Biofuel wavering by governments leads to uncertainty in shipping industry

Will governments continue to use biofuel in the face of criticism? It’s not certain – the United Kingdom is sending mixed messages while the U.S. continues ahead, for the time being.

But this uncertainty has lead has created a minor shortage in the fuel tanker industry, which must transport biodeisel on special chemical carriers. Ship owners would like the U.K. government to allow biodiesel to be transported on oil tankers.

For now, ship owners are standing pat – until things clear up. That means ship owners won't be investing in building or transforming current tankers for the near future, possibly creating a transportation bottleneck down the road.

In Britain, the government recently introduced a law that requires at least 2.5 percent of gasoline sold in stations to come from crops, such as soy or palm oil. The sticking point is the 2010 threshold, which pegs 5 percent of gasoline deriving from these plants. Prime Minister Gordon Brown has admitted the government is currently reviewing the 2010 rules. Also up in the air is Britain’s involvement in the European Union rules that state by 2020, 10 percent of gasoline will be plant based.

In the United States, where an estimated 80 ethanol refineries are under construction, the government stipulates that by 2012, 7.5 billion gallons of gasoline must be made by ethanol. By 2017, that should increase to 35 billion gallons. Presently, the U.S. consumes about 385 million gallons of gas per day.

Will the last defender of biofuels please stand up

You know, I’ve been kind of waiting for someone to come to the defense of biofuels. Yes, it seems the subsidy regime currently employed in the U.S. and Europe is pretty whacked (as the kids would say). But that doesn’t completely nullify their importance, does it?

"Don't tell me, for the love of God, that food is expensive because of biodiesel. Food is expensive because the world wasn't prepared to see millions of Chinese, Indians, Africans, Brazilians and Latin Americans eat," Brazilian President Luiz Inacio Lula da Silva told Reuters.

Lula, a former union leader, rebuffed accusations by Jean Ziegler, U.N. special rapporteur for the right to food. Ziegler this week called biofuels a "crime against humanity," though he referred mainly to U.S. ethanol derived from corn.

"The real crime against humanity is to discredit biofuels a priori and condemn food-starved and energy-starved countries to dependence and insecurity," Lula said at a conference of the United Nation's Food and Agriculture Organization in Brasilia.

I love your sugarcane...
Gasoline in Brazil is now made through sugar cane, which the country can process for nearly $1 per gallon, at least fifty percent cheaper than processing gasoline (in January 2006, at least). This is because Brazil’s government has not subsidized the country’s sugar makers in the past ten years, keeping costs low, unlike the hefty subsidies handed out by the United States and countries in the European Union.

The popularity of cane-based ethanol has gone through its highs and lows in Brazil, usually fluctuating with the price of oil. However, Brazilian consumers can now purchase “flexible fuel” cars which run on both types of gasoline.

Yet, Brazil’s ethanol industry is not without its critics. Expanding sugar cane harvests, like corn in the U.S., will decrease species diversity and create a land rush that has already displaced some beef and soy farmers (and helped lead to the quickening destruction of the country’s forests).

...but I hate your corn-based ethanol
The problem with U.S. ethanol is that it is made with corn, and costs nearly one-third more to harvest and produce than Brazilian sugar cane. It also diverts an essential food crop to energy production, decreasing supply and driving up prices. It also boosts the use of expensive farming techniques (like irrigation) while expanding monoculture farming. Yet the United States continues to import more than 60 percent of its oil, which is now hovering near all-time record prices, while Brazil has become energy independent (also thanks to huge oil reserves.)

Some scientists in the U.S. found that creating biofuels out of switchgrass produced much more environmental savings and more efficient type of ethanol. Yet, this plants also has its own environmental issues: it requires 45 percent more energy to create the fuel than the fuel produced, according to another study.

Meanwhile, in Burkina Faso...
When Lula visited Burkina Faso in October, he called for a biofuel revolution on the continent. However, I haven’t seen anything on it.

The dark side of biofuels?

Rich counties should think twice about turning food crops into biofuels, says UN food expert Jean Ziegler. In fact, he proposes a five year moratorium on the process.

With two agriculture powerhouses, the U.S. and Brazil, among rich nations searching for alternative fuels and other methods to cut greenhouse gases, using crops for biofuels are creating dangerous unintended consequences: driving up food prices and sparking food shortages, which increasingly harm the world’s poor.

