INTERVIEW - Energy Bill Savings from Biofuels Overrated - Wbank
Date: 14-Dec-06
Country: US
Author: Chris Baltimore
Ethyl alcohol -- better known as ethanol -- is leading the development of alternative fuels as volatile prices for crude oil and gasoline push consumers to use more "green" fuels produced from renewable resources like sugar, corn and soybeans.
But judged strictly on energy bill savings, big bets on ethanol by producers in the United States and elsewhere are unlikely to pay off in the near-term, said Todd Johnson, a senior energy specialist at the World Bank's Latin American and Caribbean section.
"We don't believe that straight financial cost savings are going to be there for very many countries in the near term," Johnson told Reuters in an interview.
Many officials are "being told that they can actually save money on it and we don't know very many countries where that's true," he said.
The obvious exception to the rule is Brazil, which has the lowest ethanol production costs in the world, he said.
Unlike the United States, which now relies heavily on corn for its ethanol production, Brazil's ethanol comes from cheap and plentiful supplies of sugarcane, which it can produce for about US$150 a tonne - the lowest cost in the world.
But other factors could make increased ethanol use attractive, he said, like industrialized nations' growing focus on shoring up "energy security."
Increased ethanol use is also a boon to agricultural development and rural economies, and has environmental benefits that are harder to quantify in dollar terms, he said.
The World Bank is also concerned that rising use of ethanol as a transport fuel could expose crop prices to a new level of volatility, Johnson said.
"Are we inadvertently going to raise food prices?" for crops like corn, sugarcane, and coconuts, he asked. "That's certainly a concern that we don't hear being voiced very much."
Ethanol has linked petroleum and sugar markets like never before and "there still is a concern for the price impact. Do we want petroleum prices to be driving all of our food markets?" he asked.
That phenomenon is beginning to show already.
US growers will collect one of the highest prices ever for corn with this year's crop, a lofty farm-gate average of US$3.10 a bushel thanks to explosive demand for fuel ethanol, the US government said on Monday.
Corn prices have exceeded a season-average US$3 a bushel only four other years and the record is US$3.24, set in 1995/96. Last's year's crop averaged US$2 a bushel.
And US ethanol demand is going nowhere but up.
According to the Energy Department, ethanol output could hit 11.2 billion gallons in 2012, 49 percent above the 7.5 billion gallons required by law.
(Additional reporting by Gilbert Le Gras)
