% of total oil products use; in 2008 replacement is assessed to be 1.7% (equal to the crude oil output of Algeria). Originally, the effort was completely dominated by Brazil and the US, but in recent years the European Union has become a leading player. Its global goal for 2020 is a replacement of oil products by 10%.
With the exception of Brazil's sugar-based ethanol, the biofuels programs are uneconomical, and driven by public support. Ethanol in the US receives subsidies in excess of $1 per liter of displaced gasoline, while support in Europe is in a range of $1.60-4.90. These numbers can be compared with a pretax gasoline and diesel price of $0.50 when crude oil sells at $70 per barrel, and around $0.65 with oil at $100. Overall, the support currently amounts to some $60 billion in total (more than half of global aid flows to the poor world), and it is growing fast.
The global supply of biomass for biofuels production is limited and is already hitting against constraints, with detrimental effects for food consumers. Wheat prices in early 2008 were 160% higher than in 2005, those of corn had gone up by 120%, importantly because of rising demand for biofuels. With oil prices rising by "only" 70% over this period, biofuels had become even less competitive.
The main purpose of spending money on ethanol and biodiesel is their purported benign impact on climate emissions. A closer look demonstrates that this is fallacious. Out of five recent life cycle studies of ethanol production based on corn in the US, four showed a net increase in CO2 emissions compared with the use of gasoline; the fifth recorded a 10% saving. A 2007 study from the OECD however, shows a 30% CO2-saving from US and European ethanol.
These results demonstrate that the current biofuels effort in temperate countries is misplaced. The OECD study gauges that subsidies to ethanol, measured per ton avoided carbon emissions, work out at $1500-2000 in the US, and an incredible $2100-16000 in Europe. This can be compared with the current European carbon trading price of $120, or assessments of long run emission avoidance, of less than $300. There are clearly far cheaper climate stabilization options than support for ethanol and biodiesel in the temperate zone.
If climate stabilization were the major policy concern, then strong preference should have been given to Brazilian sugar-based ethanol, whose emission characteristics are far superior and do not require support. In fact, energetic protection measures suppress Brazilian exports.
The current drive for biofuels cannot be motivated, neither on economic nor environmental grounds.
