Biofuels: A Boon for the Misbegotten

 

Environment
Faculty Researcher Robert Lawrence, Albert L. Williams Professor of International Trade and Investment, Harvard Kennedy School Paper Title How Good Politics Results in Bad Policy: The Case of Biofuel Mandates

You might call it a case of good intentions gone awry — too many good intentions, in fact, all aimed at one class of liquid fuels. Harvard Kennedy School Professor Robert Lawrence, a trade economist, does not normally delve into energy technology matters, but he was fascinated, nevertheless, by the recent boom in biofuels, a form of so-called alternative energy upon which a variety of constituents, for a variety of reasons, have pinned their hopes. Lawrence, however, sees the U.S. government’s support of the biofuels industry in another light: as a textbook example of ill-conceived policy.

Fuels derived from agricultural crops and by-products have become big business in this country, Lawrence says, thanks to federal programs. Government-set mandates and blending quotas have created a growing demand for biofuels. Global production of ethanol tripled from 2000 to 2007. In just a single year, from 2007 to 2008, the percentage of ethanol mixed into gasoline grew worldwide, from 3.78 to 5.46 percent.

The United States is currently the world’s largest producer of ethanol, the world’s most common biofuel.

The main problem, from an energy policy perspective, is that these fuels are being promoted domestically without a clear rationale, Lawrence maintains. Proponents commonly cite three attributes: a reduced carbon footprint, a reduced dependence on foreign oil, and a boon to American farmers. Yet Lawrence believes that biofuels don’t deliver on any of these objectives. “It’s just a fundamental principle that you want to target your goals as precisely as possible,” he says. “Economists have long known that if you have three goals, you need three separate instruments in order to meet them efficaciously.”

Trying to kill three birds with this one stone — to invoke a metaphor that Lawrence finds unsavory — cannot work because biofuels are not the optimal instrument for satisfying any of the stated goals, let alone all three. “If you want people to limit emissions of carbon dioxide, then tax carbon dioxide,” he says. “That’s precise.” Growing and fermenting corn to produce biofuels is a much more circuitous way of addressing climate concerns. Moreover, the process is extremely energy-intensive: It takes energy to produce fertilizer, drive tractors, clear fields, grow crops, collect crops, and process them. “At the end of the day, the energy advantages turn out to be rather small,” Lawrence says. “And maybe you don’t gain anything.”

Corn ethanol, according to this analysis, will do little to curtail greenhouse gases, nor will it do much to advance the cause of energy independence. If the federal government wants to help the family farmer, Lawrence says, it should simply give money to struggling farmers — through tax relief, grants, or some other form — rather than prop up an industry predominantly run by large agribusiness corporations.

Lawrence is not opposed to biofuel per se, and even advocates research and development in this area. “Having the know-how is socially valuable,” he says. “That’s where the government should spend its money, trying to encourage technological breakthroughs rather than establishing a vast program to implement one technology in particular.”

But at this point, things have progressed well beyond the R&D stage. Biofuels are politically popular, having achieved broad, bipartisan support, because they seem to offer something for everyone, whether one is concerned with the environment, national security, or the plight of the American farmer. Perhaps they’re appealing in large part because no one knows the cost of the government’s requirement that a certain (and growing) portion of biofuels be blended into gasoline. Concealing the costs of a policy may be politically advantageous, but it rarely leads to the best strategy.

It’s far better to be explicit about our goals and transparent about the costs of achieving them, Lawrence says. “That’s how you’d do it if you were rational. Unfortunately, our political system encourages just the opposite: ambiguity and obfuscation.” Which accounts for how biofuels have risen so far — with little proven benefit.

— by Steve Nadis

“If the federal government wants to help the family farmer, Lawrence says, it should simply give money to struggling farmers — through tax relief, grants, or some other form — rather than prop up an industry predominantly run by large agribusiness corporations.”


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