A new legislation set to be passed by the EU will, in effect, extinguish the nascent biofuel industry by letting all of the existing subsidies that keep this sector afloat expire.

“The [European] Commission is of the view that in the period after 2020, biofuels should only be subsidized if they lead to substantial greenhouse gas savings … and are not produced from crops used for food and feed,” the draft legislation says, according to Reuters.

This decision is a big condemnation of the biofuel frenzy.

International Energy agency has issued a “New Policies Scenario” for global energy needs through 2035 and in it we see that biofuels are a negligible sliver in the overall energy demand but with a gigantic impact on the food prices.

Are these trade-offs optimal? Well, a respectable study of biofuel’s value added versus cost is yet to be conducted but, while we wait, there is a lingering suspicion that biofuels is not the way forward in meeting global energy needs.

Sure, as cost of gasoline goes higher biofuels become more economically viable, but this is as misguided as saying that higher prices for bread induce better quality but these high prices also price many out of the market.

Then there are bunch of other issues with biofuels. Here are some:

Biomass input source can go up in price because it requires land to be harvested on. This jacks up the land price and imposes opportunity cost: that land can no longer be used for other productive purposes.

More land for biomass can be gotten by clear cutting forests but that removes whole lotta trees that produce fresh air.

Then there is a negative incentive when it comes to acquiring land in the first place. In the developed world, there is too little of it and in the undeveloped, poorly defined property rights make all land subject to corruptive acquisitions.

Last year, International Institute for Environment and Development noted some of these big biofuel-making outfits are not adequately compensating land owners in poor places like Africa while the governments are using corruption methods to induce land sales to these big outfits.

Then there are studies which suggest that biofuel uses up more energy to produce then they supply. Cornell professor Dr. David Pimentel is one among several whose study suggests that biofuel inputs like corn use up 29% more energy to make then they generate.

Finally, we ought to know that a viable fossil fuel substitute has arrived when all these oil companies start dumping massive amounts of R&D in it. So far, the big oil is spending only token amounts on biofuels, probably out of political necessity, and that in itself is a signal that the way forward on the energy issue is not with the biofuels.

On number of occasions, various studies have been highlighted on this blog about faulty biofuel premises that can have some disastrous results in the long run, and finally, mainstream media that has more influence then this blog, is taking a notice of the flawed biofuel policy that has crept up into highest policy echelons like the EU and Kyoto Treaty.

In yesterday’s columns, Reuters analyst Gerard Wynn takes up some of these flaws and lists them.

“Adding the emissions from burning it makes bio-energy much more polluting than fossil fuels because there are extra emissions from growing the crop and because the product has a higher moisture content than oil or coal,” writes Wynn.

Then there is rotation yield problem where subsequent crops absorb less carbon then a tree that would be left there to grow.

Then the displacement flaw:

… policymakers have maintained that energy from burning plants is non-polluting because the carbon released is the same as the carbon absorbed when the plants were growing.

This ignores the fact that planting a field of energy crops displaces what was grown there before, causing uncultivated land elsewhere to be ploughed up.

But wait! There is more!

The uncultivated land ploughed elsewhere has got to be first purchased so western-subsidized corporations go over to Africa, Asia and other countries where property rights are weak or where government is coercive and they unduly disposes those folks of property who could have used it for their subsistence.

In September, International Institute for Environment and Development noted this problem with its policy briefing warning that the locals, even if compensated, the compensation is inadequate.

There is still more…

Once acquired, the uncultivated land ploughed elsewhere is the then stripped of forests and in July, the environmental group ClientEarth warned that the current biofuel policy creates incentives for farmers to strip down forests and extinguish way more carbon absorption that their replacement captures.

Then there are studies which suggest that biofuel use up more energy to produce then they supply.

Cornell professor Dr. David Pimentel is one among several whose study suggests that biofuel inputs like corn use up 29% more energy to make then they generate.

Last year, Congressional Budget Office said that cost-benefit analysis of biofuels is more about costs then benefit.

According to the Congressional Budget Office, “The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol.”

Despite all these additional faults of the current biofuel policy that Wynn does not capture, it is refreshing to see a more critical and sober look at the biofuel hoopla in the wider media. Wynn should have more follow-up pieces.

Additional documents:
The European Environment Agency Scientific Committee: Opinion of the EEA Scientific Committee on Greenhouse Gas Accounting in Relation to Bioenergy

A tree native to Australia, India and southeast Asia is the latest biofuel fad.

Pongamia pinnata is hailed as the latest and the best substitute for palm oil, a food product that many argue is a sin to be used as industrial fuel.

Pongamia pinnata is said to yield 23 tons per hectare of crop versus 11 tons from palm oil.

Pongamia pinnata has displaced jatropha tree which was, few years ago, hailed as the palm oil replacement. Needless to say, jatropha was a flop: he tree needed fertilizer and harvesting and processing required too much energy.

Australia’s Queensland University says Pongamia is a strong “candidate” while study by the Indian government terms Pongamia as a crop with “immense potential”.

