Do Biofuels Harm More than They Help?

Are biofuels just as harmful as fossil fuels?

Right now, there is a bit of a conundrum in biofuel investing. Popular biofuels like ethanol that comes from corn are causing a great deal of trouble in terms of environmentally friendly investing. Why? Because recent studies are showing that producing biofuels can actually cause more harm to the environment than good. There are two main problems plaguing biofuel production right now on the level of environmental friendliness: land use, refining and production.

In terms of land use: If US farmers and Big Ag concerns like Archer-Daniels-Midland (ADM) concentrate only on corn for ethanol, then the soybeans they usually rotate in have to be grown somewhere else. This means that land has to be cleared somewhere (right now Brazil is the place -- deforesting the Amazon) to grow the soybeans no longer grown here. Crops planted to provide biofuels absorb less carbon than rainforests and natural scrubland. This is a problem becoming rather apparent in Indonesia as land is cleared for palm oil plantations.

The other problem is that of refining and producing biofuels. While the finished product may give off less harmful emissions than their Big Oil counterparts, the bottom line is that there are still emissions involved in refining and producing biofuels. Corn requires an especially rigorous process that yields little in the way of efficiency. So the emissions involved in producing biofuels may actually cancel out the good effects they have. Or, in some cases, even supersede them. The New York Times points this out about what we are using for biofuels:

Dr. Searchinger said the only possible exception he could see for now was sugar cane grown in Brazil, which take relatively little energy to grow and is readily refined into fuel. He added that governments should quickly turn their attention to developing biofuels that did not require cropping, such as those from agricultural waste products.

Corn ethanol is not the only available biofuel, it is merely our biofuel of choice right now. There are other, more sustainable ways to develop biofuels. Until then, it is possible that biofuel investing may become seen as un-environmentally friendly as investing in Exxon (XOM).

Comments

[haydete]

There's logic test about being stranded on an island with cereal and chickens. Do you feed the chickens so they don't starve eventually eating the chickens, or do you eat the chickens first because the cereal can be stored? I may be leaving out details, but the logical answer was to minimize the energy used to maximize your caloric intake (ans: eat the chickens while they are fat, eat the cereal later).

[ARTCOL]

There is another glaring exception to the bad biofuel story-that is Jatopha which can and is being grown on waste land and desert to produce a rich biofuel(LSE AIMDOO)

[Miranda]

I have written about Jatropha for The Panelist in the past, and agree that it is a an excellent resource that we are should be utilizing. Unfortunately, few, if any, Americans are even aware of it. To BP's credit, it is investing a small amount in Jatropha. It would be an excellent way to help boost developing economies while at the same time producing the means of a biofuel that is more efficient and environmentally friendly.

As for the chicken analogy -- I'm not sure about the point, but we aren't on a desert island (thankfully) and there are other things we could be developing instead of just using oil until it's gone. I think a complementary solution could be used. Perhaps feed some of the cereal to some of the chickens, and eat a mixed diet of chicken and cereal, slowly weaning one of the chicken. (Since the chicken will be gone anyway.) Of course, with both chicken and cereal, it is possible to get more of both. Chickens lay eggs and cereal can be planted and harvested. You can't get more oil.

[jack kreg]

While you did mention the low efficiency of producing ethanol, you might have actually said how bad this efficiency really is. I think that I have read that it takes the energy equivalent of 4 or 5 gallons of ethanol to produce 6 gallons, in other words, one is working very hard to refine even 1 gallon of ethanol. However, gasoline, which has a much higher energy per gallon, is refined with much higher efficiency, taking only a gallon of fuel to produce 6. I think that this description is correct.
You might have also covered the issue from the stand point of becoming less dependent on oil from miserable places like Venz and the Middle East. In which case, you should have included electric power generation by nuclear and liquid coal fuels.
thanks for the article, this is a complex subject, badly in need of attention.

[CharliePeters]

Does corn fuel ethanol increase oil use and oil profit?

* Some folks think so

* Clean Air Performance Professionals

[Georealist]

So..the investment upshot of this article is...? Also..what's un-environmentally unfriendly about investing in Exxon? Exxon gives the Yuppie middle class precisely what they want...large amounts dependable refined oil to run their medium sized tanks around town on...and to jet Al Gore to the next stop on his Americas Biggest Hippocrite Tour...
I suppose it might also be worth a mention that there is nothing like sustainable bio-fuels. They all trash topsoil integrity and consume huge amounts of fertilizer and water. From an investment standpoint that makes Nat Gas..Solar..and Nuclear (oh my God!!!) the only alternatives.

