Renewable Energy: Looking Toward the Future

by Michael Lenhardt October 12 2009, 09:38
I.  Introduction

Rising gas prices and an increasing awareness of the environmental consequences associated with the use of fossil fuels have spurred the development of the biofuel industry.  “From being merely an interest of marginal innovators, it has become a multi-million dollar business – transforming economies – thanks to rising attention and support from governments and the public.”[1]  With the US consuming nearly 20.8 billion barrels of oil per day, and with OPEC officials claiming they will not be able to meet the projected western oil demands in 10 to 15 years, the prospect of meeting our energy needs through homegrown and renewable resources is becoming more appealing.[2],[3]  But this seemingly cut and dry solution to the US dependency on fossil fuels is not as simple as it appears.  The actual economic and environmental benefits realized by relying more heavily on biofuels is hotly debated, and due to the fluid nature and unpredictability of the world market, concrete answers are hard to come by.  Before considering the impact of a switch to biofuels, it is important to understand the true costs of our current oil dependency.

II.  The True Costs of Oil Dependency 

Through 1970 to 2005, US dependence on foreign oil has cost the US economy nearly $8 trillion.[4]  The costs associated with oil dependency are not limited to the price of a gallon of gas, “they are the transfer of wealth from the United States to oil producing countries, the loss of economic potential due to oil prices elevated above competitive market levels, and disruption costs caused by sudden and large oil price movements.”[5].  Recent studies estimate that every $1 billion of trade deficit costs America 27,000 jobs.[6]  “Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment.”[7]  Furthermore, it is estimated that $50 billion is spent each year securing our access to oil in the Middle East.[8]  The cost of oil dependence is not limited to imports versus exports, oil dependency seeps into a wide swath of the U.S. economy.  Also, the environmental costs associated with the production and use of oil, including the damage done by oil spills, drilling and extraction, and the emissions produced from the burning of fossil fuels, needs to be taken into consideration.  

As you can see, the cost of oil dependence is not merely limited to the amount the average American pays per gallon at the pump.  With demand for oil on rise, and the crude oil production expected to peak in 2037, a in-depth analysis of the pros and cons of biofuels is needed.[9]

III.  The Switch to Biofuels and its Economic Impact  

A study done on the U.S. Renewable Fuel Standard, which provides for the amount of renewable fuels which must be blended with gasoline starting in 2006 and going through 2022, concluded that “direct job creation from advanced biofuel production could reach 29,000 jobs by 2012, rising to 94,000 jobs by 2016, and 190,000 jobs by 2022.[10]  Total job creation, accounting for economic multiplier effects,could reach 123,000 jobs in 2012, 383,000 in 2016, and 807,000 by 2022.”[11]  Also, economic output from the biofuels industry, including capital investment and research and development “is estimated to rise to $5.5 billion in 2012, reaching $17.4 billion in 2016, and $37 billion by 2022.”[12]  “Taking into consideration the indirect and induced economic effects resulting from direct expenditures in advanced biofuels production, the total economic output effect for the U.S. economy is estimated to be $20.2 billion in 2012, $64.2 billion in 2016, and $148.7 billion in 2022.”[13]The production and use of biofuels not only reduces the costs associated with our dependence on foreign oil, it further stimulates the economy by introducing a new domestic energy industry, by providing jobs to people, and by providing lower production costs to businesses.    

IV.  Problems with the Use of Biofuels 

The production of biofuels itself requires energy, from the use farm machinery, to producing fertilizer, to transportation of the finished product.  “To be a viable substitute for a fossil fuel, an alternative fuel should not only have superior environmental benefits over the fossil fuel it displaces, be economically competitive with it, and be producible in sufficient quantities to make a meaningful impact on energy demands, but it should also provide a net energy gain over the energy sources used to produce it.” [14] A positive net energy benefit is achieved when biofuel energy content exceeds fossil energy input.  [15] While the net energy benefit of corn based ethanol is 25% over gasoline, wholesale costs of gasoline in 2005 were $0.44/liter, the production costs alone of the energy equivalent liter of ethanol (EEL) were $0.46/EEL.  Also, the production cost of soybean diesel is $0.55 per diesel EEL, while the wholesale price of diesel is $0.46/liter.[16]  These numbers prove that without government subsidies, steadily increasing petroleum costs, and environmental concerns, biofuels would simply not be economically viable or competitive in the global energy market.   Also, increased demand and production of biofuels around the world has lead to deforestation, negating possible environmental benefits from the use of biofuels.[17]  “A 2006 study done by the research group LMC International found that increasing biofuel production to a point where it provided 5% of global fuel needs by 2015 would require expanding the acreage of all cultivated land worldwide by 15%.[18] Dedicating all U.S. corn and soybean production to biofuels will meet only 12% of gasoline demand and 6% of diesel demand.[19]  Deforestation accounts for 20% of all current carbon emissions, and the destruction of forests, wetlands, and grasslands, for the purpose of growing crops to produce biofuel, is destroying the environmental benefits of using biofuels in the first place.[20] 

