Only two weeks before lunacy is imposed
Our delightful government has a chance to do the right thing… whether it will or not remains to be seen.
On 15 April the Renewable Transport Fuel Obligation (RTFO) Programme is supposed to come into effect. What this silly government programme will do is introduce a 2.5% requirement of biofuels at the pumps, a figure that will rise to 5.75% by 2010 and 10% by 2020.
Now, this legislation being enacted before a government-commissioned review on the effectiveness of biofuels has been published. The review was commissioned in February by transport Secretary Ruth Kelly… it still hasn’t reported.
Will our government wait until it has the full facts until it acts..?
Probably not.
According to the Stockholm International Water Institute, agricultural demand for water will double by 2050 due largely to the anticipated needs of the biofuels sector. This is an utterly crazy plan when water crises are going to be a major theme of the next 20 years. There are meeting being held this week in Cyprus, Israel and India as water supplies have become critical.
It takes around 3-4 gallons of water to produce one gallon of ethanol… using ethanol to power the average US car for one year would require a staggering 11 acres of farmland… this works out to be the same area needed to grow a year's supply of food for seven people, according to David Pimentel a leading agricultural expert from Cornell University.
Pimentel calculated that an acre of US corn can be processed into about 328 gallons of ethanol. But planting, growing and harvesting that much corn requires about 140 gallons of fossil fuels and costs $347 per acre. That is $1.05 per gallon of ethanol before the corn even moves off the farm.
Then there’s fermentation… as many as three distillation steps and other treatments are needed to separate the ethanol from the water.
So, adding up the energy costs of corn production and its conversion to ethanol, 131,000 British thermal units (BTUs) are needed to make 1 gallon of ethanol which has an energy value of only 77,000 BTU.
Numbers do not add up
So, 70% more energy is required to produce ethanol than the energy that actually is in ethanol. Every time you make 1 gallon of ethanol, there is a net energy loss of 54,000 BTU.
Fans of ethanol as a fuel need to answer just one question… if producing biofuels is so cost effective, why on earth does their production require government subsidies?
I really do despair over this issue. I strongly believe that biofuels will continue to exacerbate rises in agricultural commodities as long as these targets remain. Will the UK stand up to Europe and force the targets to be abandoned? Probably not; it does not have the guts. Will the US government slash its ethanol targets? I doubt it; there are too many vested interests.
All of this means that food will be in tight supply for many, many years. Energy policy has always been a politically charged affair – but it is getting more and more political as each week passes. Can we trust here-today-and-gone-tomorrow politicians to get the long-term strategy right?
Unfortunately, I don’t think so.
P.S. If you enjoyed this article then sign up for Smart Commodities UK. It’s dedicated to searching out the investment trends that could provide our biggest profit opportunities for the next decade…