WHY SUSTAINABILITY STANDARDS FOR BIOFUEL PRODUCTION MAKE LITTLE ECONOMIC SENSE

October 16, 2009

The federal "sustainability standard" that requires ethanol to emit at least 20 percent less carbon dioxide (CO2) than gasoline is illogical and ineffective.  Moreover, ethanol sustainability standards divert attention from the contradictions and inefficiencies of ethanol import tariffs, tax credits, mandates and subsidies, all of which exist whether ethanol is sustainable or not, say Cornell University economists Harry de Gorter and David R. Just.

Ethanol is sustainable by definition:

  • The CO2 sequestered by growing corn is exactly offset by the CO2 emissions that follow from burning the fuel in a car.
  • The same observation applies to, say, consuming bourbon made from corn, but ethanol can replace energy while bourbon cannot.
  • Hence, any sustainability standard should be applied to all corn and other crop products, and not just ethanol.

Sustainability standards are based on "life cycle accounting," in which ethanol is assumed to replace gasoline; but in fact, it may be replacing coal or other energy sources:

  • Life-cycle accounting also fails to recognize that if incentives are given for ethanol producers to use relatively "clean" inputs (e.g. ethanol gas), the "dirtier" inputs (e.g. coal), that might otherwise have been used for the ethanol production will simply be used by other producers to make products that are not covered by the sustainability standards.
  • Sustainability standards reshuffle who is using what Inputs -- with no net reduction in national emissions.

Finally sustainability standards are discriminatory under World Trade Organization (WTO) law, and are unlikely to survive a legal challenge from ethanol producers abroad, say the economists:

  • The United States will not be able to rely on the World Trade Organization's exception for trade laws protecting the environment because of lax United States policies dealing with greenhouse gas emissions relative to its trading partners.
  • Moreover, the imposition of United States tariffs on climate-friendly ethanol produced abroad weakens the United States defense of ethanol sustainability standards under the WTO.

Source: Harry de Gorter and David R. Just, "Why Sustainability Standards for Biofuel Production Make Little Economic Sense," Cato Institute, Policy Analysis No. 647, P1., October 7, 2009.

For text:

http://www.cato.org/pubs/pas/pa647.pdf 

 

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