June 27, 2007
Biofuels: Keeping Good Intentions on the Right Path
by Francesca Rheannon
With the biofuels industry growing by leaps and bounds worldwide, controversy is erupting over
whether this important new energy source is truly as sustainable as it claims to be.
Climate change, energy independence and the environment—as well as social justice issues such as
food prices, land use and labor rights—are all factors that enter into the sustainability profile
of biofuels. Given both the positives and negatives of biofuels, responsible investors will need to
discern how well they conform to real sustainability.
Keith West is an eighth generation dairy farmer in
bucolic Hadley, Massachusetts. He’s looking a lot these days at what’s happening to the market in
biofuels—ethanol, to be specific. You might not think that the price of milk has much to do with
ethanol, but there is a strong relationship between them.
Lately, milk prices are at an
all-time high. There are a number of reasons for that, including a spike in world-wide demand for
dry milk. But higher production costs are playing an important role, too. And one of the key costs
that’s on a steadily rising course, analysts say, is corn—the corn that dairy cows turn into high
quality milk. “With the ethanol plants, our costs are up 40-50% this year,” said West.
In 2006, more than a third of the US corn crop went to ethanol, nearly a 50% rise in one year
alone. And the higher price that results from ballooning demand isn’t doing anything to improve the
bottom line of the already beleaguered dairy industry in New England.
The rise in corn
prices isn’t only affecting milk consumers in the US. It’s also affecting the price of tortillas in
Mexico—and thereby making it harder for poor families to put food on the table. The problem
threatens sharply higher food prices world-wide, and not just in corn-based foods, warns Lester
Brown of the Earth Policy Institute in
to Brown, “unprecedented diversion of the world’s leading grain crop to the production of fuel will
affect food prices everywhere” because as “the world corn price rises, so too do those of wheat and
rice.” As a result, Brown says, mass hunger could result among those populations that are already
skirting the edge of starvation.
On the other hand, organizations such as the International Food
Policy Research Institute believe rural populations could actually see a rise in incomes with
biofuels, because the increase in corn prices could reverse the decline of small farmers
world-wide, with widespread multiplier effects in rural communities.
But others are
skeptical, arguing that the benefits will accrue to large, agribusiness firms like Archer Daniels
Midland (ADM) and Cargill, while small farmers are further pushed off their land and rural
environments degraded by increased loads of pesticides, herbicides, and the loss of diversity to
The debate about the sustainability of biofuels is complex and wide ranging.
Biofuels, like clean-burning ethanol, could lead to major reductions in carbon emissions—but not
if they're produced by carbon-belching methods.
For example, experts say ethanol from
sugar cane is far more efficient than that produced from corn. Sugar-based ethanol produces 8.2
units of energy for every unit of energy input, making it about 720% efficient. Contrast that to
corn-based ethanol, which produces 1.3 units of energy for each unit of input, according a report from
Cornell University. Some even believe corn-based ethanol actually uses more energy than it
There’s also a growing concern that biodiesel plantations of soy and palm are
already encroaching on major carbon sinks like the Amazon and tropical forests in Indonesia. If
that trend is left unchecked, it will only exacerbate global warming.
Potential impacts on
soil and water are also an issue: if farmed unsustainably, monocrop plantations of biofuel crops
could severely deplete soils, as well as contaminate water supplies and aquatic environments with
toxic chemicals and synthetic fertilizers. But if organic or at least more sustainable methods are
used, such as intercropping and integrated pest management, soils could actually be improved.
Security concerns also come into the sustainability equation. For example, poor farmers have been
massacred and driven off their land by paramilitary groups in Columbia who are betting on huge
profits from cultivating palm oil for biodiesel.
But Allen Kahane of Global Foods, who recently put together a major sugar
joint venture with Carlyle/Riverstone and Brazilian sugar producing giant Santa Elisa, says
that once the technology to mass produce cellulosic ethanol is perfected, efficiencies will
increase across the board.
“There’s a lot that we leave on the field that we would be
able to use [with cellulosic ethanol]. So it adds to our efficiency,” Kahane said. He credits the
current lower-efficiency corn ethanol industry with developing the market for more sustainable
biofuels in the future.
Investors will undoubtedly need resources to sort through
sustainability issues related to the biofuels industry. One example is a report
on the Brazilian bio-ethanol industry put out by the Copernicus Institute at the University of
Utrecht, Netherlands. While specific to cane sugar bio-ethanol, it offers guidance for thinking
about biofuels in general. Among a long list of criteria are included such measures as greenhouse
gas (GHG) balance, support for biodiversity, compliance with internationally recognized labor and
human rights standards, and practice of sustainable agriculture.
The Copernicus report
exemplifies the kind of analysis that must be done to determine if biofuels are really sustainable.
Furthermore, as the report itself states, there is still much that is uncertain: sustainability
criteria must evolve as the biofuel industry itself evolves and new issues are identified. Careful
consideration of ecosystem needs, social justice, and economic sustainability of all stakeholders
will be necessary to avoid following the fabled road paved with good intentions — but leading
somewhere we don’t want to go.
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