It’s all over the news, riots from Haiti to Cameroon over food. The usual reasons are given: environmental disasters reducing food production, growing populations increasing demand, but in fact there is a new factor involved. The sale of foodstuffs for bio fuel production.
Essentially corn and wheat are getting crushed and refined to create ethanol for the petrol pump. The environmental benefit of ethanol is its cleaner burning due to its high oxygen content. US states with smog problems legislated ethanol use and politicians wanting some environmental credibility promoted it as a solution to climate change. The US corn belt is a key voting demographic for any aspiring president which has also led to very favourable subsidies for ethanol production. Combined together, this created an explosion of market demand for biofuel production, and South American, European and even Australian producers could not ignore the opportunity.
The most damning evidence against ethanol is that for every 1 joule of fossil fuel energy used to grow, collect, dry, ferment and burn US corn ethanol, only 1.34 joules of energy is produced. The UK government even suggests that for every one mega joule of energy produced by US corn, 103 grams of carbon dioxide are produced, compared with 85 grams for gasoline and diesel.
One third of world ethanol production comes from the US, most of which is corn however it needs more land, fertilisers and pesticides than most other land uses.
It’s not all bad for ethanol.
Brazil’s sugar cane ethanol produces 8 joules of energy for every one joule of energy used to produce it. Because of its hot and humid conditions Brazil’s production of ethanol is much more efficient, producing only 18 grams of carbon dioxide per mega joule of energy.
The favourable climate for ethanol in Brazil has led the country to be the second largest producer of ethanol behind the US, also producing about one third of the world’s ethanol. The bad news is that ethanol production in the US is growing at twice the rate as Brazil. The US government has put trade restrictions on the amount of Brazilian ethanol entering the country.
In 2007 biofuel production consumed one third of the US’s corn harvest. According to the UN the production of one fuel tank with 100% ethanol, could have fed one child for one whole year.
The result is less food, increased demand and therefore higher prices. Effectively, the US government is paying subsidies to corn farmers for higher world food prices.
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Economists suggest that with the increase in demand and food prices, farmers will be encouraged to produce more food and investors will put their money into food production. The problem with this is that the market will force farmers to sell their crops to ethanol producers until food prices compete with ethanol prices.
This does not do anything for the people starving now; even if crops were sown today it could take years for production to meet market demand.
Even if the market’s effect on food production was instantaneous, this direction is unsustainable. If every car driven in the US used 100 per cent ethanol fuel, it would take 75 per cent of all the world’s cultivated land to produce enough ethanol.
One possible solution is Cellulosic Ethanol.
Cellulose which is found in most plant materials including sawdust can be broken down and fermented into ethanol. The efficiency and production of Cellulosic Ethanol is dependent on the amount of sugar and its structure in plants. The efficiency of all ethanol production could be increased, instead of using the corn kernels for ethanol, producers could process the rest of the plant and leave the corn for food.
Unfortunately it could take years for major production of Cellulosic Ethanol to reach refineries.
Ethanol in its current state is a fools errand, a result of political spin and taking easy options at the expense of others. Serious decisions must be made and there aren’t any easy ways out.
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Speaking of serious decisions.
Morris Iemma’s crusade for privatisation of the state’s electricity infrastructure is far from a holy one. I assume Iemma’s reasoning behind the sell-off is trying to introduce competition into the electricity industry in the hope that it will lower prices and increase efficiency. But privatisation of any government service industry is always fraught with danger.
Politically Iemma cannot even persuade his own party to back him. Some may suggest this as purely ideological bias and that a sell-off is the right direction to head in. Maybe, just maybe, there may be some reasons for the opposition.
Looking at US electricity over the last decade some startling case studies emerge. According to US Department of energy data, over the period 1999-2007 states that adopted de-regulation policies had a greater increase in electricity prices than those that didn’t.
In California, within five years of introducing de-regulation in 1996, major blackouts and price rises created an energy crisis in 2000-01. At its worst 1.5 million people went without power on March 19-20 in 2001.
The fundamental flaw of electricity deregulation is that there is no incentive for private companies to build more power plants. Power companies do not get paid more money for excess electricity; on the contrary if there is not enough electricity, then companies can charge more for the electricity they are supplying.
A system not meeting demand and instead producing blackouts will be more profitable than an efficient system meeting demand. Not only was this the case in California, but the incentives introduced by the government to reduce congestion led to more profits for power companies. Enron diverted power around the state to increase congestion so that it would get more subsidies from the government, even when these manipulations caused blackouts.
In a retrospective look on the crisis, the Chair of the California Power Authority said:
“If Murphy’s Law were written for a market approach to electricity, then the law would state ‘any system that can be gamed, will be gamed, and at the worst possible time”. And a market approach for electricity is inherently gameable. Never again can we allow private interests to create artificial or even real shortages and to be in control."
Much closer to home we can see what the privatisation of Telstra has done for its service. Australian jobs have been outsourced overseas, services have been cut, especially in rural areas, and the share price has never recovered from when it originally floated.
The Iemma government wants money to spend to get it through to the next election and doesn’t care what long terms effects it has on electricity in the state.
When the Howard government saw problems with the original Telstra sell off, its solution was just to sell more of it.
Will the Iemma government do the same when the electricity sell-off falls apart?
The worst thing about this is that it’s not even Iemma’s idea. In 2007 as a reply to the Government’s budget, the opposition leader Barry O’Farrell said he would sell off $4 billion worth of electricity assets to fund infrastructure projects.
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