Why We Shouldn’t Be Using Biofuels

  • Date: 20/07/10

Among the various sillinesses that have been proposed to deal with climate change is the idea that we should start sticking corn or wheat into cars rather than people. That there are a number of problems with this idea hasn’t stopped politicians in the EU and the US making it mandatory. Problems like the thought that rising food prices, inevitable under such a plan, aren’t really all that good a thing for those who cannot afford food now. Or the problem that, as David Pimentel has been shouting for decades, just as much oil is used raising the crops as is displaced by the use of the crops.

But the real reason we shouldn’t be doing this is that it doesn’t make sense at the most basic level. As the Congressional Budget Office tells us:

Similarly, the costs to taxpayers of reducing greenhouse gas emissions through the biofuel tax credits vary by fuel: about $750 per metric ton of CO2e (that is, per metric ton of greenhouse gases measured in terms of an equivalent amount of carbon dioxide) for ethanol, about $275 per metric ton of CO2e for cellulosic ethanol, and about $300 per metric ton of CO2e for biodiesel. Those estimates do not reflect any emissions of carbon dioxide that occur when production of biofuels causes forests or grasslands to be converted to farmland for growing the fuels’ feedstocks (the raw material for making the fuel). If those emissions were taken into account, such changes in land use would raise the cost of reducing emissions and change the relative costs of reducing emissions through the use of different biofuels—in some cases, by a substantial amount.

The CBO is as close as we’re going to get to a dispassionate and unaligned analyst on such matters. There’s one other number we need to see how silly the entire idea is though. The Stern Review told us (and yes, we can all argue about the faults with that Review but let’s just take this official number as a given for the moment, shall we?) that the damage done by a tonne of CO2-e is $80. So we are paying, at minimum, betweem $275 and $750 to prevent damage of $80. That is, remember, using all of the official numbers.

This is known as “making us poorer”: that is, that the policy fails the very cost benefit test that the politicians themselves have insisted we should be using to determine our actions. We are told that we must do something about climate change because the benefits will be higher than the costs of doing so. However, doing something does not mean that if this is something then this is what we should do. Courses of action must be weighed by the same process used to reach the original decision that we should be doing something: are the benefits greater than the costs?

No, the benefits are not greater than the costs: and yet the politicians in both places, the EU and the US, have insisted, mandated, that we should all make ourselves poorer by doing this profoundly silly thing. Indeed, they force us to become poorer, even while the decision to make us do so fails the politicians’ own purported decision making guidelines.

It’s true that Nicholas Stern called climate change the largest market failure ever. But we should remember that the substitute for market failure is not necessarily competent government. Legislated idiocy is just as, if not more, likely.

Adam Smith Institute, 18 July 2010

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