Dutch life sciences group DSM is said to have made a breakthrough in biofuel production with a claim that they have a scalable technology that does not use food and uses enzymes as an input source but these claims and the efficiency of them should be under greater scrutiny given troubling evidence from the biofuel 1.0 era.

DSM is said to lead the biofuel 2.0 which seeks to, instead of food, use waste plant matter. What’s better, they claim, their technology does not use already produced energy to catalyze the production, but instead it uses enzymes to convert the waste first into sugar then into ethanol.

“We see refineries being built, particularly in the United States, in the next two years. So by 2014 or the end of 2013 we see a meaningful market with maybe about a dozen second-generation biorefineries,” DSM board member Stephan Tanda said.

The problem with biofuel 1.0 is not just that it uses food, like corn, as an energy source but according to studies it uses more energy than it actually produces.

Back in 2005, Cornell professor Dr. David Pimentel ran a study which found that converting “plants such as corn, soybeans and sunflowers into fuel uses much more energy than the resulting ethanol or biodiesel generates”.

- corn requires 29% more fossil energy than the fuel produced;

- switch grass requires 45% more fossil energy than the fuel produced;

- wood biomass requires 57% more fossil energy than the fuel produced.

How efficient is this new enzymes-technology?

Not clear, although DSM claims that it will make 1 billion euros in sales by 2020 and sees this market as being 50 billion in sales by 2022.

But these sort of rosy pictures of biofuel’s potential have been seen before. Under such claims that neglect efficiency, corn makers have gotten themselves all sorts of subsidies and tax breaks, so much so that it is fueling a bubble in farm prices. Some with no clue about farming are bidding up prices of farms under a presumption that corn – politically entrenched – will continue to be the input of choice in making biofuel. NPR recently asked Why 158 Acres Of Corn Costs $1.5 Million.

Then there are these “independent” research groups with equally lofty research conclusions about biofuel. One such came in earlier this month from Pike Research with a claim that the global fuel market will double within the next decade and 71% of it will be dominated by US producers.

Yet, according to the Congressional Budget Office, all these biofuel schemes actually cost more then they produce and therefore are a waste of taxpayers money.

From Congressional Budget Office 2010 study Using Biofuel Tax Credits to Achieve Energy and Environmental Policy Goals, page 10:

The costs to taxpayers of reducing consumption of petroleum fuels differ by biofuel. Such costs depend on the size of the tax credit for each fuel, the changes in federal revenues that result from the difference in the excise taxes collected on sales of gasoline and biofuels, and the amount of biofuels that would have been produced if the credits had not been available. The costs to taxpayers of using a biofuel to reduce gasoline consumption by one gallon are $1.78 for ethanol made from corn and $3.00 for cellulosic ethanol. The cost of reducing an equivalent amount of diesel fuel (that is, a quantity having the same amount of energy as a gallon of gasoline) using biodiesel is $2.55, based on the tax policy in place through last year.

So, the $3.50 gallon of gas we pay at the pump actually costs more because it uses up part of the $1.78 of our tax dollars so if the subsidized ethanol is a 10% mix then the ethanol subsidy jacks up our per gallon bill by 5% percent – and just in time when folks are struggling with their budget.

It is all these biofuel 1.0 “creative accounting” issues and its bad-tasting politics that casts a shadow over all the claims that biofuel 2.0 is now making.

Still more evidence emerged this week that casts another shadow on environmentalist policy assumptions and their do-gooder claims.

Scientific Committee of the European Environment Agency came out with a report saying that the current environmentalist assumption that bioenergy is inherently carbon-neutral is flawed.

The Committee is saying that environmental policies that are in effect now have made a basic mathematical error that assigns biofuels more carbon savings than they actually merit.

Current assumption is that burning biofuel is carbon-neutral because carbon emission during burning will have to equal the amount of carbon the plant absorbed while growing.

The Committee says that this is wrong.

Using plants for biofuel means depriving the plant of further carbon sequestration while burning that biofuel releases more carbon creating a net carbon increase. The only way to decrease carbon is by additional plant growth.

“Legislation that encourages substitution of fossil fuels by bioenergy, irrespective of the biomass source, may even cause an increase in carbon emissions, accelerating global warming,” the Committee said.

If confirmed, these findings could u-turn many environmental policies.

Already, studies have shown that biofuels crowd out farming land forcing new deforestation which may go beyond then just offsetting any gains made by using biofuel.

Another study said that biofuel policies encroach on property rights, especially in Africa, where claims on property are loose and subject to manipulation.

World Bank and World Food Programme also said that biofuel policies force up food prices.

The environmental good-doers got another slap on Monday when the International Institute for Environment and Development came out with a policy briefing that blames land grabbing in Africa and Asia on ambitious environmental biomass goals and warns that such environmental goals give incentives that will undermine lives of the poor and deprive them of their property rights.

“In particular, that the search for cheap land, suitable climates and competitive transport costs will increasingly lead investors to focus on Africa and Southeast Asia, where many countries are characterised by food insecurity and vulnerable land rights,” says the briefing.

