Economy

Are biofuels agriculture, or industry?

Biofuels, done properly, may help end the carbon-economy and free the United States from our dependence on foreign oil. But, as I’ve said several times here at S&R, the U.S. isn’t doing biofuels properly. And finally, someone asked a question I hadn’t even thought about – should biofuels and the crops they’re made fro be considered under international agriculture trade agreements, or should they qualify as industrial products like oil, plastics, and coal?

Suparna Karmakar, senior fellow at the Indian Council for Research on International Economic Relations (ICRIER), asks this very question in an editorial for The Economic Times. He points out that the Doha Round of WTO negotiations is stalled because of U.S. insistance on agricultural subsidies, but then points out that “the US is negotiating for the development of stronger WTO rules that will rein in the use of industrial subsidies….” If industrial uses of agricultural products qualify as an industrial subsidy instead of an agricultural subisidy, then this would put the U.S. in the position of hypocritical advocacy, something that the U.S. would want to avoid due to the international relations black eye it would give us.

As someone who is opposed to most agricultural subsidies in general, and corn ethanol subsides in particular, I hope that the other WTO members force a reclassification of biofuel-utilized crops as industrial instead of agricultural specifically because it might force Bush (or, more likely, his successor) to strip away many of the corn ethanol subsidies.

8 replies »

  1. “…it might force Bush (or, more likely, his successor) to strip away many of the corn ethanol subsidies.”

    I think the “more like his successor” idea is the one that appeals to 29% George right now. In all likelihood, unless they absolutely flub it (not saying they won’t – they never cease to amaze in their incompetence), the Dems will win the White House in ’08. That means that successor who takes an unpopular action against corn subsidies will give the Republicans an “environmental” issue for ’12.

    Politics over policy again, I fear….

  2. It never ceases to amaze me that the Republicans, the party of free trade, low tarriffs, and free markets, love corn subsidies. Talk about a hypocritical policy and a giveaway to the social conservative wing (many of whom are Iowa corn growers, remarkably enough) of the party.

  3. Excellent point, Brian. And as Michael Pollan points out in The Omnivore’s Dilemma, corn subsidies in general are already counterproductive for everyone except Cargill and Archers Daniel MIdland, and the more corn is grown for ethanol, the higher the cost of food. Furthermore, it is (or is very close to being) an energy sink.

  4. I like corn. A lot. With butter and salt. Especially early-season corn.

    1. If biofuels take off, will I be able to get enough of the corn I like?

    2. Will that corn cost more? Much more?

    Pass the butter, please.

  5. Denny,

    1. No, unless we figure out a way to do biofuels without food corn. If we do, maybe.
    2. Yes, and yes.

    Better enjoy that corn while you can still afford it. And watch the cholesterol and blood pressure with all that butter and salt. 🙂

  6. Biofuels from cellulose produce much greater energy return than from corn feed stock, as cellulostic ethanol produces 5-8:1 energy return as compared to corn ethanol’s 1.2:1 output to input energy ratio. We have the technology, but not the political will, to make energy independence happen.

    And this is not even mentioning the promising research into biofuels derived fr om algae.

  7. Ethan, I agree that cellulosic ethanol is the way to go, but from everything I’ve read, we presently lack economical methods of producing it. With some political will applied to scientific research, I suspect the current problems with cellulosic ethanol could be solved, but as you say, we presently lack the polical will. With luck, the energy policy and upcoming global heating legislation in Congress will start this process.

    I’ve not heard much about algae-based biofuels. Could you provide me a link or two to good sources?

  8. Political will is meaningless without economic will. Have a look at current investment strategies. It’s like dotcom in 1994. Investors are piling in. The likelihood is that there will be series of incremental breakthroughs over the next decade that will slow the requirement for oil and coal (economies are still growing so the demand is still growing too).

    However, the debate is somewhat less simple than subsidies for agriculture vs subsidies for industry. The real way it works is this: rich countries subsidise their farmers by giving them cash directly to protect them from cheap imports from poor countries; poor countries cannot afford to give cash to their producers, and neither do they have any industrial capacity, so they tax imported industrials at the border with heavy-duty tariffs.

    It is these tariffs that the US and EU want to see removed. Developing countries are addicted to the revenue. I.e. what was once there as a negotiating tool to get rich countries to drop subsidies has become a roadblock to reform. It also penalises poor countries far more than it does the producers (by driving up the price of essential imports not produced locally).

    As for whether or not any of this will reduce the availability of food … if the demand goes up farmers plant more. There may be a momentary glitch as we all figure out exactly what the demand for biofuels is (since you may have to modify your vehicle and who knows how quickly people are going to rush out and do this) but then the supplies should increase.

    Clearly it would be better if the US dropped their opposition to Brazilian sugar and heavy subsidisation of US corn farmers. But … if the Democrats get in under Clinton then we’ll see even more protectionism, not less.

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