[DirtSimple]

This has nothing to do with investing ... it's all feel-good environmental psycho-babble for those on a guilt trip. The opening says it all right away - "Are biofuels just as harmful as fossil fuels?"

How can one conclude that returning subterranean fossilized carbon to plant and animal life on the surface by using fossil fuel is harmful? CO2 (product of burning any fossil fuel) is fertilizer for plant life, and plants produce oxygen. Guess what folks -> NEWSFLASH: all that fossil fuel we use today got to be fossil fuel because at one time long ago it WAS carbon in the surface ecosphere as plant and animal life! Yes, right here on this little bitttie eensey weensey desert island floating around in the ocean of the universe, and on which we are stranded! All we are doing is returning that carbon to the light of day on the surface of the island.

By the way, how many of you out there fretting about the harm of global warming can remember the 70's when we were supposedly returning to the ice age? If you don't, check it out. This global warming hysteria is the same thing redux, just in the opposite direction. Actually, I wouldn't mind a little milder weather here in the northeast. I wouldn't have to move south when I retire. Why, I might even have the beach at my front door!!

[lefty]

Thankz, Dirtsimple! I'm sooo sick of tree huggers I could --------------- but I won't

[Miranda]

Of course this article isn't about making the most money. It's about environmentally friendly investing. And for many, that means supporting "sustainable"... energy, some of which can make money (solar stocks and some clean energy ETFs have been doing okay). The point of this article was not to bring up things like solar, wind and nuclear (which are all better for air quality), but rather point out that the biofuels we are focusing on now are not as great as many seem to think.

Jatropha, though, does not destroy topsoil. It actually turns bad topsoil into something usable later. And, unlike corn ethanol, is fairly efficient.

And yes, CO2 does help plants. Unfortunately, too much of it can be harmful. Too much of nearly anything can be harmful. And when what takes the CO2 from the air is being destroyed by clearing, it can be a problem.

Global warming, though, is not something I am overly concerned about. I see it as a red herring. Rather, pollution and the quality of the air we breathe (and the attendant health issues) is more of an issue for me. But the pols want us focused on a global warming debate. Why? Because air pollution and air quality is something we can work on, and something that requires actual action. Global warming by humans can't really be proven definitively at this time, so focusing on a debate forestalls having to take action.

[DavidJackson]

Good article -- with a high degree of relevance to investing in this sector.

Georealist ("So..the investment upshot of this article is...?"), DirtSimple ("This has nothing to do with investing ..."), and Lefty (I'm sooo sick of tree huggers..."): You've missed a crucial point here. As Gabby pointed out in a comment on this article seekingalpha.com/artic... , there is currently a 51 cent/gallon tax credit for US ethanol producers. At least part of the reason for that is the growing concern about the environment among voters.

But as the environmental case for biofuels weakens, political support for subsidising them will wane. Note:

seekingalpha.com/artic...

So tree-hugging, feel-good environmental babble has a LOT to do with investing in this sector, because if sentiment towards biofuels turns negative, the political support for the subsidies will disappear, and the corn ethanol stocks will implode.

[Tom B]

"So tree-hugging, feel-good environmental babble has a LOT to do with investing in this sector, because if sentiment towards biofuels turns negative, the political support for the subsidies will disappear"

Umm-- subsidies aren't directed at the "tree-huggers&quo... they are a transparent and stupid use of pork-barrel politics to fish for corn states votes.

[Miranda]

David: You've made some excellent points on the relevance of the environmental debate in investing.

Thomas: I have to agree with you about subsidies. It's a great way for pols to cater to their Big Ag supporters while at the same time pacifying environmentalists by saying: "Look, we're supporting the fight against dirty, polluting oil!" It also gets them in with those who are looking at energy independence as well. Too bad they skate over the fact that they are also giving big subsidies to oil companies as well...

[Tom B]

"Too bad they skate over the fact that they are also giving big subsidies to oil companies as well..."

And, don't forget, most alternate energy research dollars go to the oxymoronic "clean coal", instead of going to legitimate projects.

[Miranda]

@ Thomas: And how! I live in Utah, so I hear a lot about so-called "clean" coal...