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(originally published by Booz & Company)


A Clear Look at Biofuels

Myths abound regarding the pros and cons of biofuels. Here is a scorecard to separate truth from fiction.

In the flood of media attention that biofuels have received, it is difficult to distinguish the facts from the fanfare. Generally made from corn, sugarcane, soy, and other crops, biofuels for powering automobile engines have been hailed as a panacea that will arrest global climate change, reduce dependence on fossil fuels, ensure energy security, and turbocharge agricultural economies. Yet biofuels have also been denounced by critics who claim they will do more harm than good to the environment and they are not economically sustainable absent government protection. To determine who is right, we spoke to dozens of experts in government, corporate, academic, and nonprofit organizations — people such as Prabhu Pingali, director of the agricultural and development economics division of the Food and Agricultural Organization (FAO) of the United Nations; Miguel Pestana, vice president of global external affairs for Unilever PLC; venture capitalist Vinod Khosla, founder of Khosla Ventures; and Greg Stephanopoulos, Bayer Professor of Chemical Engineering at MIT — and reviewed studies on the growth and viability of the biofuels market. Based on this research, we explored the truth of prevalent assumptions regarding both biofuel’s promise and its impact on markets and the environment.

Perception: Substituting biofuels for petroleum will substantially reduce greenhouse gas (GHG) emissions.
Reality: At least in the short term, biofuels offer minimal GHG benefits.

At first glance, biofuels appear to leave a much smaller carbon footprint than oil because energy crops (like all crops) extract carbon from the atmosphere. Indeed, studies such as the International Energy Agency’s 2004 "Biofuels for Transport" report indicate that “well-to-wheel” GHG savings from biofuels range from 20 percent with corn ethanol to 80 percent or higher with sugarcane ethanol or cellulosic ethanol (produced from grass, plant residues, and woody crops). Corn ethanol generates more GHG emissions than cellulosic ethanol because the corn must be cultivated and distilled, processes that require extensive use of fertilizer, diesel, coal, and natural gas.

However, the well-to-wheel savings fail to take into account the impact of farming land that was, or would otherwise revert to, grassland or forest. Clearing land to convert forest or grassland into energy crops results in a substantial deposit of carbon dioxide into the atmosphere. The magnitude of that deposit depends on the type of property. For example, clear-cutting and burning a forest releases more carbon dioxide than harvesting grass. And two studies recently published in Science found that when this initial carbon dioxide deposit is taken into account, depending on the type of land used for agriculture and the type of crop grown, ethanol's contribution to GHG emissions could break even with that of petroleum in anywhere from a couple of decades to a few centuries.

That said, some emerging biofuel technologies, such as cellulosic and algaeic, require less-active cultivation of land. Consequently, peering further into the future, the environmental hope for biofuels is not a complete chimera.

Perception: Biofuels are not economically viable as a substitute for petroleum.
Reality: Biofuels offer a competitive alternative to petroleum.

Although break-even costs for different biofuel technologies vary significantly, in Brazil sugarcane ethanol is already commercially viable. Introduced there in the 1970s, cane ethanol was nurtured as an infant industry and backed by public subsidies for many years. Brazil’s government financed new ethanol plants, directed the state-owned oil company Petrobras to install ethanol tanks and pumps throughout the country, and mandated that carmakers design and manufacture vehicles that could run on pure ethanol.

About a decade ago, Brazil phased out the subsidies, but with a thriving, efficient cane ethanol industry in place, car manufacturers had to find an inexpensive way to make vehicles that could burn both ethanol and gasoline. Today, 85 percent of autos sold in Brazil feature flex-fuel power trains, and cane ethanol supplies a significant portion of the automotive fuel pool based on its economic merit. Thanks to the large number of flex-fuel vehicles, consumers can opt for whichever fuel is cheaper, which ultimately varies based on the relative prices of crude oil and sugar.

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  1. Fengxia Dong, “Food Security and Biofuels Development: The Case of China" (PDF), Iowa State University Center for Agricultural and Rural Development, Briefing Paper No. 07-BP 52, October 2007: The background, history, and current state of biofuels development in China, and implications for other developing countries.
  2. Richard Doornbosch and Ronald Steenblik, "Biofuels: Is the Cure Worse than the Disease?" (PDF) Organisation for Economic Co-operation and Development Roundtable on Sustainable Development, September 2007: A report on the facts and myths surrounding biofuels.
  3. "Biofuels for Transport: An International Perspective" (PDF),  International Energy Agency, April 2004: The costs and benefits of biofuels as a replacement for petroleum around the world.
  4. "Potential Contribution of Bioenergy to the World’s Future Energy Demand" (PDF), International Energy Agency Bioenergy, 2007: A summary of biomass resources and associated issues of market development, international bioenergy trade, and how these resources stack up against other energy options.
  5. World Resources Institute’s EarthTrends Web site: A collection of facts, articles, and documents relating to environmental trends and concomitant social and economic issues.
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