Richard Blackwell
Report on Business
September 12, 2007

The rush to promote biofuels such as ethanol and biodiesel is pushing up food prices and actually damaging the environment, a report from the Organization for Economic Co-operation and Development says.

Governments should stop subsidizing the current generation of biofuels − such as corn-based ethanol − and put more money into researching more advanced technologies, the report said.

"The current push to expand the use of biofuels is creating unsustainable tensions that will disrupt markets without generating significant environmental benefits," says the report, prepared for an international conference under way in Paris.

The OECD is the latest in a chorus of voices questioning expansion of biofuels. Last spring a study from Canada’s Library of Parliament said Ottawa’s investments in biofuel would do little to cut greenhouse gas emissions. In July a report from the Food and Agricultural Organization of the United Nations said high demand for biofuels contributes to inflating food prices.

The OECD report is particularly critical of governments that mandate the proportion of ethanol in automotive fuel − policies now in place in Canada, the United States and many other countries. Any kind of government support for biofuel insulates drivers from the true cost to society of their fuel consumption, it adds.

Because Western countries are subsidizing biofuels, and trade barriers block their importation from tropical regions where they can be produced more efficiently, there are "powerful incentives" to replace forests, wetlands and pasturelands with bio-energy crops, the report says.

And even though burning biofuels may produce lower levels of greenhouse gases than fossil fuel, when fertilizer use and other impacts are taken into account "the overall environmental impacts of ethanol and biodiesel can very easily exceed those of petrol and mineral diesel."

One big problem with government backing of ethanol, the report says, is that it requires major investments in fuel-distribution infrastructure, which then pressures policy makers to continue support over the long term.

The report outlines a number of alternatives to the subsidies and protectionist measures now in place in many Western countries. First, tariffs on imported biofuel should be lifted, to support developing countries where it can be produced more cheaply.

International certification standards for sustainable biofuels should also be set, the OECD report says, so that people know which products help the environment. And more government money should go to new technologies, such as making biofuels from waste products or marginal crops.

Robin Speer, director of public affairs for the Canadian Renewable Fuels Association, a biofuels lobby group, said his group disagrees with many of the OECD report’s views. Canada generates biofuels mainly from surplus grain and oilseeds, he said, citing evidence of "significant environmental benefits" from adding them to traditional gasoline. Ottawa’s support for ethanol helps Canadian farmers, creates rural jobs, and adds to our fuel supply, he said.

At the same time, most current players in the business are investing in new technologies that will eventually see commercialization of ethanol made from waste products that contain cellulose. "Everyone is working in that direction," Mr. Speer said.

Toronto energy watchdog Energy Probe backs the OECD conclusions. "It’s hard to see how ethanol makes sense from just about anyone’s perspective, other than the farmers," said executive director Lawrence Solomon. "It pollutes air, it depletes water, [and] it’s inefficient in terms of energy."

The OECD urged more emphasis on energy conservation and fuel economy.