Global Development: Views from the Center

I've read, and blogged, a bunch of articles on this biofuel scam but I must say yours is the most comprehensive one yet. Good work putting this together. The biofuels=higher food priced correlation has to get out to anyone that will listen.

We urgently need a carbon-solutions-neutral advisor

Like the obese compulsive eater reaching for his sugar substitute it is amazing to see the growing divergence between how serious our global environmental problems are reported to be and the type of solutions that are put on the table.

As long as you think that you could throw some ethanol, some solar panels, some windmills, some “clean” coal slogans or some recycling of unsold-food-into-energy on those problem… well then it cannot really be that bad.

As long as hurting the environment is considered just venial sins that you can take care of by buying some carbon indulgences… well then it cannot really be that bad.

As long as you could argue to developing countries that they have the right to expect developed countries to foot the bill for confronting their environmental urgencies instead of being forthright telling them not to count much on that and to get cracking… well then it cannot really be that bad.

Our problem is not so much realizing how serious the environmental problems really are, but how to keep all the green-magical-solution potions peddlers from meddling... which means something like the environment being something too serious to be left in the hand of environmentalists.

At this junction what the world needs most is a carbon-solution-neutral agency sufficiently capable and credible to spell out the truths… like for instance that the US has to impose European levels of taxes on gasoline consumption if they are going to get anywhere… and that given the scarcity of resources there are thousand of solutions that are more economically effective than hybrid-cars.

The World Bank does seem as the natural place to host such an agency but this of course could require some shake, rattle and roll, as can be exemplified by the fact that in the Energy Efficiency Portfolio Review and Practitioner's Handbook published by the Global Environment Facility (GEF) and of which the World Bank is one of the implementing agents, there is not a single phrase that defines what on earth, on the earth, energy efficiency really means.

Also in all documentation related to the development of an Investment Framework for Clean Energy and Development I challenge anyone to find a definition of what is meant with clean energy… most probably because that could lead to a more precise definition of what is “dirty energy” which would be quite uncomfortable for some.

Friends, a truly carbon-solutions-neutral advisor would probably not allowed biofuels to even show up for the casting.

Of course, increasing production of corn-based ethanol leads to decrease in total world corn supply and increase in price. But, how much does bio-fuel production account for the current rise in food prices? Its not just corn price that is rising- price of almost all the staple crops are rising. Demand for food has been rising for couple of years. Why did we see such a spike in prices this time around?

In reference to Biofuels, I am sending you (in another e-mail)the english translation of an article that I have recently published in the renowned brazilian journal "Conjuntura Econômica", of the "Fundação Getulio Vargas".

Best regards,
M. Averbug

Coming from Ghana,a developing country south of the Sahara, i can only blame past governments for paying little attention to investment in agriculture, particularly food crop farming. The effects of trade liberalisation combined with a skewed focus on cash crop production, especially cocoa (which is largely inspired by the country's export-led growth strategy), has taken a severe toll on food security in Ghana. Moreover, the effects of climate change is gradually fashioning a rainfall regime which is difficult to predict and thus leaving farmers confused.

The role of the World Bank and IMF in pushing for the above policies has resulted in a creating a very precarious situation, which needs urgent attention. Already, food shortages have been predicted for Northern Ghana, which used to serve as a food hub for the country. The local rice industry has virtually collapsed: largely overwhelmed by cheap, subsidised imports and foreign taste of Ghanaian consumers. The rising prices of food crops, especially rice and wheat, in the global market is therefore a huge challenge as it already reflecting in the prices of these and other related items in the country.

The immediate solution would be food aid however the medium to long term solution to the situation would be massive investment in the agricultural sector. Various studies, including those of the WB/IMF confirms this. As Kofi Annan remarked in an interview, it is only Africa that is yet to experience a green revolution.

If you haven't seen the very recent report from Texas A & M, I strongly urge you to read it. It correctly points the finger for higher food prices where it belongs.....at the oil industry and exorbitant fuel prices - not at biofuel subsidies. Food prices have skyrocketed due to the large multiplier effect of oil prices on all foods, not the very limited number of human foods that may be affected by biofuel subsidies. See: "The Effects of Ethanol on Texas Food and Feed" © 2008 by the Agricultural and Food Policy Center
Research Report 08-1
Agricultural and Food Policy Center
Department of Agricultural Economics
2124 TAMU
College Station, TX 77843-2124
Web site: www.afpc.tamu.edu

Thanks for all the great comments. Let me just respond on a couple of things. First, I would be the first to say that cutting subsidies for the current generation of biofuels is only a part of the needed response to the food crisis. In an earlier post on food prices, I noted the role of oil prices in driving up farm costs, as well as rising food demand in China and elsewhere, and discussed some of the other policy options. The reason for focusing on biofuels is two-fold: because it is one of the few readily available policy levers in the short run, and because they are not helping the environment, which is the main justification!

