Study: Biofuels 14x to 31x More Costly than Raising the Gas Tax

  • Published on January 3rd, 2012 by

Washington Canola Biodiesel

Could the cost-efficacy and net benefit of biofuels be worse than we thought?

A study released by Oregon State University (OSU) economists late last year indicates that the biofuels currently mandated and under production in Europe and the United States ¨barely reduce fossil fuel use and. . .likely increase greenhouse gas emissions.¨ They´re also 14 to 31 times more costly than taking other measures to reduce greenhouse gas emissions.

Bad news for biofuels or faulty analysis?

Well, let´s make sure we know what we´re talking about: the term ´biofuels´doesn´t actually mean anything to most people except that it has something to do with corn ethanol. But it´s pretty well established that corn ethanol is an overall net polluter and because it´s made from an edible crop is probably worse than using gasoline. While corn ethanol has been the largest player in this debate (the 30-year subsidy for corn ethanol just expired), we’ve always been hopeful for next-generation or so-called ´advanced biofuels´ like cellulosic ethanol made from switchgrass.

OSU´s study examined both first-generation biofuel crops like corn ethanol and soybean biodiesel produced in the US, rapeseed biodiesel produced in Europe, sugar-cane ethanol produced in Brazil for export, as well as ´second-generation´cellulosic ethanol produced from switchgrass in the United States. Bill Jaeger, lead author of the study and professor of agricultural and resource economics at OSU, came to some pretty depressing conclusions:

“Our results suggest that existing biofuel policies have been very costly, produce negligible reductions in fossil fuel use and increase, rather than decrease, greenhouse gas emissions.”

Why so bad? Some of it´s obvious and has been covered before: using petroleum-based fertilizer to grow corn, which is sprayed with petroleum-based pesticides and then shipped using fossil-fuel based transport (before and after it´s turned into ethanol), doesn´t make a lot of sense. This is also a problem with sugarcane ethanol exported from Brazil and soybean biodiesel produced in the US. Add to this standard issues like displacement of agriculture onto previously unused land, which contributes to carbon dioxide emissions when the land is cleared, and things start to get messy.

None of this comes as any big surprise, except that the study seems to suggest that even non-food based direct substitutes like switchgrass-based cellulosic ethanol are a bad idea. But I’m going to go out on a limb here to suggest that´s not really what the study is telling us, just that using switchgrass-based ethanol to decrease greenhouse gas emissions will be more expensive than other options. At this point, I haven´t seen enough of the actual data to be convinced that switchgrass based ethanol is a net GHG polluter.

Jaeger´s analysis looked at several alternatives to decrease fossil-fuel use and greehouse gas emissions including raising taxes on gasoline, implementing carbon sequestration techniques like ´forest carbon sequestration´(planting trees), as well as low-cost energy efficiency improvements to buildings. All of them, (sort of) obviously, are cheaper alternatives to producing the biofuels listed above.

Reducing consumption has always been weapon number one when combating resource use, but it´s only part of a three-pronged approach: 1) Reduce consumption, 2) Increase efficiency, 3) Develop direct substitutes. What Jaeger really focused on was the relative cost of GHG emission reductions, and it makes sense that reduction and efficiency are going to prove more cost-effective.

For more information, see the OSU study for yourself:  Biofuel Economics in a Setting of Multiple Objectives & Unintended Consequences

Source: Oregon State University | Photo Credit: Spencer T via Flickr under CC License

About the Author

In a past life, Clayton was a professional blogger and editor of Gas 2.0, Important Media’s blog covering the future of sustainable transportation. He was also the Managing Editor for GO Media, the predecessor to Important Media.

  • Marc P.

    This type of report can always be read and interpreted in 50 different ways by as many interest groups.
    Fact: Of course, all the current alternatives aren’t as efficient as just digging a hole, pumping out something that is just there for the taking, refining it a bit and pumping it into our engines.
    Fact: We will run out of oil at some point, so it’s a good idea to work on alternatives (as well as the two others “prongs”)… and that will be a long and arduous endeavour, no matter how you measure it but it sure beats just sitting around doing nothing.
    Prediction: There will be more studies that will be spun in different ways, depending on who’s doing the spinning…

    Let’s not be afraid to look at the facts, though, whatever they may be and work at building a sustainable, breathable world.

  • Clayton B. Cornell

    Well said Marc. I agree completely.

  • Clare Nelson

    A welcome perspective for biofuels pessimists like me. But would you fix the typo in about line 10: “except that is has “, and another one later down, “anaylsis “

    • @ Clare Nelson

      Fixed, thanks for pointing that out. Things slip by now and then 🙂

  • Bill Henderson

    It’s not news that the cheapest route to reducing gasoline consumption is just to increase the price (via taxation) of the commodity (no costs of production to deal with). The question is, how do you do that while there are Republicans telling people we don’t have to do anything about global warming, or energy security?

    The study appears to be using a figure for ILUC for corn based ethanol that is 3.2 times as large as what is used by EPA. Please, let’s not forget the hypothosis that producing corn based ethanol causes rainforest deforestation has yet to have any emperical evidence found to support it.

    Recent research by Kim and Dale, Michigan State University has shown there is little to no empirical evidence to support the hypothoses that corn ethanol production causes deforestation.

    Table 1. Biofuel marginal cost, energy and greenhouse gas accounting – and alternatives, on pg 41 of paper shows a
    “Cost per reduction in fossil fuel use when substituted for conventional fuel ($/M BTU)” for ethanol of $15.71 per MBTUs. This happens to work out to be about $1.80 per gasoline gallon which you will notice is the FULL estimated “Cost of production ($/gallon)” of corn ethanol.

    Since you are replacing a gallon of gasoline which the paper indicates was estimated at $16.67 (“Conventional fuel costs are $16.67 per million BTU for gasoline”) or $1.93 per gallon, which is greater than zero, the cost to replace a gallon of gas with a gallon of ethanol should not be the whole cost of ethanol WITHOUT subtracting the cost that would have been incurred to produce the gasoline. The “Cost per reduction in fossil fuel use when substituted for conventional fuel ($/M BTU)” for ethanol should be the cost of a MBTUs of ethanol, $23.53, LESS the cost of a MBTUs of gasoline, $16.67, or: $6.86.

    This is just the results of a quick review. This paper doesn’t engender a lot of confidence in it’s conclusions.

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