Perceived to have abundant land and climate conducive to fast biomass growth, Africa looks to be a particularly good target for securing the biomass needed to meet OECD lofty environmental targets.

However, much of Africa’s property is owned by the state so that people that have used the land for generations will be bumped out by the government’s decision to sell the land. Weak and undocumented land rights would completely strip people of any link to their property ownership, warns the Institute.

“In all these cases, there is a real risk that people will lose the land they depend on to survive. Compensation may be inadequate to restore local livelihoods,” says the Institute.

In past 2 months, this policy brief is a second major warning of possible dangers that clean-energy policies have on others.

In July, lawyers for Europe’s strongest environmentalist group ClientEarth warned that biofuels create incentives for farmers to strip down forests, if not in Europe where stripping is banned, but elsewhere in order to make up lost food-land to the biofuel demand.

The Institute briefing on biomass property rights violations is available here.

Europe’s environmentalists are unimpressed at EUs latest plan to save the forests and say that the plan indirectly promotes deforestation in order to satisfy the fuel industry.

Activist lawyers for Europe’s strongest environmentalist group ClientEarth say that EUs new green standard aiming to prevent companies from converting forests, peat lands and grassland into farms for biofouls creates incentives for farmers to clear-cut elsewhere.

Even if the existing farms in Europe grow food for biofuel, forests elsewhere in the world would have to be chopped down in order to make up for the lost food supply.

Recent research, some leaked in the EU last week, shows that most of world’s new farmland needed to make up the food lost to biofuel comes from forest destruction.

ClientEarth says that they cannot quantify the impact to the climate from this indirect loss of forests but based on research commissioned by the environmentalists, biofuel is now considered to be worse for the climate then the fossil fuels that environmentalists originally attacked.

A research by EUs energy chief, Guenther Oettinger, shows that biofuel has an indirect negative impact on European rapeseed, Asian palm oil and South American soybeans.

Three years ago, EU made a plan to get 10% of its road fuel from biofuels and since has helped the EU biofuel market to grow to $17 billion. Some see a possible EU legislation that could gradually destroy the biofuel industry.

In the US, biofuel has won food-versus-fuel contest as the latest USDA report shows that corn demand for fuel has outstripped the demand for feed.

Amsterdam based SkyNRG will supply jet fuel made out of cooking oil for the first biofuel airline flight in Europe. UK’s Thomson Airways will fly the first biofuel commercial flight from Birmingham, England, to Palma, Spain on July 28.

SkyNRG is a consortium launched by KLM Royal Dutch Airlines, North Sea Group and Spring Associates in 2009. SkyNRG says it is ready to supply all the jet fuel necessary once safety approval was received.

Thomson says that its weekly flights to Spain will start in September and those will run on  “50/50 blend of Jet A1 fuel and hydroprocessed esters and fatty acids (HEFA) fuel — made from used cooking oil, in both of the plane’s engines.”

Airlines in Europe, EU Commission and biofuel makers have signed an agreement to produce 2 million tons of biofuel by 2020, but the World Bank and World Trade Organization, and 10 others, have asked the governments to nix this deal because the biofuel will raise food prices.

The 2010 report by the International Air Transport Association (IATA) says that the synthetic jet fuel – made via Fischer-Tropsch (FT) synthesis and hydroprocessing of plant oils (HRJ) – “can be produced for approximately US$1.20-1.40 per liter. This is approximately double the current conventional jet fuel price.”

IATA also recommends promotion of “partnerships with the auto industry on pilot plants, since aviation biofuel production typically involves co-products suitable for automotive fuels”

In late June, another set of airlines - 8 US , Air Canada and Lufthansa - have signed a letter of intent with Solena Group for jet fuel made out of waste biomass. Solena’s energy process is said to have capability to take the carbon that is in the air and fuse it inside the biofuel they produce. This process effectively cleans the air of the carbon pollutants released by coal and other fossil fuels.

From Next Energy News:

Solena’s Bio-Fuel System (BFS) sequesters all the resulting carbon dioxide and nitrogen oxide emissions from turbine combustion. Then, rather than try to find a place to stuff it in the ground, the unwanted pollutants are used to feed phyto-plankton, which grows up and later gets zapped as biomass.

Solena says that their process does not compete with food because it uses municipal waste and agriculture leftovers that can be scaled to the availability at the location where its plant is.

The SkyNRG and Solena are but two cases where competing set of airlines are going with different biofuel technology.  This lack of technological standardization in the biofuel space – is it from food, waste, algae – is appended by other competing technological alternatives like electrical, natural gas and hydrogen so that the current alternative fuels situation reminds very much of the maritime dreamers of Europe gazing into the unknown sea each with their own idea as to where and how to get to the treasure but to the treasure they got.

In the case of fuels, the stakes are high: of, roughly, 20 million barrels of crude oil US consumes daily, 14 million goes for transportation. This 72% transportation chunk is split 3 ways – between gasoline (8.5 million), diesel and jet fuel.

That all these alternative fuels are developing so gradually needs to be kept in a perspective well encapsulated by Hemingway that things happen “Gradually, then suddenly.”