Funny thing happened on the way to the biofuels mandate: rainforests burned in Brazil.
Pardon?
According to a UPI story, the law of unintended consequences reared its ugly head (as usual):
"For example, the massive shift to corn production in the U.S. has led to a sharp drop in U.S. soy farming, which in turn has contributed to a doubling in global soy prices over the last year," [William Laurance] said. "This, in turn, is evidently helping to promote a sharp spike in Amazon fires and deforestation, especially in the major soy-producing states in Brazil."
Laurance is a staff scientist as the Smithsonian Tropical Research Institute.
So the use of biofuels in the U.S. is degrading the environment in Brazil. This on top of ethanol produces more nitrous oxides (a green house gas) than burning oil, according to a Swiss government study (see same story).
All that at more expensive, too. No wonder the government has to mandate it. If it made sense economically, it would be happening on its own.
Congress has mandated not just ethanol, but biodiesel -- trasesterfied oils and fats -- too. In the USA, biodiesel made from soybean oil qualifies for a $1.00 per gallon federal tax credit. Individual states then top that up with subsidies or tax credits of their own -- in Kentucky, for example, by an additional $1.00 per gallon. Since the wholesale price of petroleum diesel (i.e., before taxes and distribution & marketing costs) is around $2.75, while the wholesale price of soybean oil is around $3.50 per gallon, from an economic perspective turning vegetable oils into biodiesel is a value-subtracting activity.
Meanwhile, poor people in south-east Asia are having a hard time being able to afford cooking oil, in no small part thanks to the subsidies and mandates propping up demand for biodiesel around the world.
The law of unintended consequences has a long arm indeed.
Posted by: Ron Steenblik | January 20, 2008 at 10:08 PM