Should Bioenergy be Subsidized?

For bioenergy! Against bioenergy! Whatever position one takes, bioenergy is currently a heatedly debated topic and one cannot escape from it. The idea of having a sustainable energy source for transportation is not a new one. In fact, it is quote old and in some countries, such as Brazil, bioenergy has been commercially developed for decades.

So, why all of sudden is there so much commotion? The reality is that the oil importing countries start talking about the importance of alternative and sustainable energy sources only in response to the price of oil going up. That is certainly the reason why the USA has recently introduced massive subsidization in the bioenergy sector.

On the other side of the Atlantic, the goal of the EU is to increase the bioenergy portion of its total energy use to 10% by the year 2020. In setting that required level, it seems that the reduction of the carbon dioxide emissions is at least as important, if not more important, than the reduction in energy dependence. Not unimportant for the increasing interest in bioenergy is its connection to agriculture. Let us now examine these three motives for the development of bioenergy.

Can the amount of imported oil be reduced?

First, the likelihood that bioenergy will lead to increased energy security for oil importing nations is small. Many studies which have investigated the potential of bioenergy to replace fossil fuels in motor vehicles in the foreseeable future have estimated this likelihood to be no more than a few percent. Moreover, because the fuel demand in these countries is increasing so rapidly, the relatively modest increases in bioenergy use will likely not lead to a decrease in oil imports. Even if the affected countries could prevent the expected energy use increases through effective energy saving measures, the contribution of bioenergy to the energy security of these nations comes at the cost of food security, especially in poorer countries. This objection to bioenergy, that it has created a kind of agrarian inflation, is already being discussed and has been coined “agflation.”

Biofuel can be ecologically damaging

Secondly, it is debated whether or not bioenergy actually is more ecological. In principle the burning of biofuels produces less greenhouse gases than the burning of fossil fuels. However, it is far from clear if this holds true when one considers the entire cultivation and processing of biofuels. The “Intergovernmental Panel on Climate Change,” (IPCC) has made a detailed analysis of this topic and I present here two dramatic examples.

The study points out that on the basis of the “well-to-wheel” principle, or in other words, when one considers the entire cycle including cultivation and processing, the Brazilian method of producing ethanol from sugar cane leads to a “significant reduction” in carbon dioxide emissions. This is a result of the very efficient cultivation and processing of the sugar by the Brazilians. For example, the plant fibers which fall to the ground during the growth of the sugar cane (bagasse), are used as the fuel source for the subsequent processing of the plants.

In contrast to the efficient use of sugar cane in Brazil, the U.S. method of producing ethanol from corn is a process that, according to the IPCC, results in something between a small net reduction and a 30% increase in the greenhouse gas emissions compared to producing gasoline from oil. The reasons for this net inefficiency are the use of greenhouse gas intensive fertilizers in the corn production, electricity (possibly produced from burning coal) needed to process the corn, and the gasoline used in transport.

The situation becomes even worse when one considers the changes in land use that occur, for example when rainforests are burnt to create space for the production of plants for biofuel. The most powerful example is possibly Indonesia, where the burning of peat bogs is carried out to allow the planting of palms from which bio-diesel fuel is produced. Ironically, the burning of diesel fuel is itself a major source of harmful greenhouse gases. Furthermore, the potential detrimental effects of increased biofuel plant production on biodiversity and water availability must also be considered.

As a result, Brussels is being pressured more and more by various, mostly non-state affiliated organisations to introduce strict sustainability requirements for the production of biofuels and the European Commission has in fact recently suggested two sustainability criteria for the European biofuel standards – considerations concerning land use (using only land with high carbon content and high biodiversity) and a resulting carbon dioxide emissions reduction of at lest 35%.

Such standards, as long as they are effectively developed and applied, can go a long way in counteracting the ecological problems associated with the production and processing of biofuels. However, they could also lead to reluctance on the part of industrial nations to trade with developing countries, which would then have an advantage in the production of biofuels.

The EU commission requires that biofuels must be produced in a sustainable manner. However, although this requirement is clearly good for the environment and the resulting biofuel adds to the general energy independence, are the benefits worth the high cost? When one considers that in the production of biofuels the value of the raw material makes up more than half the value of the finished product, it becomes clear why the European producers are so efficient.

In spite of that efficiency, many of the various methods used in Europe to produce biofuels, although heavily subsidized, were hardly able to compete on the market. The newest studies of the Global Subsidiaries Initiative (GSI) from the International Institute for Sustainable Development (IISD) show that the production of biofuels in the USA and Europe is an extremely costly option for lowering greenhouse gas emissions and increasing energy independence. More could be achieved in both areas, so the IISD, by investing that same money differently.

Farmers betting on subsidization

Politicians in Europe and the United States have long known that increasing farmer profits is a strong motivation for developing biofuel. This is supported by an example from the past: in 1970, Brazil started a program meant to solve the problem of overproduction in the sugar industry. The program encouraged development of alternative fuels derived from sugarcane for tractors and heavy machinery and eventually resulted in Brazil becoming the “Saudi Arabia of bioethanol.”

The more the WTO encourages liberalization of the world agriculture industry, one of the most closed sectors in industrial countries, the more the farming organisations push with whatever means available to maintain subsidies. But, can these two sides be reconciled?

The WTO agricultural bylaws provide for different categories of support. Programs that are determined to be disruptive to trade and production are categorized “yellow” and should be reduced. These programs have yearly reduction requirements in the implementation phase.

Currently, negotiations are being held concerning further reductions of “yellow” projects. Actions that are determined to not affect trade and production are categorized as “green” and are allowed. The most agricultural subsidies, however, fall into the “yellow” category and have been reduced in industrial countries by 20% in the period from 1995 to 2000. It is clear, however, that because of the “yellow” subsidization currently going on in Europe and the U.S. and because of further expected subsidization program reductions in the near future, for biofuel programs to become subsidized, they must be categorized as “green.”

When is “green” really “green”?

Are subsidies for biofuels really “green”? From an ecological perspective, as pointed out above, the opinions vary. In spite of all voiced objections the EU Commission claims that its production methods are ecologically sustainable. However, “green,” in agricultural/industrial terminology does not necessarily mean the same thing as “ecologically sustainable.” It would be beyond the scope of this text to explain Addendum II of the Agriculture Agreement, in which the criteria for “green” subsidization are listed. It will suffice to point out the crucial statement of the agreement: “(…) no or nearly no trade-disturbing effects or effects on production.” According to this stipulation, subsidization for biofuel production is automatically disqualified. Apart from that, there are also other kinds of subsidization that cannot be classified as “green” because they disturb the market.

Current tendencies indicate that as the trade with biofuels increases, there will be more and more criticism of those countries that make access to the European or U.S. biofuels market more difficult via subsidization. There are already two potential conflicts in the making: Brazil and Canada against the USA and Europe against the USA.

The main candidate for “green” subsidization in the biofuel sector is research and development. In the USA, the Energy Policy Act of 2005 has made $4 Billion available for research and development of ethanol between 2006 and 2015. Further funds have been made available for research of biofuels through the Energy Independence and Security Act of 2007. Most of these funds will be used to study the so-called “2nd generation” of biofuels. These are expected to offer more benefits and do less harm in regard to both ecological impact and food scarcity.

Switzerland must position itself

Interestingly, Switzerland has until now not followed in the path of the EU, which strongly subsidizes biofuels. However, it is argued by some in Switzerland that the current levels of support, although not significant, do have a high potential for disturbance. As the voices of those calling for more EU-like biofuel policies grow louder, Switzerland will need to have a clear picture of the legal consequences if it does indeed choose that path.

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