Globalization Biofuels and GHGs

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The major feedstocks of biofuels are maize in the United States and rape-seed in the EU. All grains and oilseeds (or cooking oil) are storable and easily transported, and the large global market has been traditionally supplied by EU and US exporters. The other characteristic of the market is the ready substitution that takes place between grains and oilseeds. If one of the major export crops such as maize is scarce and rises in price then more of the close substitutes such as wheat and rice will be used and their price may also rise triggering increases in supplies. Steady productivity gains have tended to keep grain prices low, even in the face of an increase in world population.

The key to understanding the social and environmental impacts of an increase in subsidies for biofuels production from annual crops in the US

Table 6.2 Impacts of subsidizing biofuels production in the US and EU

Market Impacts Social, GHG and

Environmental Impacts

Subsidies in the US and EU raise the price of corn and rapeseed oil and divert production to biofuels

A change in land use with more land devoted to Direct impacts maize for ethanol in the US and to rapeseed for biodiesel in the EU

A reduction in the amount of maize and rapeseed oil entering global food markets

A rise in the global prices of grains and cooking oils

A change in land use in other countries with an Indirect impacts increase in the land area producing grains and cooking oils to supply global markets and EU is the recognition of the 'knock-on' effect of subsidies in the US and EU. Table 6.2 shows how markets are interconnected and how subsidies have direct and indirect social, GHG and environmental impacts. The social impacts of subsidization policies on other countries are difficult to escape given the well publicized food riots. But analysis of the environmental and GHG implications of biofuel subsidies has been mainly of the direct kind until recently.

Two examples serve to underline land-use change impacts of biofuel subsidies, or indirect impacts. The first concerns deforestation in the Amazon Basin. The net returns to US farmers from corn increased from around $125 per acre to $325 per acre in 2007 (Collins, 2007). This prompted an increase in US corn production but a fall in soybean production in 2007 of 19 percent and a consequent price rise of soybeans of 38 percent in 2007, over the 2006 price, and 84 percent over the 2005 price (US Department of Agriculture National Agricultural Statistical Service, 2008). The area deforested for cropland and the price of soybeans in the same year are highly correlated in the Brazilian Amazon (Morton et al., 2006). Deforestation rates and fire incidence increased sharply in 2007 in the main soybean-producing states in Amazonia (Laurance, 2007).

The second example is of deforestation in Malaysia and Indonesia. The replacement of 10 percent of EU diesel consumption by biodiesel by 2020 would use 19 percent of world vegetable oils and cause an estimated price rise of 24 percent. A consequent increase in palm oil production will take place in Indonesia and Malaysia on forested lands and peat lands (Edwards, 2008).

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