Wednesday, June 01, 2005

Farms as Oilfields
The Economist recently ran a special report on biofuels. It's worth reading because it examines the subject from a distinctly international perspective. This is important, because most reporting here focuses on the conversion of US corn crops into ethanol for use as a gasoline additive, or on the occasional diesel car running on recycled fry-oil. As the biofuels industry becomes more global, it will play in increasingly important role in both energy security and international trade.

The two key non-US examples discussed in the report are European biodiesel and Brazilian ethanol. Both rival the US ethanol market in scale, as well as in the government subsidies involved. As I've argued before, if you want to understand the current biofuels business, you need to understand how different countries choose to subsidize their farmers, because despite its energy implications, current biofuels based on corn, cane and edible oils are very much agricultural support programs first, and energy programs second. If high oil prices persist, they may disguise this just long enough for the technology of the industry to alter this basic fact. Change is coming, and this is the main reason I'm a bigger fan of biofuels than I used to be.

Unfortunately, the Economist article mentions the transformation of biofuels technology almost as an afterthought. New processes based on biotech, allowing non-food crops and agricultural waste to be turned into ethanol and other useful chemicals, will almost certainly overturn the current business model, at least in the developed world. This is essential, because as biofuels scale up, they will compete with food crops for arable land. The transition to cellulose-based biofuels could happen within a decade, as enzyme costs come down and the dramatic difference in feedstock values begins to weigh in. I sincerely hope that the farmers whose livelihoods depend on subsidized ethanol or biodiesel are paying attention to these developments, and that the money they are investing in the explosion of current-technology ethanol plants isn't coming out of their retirement accounts.

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