Global ethanol production rose 25% from 2004 to 13.5 billion gallons last year, and biodiesel capacity more than doubled to 6.1 million metric tons in that period, though the two combined still only make up about 1% of the world’s transportation-fuel supply. Source: Patrick Barta, “Biofuel Costs Hurt Efforts to Cut Oil Price,” Wall Street Journal, November 5, 2007, page A2.

Farmers who have “bet the farm” to go into the ethanol business may be taken to the cleaners if, as some analysts believe, the ethanol boom is a bubble fated to burst without new mandates and subsidies (see here, here, and here).

Also, what happens to domestic farmers if politically-mandated biofuel targets cannot be met without importing more and more biofuel and bioenergy crops from tropical countries? 

The European Union’s biofuel mandate has shifted capital from EU farmers to plantations in tropical countries, and increased imports of bioenergy crops from those countries. “In terms of production costs and energy yields,” observes the Clean Air Task Force, “European farmers are at a competitive disadvantage in the global energy market.” The same goes for U.S. farmers. As the Task Force explains:

Tropical energy crops get a lot of sunlight and are typically harvested by low-wage manual laborers; most temperate energy crops, in contrast, are harvested by petroleum-powered machines after a relatively short growing season and often require more fertilizers and pesticides. In addition, the cost of land (which along with the cost of labor is a dominant factor in setting the cost of biofuels) is significantly lower in tropical countries with developing economies. Source: Clean Air Task Force, Leaping Before They Looked: Lessons from Europe’s Experience with the 2003 Biofuels Directive, October 2007, p. 8.

Then in February 2007, the EU Council adopted a “10% binding minimum target” to be achieved by 2020. However, says the EU, “the binding character of this target is appropriate subject to production being sustainable, second-generation biofuels becoming commercially available and the Fuel Quality Directive being amended accordingly to allow for adequate levels of blending.” What the heck does that mean?

According to the Clean Air Task Force, “Some analysts suggest that these caveats will become deal-breakers, because substantial technological hurdles stand in the way of second-generation biofuels and because it is impossible to demonstrate that biofuels are produced in a sustainable manner using the analytic tools that are currently available.” Source: Clean Air Task Force, Leaping Before They Looked: Lessons from Europe’s Experience with the 2003 Biofuels Directive, October 2007, pp. 6-7.

As my colleague Christopher Horner often points out, when it comes to global warming and energy policy, Europe has a gift for pretending that promises are facts even while trimming and backsliding from its promises.

Using production projections from the U.S. Department of Agriculture and the EU’s Direcorate General for Agriculture, the International Energy Agency predicts that at least 20 percent of the crop land in both locations would be necessary to supply just five percent of domestic fuel needs by 2010…To meet the EU’s biofuels target of 10 percent by 2020, 38 percent of EU cropland would have to be devoted to biofuels.  According to the IEA, displacing 10 percent of fossil fuel use for transport in the United States would require more than two-thirds of U.S. cropland for a yield of only 30-billion gallons of biofuels … Unless the United States and the EU were to sacrifice food production in favor of biofuels, they cannot meet their proposed mandates through domestic production alone–even if the amount of land used, crop yields, and production efficiencies were sharply increased.

Calendar Year                   Target (billions of gallons)

2006                                   4.0

2007                                    4.7

2008                                    5.4

2009                                    6.1

2010                                     6.8

2011                                      7.4

2012                                      7.5

In 2006, the United States produced 4.86 billion gallons of ethanol, a 24.3% increase over 2005, and exceeding the 2006 RFS by 21%. Source: Charlotte Hebebrand and Kara Laney, An Examination of U.S. and EU Government Support to Biofuels: Early Lessons, International Food & Agricultural Trade Policy Council. IPC Brief 26, October 2007, p. 12, citing Energy Information Administration, “Ethanol and Biodiesel OVerview, 1981-2006,” http://www.eia.doe.gov/emeu/ar/txt/ptb1003.html.

Source: Charlotte Hebebrand and Kara Laney, An Examination of U.S. and EU Government Support for Biofuels: Early Lessons, International Food & Agriculture Trade Policy Council, IPC Issue Brief 26, October 2007, p. 11, citing Energy Information Administration, Annual Energy Review 2006, “Energy Consumption by Sector: Transportation Sector Energy Consumption, 1949-2006, June 27, 2007, http://www.eia.doe.gov/emeu/aer/consump/html.