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by Simon Upton


Does anyone remember the Motunui synfuels plant? Conceived in the panic of the second oil shock, it was a commercial white elephant from the day it opened.

The Government ended up paying a private company to take the methanol and synthetic fuel plants (and associated liabilities) off its hands, having spent a king’s ransom on their construction. (The methanol plant went on to make some tidy profits for its new owners.)

The whole saga was proof that few issues have a more potent capacity to cause sensible people to lose their heads than energy security. Or perhaps, more accurately, to cause sensible people to advocate the waste of public money. One has only to turn to the United States today, where biofuels have become the object of one of the most spectacular bonfires of public money ever conceived.

More than seven billion gallons (26.5 billion litres) of new ethanol capacity is currently under construction, entailing capital investments worth more than US$10 billion (NZ$13.8 billion). Government subsidies to biofuels are around the US$7 billion mark and rising fast as a result of purchase mandates, farm subsidies and tax breaks. All in the name of energy security — and any other cause the cat can drag in.

I visited recently the website of one prominent corn belt senator and found a fulsome eulogy to biofuels which claimed they were «good for the environment, good for national security, good for job creation, good for economic development, good for the US taxpayer and good for rural America».

There has to be something suspicious about advocacy that feels the need to cobble together such a wide array of arguments to bolster itself. Leaving aside whether a rising tide of subsidies is positive for the American taxpayer, what substance is there to back up the senator’s other claims?

If energy security and reduced reliance on imported oil is the goal, addressing the demand side of the equation would surely be a much less costly, first best solution. A litre of gasoline conserved because someone walks, rides a bike or a bus or uses a more efficient vehicle is a full litre saved at much lower cost to the economy than subsidising the production of ethanol, which eats up significant energy in the production process and for which the net energy yield from corn is very modest.

If reducing CO2 emissions is the goal, then it makes little sense to rely on biofuels if the production process relies heavily (as is presently the case) on gas or coal as energy sources. Even when there are net CO2 reductions, the cost of achieving them is astronomic.

A recent estimate suggests that subsidies to ethanol in the US are purchasing emissions reductions at a cost of more then US$500 per metric tonne of CO2 avoided.

Compare that with a current world price of around US$20 per tonne.

If improved environmental outcomes are the goal, then a lot of non-renewable inputs such as fertiliser and fossil water resources need to be counted into the equation.

And if economic development is the goal, we might ask “whose”? Certainly not Brazil’s, against whose ethanol the US maintains stiff tariff protection despite the fact that Brazil is one of the few countries that can produce ethanol without subsidies and with a respectable energy yield.

If the senator was thinking of America’s economic development, then he would need to explain away some steep rises in production costs for all those industries that need continuing access to increasingly expensive corn.

The fundamental question must be why this particular fuel should be singled out for such extravagant cosseting ahead of so many other technology options? It’s not as though biofuels hold the key to the future. Photosynthesis is an extremely inefficient way of harnessing incoming solar radiation. Its inherently low power density means that we will run out of land and water long before we’ve met even a fraction of our energy needs.

Biofuels may be a useful transitional step in some regional settings (maybe New Zealand as a biological economy) but as a long-term solution for transportation fuel, it is a dead end.

Defenders of biofuels in America are quick to reply that the subsidies are all just a transitional step toward ligno-cellulosic ethanol involving the use of a much wider array of biological material with a better energy balance. A raft of high-profile Silicon Valley investors have piled in on this basis. They may be right — they may not. Theirs is a technological bet that should have to face the same risks as fuel cells, carbon sequestration or hydrogen from solar power.

Prices have a wonderful way of challenging innovators. Policies to safeguard energy security or respond to climate change should use them. The American penchant for subsidies is wasting prodigious amounts of money and even more precious time.


The Dominion Post, Tuesday, 10 April 2007