Economists: current biofuel potential in Oregon may be costly and limited

With current technologies, the adoption of biofuels in Oregon could reduce the state's fossil fuel use by less than one percent, but at a much higher cost to society than more direct approaches such as a gasoline tax or raising fuel economy standards. That is the conclusion of a basic study [*.pdf] published this week by the Oregon State University Extension Service. The results are more widely applicable to other regions in the US. The findings strengthen the case for those who press for international trade in biofuels based on interdependence instead of 'resource nationalism' and energy 'independence'.

The study, by OSU economists William Jaeger, Robin Cross, and Thorsten Egelkraut, compared three types of biofuels — corn ethanol, canola biodiesel, and wood-based (cellulosic) ethanol. They examined their commercial viability, potential production scale, and cost-effectiveness for achieving energy independence and reducing greenhouse gases.

The promotion of biofuels is a public issue. Would a shift to biofuels achieve energy independence and a reduction of greenhouse gas? To answer this, we need to compare the cost for different approaches. Especially in terms of energy independence, these biofuels represent a costly and inefficient method compared to other approaches the government might take to achieve the same goal. - William Jaeger, Oregon State University economist

The researchers estimate that to achieve a given improvement in energy independence, biofuels could be 6 to 15 times more costly than other policy approaches such as raising fuel economy standards for vehicles.

When looking exclusively at reducing emissions of greenhouse gases, however, their analysis suggests that both canola biodiesel and wood-based ethanol may be cost-effective ways to achieve that goal.

Subsidies
The results are also mixed in terms of commercial competitiveness (graph, click to enlarge). The study finds that corn ethanol and canola biodiesel are currently commercially viable in Oregon, thanks in part to lavish government subsidies and regulations that have increased demand and lowered the cost of production. However, current production costs are still too high to make wood-based ethanol commercially attractive:
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How can these biofuels be commercially competitive yet represent very high-cost ways to achieve energy independence? The authors explain that in addition to subsidies that lower the cost of production while adding cost to taxpayers, there are large differences in the amounts of fossil-fuel energy required to produce each fuel, and there are large differences in the amount of energy contained in a gallon of each fuel. In other words, the energy balance of the different fuels varies considerably.

The OSU study looked only at large-scale commercial production of these three biofuels. The authors acknowledge that local or on-farm production may offer other advantages in some cases. They also caution that their estimates are subject to future changes in prices, technologies, or other developments.

The authors find that the potential scale of production for these biofuels in Oregon is limited. They estimate that these biofuels could contribute no more than a fraction of one percent of Oregon's current energy use.

"The main results of our analysis do not depend on our regional focus," Jaeger said. Although the scale of production of Midwest corn ethanol and soybean-based biodiesel is much larger than Oregon biofuels, the cost and cost-effectiveness of their production is not much different.

International trade
The results of the study differ considerably from earlier (technical) assessments made by the United States Department of Energy, especially in its 'Billion Ton' report which determined that the land resources of the United States are capable of producing a sustainable supply of biomass sufficient to displace 30 percent or more of the country’s present petroleum consumption.

More careful analyses like those made by the OSU scientists show that a case can be made for international biofuels trade. In the Global South cost-competitive fuels can be made without subsidies and in a much more energy efficient way while reducing greenhouse gas emissions more substantially. There is no reason why American tax payers should not import these fuels, instead of subsidizing their own 'national' biofuels that are not competitive and (in the case of first generation fuels) do to reduce greenhouse gases much.

References:
Oregon State University Extension Service: Biofuel Potential in Oregon: Background and Evaluation of Options [*.pdf], Special Report 1078 - July 2007.

U.S. DOE: Biomass as Feedstock for a Bioenergy and Bioproducts Industry: The Technical Feasibility of a Billion-Ton Annual Supply [PDF, 5.5 MB] - 2005.