The potential Rosneft purchase of…
A sharp fall in industry…
Biofuels policies in the US and Europe are seriously flawed, resulting in wasted money and increases in food prices. The problem is so big that it has even led to Republican and Democrat Senators to work together in order to try and introduce legislation that would free the gasoline producers from the requirements to blend their fuel products with biofuel. A few weeks ago Democratic Senator Diane Feinstein of California and Republican Senator Tom Coburn of Oklahoma submitted the proposed legislation to congress, a few months ago members of the European Parliament also tried to vote for similar legislation, only to be thwarted by the agricultural lobby.
Back in 2007 new US legislation demanded that biofuels be mixed into the gasoline supply, starting with 9 billion gallons in 2008,and rising up to 36 billion gallons in 2022. The large majority of these biofuels take the form of corn ethanol, but some are advanced biofuels, which are made from agricultural waste such as wood or corn husks.
Corn ethanol is actually more expensive to produce than standard gasoline and so can increase the price at the pump, but the larger problem is that corn used to make the ethanol is corn that cannot be used for food; this drives up food prices. In the US about 40% of all corn crop is used to produce ethanol, and in Europe over 60% of all oilseed produced is turned into biofuel. These are crops that would be better put to use feeding people.
Related article: Producers Panic as Ethanol Mandate Loses Support
Bloomberg reports that when US corn ethanol consumption grew from 4 billion gallons in 2006 to over 12 billion gallons in 2011, corn prices more than doubled, boosting food prices around parts of the world. Food prices tend to have a larger impact on the poor, so basically the ethanol mandates work as a means to funnel more money from the poor, to the large, rich agricultural companies.
The argument for using corn ethanol is that it reduces our reliance on crude oil and burns cleaner so there should be fewer emissions, however in many cases it takes more energy to produce the ethanol than the ethanol provides when burnt in car engines, leading to overall higher emissions.
A better alternative than corn ethanol is the advanced biofuel that is contributing a growing volume to each year under the mandate. However production of advanced biofuels is no way near large enough to meet demand, and due to the failings of the EPA legislation some US fuel producers are actually having to pay fines for not adding the required levels of advanced biofuel to their gasoline, purely because the market is unable to supply it.
Back in September the EU Parliament voted to cut their 2020 biofuel levels from ten percent to six percent. This change to the law was meant to come into effect last year but a failure to agree on exactly where the changes would be made meant that they must now wait until 2015. In the US the EPA used emergency powers to slightly reduce the biofuel requirement for this year, but the new legislation proposed to congress looks to take it much further.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com