A couple of comments:

1. Proper response to this food/fuel crisis is greater investment in agriculture - with technical assistance for "sustainable agriculture" - to increase resource productivities (land, labor) in Africa and Asia. Here is an opportunity for the poor people, who must be terribly confused that the West wants to import more crude from their countries but not bioliquids. Under the current architecture for global regulation of GHGs, emissions at the production end in the poor countries are not limited but those at the tailpipe in the rich countries are; so, if the tailpipe emissions are lower with bioliquids, it makes sense to exempt them from import taxes.

2. Every single technical analysis of GHGs from biofuels supply chains that I know of has looked only at CO2, the least harmful of all GHGs on a per kg basis. Considering that biofuels, especially biodiesel, have more complete combustion and lower particulate emissions (soot, now thought to be the second most important warming agent after CO2)and possibly lower VOCs, it may well be that, all emissions considered, biofuels are superior. That is, even if fuel-cycle CO2 emissions increase, reductions in non-CO2 GHGs justify switching to biofuels.

I agree, very good comments and a debate that needs to happen. An underlying theme that has evolved in the argument to discontinue corn ethanol subsidies in the U.S. is that "recent research published in Science magazine suggests that when land-use changes are taken into account, production of corn-based ethanol actually leads to a net increase in greenhouse gas emissions. Responding to high prices and a congressional mandate to increase the use of ethanol, farmers are restoring production on environmentally sensitive land that had been protected under a land conservation program. Similarly, the diversion of cropland from food to fuel will lead to even more grasslands being plowed up or forests cut down to meet both the growing demand for ethanol and food."

This statement is simply not true. USDA has NOT "released" any farmer from his committment to the Conservation Reserve Program, nor any other conservation program. Check it out. If, at the end of their 10 or 15 year committment, a farmer chooses to opt out of the program, he may do so. Yet most don't because the costs (financial and personal)of doing so outweigh the benefits, even with corn prices at record levels.

Unless you have lived in the Heartland you don't see the large amount of good farmland that sits idle, not in any USDA program, but idle due to farm foreclosures, real estate transactions, estate settlements, too few farmers in an area that can't afford to expand their operations, etc. Last year's large increase in corn acres came at the expense of other crops, which reduced their supply and prices went up. This year, however, corn plantings are down due to competition for acres from other crops and high production costs. An increase in overall plantings is coming largely from those idle acres that may not have been planted in recent years due to low prices, etc. Very little of the acreage increase is coming out of conservation programs.

USDA's position is to let the markets sort it out....i.e., that there is not yet a need to "open" the CRP and contribute to the negative environmental effects. On the other hand, the European Union has opened it's conservation programs for planting, and the Brazilians have not necessarily shown a need to stop deforestation.

I'm afraid your response, to eliminate a "readily available policy lever," is just the sort of panic you hoped to avoid. Everyone agrees that corn ethanol and/or soy biodiesel are short term reponses to record high fuel prices. But it is the only response that has a readily available, large scale production/storage/transportation/delivery infrastructure that can be brought into play. Eliminate the current level of ethanol production, add at least 15 cents per gallon to the cost of your gas. That's today. Two years from now, if corn ethanol production expands, ethanol will pplay an even larger role, fuel prices should fall more, and the U.S. and the World gain just a little more freedom from the oil producing nations, and maybe there is less incentive for wars to be fought over oil. Ethanol, and food, are renewable; oil and the lives of civilians and soldiers in a war are not.

Longer term solutions must be, and are being, pursued. In the meantime, don't yank out one of the few "levers" we have available to respond!

Yes, cut the subsidies, and cut the taxes that finance those subsidies. If bio-fuels are such a cute invention, then their producers should be making big profit even without government subsidies. Now if they make profit only because of subsidies, time to reduce production for biofuels and increase food production.

Kimberly: great blog, but I'm a bit surprised that you did not provide any information on the actual amount of the subsidies provided by federal and state policies. This information is provided in two reports prepared for the Global Subsidies Initiative by noted energy expert Doug Koplow. The first report "Biofuels--At What Cost: Government Support for Ethanol and Biodiesel in the United States", published in October 2006, details the entire history of U.S. Government support for biofuels through September 2006. The second report, published in October 2007, updates the support estimates and discusses the various Congressional proposals for supporting biofuels that were pending at the time.

A recently released report on support policies in Australia, as well as previous reports on support policies for biofuels provided by the EU and by Switzerland, can all be downloaded for free from the GSI's home page.

Sure, yank the subsidies you don't like, but impose the subsidies you do like? Why not lose subsidies altogether? Shift discretionary spending from politician and bureaucrat (what, wonks won't like that?) and let citizens spend their own public revenue. A la Alaska's oil dividend, divvy up surplus public revenue among the citizenry, letting people choose the providers who most closely meet their needs, so the market can respond to their "effective demand". And lose tariffs and other counterproductive taxes as on income, sales, and buildings. Instead, tax pollution, depletion, and locations. Have us all pay for the values we take, not the values we create. Each year we spend trillions on "bads"; recover it, share it, and forget de-funding the unwanted and subsidizing favorites.