The debate over biofuels has heated up on both sides of the Atlantic in recent weeks, with the current prime biofuel - ethanol made from corn - now being blamed as a contributing factor to the dramatic rise in the price of food around the world.

Until recently, it was seen by many as a silver bullet for cutting dependence on oil, thus helping energy security and reducing greenhouse gas emissions. Not everyone agreed with the idea. In the winter 2006 issue of European Affairs, John Ritch, head of the World Nuclear Association, pointed out that it remains to be seen whether “biofuels” actually constitute a long-term contribution to a sustainable strategy for clean energy. In the climate crisis, a not insignificant factor is the shrinkage of “carbon sinks” as the world’s forests get converted to farm land. So the limited amount of farmland is a constraint. And “clearing woods to plant these crops actually heightens our vulnerability to amassing more greenhouse gases in the atmosphere,” he wrote two years ago.

Now, the impact in terms of displacing food crops to raise ethanol has emerged as another, more immediate drawback for biofuels. In the U.S., for example, Congress increased incentives for ethanol production designed to raise output from seven billion gallons a year to 36 billion by 2022, with 15 billion of that coming from corn. The remainder will be derived from “next generation” sources such as prairie grasses and wood chips, but it could be years before this advanced ethanol will be available on a commercial scale. This mandated, subsidized biofuel uses corn as its main foodstock and last year absorbed a quarter of the U.S. corn harvest. When combined with surging demand for corn abroad fueled in part by the cheap dollar, the effect has been to displace other crops, reducing their supply and raising prices for other foods from bread to beef that depend on wheat. By next year, as much as one-third of U.S. corn production is expected to go into ethanol.

Another source of consternation (and transatlantic frictions) are biodiesel-production subsidies in the European Union and in the United States. The U.S. government provides a $1 subsidy for every gallon of biodiesel that is blended in the U.S. for export. Europeans complain that this has given American producers an unfair advantage in EU markets, where “artificially cheap” American products are putting EU producers out of business. Many European nations and the EU also provide somewhat less generous subsidies to biofuel producers, but there has been pressure for them to eliminate such support. Some have said that a high demand for biofuels in Europe has made subsidies unnecessary.

This subsidy was intended to help the American biodiesel industry, but it seems that foreign companies have discovered a way to take advantage as well. Biofuel producers from Europe and elsewhere ship their biodiesel to the U.S., where they add a “splash” of regular diesel, qualifying their product for American subsidies. The fuel is then shipped back to Europe for sale, where it is also eligible for EU subsidies. This loophole, which has been a cause of public complaints since late last year, ironically results in even higher carbon emissions from the back-and-forth transatlantic shipments.

Another objection to biofuels among environmentalists is the high demand for water at big ethanol-production facilities. This has added to strains on the water table in Florida and other localities in the U.S. There are growing concerns, too, that ethanol was oversold as a product that would reduce greenhouse gases. Some new U.S. ethanol plants are powered by coal, and truck corn from hundreds of miles away, gobbling up fossil fuels. Acreage displaced for energy crops here may be replaced by plowing virgin lands in Africa and South America, causing major releases of carbon. And although corn ethanol plants that are built after next January 1 will have to show they are reducing carbon, most plants needed to meet the 15 billion gallon mandate will already have been built by then.

The new attention to ethanol’s downside has prompted statements in Congress about rolling back federal support for biofuel production in the face of rising food prices. House Majority Leader Steny Hoyer suggested on May 1 that he favored moves in this direction. At the urging of the livestock, poultry and hog industry, the governor of Texas and 28 Senators have asked the administrator of the Environmental Protection Agency to set aside ethanol requirements at least temporarily to help ease corn prices. The New York Times published an editorial on Sunday calling on Congress to roll back subsidies and rethink its support of ethanol. But the ethanol boom has brought windfall profits to farm states, so there are doubts about whether this policy can be changed fast, especially in an election year.

