Ideas to Action:

Independent research for global prosperity

Abstract

In the late 1990s and early 2000s, agricultural commodity prices reached new lows and subsidies and mandates to promote biofuels seemed like a solution for multiple problems. Replacing petroleum-based fuels with ethanol or biodiesel made from corn, wheat, sugar, or oilseeds would prop up prices for struggling farmers. In theory, it would also reduce greenhouse gas emissions and promote energy independence. When the expansion of these policies contributed to spiking food prices and increased food insecurity in the late 2000s, most developing countries retreated on biofuels. Many environmental groups also reconsidered their support for biofuels as rising agricultural prices increased the incentives to turn tropical forests into cropland. A growing body of research suggests that first generation biofuels based on food crops could lead to a net increase in greenhouse gas emissions. Despite the growing concerns, American and European policymakers plunged ahead with even more support.

This paper reviews the evolution of biofuel policies in the United States, because it is by far the largest market for biofuels, and the European Union, because the use of oilseed crops for biodiesel, including palm oil, poses particular risks for tropical forests and for climate change. The paper analyzes the economics and politics behind these policies, and shows that agricultural interests played a more influential role than is often recognized. By contrast, specific measures to ensure that these policies are sustainable and assist with climate change mitigation in practice came later and remain inadequate. In sum, biofuel support is one more way that American and European policymakers support agriculture at the expense of important developing country interests.

There are growing pressures in the United States and European Union to reform biofuel support policies to reduce the economic costs, and to ensure they do not increase food insecurity or cause overall net increases in greenhouse gas emissions. A start would be to cap the further expansion of first generation biofuel consumption, as proposed by the US Environmental Protection Agency and the European Union. Going forward, conservation measures, reduced fossil fuel subsidies, higher fuel taxes, and financial and other support to reduce tropical deforestation would be more economically efficient and more effective ways than biofuels to promote energy independence and mitigate climate change.

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