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  Business Times Singapore 26 Jan 07
Biofuels may not be the answer
The great danger of the biofuels craze is that it will divert people from stronger steps to limit dependence on foreign oil
By Robert Samuelson

US PRESIDENT George W Bush joined the biofuels enthusiasm in his State of the Union address, and no one can doubt the powerful allure.

Farmers, scientists and venture capitalists will liberate America from insecure foreign oil by converting corn, prairie grass and much more into petrol substitutes. Biofuels will even curb greenhouse gases.

Already, production of ethanol from corn has surged from 1.6 billion gallons in 2000 to five billion in 2006. President Bush set an interim target of 35 billion gallons in 2017 on the way to the administration's ultimate goal of 60 billion in 2030.

Sounds great, but be wary. It may be a mirage.

The great danger of the biofuels craze is that it will divert people from stronger steps to limit dependence on foreign oil: higher fuel taxes to prod Americans to buy more petrol efficient vehicles, and tougher federal fuel economy standards to force car companies to produce them.

True, Mr Bush supports tougher - but unspecified - fuel economy standards. But the implied increase above today's 27.5 miles per gallon for cars is modest, because the administration expects petrol savings from biofuels to be triple those from higher fuel economy standards.

The politics are simple enough. Americans dislike high fuel prices; car companies dislike tougher fuel economy standards.

By contrast, everyone seems to win with biofuels: farmers, consumers, capitalists. What's not to like?

Unfortunately, this enticing vision is dramatically overdrawn.

Let's do some basic mathematics. In 2006, Americans used about 7.5 billion barrels of oil. By 2030, that could increase about 30 per cent to 9.8 billion barrels, projects the Energy Information Administration. Much of that gain would reflect higher petrol demand.

In 2030, there will be more people (an estimated 365 million versus 300 million in 2006) and more vehicles (316 million versus 225 million). Suppose we reach the administration's ultimate target of 60 billion gallons in 2030. That would offset less than half the projected increase in annual oil use by then.

Here's why. First, it's necessary to convert the 60 billion US gallons into barrels. Because there are 42 gallons in a barrel, that means dividing by 42.

Further: Ethanol has only about two-thirds the energy value of an equal volume of petrol. When you do all the arithmetic, 60 billion gallons of ethanol displace just under one billion barrels of petrol. If that merely offsets increases in oil use, it won't cut existing import dependence or greenhouse gases.

The 60 billion-gallon goal - and 35 billion-gallon interim target - are probably also unrealistic.

When we rhapsodise about biofuels, we're talking mainly about old-fashioned alcohol (aka ethanol). Until now, most ethanol has been made from corn. If small amounts of toxic petrol were not added, it could become corn whiskey.

Ethanol receives heavy federal subsidies. Oil refiners that blend it with petrol get a tax credit of 51 US cents a US gallon. The subsidy causes them to buy more ethanol, increasing corn demand. Naturally, corn farmers love this. They've been the programme's main beneficiaries.

Although ethanol displaces only tiny amounts of oil (slightly more than one per cent), it's had a big effect on corn prices. They're about US$3 a bushel, up from US$2 last year and the highest in a decade.

Higher prices for corn (which is fed to poultry, hogs and cattle) raise retail meat prices. Ironically, fuel subsidies may boost food costs.

But corn harvests won't be large enough to meet either the 35 billion or 60 billion-gallon targets. Large amounts of 'cellulosic' ethanol would also be needed - the term referring to the cellulose in other plants to be converted to ethanol.

Prime candidates are farm wastes, including wheat straw and cornstalks. Unfortunately, the chemistry for doing this is far more costly than for corn kernels. Without technological advances, cellulosic ethanol won't be economically viable. It could be supported only with massive federal subsidies or direct requirements forcing refiners to use the fuel, regardless of cost.

Biofuels are certainly worth pursuing. Up to some point, they're even worth subsidising. Government can nurture new technologies, and breakthroughs for cellulosic ethanol - hardly inconceivable - would make a meaningful difference in the US fuel balance.

But there's also a real threat that the infatuation with biofuels is a political expediency that will turn into a classic government boondoggle, benefiting selected constituencies and providing few genuine public benefits. That has already happened with corn.

America's primary need is to curb reliance on foreign oil. The most obvious way to do that is to improve the efficiency of vehicles by 30 per cent to 50 per cent over the next few decades.

Americans need more hybrids and more small vehicles.

Biofuels might be a complement, but if they blind us to this larger reality, they will be a step backward.

The Washington Post Writers Group

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