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.

Globally, corn ethanol is still much more expensive than petroleum and will be until oil prices rise another 20 percent or so. Cellulosic ethanol, although still in the early stage of development, will likely break even with petroleum when the former is around US$55 per barrel without government incentives — about half the price of oil now and a little below the International Energy Agency’s 2007 forecasted oil price of $62 a barrel in 2030.

Perhaps the biggest endorsement of biofuels as an economically viable alternative to petroleum has come from the Organization of the Petroleum Exporting Countries (OPEC) itself. Abdalla El-Badri, secretary-general of OPEC, noted in June 2007 that the consortium was considering cutting its investment in new oil production in response to moves by the developed world to create and use more biofuels. “If we are unable to see a security of demand…we may revisit investment in the long term,” El-Badri said.

Perception: Global energy markets are so vast that biofuels cannot hope to alter the balance of petroleum supply and demand.
Reality: If agricultural supply expands at historical rates, biofuels can make a significant contribution to the transportation fuel pool, resulting in an oversupply of petroleum.