Biofuels - At What Cost?

National Press Club, Washington D.C., Wednesday October 25^th 2006, 12.00pm Subsidies to biofuels have reached record levels in the United States and are a costly way of achieving public policy objectives, according to a report launched today by the Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD).

"Biofuels: At What Cost? — Government Support for Ethanol and Biodiesel in the United States", is the first of six country studies commissioned by the GSI and planned for release over the coming months. The report provides the most comprehensive survey of subsidies to biofuels to date, cataloguing hundreds of government programs that support virtually every stage of production and consumption relating to ethanol and biodiesel.

"Many of these subsidies are poorly coordinated and targeted," says Simon Upton, director of the GSI. "All indications are that subsidies are being piled on top of one another without policy makers having a clear idea of their potential impact on the environment and the economy. Yet the potential for waste on a grand scale and some spectacularly perverse environmental outcomes is large."

The report estimates that subsidies to biofuels are between $5.5 billion and $7.3 billion a year. Those figures are expected to grow significantly if current policies remain in place, as the bulk of biofuels subsidies are tied to output and output is increasing at double-digit rates of growth.

Government subsidies to biofuels in the U.S. have lately been promoted as a way to simultaneously address concerns related to the environment, energy security, and rural development. But the cost-effectiveness of achieving these goals under the current subsidy regime is low.

The report finds, for example, that biofuels are an extremely high-cost means for reducing greenhouse-gas emissions. Under optimistic projections, it costs some $500 in federal and state subsidies to reduce one metric ton of CO₂-equivalent through the production and use of corn-based ethanol.

"That could purchase more than 30 metric tons of CO₂-equivalent offsets on the European Climate Exchange, or nearly 140 metric tons on the Chicago Climate Exchange," notes the report's author, Doug Koplow.

Moreover, the sheer levels of government support to biofuels appear out of proportion to their ability to satisfy domestic transport-fuel requirements. Current forecasts are that biofuels would account for less than 5 percent of total transport fuel use in 2010.

"Because most liquid biofuels will be consumed as blends with gasoline or petroleum diesel, biofuels will for some time to come be complements to petroleum-based transport fuels, not major competitors with them," observes the GSI's Director of Research, Ronald Steenblik.

The Global Subsidies Initiative is concerned that widespread and largely uncritical support has surrounded liquid biofuels with a sense of inevitability, eclipsing other energy alternatives.

"There is an urgent need to examine the claimed benefits from biofuel subsidies, and to compare them with the costs of meeting the same goals in other ways," says Mr. Upton. "Until then, we suggest that the U.S. Congress and the States declare a moratorium on programs that would increase or extend subsidies to liquid biofuels, with a view to developing a plan for phasing out subsidies to all transport fuels as quickly as possible."