Finally, switching land from food production to fuel production has increased food prices around the world.  A study done by the IMF in 2007 found that, “One country's policy to promote biofuels while protecting its farmers could increase another (likely poorer) country's import bills for food and pose additional risks to inflation or growth.”[21]  The expansion of biofuel production could affect food security though four major dimension: availability, access, stability, utilization.[22]  Availability and access to food will be effected because food production will suffer with producers favoring biofuel production.[23]  Stability may be affected because a switch to biofuel production may make food prices more volatile.[24]  And utilization refers to the health concerns associated with diverting time and resources away from having cheap and healthy food.[25]  On the other hand, technology is advancing constantly, and research on non-food based biofuels, such as cellulosic ethanol, can be produced with far less inputs and on marginally efficient land.[26]  Research in the area of advanced biofuel is creating hope for new sources of biofuel that will reduce the drag on food supplies, while at the same time produce a less costly and more efficient source of energy.

V.  Important Biofuel Legislation 

In 2005, Congress passed the Energy Policy Act of 2005.  The Act provided $14 billion to the Department of Energy, and authorized the Department to partner with industrial and academic institutions in order to conduct research and develop advanced biofuels that are cost competitive with gasoline and diesel.[27]  Because it was aimed at combating one of the major problems associated with biofuels, its cost competiveness, it was an important piece of biofuel legislation.

 

The Energy Independence and Security Act of 2007 was also a milestone in the history of the biofuel industry because it created a more aggressive Renewable Fuel Standard, calling for the production of 36 billion gallons of renewable fuel, 21 of which from advanced biofuels, by the year 2022.[28]  Also, it requires automakers to increase the average mileage of new vehicles to 35 miles per gallon by 2020.[29]  Finally, the Act created incentives for research and development in the area of advanced biofuels by allocating $500 million for awards for grant programs that propose biofuels and technology that have the greatest reduction in life cycle emissions as compared to comparable motor vehicle lifecycle emissions.[30]  This Act was important because it set goals for the future and took an active part in directing and funding vital research.

 

More current legislation, like the American Recovery and Reinvestment Act of 2009, appropriated $786.5 million to the U.S. Department of Energy’s Biomass Program.[31]  Most of the funding will be aimed at the production of new biorefineries, with awards incentivizing the refineries that can be built and operational in the shortest amount of time.  Most of the remaining funds are to be spent accelerating and expediting the construction of refineries already in the initial construction stages.[32]  One of the most recent pieces of biofuel related legislation is no more than an amendments to a Senate appropriations bill for Interior Department funding, and is still currently under consideration.[33]  One of the proposed measure would direct the Environmental Protection Agency (EPA) to allow gasoline to contain up to 15% ethanol blend, 5% more than the maximum of 10% currently allowed by law.[34]  Another measure in this amendment calls for the delay of the adoption of a rule proposed by the EPA that would penalize biofuel producers for environmentally-damaging land use.[35]  It is still unclear if vehicles can run efficiently on 15% blends, or if the penalty rule is necessary to curb deforestation and land clearing activities.[36]   

VI.  Conclusion 

While our dependency on oil has cost the U.S. trillions of dollars and has done immeasurable damage to the environment, renewable sources of energy are also riddled with drawbacks.  Even though the benefits of biofuels may be exaggerated and their costs downplayed by some, there is no doubt that biofuels are the lesser of two evils when compared with oil.  It does not matter whether new technology will make hidden oil reserves available or more cost efficient to extract, oil is simply a finite resource.  Even if oil can still be extracted for years to come, the rise in demand and the fall in supply  of oil will make it increasingly expensive and inefficient.  Thankfully, government agencies have recognized this and have passed legislation aimed at the research and development of biofuels, building biofuel refineries, and increasing the consumption of biofuels across the country and the world.  The science of renewable energy is developing all the time, and even though many questions still need to be answered with regards to the feasibility and sustainability of biofuels, it is safe to say that biofuels will be one, if not the main source of energy for the future. 

