As the Senate Agriculture Committee considers The American Clean Energy and Security Act of 2009, Roger Sedjo takes a closer look at the importance of carefully-crafted biofuels policies in this commentary originally published in the July 22, 2009 edition of The Energy Daily.
Concerns about energy independence and global warming have generated careless and counterproductive thinking on Capitol Hill. One glaring example? Efforts to increase the use of cellulosic biofuels—mandated in the Energy Act of 2007—that could well result in significantly higher prices and imports for timber. Here’s why.
To promote the greater production and use of liquid biofuels for transportation, the Energy Act sets a production goal of 9 billion gallons of renewable fuel in 2008 that rises to 36 billion gallons by 2022. It also calls for a changing composition of biofuel use over time, with a total of 16 billion gallons of cellulosic biofuel required by 2022. Besides these mandates, the act creates incentives, providing a $1.04/gallon subsidy for cellulosic biofuel, while decreasing the corn ethanol subsidy from 51 cents to 45 cents.
While fuel from grasses may prove to be a viable long-range alternative, the near-term onus of meeting the mandated targets will fall on timber. The wood required for the targeted 2022 biofuel feedstock would need to equal to 348 million cubic meters—fully 71 percent of the U.S. 2005 harvest.
America currently produces about one-quarter of the world’s industrial wood. Could U.S. forests sustain a sharp increase in the physical harvest? The pressures and dislocations would be substantial. If the cellulosic mandates of the Energy Act are met solely by wood, U.S. and world raw wood prices would be about 15 percent higher in 2015, and 20 percent higher in the early 2020s, than they would be without the increased demand for wood for mandated ethanol production. There will be adverse effects on the U.S. trade balance as well, because higher priced wood means U.S. forest processing will be driven offshore and imports of wood-based products will increase.
It’s worth considering the lesson provided by an earlier example—the mandates and generous subsidization of corn-based ethanol in the U.S. to reduce both dependence on foreign oil and greenhouse gas (GHG) emissions. Corn, of course, has traditionally been used as feed for animals and for humans but it can also produce alcohol and ethanol. An unanticipated consequence of the use of corn for biofuels has been the strong upward surge in global grain prices, although now somewhat abated by the global recession.
Many analysts now believe that corn ethanol is not viable as a major long-term energy source due to its limited potential for expansion as well as the financial stresses it generates in food markets. Furthermore, concerns have been raised that a global corn biofuel approach could be self-defeating since land-use conversion to produce more corn would generate GHG emissions offsetting much of the positive effect of any reduced consumption of petroleum.
These tradeoffs have forced a rethinking of the U.S. corn ethanol strategy. The Energy Independence and Security Act of 2007 mandates the use of a mix of feedstocks, including wood cellulose. But recent research suggests that, as with corn, the Congress may not have fully considered the unintended consequences of the cellulosic strategy.
In seeking to promote cellulosic biofuels, the Energy Act is guilty of gross ambiguity. For example, it severely restricts the sources of wood feedstock that can be used to meet the goals of the Renewable Fuel Standard. No biomass from forests on federal lands is allowed. Moreover, only “planted” trees are allowed as feedstock, thus eliminating naturally regenerated private forests, even in areas of active management. Who at the mill can determine if a log is from a 30-year-old tree that was planted or regenerated naturally? Since only wood from non-federal private planted forests is allowed, much of the U.S. forest estate is not available for biofuels. The pressures on the eligible lands could become intense. Does Congress really want to try to micromanage wood sources through legislation?
Today, in the Waxman-Markey bill, Congress is considering a bonus for green power, in which wood will get a large subsidy when used for electrical power generation. The subsidy being considered—together with the price pressures likely to be generated by mandated cellulosic ethanol—are large enough to disrupt wood markets by making energy use of wood competitive with traditional industrial wood uses. Furthermore, severely limiting which wood may be used for energy will add distortions, further constrain supply and add to price pressures. There is little question but that these subsidies would result in a spike in wood prices. This is not a plea to avoid wood in dealing with energy problems. It is, however, a plea for the careful development of the comprehensive overall strategy reflecting underlying economics and thereby avoid the serious overreaching that is now occurring.
