For all the media comment criticising biofuels lately, you might have thought that the tide had clearly turned against the increasing trend of using crops for fuel. But you’d be wrong. In fact, as Javier Blas repoted in the FT last week, the proportion of American corn going to biofuels is going up: from 22 per cent of the crop last year to a third this time around.
The reason why is simple: oil price. With oil now at $126 – that’s up $10 just since the start of the month – and lots of analysts pondering $200 by year end, biofuels look like part of a route that leads towards energy independence. And even though corn-based ethanol is about the most idiotic substitute for oil imaginable (on a climate change as well as an energy independence basis), the truth is that in its messed-up way, it kind of works.
The proof: look at the front of today’s FT, where the headline is “US begins to break foreign oil ‘addiction’“. Foreign oil made up 57.9 per cent of imports in the first quarter of this year – as opposed to 58.2 last year. A small drop, you might think, but the Department of Energy is already forecasting a fall to 50 per cent by 2015. And here’s the grim bit:
Although the reduction in oil demand growth is partly because of slower economic growth and a projected 1m-barrel-a-day rise in output from the US’s Gulf of Mexico oil fields by 2012, experts also believe that legislation will accelerate the trend. The Energy Information Administration expects the energy act to help boost biofuel production from 8bn gallons this year to at least 32bn by 2030…
And that’s not all: even as the US starts the long hike towards weaning itself, the oil price is expected to keep on going up, as demand in China continues its ascent skywards. In the background, the International Energy Agency is warning that “the world can not easily afford to retreat from bio-fuels in spite of their possible role in driving up food prices”:
Biofuels already make up about 50 per cent of the extra fuel coming to the market from sources from outside of the Opec oil cartel this year. This explains why fears of a retreat this week helped drive oil prices to record levels. William Ramsey, deputy executive director of the IEA, said: “If we didn’t have those barrels, I am not sure where we would be getting those half a million barrels.”
Bottom line: we must not kid ourselves that we can deal with the food security issue separately from the energy security issue. They’re fundamentally intertwined in over a dozen ways – and the fact that hardly any multilateral institutions cover both energy and food is something that should worry us a lot…