End Notes 

[1] United Nations UN-Energy Division, Sustainable Bioenergy: A Framework for Decision Makers, 2007, http://esa.un.org/un-energy/pdf/susdev.Biofuels.FAO.pdf.  

[2] NationMaster.com, Energy Statistics: Oil Consumption, http://www.nationmaster.com/graph/ene_oil_con-energy-oil-consumption (last visited Oct. 11, 2009).

[3] FinFacts.com, Saudis Say OPEC Will Not Meet Projected Oil Demand in 10-15 Years, July 6, 2005, http://www.finfacts.com/irelandbusinessnews/publish/article_10002504.shtml.

[4] Institute for the Analysis of Global Security, How Much Are We Paying for a Gallon of Gas, http://www.iags.org/costofoil.html (last visited Oct. 11, 2009).

[5]Id.  

[6] John H. Wood, Gary R. Long, and David F. Morehouse, Long-Term World Oil Supply Scenarios, Aug. 18, 2004, http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2004/worldoilsupply/oilsupply04.html.

[7] Id.

[8] See Wood, supra note 6.

[9] Id.

[10] Bio Economic Research Associates, U.S. Economic Impact of Advanced Biofuels Production: Perspectives to 2030, Feb. 2009, http://www.bio.org/ind/EconomicImpactAdvancedBiofuels.pdf.

[11] Id.

[12] Id.

[13] Id.

[14] Jason Hill, Erik Nelson, David Tilman, Stephen Polasky, and Douglas Tiffany, Environmental, Economic, and Energetic Costs and Benefits of Biodiesel and Ethanol Biofuels, June 2, 2006.

[15] Id.

[16] Id.  

[17] Michael Grunwald, The Clean Energy Scam, Mar. 27, 2008,  http://www.time.com/time/magazine/article/0,9171,1725975,00.html.

[18] Forbes.com, IMF Warns About Impact of Biofuels on Food Prices, Oct. 17, 2007, http://www.forbes.com/feeds/afx/2007/10/17/afx4229623.html.

[19] See Hill, Nelson, Tilman, Polasky, and Tiffany, supra note 14.

 

[20] See Grunwald, supra note 17.

[21] See Forbes.com, supra note 18.

[22] See United Nations UN-Energy Division, supra note 1.

[23] Id.

[24] Id.

[25] Id.

[26] See Hill, Nelson, Tilman, Polasky, and Tiffany, supra note 14.

[27] U.S. Department of Energy Office of Science, Biofuels Policy and Legislation, http://genomicsgtl.energy.gov/biofuels/legislation.shtml (last viewed Oct. 11, 2009).

[28] U.S. Department of Energy: Biomass Program, Federal Biomass Policy: The Energy Independence and Security Act of 2007, http://www1.eere.energy.gov/biomass/federal_biomass.html (last viewed Oct. 11, 2007).

[29] Forrest Laws, President Signs Legislation Promoting Biofuels, Reducing Consumption, Dec. 19, 2007, http://deltafarmpress.com/biofuels/071219-energy-bill/.

[30]See U.S. Department of Energy: Biomass Program, supra note 28.

[31] T.J. Heibel, Nearly $800 Million from Recovery Act to Acclerate Biofuels Research and Commercialization, http://www.brdisolutions.com/default.aspx (last view Oct. 11, 2009).

[32] Id.

[33] Margery A. Gibbs, Nebraska Sen. Nelson Backing Biofuel Legislation, Sep. 24, 2009, http://www.forbes.com/feeds/ap/2009/09/24/business-financial-impact-us-nelson-biofuels_6925601.html.

[34] Id.

[35] Id.

[36] Id.

Tags:

Technology

Comments are closed

Theme by Mads Kristensen

Invitation


We invite law professors, practitioners, and students to submit short articles for publication on this website. Simply email articles to the editors of the journal using the "Contact" form link above.   We also strongly encourage readers to post comments relating to a specific article or a topic covered by an article on the website. Just click on the "Comments" link located in the post footer below each article.

Recent Comments

Comment RSS

Disclaimer

This Journal is published by members of the Business Law Society at the University of Illinois College of Law. It is not a publication of the University of Illinois, and, therefore, the University of Illinois bears no responsibility for its content. Moreover, this Internet publication is prepared as an informational service only and should not be relied upon as legal advice. Although every attempt is made to ensure the information is accurate and timely, the information is presented "as is" and without warranties, either express or implied.