The story points out that Zeigler claims “it takes 232 kilograms of maize to produce 50 liters of ethanol. That maize could feed a child in Zambia or Mexico, where maize is the staple crop, for a year, he said.”

The five-year moratorium will allow technology to catch up and increase the possibility of making biofuels from agriculture waste.

Can I quote you?
With the characteristic subtleness you may find in your average university undergrad, this UN expert connected the dots and labeled the continued use of cereals and sugars to produce fuels an atrocity.

"So it's a crime against humanity — it's a crime against humanity to convert agricultural productive soil into soil ... which will be burned into biofuel," The Associated Press quoted Ziegler at a news conference. "What has to be stopped is ... the growing catastrophe of the massacre (by) hunger in the world."

(An atrocity, yes, but only for the reporters present at the news conference if they wouldn’t take that quote and run with it.)

The UN goal of reducing extreme poverty by half by 2015 will not be met because of growing world hunger due to increasing prices, he said. With more than 100,000 people dying everyday due to the consequences of malnutrition and another 800 million chronically undernourished, now is not the time to engage in wasteful and expensive biofuel projects.

He has a point. At least on prices. According to this website by Corn Products International, the price of corn, a major ingredient in the biofuel ethanol, has increased from $15 in 2002 to $23 in 2005 and $40 in 2007. Prices for wheat in the U.S., the world’s largest exporter, are also hitting all-time highs. According to USA Today:

Wheat for December delivery closed at $9.33 a bushel in Chicago, more than double the price from a year ago. Drought in Australia and poor crops in other nations helped drive U.S. and world supplies to the lowest levels in decades. U.S. wheat stocks are pegged at 362 million bushels in 2007-08, the tightest since 1973-74.

The reason for the high price? Domestic harvest is down from its 1981 peak because farmers have moved to other cereals that produce higher yields and the U.S. government’s ethanol-friendly tax breaks. (Don’t, don’t call them subsidies.)

"We've placed so much demand on … feed grain to turn into fuel, we can't play catch-up quite as fast globally," USA Today quotes Joe Victor, vice president of Allendale, a commodity research advisory firm.

The real culprit?
The search for biofuels is certainly driving up world prices. However, how much would falling cereal prices help those who already face malnutrition? In 1990, FAO counted 823 million malnourished people. One year ago, the organization estimated 820 million remain malnourished, still far off from the UN Millennium Development Goal of reducing the total 412 million by 2015.

According to FAO, three out of every four hungry people live in rural areas, where infrastructure is poor (good roads often provide better food security) and education rates remain low.

Thus, for the world’s undernourished, isn't the real issue the availability of food and not its price?

Reforming the $2 billion a year food aid budget has certainly become an issue for the Food and Agriculture Organization. Much of the problem, FAO asserts, rests with in-kind food aid, which means the aid is tied to special conditions. For example, countries receiving the aid must purchase the food from the donating country instead of purchasing food from regional or local stocks. Researchers argue that this in-kind aid, which makes up one-third of all food aid, unfairly hurts local merchants and farmers by introducing foreign food into the market, driving down prices. This has been a sticking point since 2001 in the Doha trade talks, says TIME.

Secondly, this food aid can be sold on the domestic market, which is called “monetization.” For example, American NGOs such as Catholic Relief Services (and until 2009 CARE) monetize U.S. rice (or corn or wheat) by shipping it to countries (using U.S.-based carriers) and selling this rice on its domestic market. The profits these organizations then make can put to funding development programs.

Main recommendations of the report include (I quote):

• Eliminate programme, or government-to-government food aid, which, by definition, is not specifically targeted to needy groups. Stop the “monetization” of aid, whereby one out of every four tonnes of food aid is sold in local markets of recipient countries to generate funds for development;
  
• Deliver aid in the form of cash or food coupons where possible, and use in-kind food aid only where food insecurity is due to a shortage of food rather than to such problems as access to food. Assistance aimed at improving markets – by repairing roads or improving rural infrastructure, for example – is liable to be more effective;
• Use local and regional food-aid procurement where appropriate, as this can be of great benefit to agricultural development in many low-income developing countries. Such purchases are not always desirable, however, as they can increase local prices.

The U.S. and Brazilian governments’ policies on biofuels do not constitute perfect solutions to climate and fuel concerns, but these problems are no where near the extent of worries envisioned here. However, world prices should be closely monitored going forward. In my mind, the inability to reform food aid from the prospective of donors and donor agencies will only do more to hurt those in need.