Biofuels and Energy Policy

Given the recent rash of concerns about the environment, bringing with them a rediscovered interest in alternative fuels, it’s no wonder that biofuels have garnered so much international media attention. Government officials, entrepreneurs, scientists, environmentalists, and farmers have collaborated to help reduce dependency on petroleum. They have tried new technologies, retooled old ones, and, in some cases, virtually raided the kitchen cabinets to see if anything in them can be tossed into a gas tank and make an internal-combustion engine run. This has created one of the most bizarre dichotomies that economists have ever seen: should farmers use their land to grow substances that will ultimately be converted into biofuels, or should they continue to simply produce food? Before we recommend that they choose the former, we must examine the economic and environmental impacts of a mass agricultural shift from food to fuel.

Ever since Americans experienced the crippling fuel shortages brought on by the 1973 OPEC embargo, they have sought ways to avoid another energy crisis. One of the proposed solutions was to invest in biofuels, the name assigned to a group of alcohols known as ethanol (grain alcohol), and methanol (wood alcohol), which are very comparable to gasoline but cannot be used in place of it; and biodiesel, for use in trucks, tractors, generators and other heavy equipment. Nearly every first-world nation has since subsidized farmers, researchers, or both in an attempt to put biofuels to good use. Countries that are conducive to corn or sugar production, such as the United States and Brazil, respectively, are able to produce more ethanol; in Europe, the various types of crops grown there are usually turned into biodiesel, as it has the advantage of being able to be distilled from a wide variety of plant sources. Neither area suffers from food shortages, and petroleum prices are at all-time highs, so why not convert even more crops into biofuels?

The reason is because nothing in the economy happens in a vacuum. With the new demand for ethanol, more corn has been siphoned away from the food supply, which has doubled the price of cattle feed in some places. As ethanol demand is expected to steadily increase in the near future, the shockwaves of rising corn prices could be felt by everyone from cattle farmers to soda pop drinkers. When one considers the proportionately low demand for ethanol as opposed to gasoline, and the massive acreage required to grow the corn needed to produce such a trivial amount of it, we must ask ourselves if corn-based ethanol is really such a prudent use of resources after all. The fact cannot be overlooked that if it were not for political pressure from environmentalists, and, most importantly, government subsidies, the ethanol industry in the U.S. probably would not even exist in the first place.

In his 2007 State of the Union Address, President Bush called for an expansion of the Renewable Fuel Standard which would promote the use of biofuels, primarily ethanol and biodiesel. The anticipated output would be 35 billion gallons by the year 2017, which would be a nearly nine-fold increase from 2006 levels. Whether that figure is attainable or not depends on many factors such as population growth, automotive fuel efficiency, driving patterns, and trends in competing energy markets.

Of the many impending challenges associated with making Bush’s biofuels strategy a reality, there are two that warrant our immediate attention. The first is that if current petroleum consumption trends continue, 35 billion gallons of biofuels in the year 2017 will represent approximately the same percentage of the energy sector as it does now. There must be an concerted effort by Americans to control their aggregate fuel consumption, or else all the alternative fuel in the world will not satisfy their energy appetite.

Secondly, if today’s corn market is already starting to buckle under the weight of rising ethanol demand, and since the landmass available for farming is not going to multiply in size, what will happen in ten years when there is, in economic terminology, an 875% increase in the demand for corn? By that time, the population will have increased significantly, thereby necessitating more food production. In the present day, even if all of the corn grown in the United States were diverted away from the food industry and used exclusively for ethanol production, it would only replace about twelve percent of the gasoline used by Americans. In the future, we will need more energy, and more food, so it can be assumed that Bush’s optimistic agenda can be realized in only one of two ways, or both: someone must find a way to grow more corn faster, in the mode of the high-yield farming techniques pioneered during the Green Revolution of the 1960s, or we must simply find another way to make biofuels. The second choice might involve something as rudimentary as importing other ethanol-producing crops, like sugar beets a la Brazil, or an event as profound as an Edisonian discovery by some visionary researcher, perhaps the development of an invention or technique that could revolutionize worldwide renewable fuel production. Without an extraordinary occurrence along those lines, it is unlikely that the Renewable Fuels Standard will meet its ambitious expectations.
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With our knowledge of the current technology and resources available, and taking into account all economic and environmental representation, the proposition that governments should have the final say in deciding which fuels to develop and commercialize is inadvisable. The market must be the driving force in the development of any new technology, and this is no exception. The race to develop an effective way to bring larger quantities of renewable fuels into the marketplace is underway because of climate concerns, national security issues, and the simple geological reality that fossil fuels will not be around forever. Let us engage the first two issues right away.

Although we are not entirely apathetic to the concerns of climate change activists, there is little reason to subscribe to their United Nations and European Union-funded apocalyptic propaganda, all of which has very little to do with science, but has everything to do with disrupting capitalist societies like the U.S. and propping up the failed socialist economies of Western Europe. The evidence is undeniable, as they like to say, that the world is coming to an end....that is, unless successful free-market nations all but shut down their powerful infrastructures in order to placate the specter of global warming. That would allow obstinate European welfare states, who refuse to come to terms with the demise of socialism and would rather stick their heads in the sand like the proverbial ostrich, as they accuse legitimate climate scientists of doing, to catch up in the economic race. They may be popular with the uneducated masses and egotistical elites in journalism and entertainment, but if we lend too much credence to the financially and politically-motivated Intergovernmental Panel on Climate Change and their quasi-religious encyclicals known as Climate Assessment Reports, we make a mockery of science, and eventually, our campaign to raise public support for alternative fuels will suffer.