In the EU, fingers are being pointed at the U.S. on this issue. EU trade commissioner Peter Mandelson did so in an op-ed published in the Guardian (UK). “We can already see that large-scale biofuel production, especially in the U.S., may be one of the factors pushing up food prices,” he wrote. “The race to grow maize for ethanol subsidies in the U.S. reduces the supply of food crops on world markets and drives up the cost of this important staple.” (”Maize” is the grain that Americans call “corn.”) Despite the EU’s mandate that biofuels account for ten percent of transport fuel by 2020, Mandelson argued that European biofuel production is having “only a minimal effect” on food prices.

Amid these recriminations, there is talk in the EU of scrapping biofuel subsidy programs, Already, these is increased pressure on EU officials to lower or abandon the ten percent target, especially in Germany where at least one-tenth of the nation’s cars do not have engines adapted to run with a significant admixture of ethanol. In the UK, all petrol and diesel sold at pumps is now required to contain at least 2.5% biofuels. But Prime Minister Gordon Brown signaled a retreat from biofuels last month, acknowledging the global food crisis and saying that Britain must be “more selective” in its support for biofuels.

See Also:
Editorial: Rethinking Ethanol, New York Times, 11 May 2008
Nuclear Rising on Both Sides of the Atlantic, European Affairs, Winter 2006
U.S. Biodiesel Subsidies Anger Europeans, National Public Radio, 10 April 2008
Biofuels: EU plans to scrap ‘needless’ farmer aid, Business Report, 15 April 2008
Demands for crackdown on biofuels scam, The Guardian (UK), 1 April 2008
Biofuel Boondoggle: US Subsidy Aids Europe’s Drivers, Christian Science Monitor, 8 June 2007
Congress’ ethanol affair is cooling, Washington Times, 1 May 2008
Op-Ed: Keeping the Crop in Hand, The Guardian (UK), 29 April 2008
Pressure Grows on EU to Abandon Biofuels, Der Spiegel, 16 April 2008
Petrol must now include biofuels, BBC News, 15 April 2008
Brown’s biofuels caution welcomed, BBC News, 22 April 2008

Correction: This post was edited on May 13 to better reflect the different subsidies allocated for biodiesel and ethanol.

From the Guardian (UK) (Feb 23, 2008):

The Bush administration yesterday urged the EU to stop dithering over the building of a $6bn (£3bn) gas pipeline from the Caspian basin to central Europe and reduce its growing dependence on Russia’s Gazprom.

“Follow your wallet,” Matthew Bryza, US deputy assistant secretary of state, said, arguing that the troubled Nabucco project made sound commercial sense and would cut Europe’s dependence on Gazprom by up to a quarter.

Bryza’s outspoken comments came after talks with senior EU officials, including energy commissioner Andris Piebalgs, and took sideswipes at the “gigantic rents” [excessive prices] Gazprom is charging Europe for gas. They underline the growing geo-political importance of gas.

“Helping Europe diversify its gas supplies has become extremely urgent,” said Bryza, adding that US backing for Nabucco was in the country’s national interests even though no American companies are involved….

“We want to help Gazprom to move from a monopoly towards more market-based behaviour,” he said. “We want it to be reliable and produce more gas at home in a more competitive domestic market rather than buying up as much infrastructure here in Europe or the cheapest possible gas it can find in Central Asia.”

Related Article: U.S. official says Europe needs alternatives to Russian natural gas, Associated Press, 22 February 2008.

Despite continuing basic differences about how to combat climate change, Europe and the United States are now taking the same road on one important initiative: imposing cuts on CO2 emissions from passenger cars.

Congress has legislated an increase in fuel efficiency of 40 percent for cars by 2020, a move designed to eventually cut U.S. gasoline consumption by 20 percent. Similarly, the European Commission has moved to impose very strict ceilings on CO2 emissions on car makers in Europe even faster, by 2012. (more…)