OECD says first-gen biofuels cost $1700 in public funds per tonne of CO2 reduced; calls for focus on advanced biofuels and conservation as alternative

July 16, 2008

The OECD released its “Economic Assessment of Biofuel Support Policies”, concluding that public sector support of first-generation biofuel production is costly, has a limited greenhouse gas emission and energy security benefit, and increases crop prices. The report concludes that the fuels are dependent on government support for viability, and that overall government support costs up to $1,700 per tonne of CO2 reduction. The report said that governments should focus policy on energy conservation and support second generation biofuels.

The complete report can be downloaded here.

OECD background

In France, a senior official at the at the Organization for Economic Cooperation and Development said that biofuels can only be partly blamed for the recent increases in commodity prices, calling efforts to make a broader linkage “simplistic”.

Loek Boonekamp told the Reuters Global Agriculture and Biofuel Summit that the rise in cereal prices would have happened even without the rise in biofuel production, and that the shortfall in global grain production was more than four times as large as the increase in biofuels-based grain demand.

The OECD in an official paper entitled “Special Issue on Climate Change Climate Change Policies: Recent Developments and Long Term Issues” said, “Biofuels may also be used as a replacement for gasoline. In such a capacity they offer significant advantages for energy security as well as possible new potential for agricultural development.”

Previously, the OECD released its 2007-2016 Agricultural Outlook, which found that “increased feedstock demand for biofuel production, and the reduction of surpluses due to past policy reforms, may keep prices above historic equilibrium levels during the next 10 years.” The OECD wrote that “higher commodity prices are a particular concern for net food importing developing countries as well as the poor in urban populations, and will evoke on-going debate on the “food versus fuel” issue….The expectation that world market prices have attained a higher plateau may facilitate further policy reform away from price support. This would reduce the need for border protection and would provide flexibility for tariff reductions.”

Two researchers submitted a draft paper last fall to the OECD Roundtable on Sustainable Development - an information exchanging forum for Ministers of Trade, Finance and the Environment — calling for an end to biofuels subsidies. The report says that biofuels are an untried technology that can have only limited effect on the climate and will cause a rapid rise in food prices. The study’s authors concluded that US ethanol supports cost $500 for every ton of carbon dioxide removed from the atmosphere — and almost ten times this amount in the EU — and suggested instead the imposition of “technology-neutral” carbon taxes.

It says biofuels could lead to some damage to the environment. “As long as environmental values are not adequately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops,” it says.

The report recommends governments phase out biofuel subsidies, using “technology-neutral” carbon taxes instead to allow the market to find the most efficient ways of reducing greenhouse gases.

“Such policies will more effectively stimulate regulatory and market incentives for efficient technologies,” it said. The study found that only Brazilian sugar, paper-making byproducts and used vegetable oil are suitable feedstocks for biofuel production.

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Written by Jim Lane · Filed Under Research