Then there are the protectionists, who call for government intervention to drastically reduce importation of foreign energy sources, particularly Middle Eastern oil. This trade imbalance, they claim, enriches the leaders of totalitarian regimes, and makes America vulnerable to terrorist attacks from extremist groups incensed by oil being taken from ‘their’ homeland. In order to demonstrate the fallacy of this manner of thinking, it must be pointed out that the Middle Eastern oil producers are not the same as the Middle East-based terror groups, lest we confuse the two. Think of the countries in that part of the world, and where their economies would be without a steady oil trade with the United States. Consider this analogy: suppose there were a terrorist group, let’s say, somewhere in the Midwestern part of the United States, and, for some strange reason, that this group abhors the use of ‘their’ land for ethanol production. This reactionary organization then proceeds to threaten farmers, and conspires to commit terrorist acts against ethanol distilleries and refineries. Would the same ‘protectionists’ then say that we must find a way to reduce our dependence on energy that comes from the terrorism-plagued badlands of Iowa and Nebraska? What would that say about our concern for the poor farmers and families held hostage by the terrorists there? We must ask ourselves the same questions before we threaten to cut off the lifeblood of our neighbors in the Arab world, even if we think they deserve it.

Now, on to the real issue here. While it may be centuries before the well finally runs dry, the shrinking petroleum supply is a problem. There is always the danger of an impending worldwide fuel shortage, largely due to the growing energy needs of the rapidly progressing economies of China and India. The question is not whether there should be a push to develop alternative fuels; the debate is whether governments or markets should determine what fuels to promote and implement in commercial application. Certainly, the market strategy holds more promise than the command strategy.

Our goal is to implement alternative fuels into the real world, and the only way that will ever happen is if they perform in the marketplace. The situation may be drastically different in thirty years’ time, but in 2007 there is plenty of oil, coal, and natural gas, all of which have consistently outpaced every conceivable form of alternative energy that has tried to compete against them. Solar, wind, hydroelectric, and geothermal energy are collectively only an infinitesimal drop in the energy bucket, as well as unreliable and expensive. The same is true about biofuels: ethanol is highly corrosive and requires considerable modifications to the fuel systems of gasoline engines, not to mention its inferior combustive efficiency, which is only about 75% of that of gasoline. Biodiesel is only competitive where subsidized, such as in Germany. Right now, the best use for all types of biofuels is in blends where only 5-10% is biofuel and the rest is traditional gasoline or petrodiesel fuel. Most gasoline sold in the U.S. contains 10% ethanol as an oxygenate, especially after MTBE (methyl tertiary butyl ether) was outlawed because of the danger of groundwater contamination. To encourage wider usage of biofuels, we must remember that a vehicle can only go as far as the next gas station (or ethanol, or hydrogen, or whatever fuel is needed), and that maxim must be explained in detail.

The reason why gasoline and diesel-powered vehicles dominate the roads in the U.S. is because of the fact that, every few miles, there is a place to buy fuel. There is not a single region in the country where a person needs to worry that he will drive there and might not find a gas station within the fuel range of his vehicle. This is the single most important factor when experimenting with alternative fuels. A perfect example of how not to be successful with an alternative fuel strategy is California Governor Schwarzenegger’s asinine ‘Hydrogen Highway’ farce. Ask yourself this question: would you buy a car if its fuel requirements restricted your freedom of movement so much that you were forced to essentially follow a bus route? Where could you buy fuel if you deviated from the predetermined path? Exotic and scarcely available fuels will never work in the real world. One solid idea is to make vehicles which can run on different types of fuels, such as General Motors’ line of Flex Fuel cars and light trucks which are equipped to handle ethanol blends as high as E85 but run equally well on ordinary gasoline. Another method is to use biofuels in fleet vehicles, where purchasing large amounts of a rare fuel is less of a problem. However, unless an alternative fuel reaches the point where it is so readily available that it rivals gasoline, biofuels will continue to only be a niche in the energy market.

It is imperative that government stays out of the process until biofuels are ready to stand on their own two feet. To command industries and consumers to adapt to a product with uncertain capabilities when a well-established one is available in much greater quantities and for a lower price is absurd. Never before in the history of the world has a society discarded a reliable, plentiful, and inexpensive resource for a unproven, scarce, and costly one. Any attempt by bureaucrats to force such an inane fiat on the public will inevitably result in political and economic failure. The only way to integrate alternative fuels into the marketplace is to make them competitive.

All of the proposed alternatives to fossil energy are still in the developmental phase, and it will be decades before they will be ready for the Big Leagues, competing side-by-side, and maybe even surpassing, the established veterans in cost efficiency, plentitude, and combustive capability. That day will come when a renewable fuel demonstrates its superiority so conclusively that private industry, of its own volition and without any governmental interference whatsoever, decides to implement it in place of an old fuel, and not one moment before. The switch from the horse-and-buggy to the automobile didn’t come about because some bureaucrat forced it to be so with the stroke of a pen. Cars had been around for decades before they were accepted as a feasable alternative to animal power. When the time was finally right, it was the voluntary decision of the consuming public that made mechanized transportation a reality, and so must every form of technological progress be, in the twenty-first century and beyond.