Policymakers in the U.S. and European Union have responded to rising oil prices, instability in the Middle East, and concerns about climate change by promoting biofuels as an alternative to petroleum-based gasoline and diesel. But biofuels are now getting much of the blame for soaring food prices and questions are being raised about the purported environmental benefits. As shown in the chart, US production of corn-based ethanol surged over the past two years, coinciding with the run-up in food prices. In 2006, ethanol used 20 percent of the US corn crop, but substituted for only a tiny fraction of gasoline use.
While it is hard to know exactly how much biofuels are to blame for rising food prices, especially for wheat and rice, subsidies for biofuel production are one of the few policy levers available in the short run to relieve demand pressures. So it's odd that a new World Bank analysis of responses to rising food prices prepared for the Development Committee stops short of recommending changes in the aggressive promotion of biofuel use. Most of the note focuses on ways that developing countries can cope, and that the World Bank and donors can help. The short discussion of bio-fuels focuses on the bank's role in "informing the discussion" only to conclude:
Trade-offs between energy security, climate change and food security objectives need to be carefully monitored and integrated into both food and bio-fuel policy actions.
This rather tepid response overlooks the many scientific analyses that raise serious questions about the environmental benefits of the current generation of biofuels, especially corn-based ethanol. It has long been known that substituting corn-based ethanol for gasoline does little to cut greenhouse gas emissions because producing it is so resource-intensive. A literature review from the Congressional Resource Service concluded that using corn ethanol cuts net greenhouse gas emissions by only about 20 percent because of the heavy use of fertilizers and pesticides, which are themselves energy-intensive and cause water pollution besides.
Worse, recent research published in Science magazine suggests that when land-use changes are taken into account, production of corn-based ethanol actually leads to a net increase in greenhouse gas emissions. Responding to high prices and a congressional mandate to increase the use of ethanol, farmers are restoring production on environmentally sensitive land that had been protected under a land conservation program. Similarly, the diversion of cropland from food to fuel will lead to even more grasslands being plowed up or forests cut down to meet both the growing demand for ethanol and food. One study (subscription required) estimates that, over a 30-year horizon and taking into account these land-use changes, corn-based ethanol doubles the level of greenhouse gas emissions relative to gasoline. In response to similar concerns, the European Union recently moved to reconsider its promotion of biodiesel because the policy was contributing to the destruction of Indonesian rainforests to produce palm oil for biodiesel. The U.S. Congress, meanwhile, in thrall to the farm and agribusiness lobbies, has yet to take up the issue.
The evidence is increasingly compelling that the current generation of biofuels is contributing to global hunger and worsening, not helping to address, climate change. They are also only economical as long as oil prices stay high. Investing in research and development of a new generation of biofuels that could be grown on marginal lands not useful for food or forests is a worthwhile endeavor. But in the midst of the current crisis, and given the new evidence on the perverse effects on the environment, continuing to subsidize and promote the use of food crops for fuel is simply unconscionable.
CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.