OSU study questions cost-effectiveness of biofuels and their ability to cut fossil fuel use

November 29, 2011

CORVALLIS, Ore. - A new study by economists at Oregon State University questions the cost-effectiveness of biofuels and says they would barely reduce fossil fuel use and would likely increase greenhouse gas emissions.

The idea that biofuels can reduce dependency on fossil fuels and mitigate climate change has led governments to promote them as substitutes for gasoline and petroleum-based diesel, using mandates and subsidies, said Bill Jaeger, the lead author on the study.

"Our results suggest that existing biofuel policies have been very costly, produce negligible reductions in fossil fuel use and increase, rather than decrease, greenhouse gas emissions," said Jaeger, a professor in the agricultural and resource economics department at OSU.

Biofuels were initially seen as a solution to energy and environmental problems, Jaeger said, because the carbon dioxide that's emitted when they're burned is equivalent to what they had absorbed from the atmosphere when the crops were growing. Thus, biofuels were assumed to add little or no carbon dioxide to the atmosphere.

But the bigger picture is more complex, Jaeger said, in part because biofuels are produced and transported using fossil fuels. For example, nitrogen fertilizer, which is made using natural gas, is used to grow corn for ethanol. Additionally, growing biofuel feedstocks can push food production onto previously unfarmed land, according to well-documented research, Jaeger said. When this new acreage is cleared and tilled, it can release carbon that accumulated over long periods in soil and vegetation, thus increasing greenhouse gas emissions, he said.

The costs of these side effects tend to be overlooked by policies that focus only on gallon-for-gallon substitutions, he added.

The researchers focused on the major mandated and currently used biofuels worldwide: corn ethanol, soybean biodiesel, cellulosic ethanol from switchgrass grown in the United States, canola biodiesel produced in Europe, and sugarcane ethanol produced in Brazil and exported to the United States or Europe.

They evaluated them in terms of their contribution to reducing fossil fuel use and greenhouse gas emissions. They also compared their costs and effectiveness to two alternative policies: an increase in the gas tax and the implementation of energy efficiency improvements.

Their results indicated that all of the biofuel crops were much less cost-effective than the two alternative policies in terms of reducing greenhouse gas emissions and fossil fuel use.

"Each dollar spent on energy improvement programs would be 20 times more effective in reducing fossil fuel use and greenhouse gas emissions than a similar cost for the corn ethanol program," Jaeger said. "Likewise, a gas tax increase would be 21 times more effective than promoting cellulosic ethanol."

Overall, it was estimated that U.S.-produced biofuels would cost between 20 and 31 times more than energy efficiency improvements that would reduce gas consumption by 1 percent. The study also reported that combining a gas tax increase with energy efficiency improvements could reduce U.S. fossil fuel use by more than 15 percent (or cut petroleum fuel use by more than 35 percent).

Next, the researchers looked at how much it would cost to achieve governmental targets for biofuel use and what the impact would be on fossil fuel use. In the U.S., the Renewable Fuel Standard calls for 15 billion gallons of conventional biofuel sources such as corn ethanol; 1 billion gallons of biomass-based diesel; 16 billion gallons of advanced cellulosic biofuels; and 4 billion gallons of other advanced biofuels to be used in transportation fuel by 2022. U.S. corn ethanol production has already reached 13 billion gallons, Jaeger said, but cellulosic ethanol, a so-called second-generation biofuel, is not yet commercially produced in the U.S.

The researchers concluded that all of these biofuel mandates combined would reduce fossil fuel use by less than 2.5 percent, or the same amount that a gas tax increase of 25 cents per gallon could achieve, but at an estimated cost of $67 billion compared with a cost of $6 billion with a gas tax.

To directly compare the cost-effectiveness of the biofuels with the two alternative approaches, part of the researchers' analysis evaluated the biofuels in combination with forest carbon sequestration practices so that they would produce the same mix of reductions in fossil fuel use and greenhouse gas emissions as a gas tax increase.

The study did not take into account the effect that increased production of biofuels might have on water use, pollution and food prices, all of which raise additional concerns about the merits of promoting biofuels, according to Jaeger.
The study is called Biofuel Economics in a Setting of Multiple Objectives and Unintended Consequences and was published in Renewable and Sustainable Energy Reviews. The study can be downloaded at http://hdl.handle.net/1957/25614.

Oregon State University

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