“…a small think tank with a knack of spotting new trends…” – Geoffrey Lean, Telegraph.co.uk.
Chapter 2. Beyond the Oil Peak: Food and Fuel Compete for Land
Historically, the world’s farmers produced food, feed, and fiber. Today they are starting to produce fuel as well. Since nearly everything we eat can be converted into automotive fuel, the high price of oil is becoming the support price for farm products. It is also determining the price of food. On any given day there are now two groups of buyers in world commodity markets: one representing food processors and another representing biofuel producers. The line between the food and fuel economies has suddenly blurred as service stations compete with supermarkets for the same commodities.
First triggered by the oil shocks of the 1970s, production of biofuels—principally ethanol from sugarcane in Brazil and corn in the United States—grew rapidly for some years but then stagnated during the 1990s. After 2000, as oil prices edged upward, it began to again gain momentum. (See Figure 2–1.) Europe, meanwhile, led by Germany and France, was starting to extract biodiesel from oilseeds. 37
Production of biofuels in 2005 equaled nearly 2 percent of world gasoline use. From 2000 to 2005, ethanol production worldwide increased from 4.6 billion to 12.2 billion gallons, a jump of 165 percent. Biodiesel, starting from a small base of 251 million gallons in 2000, climbed to an estimated 790 million gallons in 2005, more than tripling. 38
Governments support biofuel production because of concerns about climate change and a possible shrinkage in the flow of imported oil. Since substituting biofuels for gasoline reduces carbon emissions, governments see this as a way to meet their carbon reduction goals. Biofuels also have a domestic economic appeal partly because locally produced fuel creates jobs and keeps money within the country.
Brazil, using sugarcane as the feedstock for ethanol, is producing some 4 billion gallons a year, satisfying 40 percent of its automotive fuel needs. The United States, using corn as the feedstock, produced 3.4 billion gallons of ethanol in 2004, supplying just under 2 percent of the fuel used by its vast automotive fleet. Forecasts for 2005 show U.S. ethanol output overtaking that of Brazil, at least temporarily. Europe ranks third in fuel ethanol output, the lion’s share from France, the United Kingdom, and Spain. Europe’s distillers use mostly sugar beets, wheat, and barley. 39
Interest in biofuels has escalated sharply since oil prices reached $40 per barrel in mid-2004. Brazil, the world’s largest sugarcane producer, is emerging as the world leader in farm fuel production. In 2004, half of its sugarcane crop was used for sugar and half for ethanol. Expanding the sugarcane area from 5.3 million hectares in 2005 to some 8 million hectares would enable it to become self-sufficient in automotive fuel within a matter of years while maintaining its sugar production and exports. 40
Even though Brazil has phased out ethanol subsidies, by mid-2005 the private sector had committed $5.1 billion to investment in sugar mills and distilleries over the next five years. Thinking beyond its currently modest exports of ethanol, Brazil is discussing ethanol supply contracts with Japan and China. Producing ethanol at 60¢ per gallon, Brazil is in a strong competitive position in a world with $60-a-barrel oil. 41
U.S. ethanol production, almost entirely from corn, benefits from a government subsidy of 51¢ per gallon. Ethanol produced from $3-a-bushel corn in the United States costs roughly $1.40 per gallon, more than twice the cost of Brazil’s cane-based ethanol. Although it took roughly a decade to develop the first billion gallons of U.S. distilling capacity and another decade for the second billion, the third billion was added in two years. The fourth billion will likely be added in even less time. In addition to corporations, U.S. farm groups are also investing heavily in ethanol distilleries. 42
India, the world’s second largest producer of sugarcane, has 10 ethanol plants in operation and expects to have 20 additional plants up and running by the end of 2005. China is projected to bring on-line four plants producing up to 360 million gallons of additional fuel ethanol by the end of 2005, mostly from corn and wheat. 43
Colombia and the Central American countries represent the other biofuel hot spot. Colombia is off to a fast start, opening one new ethanol distillery each month from August 2005 through the end of the year. The challenge is to coordinate growth in distillery construction with growth in the land in sugarcane. 44
For biofuels used in diesel engines, Europe is the leader. Germany, producing 326 million gallons of biodiesel in 2004, is now covering 3 percent of its diesel fuel needs. Relying almost entirely on rapeseed (the principal source of cooking oil in Europe), it plans to expand output by half within the next few years. 45
France, where biodiesel production totaled 150 million gallons in 2004, plans to double its output by 2007. Like Germany, it uses rapeseed as its feedstock. In both countries the impetus for biodiesel production comes from the European Union’s goal of meeting 5.75 percent of automotive fuel needs with biofuels by 2010. Biofuels in Europe are exempted from the hefty taxes levied on gasoline and diesel. 46
