Selling Snake Oil with the Bio-fuels

There is of course nothing new about the Indonesian government’s failure to control forest and scrub burning in Kalimantan and Sumatra, whether for clearance by corporate loggers or by local farmers.

What is new is the global passion for bio-diesel on the alleged grounds that it will be a major contributor to reduction in greenhouse gases and global warming. As palm oil is probably the most cost-efficient way of producing bio-diesel, it stands to reason that Malaysia and Indonesia, the world’s two major palm oil producers and both of whom have large acreages which can be converted from forest to plantation, are keen to promote the concept.

Malaysia is one of a tiny handful of countries that could be a significant net beneficiary from putting significant cropland to work specifically to make bio-diesel. The reason, apart from a climate favorable to palm oil: a large land area relative to population. In addition, it is already a large exporter of oil so can afford the luxury of a spread-bet on bio-diesel as well.

For Indonesia, the logic is more dubious though increased bio-fuel production may offset the need to increase oil imports if domestic production continues to fail to keep up with consumption.

However, the production of bio-fuels increasingly looks like robbing Peter to pay Paul.

Looking at populous Asia more generally, unless the technology of bio-fuels improves enormously, the rush to them will likely put more strain on already scarce land and water resources without achieving what Asian farming most needs – a rise in productivity. It has already had a noticeable impact on food prices and that will likely increase as bio-fuel plant capacity rises more rapidly than the crop output needed to feed to them. That is especially the case with oil palms, which take five years or more to start producing.

For sure, for years food prices have been depressed by rich-country dumping of subsidized output. But too sharp a swing in the terms of trade towards farmers will have disruptive impact on urban societies.

Such problems could be faced were bio-fuels to be a major rather than marginal contributor to reduction in greenhouse gases. They are not.

Take a look at the numbers. At present, bio-ethanol is 3% of global gasoline consumption, bio-diesel just 0.3% of diesel consumption. The only country where bio-fuels are significant is Brazil, which derives its fuels from sugar based ethanol. Brazil has vast land resources relative to population and began its bio-ethanol production as a response not to environmental considerations but to the oil prices hikes of the 1970s. Even in Brazil bio-fuels at present account for only 10% of total energy use.

The US is now rushing into bio-ethanol but its corn-based product is much less price-competitive. According to the Worldwatch Institute, just to reach a modest 10% of US gasoline usage the nation would have to devote 30% of its agricultural land to it. The figure for Europe is 70%. For the world as a whole 10% of the world’s transport needs would require 9% of its agricultural land. Worldwatch may well be biased but even a halving of its land use estimates is far from flattering to bio-fuels.

Imagine what even a 10% use of food output for fuel would do to food prices! Of course some shift to bio-fuels could end the US and EU habits of dumping excess farm production on world markets. That would be a plus. But don’t suppose for a moment that it will have more than very marginal impact on greenhouse gases. That would be the case even if there were no offsetting costs for producing more food for fuel because emission savings are not absolute. They vary from 40% to 70%.

It is obvious that the more densely-populated countries in Asia such as Japan, Korea and Vietnam have almost no potential for using domestically produced bio-fuels as substitute for imported petroleum products. The same in effect applies to China and India. China is wasting its already depleting its groundwater at a horrendous rate just to feed itself and produce industrial crops such as cotton. India has more untapped agricultural potential but still has water problems – and a need to improve the diet of hundreds of millions.

Increasing cropping for bio-fuels will require more use of fertilizers and pesticide, more mechanization of farming – all of which use energy and add to greenhouse gases and other pollutants.

All that is before counting the carbon and other emissions from all that burning of tropical forest to make way for the oil palms. And without taking account the reduced carbon absorption of oil palm plantations compared with forests.

Of course, technology will improve. Genetically modified varieties will raise crop yields without need for more fertilizer and water inputs. Ways will be found to use cellulose – inedible grasses and the stalk and leaf bye-products of other crops – to make ethanol. This would enable cellulose to be produced from poor-quality land unsuited to food crops or as a byproduct of food growing. But all that is for the future.

For now the bottom line for bio-fuels is that the 40-70% (depending on feedstock) reduction in emissions they achieve compared with gasoline could well be offset by their negative impacts, whether on the atmosphere or other resources.

Like the land-clearance haze, what may be good for the Indonesian economy and Malaysian plantation companies is bad news for the world at large. As for the western environmentalists who think that a global bio-fuel market is good for farmers in Asia, Africa and South America. – think again.