Saturday, November 3, 2007

The Biofuel Mess

Biofuels, such as ethanol and biodiesel, have been a hot topic recently in political circles as a tool for combating climate change. They could create tons of agricultural/processing jobs while also doing a good thing for the environment...what's wrong with that?

Well, lots. First comes this article here, from the Financial Times, showing the ridiculous subsidies for biofuel production. Including as much as $1/litre in Europe for ethanol. The most fascinating chart, however, shows how much subsidized biofuel production has pushed the growth of corn consumption:

Theoretically, this focus on biofuel production has other effects, distorting food markets and driving up prices. Well...that world is a reality now. To the point that the UN independent food rights expert called for a 5-year freeze on biofuel production.
“It is a crime against humanity to convert agricultural productive soil into soil which produces food stuff that will be burned into biofuel.”

Even The Economist has weighed in, with an article on higher food prices. They too note the effect of biofuels, but also note the contribution of continued market liberalization, combined with an inordinate number of floods and droughts. It remains to be seen what will happen next, but reducing the distorting effect of biofuel subsidies would go a long way to helping everyone.