In the United States, a latecomer to biodiesel production, output is growing rapidly since the 2003 adoption of a $1-per-gallon subsidy that took effect in January 2005. Iowa, a leading soybean producer and a hotbed of soy-fuel enthusiasm, now has three biodiesel plants in operation, another under construction, and five more in the planning stages. State officials estimate that biodiesel plants will be extracting oil from 200 million bushels of the state’s 500-million-bushel annual harvest within a few years, producing 280 million gallons of biodiesel. The four fifths of the soybean left after the oil is extracted is a protein-rich livestock feed supplement, which is even more valuable than the oil itself. 47
Other countries either producing biodiesel or planning to do so include Malaysia, Indonesia, and Brazil. Malaysia and Indonesia, the major producers of palm oil, would likely use highly productive oil palm plantations as their feedstock source. Brazil, which has ambitious plans to ramp up biodiesel production, will also likely turn to palm oil. 48
There are two key indicators in evaluating crops for biofuel production: the fuel yield per acre and the net energy yield of the biofuels, after subtracting the energy used in both production and refining. For ethanol, the top yields per acre are 714 gallons from sugar beets in France and 662 gallons per acre for sugarcane in Brazil. (See Table 2–2.) U.S. corn comes in at 354 gallons per acre, or roughly half the beet and cane yields. 49
With biodiesel production, oil palm plantations are a strong first, with a yield of 508 gallons per acre. Next comes coconut oil, with 230 gallons per acre, and rapeseed, at 102 gallons per acre. Soybeans, grown primarily for their protein content, yield only 56 gallons per acre. 50
For net energy yield, ethanol from sugarcane in Brazil is in a class all by itself, yielding over 8 units of energy for each unit invested in cane production and ethanol distillation. Once the sugary syrup is removed from the cane, the fibrous remainder, bagasse, is burned to provide the heat needed for distillation, eliminating the need for an additional external energy source. This helps explain why Brazil can produce cane-based ethanol for 60¢ per gallon. 51
Ethanol from sugar beets in France comes in at 1.9 energy units for each unit of invested energy. Among the three principal feedstocks now used for ethanol production, U.S. corn-based ethanol, which relies largely on natural gas for distillation energy, comes in a distant third in net energy efficiency, yielding only 1.5 units of energy for each energy unit used. 52
Another perhaps more promising option for producing ethanol is to use enzymes to break down cellulosic materials, such as switchgrass, a vigorously growing perennial grass, or fast-growing trees, such as hybrid poplars. Ethanol is now being produced from cellulose in a small demonstration plant in Canada. If switchgrass turns out to be an economic source of ethanol, as some analysts think it may, it will be a major breakthrough, since it can be grown on land that is highly erodible or otherwise not suitable for annual crops. In a competitive world market for crop-based ethanol, the future belongs to sugarcane and switchgrass. 53
The ethanol yield per acre for switchgrass is calculated at 1,150 gallons, higher even than for sugarcane. The net energy yield, however, is roughly 4, far above the 1.5 for corn but less than the 8 for sugarcane. 54
Aside from the prospective use of cellulose, current and planned ethanol-producing operations use food crops such as sugarcane, sugar beets, corn, wheat, and barley. The United States, for example, in 2004 used 32 million tons of corn to produce 3.4 billion gallons of ethanol. Although this is scarcely 12 percent of the huge U.S. corn crop, it is enough to feed 100 million people at average world grain consumption levels. 55
In an oil-short world, what will be the economic and environmental effects of agriculture’s emergence as a producer of transport fuels? Agriculture’s role in the global economy clearly will be strengthened as it faces a vast, virtually unlimited market for automotive fuel. Tropical and subtropical countries that can produce sugarcane or palm oil will be able to fully exploit their year-round growing conditions, giving them a strong comparative advantage in the world market.
With biofuel production spreading, the world price for oil will, in effect, become a support price for farm products. If food and feed crop prices are weak and oil prices are high, commodities will go to fuel producers. For example, vegetable oils trading on European markets on any given day may end up in either supermarkets or service stations.
The risk is that economic pressures to clear land for expanding sugarcane production in the Brazilian cerrado and Amazon basin and for palm oil plantations in countries such as Indonesia and Malaysia will pose a major new threat to plant and animal diversity. In the absence of governmental constraints, the rising price of oil could quickly become the leading threat to biodiversity, ensuring that the wave of extinctions now under way does indeed become the sixth great extinction.
