Blindness on Biofuels

By Robert J. Samuelson
Wednesday, January 24, 2007

President 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 us from insecure foreign oil by converting corn, prairie grass and much more into gasoline substitutes. Biofuels will even curb greenhouse gases. Already, production of ethanol from corn has surged from 1.6 billion gallons in 2000 to 5 billion in 2006. 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 us from stronger steps to limit dependence on foreign oil: higher fuel taxes to prod Americans to buy more gasoline-efficient vehicles and tougher federal fuel economy standards to force auto companies to produce them. True, 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 gasoline savings from biofuels to be triple those from higher fuel economy standards.

The politics are simple enough. Americans dislike high fuel prices; auto companies dislike tougher fuel economy standards. By contrast, everyone seems to win with biofuels: farmers, consumers, capitalists. American technology triumphs. Biofuels create rural jobs and drain money from foreign oil producers. What's not to like? Unfortunately, this enticing vision is dramatically overdrawn.

Let's do some basic math. In 2006, Americans used about 7.5 billion barrels of oil. By 2030, that could increase about 30 percent to 9.8 billion barrels, projects the Energy Information Administration. Much of that rise would reflect higher gasoline demand. In 2030, there will be more people (an estimated 365 million vs. 300 million in 2006) and more vehicles (316 million vs. 225 million). At most, biofuels would address part of the increase in oil demand; it wouldn't reduce our oil use or import dependence from current levels.

Suppose we reach the administration's ultimate target of 60 billion gallons in 2030. That would offset less than half of the projected increase in annual oil use. Here's why. First, it's necessary to convert the 60 billion gallons into barrels. Because there are 42 gallons in a barrel, that means dividing by 42. Further: Ethanol has only about two-thirds of the energy value of an equal volume of gasoline. When you do all the arithmetic, 60 billion gallons of ethanol displace just under 1 billion barrels of gasoline. If that merely offsets increases in oil use, it won't cut existing import dependence or greenhouse gases.

The 60 billion-gallon goal -- and the 35 billion-gallon interim target -- are also probably unrealistic. When we rhapsodize 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 gasoline were not added, it could become corn whiskey. Ethanol receives heavy federal subsidies. Oil refiners that blend it with gasoline get a 51-cents-a-gallon tax credit. The subsidy causes them to buy more ethanol, increasing corn demand.

Naturally, corn farmers love this. They've been the program's main beneficiaries. Although ethanol displaces only tiny amounts of oil (slightly more than 1 percent), it's had a big effect on corn prices. They're about $3 a bushel, up from $2 last year and the highest in a decade. They could go higher. In 2000, ethanol used 6 percent of the U.S. corn crop. In 2006, that was 20 percent, and the ethanol plants under construction would double capacity by 2010. 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 it is 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. Then the high costs would be passed on to consumers. Congress started down that path in 2005 by enacting a modest mandate for biofuel use.

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

Our primary need is to curb reliance on foreign oil. If imports were dependable, they would not be dangerous, but they come from unstable or hostile suppliers. Although our dependence can't be eliminated, it can be reduced. The most obvious way is to improve the efficiency of vehicles by 30 to 50 percent 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.

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