important that Feinstein and Coburn succeed.

U.S. legislation in 2007 mandated that a growing quantity of “renewable” biofuels be mixed with gasoline—9 billion gallons in 2008, climbing to 36 billion gallons by 2022. Last year the U.S. Environmental Protection Agency, responsible for implementing the law, demanded fuel companies mix in 14 billion gallons of corn-based ethanol and 2.75 billion gallons of so-called advanced biofuels, which are usually manufactured using scrap wood or corn husks. In the EU, the target legislated in 2009 calls for transportation fuel to be 10 percent biofuels by 2020.

Although ethanol is more expensive to produce than regular gasoline, the biggest problems with the mandates aren’t higher prices at the pump. The biofuels regulations result in higher food prices, and their impact on the environment is at best slightly positive and could be negative. Almost completely because of the EU and U.S. mandates, global ethanol consumption quintupled in the first decade of the 21st century. About 40 percent of the U.S. corn crop goes into ethanol, while in Europe biodiesel consumes two-thirds of oilseed production. Those are crops and cropland that could be used to produce food for human consumption.

The part played by ethanol mandates in the global food price spikes of the last few years is debated. But it’s worth noting that as the U.S. corn ethanol mandate climbed from 4 billion gallons in 2006 to more than 12 billion by 2011, corn prices more than doubled. And rising food prices have a particularly large effect on poor people, who spend a much larger percentage of the small incomes they do have on food. Ethanol mandates have acted as an efficient way to funnel cash from the world’s disadvantaged to its agro industry conglomerates.

In addition to their impact on poverty, the mandates have proven an awful way to help the planet. To produce ethanol you have to farm corn using fertilizers and tractors, then transport the crop and process it into fuel. That all takes energy. And in some cases the land used for farming had been forest that was burned down to cultivate biofuel crops.

Estimates compiled by Kimberly Elliott of the Center for Global Development suggest that the average production method might result in corn ethanol reducing overall emissions by 21 percent compared with gasoline. But in some cases the ethanol takes more energy to produce than it delivers in the engine, raising overall emissions. In Europe, the net savings in carbon emissions from the biofuels mandate vary from 6 percent to negative 12 percent.

As demand for biofuels expands, an increasing proportion—about one-fifth—of European consumption relies on palm oil, much of it grown in Indonesia. Rain forests are being clear-cut there to increase palm oil production. That’s not what backers of this supposedly green fuel had in mind.

Brazil has managed to produce ethanol far more effectively using sugar cane, and the county has achieved a 20 percent mix with gasoline. The environmental impact of advanced biofuels using agricultural waste products in the U.S. and Europe is considerably better. But the problem is that the supply of advanced biofuels has not come close to meeting demand—so much so that fuel producers in the U.S. are paying fines for not using mandated levels of advanced biofuels, amounts the market simply can’t deliver. Funneling the resources being squandered on corn ethanol toward development of advanced biofuels would be a far more effective strategy for the environment and for food security.

In response to these problems, the European Parliament voted in September to cut the 2020 biofuels requirement from 10 percent to 6 percent. The leaders of the EU countries had to agree on how that would be done for the law to come into force last year, and they failed to do so. The legislation will be delayed until 2015. In the U.S., meanwhile, the EPA slightly reduced the 2014 biofuel requirement using emergency powers under existing legislation.

Senators Feinstein and Coburn want to go considerably further and completely abandon the corn ethanol mandate. Especially given the failure of European reform, that not only would be good for American consumers, but good for the global environment and poor people worldwide.