With oil prices now high enough to stimulate potentially massive investments in fuel crop production, the world farm economy—already struggling to feed 6.5 billion people—will face far greater demands. How the world manages this new incredibly complex situation will tell us a great deal about the prospect for our energy-hungry twenty-first century civilization. 56
Table 2-2. Ethanol and Biodiesel Yield per Acre from Selected Crops
|Fuel||Crop||Fuel Yield (gallons)|
|Sugar beet (France)||714|
|Sweet Sorghum (India)||374|
Note: Crop yields can vary widely. Ethanol yields given are from optimal growing regions. Biodiesel yield estimates are conservative. The energy content of ethanol is about 67 percent that of gasoline. The energy content of biodiesel is about 90 percent that of petroleum diesel. Source: See endnote 49.
37. Figure 2–1 compiled by Earth Policy Institute from F.O. Licht, “Too Much Too Soon?—World Ethanol Production to Break Another Record in 2005,” World Ethanol and Biofuels Report, vol. 3, no. 20
(21 June 2005), pp. 429–35, and from historical series in Molly Aeck, “Biofuel Use Growing Rapidly,” in Worldwatch Institute, Vital Signs 2005 (New York: W.W. Norton & Company, 2005), pp. 38–39; biodiesel production estimates for 2004–05 are based on preliminary data from F.O. Licht, op. cit. this note, assuming continued annual growth of 30 percent; USDA, FAS, Production Estimates and Crop Assessment Division, EU: Biodiesel Industry Expanding Use of Oilseeds (Washington, DC: 2003).
38. F.O. Licht, op. cit. note 37; Aeck, op. cit. note 37; biodiesel production estimates for 2004–05 are based on preliminary data from F.O. Licht, op. cit. note 37, assuming continued annual growth of 30 percent.
39. Marla Dickerson, “Homegrown Fuel Supply Helps Brazil Breathe Easy,” Los Angeles Times, 15 June 2005; Renewable Fuels Association, Homegrown Homeland for the Ethanol Industry Outlook 2005 (Washington, DC: 2005), pp. 2, 14–15; gasoline use from BP, op. cit. note 35, p. 12; F.O. Licht, op. cit. note 37; Karin Bendz, EU-25—Oilseeds and Products—Biofuels Situation in the European Union—2005 (Washington, DC: USDA, FAS, 2005), p. 6.
40. DOE, EIA, op. cit. note 1; Jim Landers, “Ethanol’s Sweet Allure,” Dallas Morning News, 10 June 2005; Sergio Barros, Brazil—Sugar—Annual Report—2005, GAIN Report BR5008 (Washington, DC: USDA, FAS, 2005), p. 6; USDA, Brazilian Sugar (Washington, DC: October 2003), p. 1; Todd Benson, “In Brazil, Sugar Cane Growers Become Fuel Farmers,” New York Times, 24 May 2005; Brazil sugarcane production and land needs calculated by Earth Policy Institute from São Paulo Sugar Cane Agroindustry Union, “Brazil as a Strategic Supplier of Fuel Ethanol,” presentation, São Paulo, Brazil, January 2005.
41. USDA, Brazilian Sugar, op. cit. note 40, p. 4; Benson, op. cit. note 40; Emma Ross-Thomas, “Brazil Ethanol Industry Sees Japan Move in 2 Years,” Reuters, 19 May 2005; Steve Thompson, “Great Expectations: Ethanol Is Hot, But What Is The Long-Term Outlook For Biofuel?” Rural Cooperatives (USDA), vol. 71, no. 3 (July–August 2004).
42. Dan Morgan, “Brazil’s Biofuel Strategy Pays Off as Gas Prices Soar,” Washington Post, 18 June 2005; Otto Doering, “U.S. Ethanol Policy: Is It the Best Energy Alternative?” Current Agriculture, Food and Resource Issues, no. 5, 2004, pp. 204–05; Steve Raabe, “Drivers’ Increasing Demand for Lower-cost Ethanol is Behind Plans for Three Plants on the Eastern Plains—Fill ‘er Up on Corn,” Denver Post, 19 July 2005; Suzy Fraser Dominy, “The Onward March of Ethanol,” World Grain, 1 June 2005; Renewable Fuels Association, op. cit. note 39, pp. 8–9.
43. Christoph Berg, World Fuel Ethanol Analysis and Outlook (Ratzeburg, Germany: F.O. Licht, April 2004); F.O. Licht, op. cit. note 37.
44. F.O. Licht, op. cit. note 37.
45. Bendz, op. cit. note 39, p. 6; Sabine Lieberz, Germany—Oilseeds and Products—Biofuels in Germany—2004, GAIN Report GM4048 (Washington, DC: USDA, FAS, 2005), pp. 4, 9.
46. “France Opens Second Phase of Biofuel Plan,” Reuters, 20 May 2005; Bendz, op. cit. note 39, pp. 1, 6; Marie-Cécile Hénard, France—Oilseeds and Products—Biodiesel Demand Boosts Rapeseed Production—2005, GAIN Report FR5018 (Washington, DC: USDA, FAS, 2005), p. 3; Berg, op. cit. note 43.
47. Matthew Wilde, “Soybean Farmers Could Reap Benefits from Biodiesel Industry’s Rapid Growth,” Knight Ridder, 18 July 2005; American Soybean Association, “Soybeans...The Miracle Crop,” “U.S. Soybean Meal Production 1979-2004,” and “U.S. Soybean Oil Production 1979-2004,” Soy Stats Online, 2005 edition, at www.soystats.com/2005.
48. “Brazil’s Fledgling Biodiesel Industry Takes Off,” Environment News Service, 29 April 2005; Raymond Hoh, “Malaysia—Oilseeds and Products—June Update—2005,” GAIN Report MY5027 (Washington, DC: USDA, FAS, 2005), p. 3; Chris Rittgers and Niniek S. Alam, “Indonesia—Oilseeds and Products—Annual—2005,” GAIN Report ID5002 (Washington, DC: USDA, FAS, 2005), p. 4; Elizabeth Mello, “Brazil—Oilseeds and Products—Annual—2005,” GAIN Report BR5613 (Washington, DC: USDA, FAS, 2005), p. 33; “Biofuels Take Off in Some Countries,” Reuters, 9 June 2005; Dickerson, op. cit. note 39.
49. Table 2–2 compiled by Earth Policy Institute from FAO, op. cit. note 19, updated 14 July 2005; Manitoba Department of Energy, Science, and Technology, “Ethanol FAQ,” Energy Development Initiative Web site, www.gov.mb.ca/est/energy/ethanol/ethanolfaq.html, viewed 5 August 2005; Renewable Fuels Association, op. cit. note 39; Nandini Nimbkar and Anil Rajvanshi, “Sweet Sorghum Ideal for Biofuel,” Seed World, vol. 14, no. 8 (November 2003); Boma S. Anga, “Investment Opportunities in the Up & Down Stream Sectors of the Nigerian Cassava Industry,” Cassava Agro Industries Services, www.cbcglobelink.org; Ellen I. Burnes et al., Ethanol in California: A Feasibility Framework (Modesto, CA: Great Valley Center, 2004), p. 18; Berg, op. cit. note 43; DOE, Biofuels from Switchgrass: Greener Energy Pastures (Oak Ridge, TN: Oak Ridge National Laboratory, 1998); “Oil Yields and Characteristics,” Journey to Forever Web site, www.journeytoforever.org/biodiesel_yield.html, viewed 15 July 2005; soybean yield is author’s estimate.
50. “Oil Yields and Characteristics,” op. cit. note 49; soybean yield is author’s estimate.
51. Berg, op. cit. note 43; Morgan, op. cit. note 42; Benson, op. cit. note 40; Thompson, op. cit. note 41; F.O. Licht, cited in Alfred Szwarc, “Use of Bio-Fuels in Brazil,” presentation at In-Session Workshop on Mitigation, SBSTA 21 / COP 10, Buenos Aires: Ministry of Science and Technology, 9 December 2004; Hosein Shapouri, James A. Duffield, and Michael Wang, The Energy Balance of Corn Ethanol: An Update, Agricultural Economic Report No. 814 (Washington, DC: USDA, 2002), pp. 9, 11.
52. Berg, op. cit. note 43; corn-based ethanol energy balance is author’s estimate, based on various sources, including F.O. Licht, cited in Szwarc, op. cit. note 51, and Shapouri, Duffield, and Wang, op. cit. note 51.
53. Aeck, op. cit. note 37, p. 38; DOE, op. cit. note 49, p. 3; David Bransby, “Switchgrass Profile,” DOE Feedstock Development Program, Oak Ridge National Laboratory Web site, at bioenergy.ornl.gov/ papers/misc/switchgrass-profile.html, viewed 21 June 2005.
54. DOE, op. cit. note 49, p. 2; Berg, op. cit. note 43; R. Samson et al., The Use Of Switchgrass Biofuel Pellets as a Greenhouse Gas Offset Strategy (Sainte Anne de Bellevue, PQ, Canada: Resource Efficient Agricultural Production-Canada (REAP), 2000).
55. Renewable Fuels Association, op. cit. note 39, pp. 2, 10; FAO and U.S. Bureau of the Census, cited in Brian Halweil, “Grain Harvest and Hunger Both Grow,” in Worldwatch Institute, op. cit. note 37, p. 23; USDA, FAS, Grain: World Markets and Trade (Washington, DC: July 2005), pp. 8, 13.
56. Population from United Nations, World Population Prospects: The 2004 Revision (New York: 2005).
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