Energy Markets, Climate Change Bills, and the Future…

I write you this missive as a coup d’etat  is unfolding in Honduras. Twenty years ago it would have been unthinkable that a US president would have joined the entire region, back the OAS, and ask for the return of a left-leaning leader of a Central American country. The opponents who have usurped power are the conservatives who cannot bear to see their country change into another constitutionally-driven left-wing populist nation.

 It seems that history is upside-down …undoubtedly, these are interesting times.

 The subject of this column, however, is not the current affairs of nations in the Americas. The issue I would like to reflect on is the changes we will see in energy markets in the near future. The movement might go unnoticed by most citizens. After all, how many have time to pay attention to the different bills being approved in California – such as the Low Carbon Fuel Standards; the ins and out of new European Union energy and biofuels laws; and the reams and reams of legalese (aka – the climate change bill) approved by the US House of Representatives and now turned over to the Senate? I can’t imagine this is the subject of water cooler chatter…certainly not in the week Michael Jackson passed away.

 Still, these bills as a whole are likely to change the way we live – at least in North America. The legislation will have a direct impact on the choice of transportation fuels, and given this continent’s great distances, our love for the automobile and the freedom it represents, the repercussions will certainly be felt by all of us, as we choose which car to buy and what will power this machine. 

 Right now, it looks as if there are two competing pathways: the liquid fuel of today and a host of different alternative liquid fuels of the future, or the electric car (hybrid or not) and some similar technologies. If those are the choices, judging by what I heard in São Paulo at the Ethanol Summit 2009, the biofuels industry is about to make a huge strategic mistake.

 There is much talk of all biofuels banding together – and that includes corn and sugar cane ethanol, biodiesel, cellulosic, etc – and attacking the hydrocarbons industry. The story is all about how dirty oil is, how it must be substituted for biofuels, etc… To me, this is a case of “eating your siblings.”

 The simple truth is that biofuels is a complement of hydrocarbons and functions in a world of liquid fuels. The most successful usage of biofuels is in flex-fuel vehicles where consumers can opt to use either gasoline or ethanol at will, depending on price, but also depending on availability. That means that if there is ever a biofuel shortage, gasoline will substitute and consumers will remain loyal to the product. On the other hand, if you have an electric hybrid that functions only with ethanol, if there is a shortage of supply you would have a complete loss of consumer confidence. This is but one example…there are many other arguments that could be made. 

 It is very possible that while biofuels and hydrocarbon industries fight it out, the electric and hybrid car will start making huge inroads into the fleet, and with smart grids and meters to ensure that they are charging in off-peak periods, and improved battery technology, before you know it, the infrastructure will start shifting from being able to provide liquid fuels to one that provides batteries and electricity.

Perhaps if the ethanol producers, particularly the Brazilian ones, are as smart as they think they are, they will see the light and UNICA would join forces with Petrobras so the two of them can, together, show the world how to deliver a sustainable energy transportation system right here, right now. That would be the ultimate in smart.

 p.s. if you want to keep track of the different positions as they evolve, check out the International Alcohol Fuels Symposia – ISAF, which will be held in New Delhi, in March 2010. See www.isaf2010.org for further details.

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2 Responses to Energy Markets, Climate Change Bills, and the Future…

  1. SubsidyEye says:

    “The simple truth is that biofuels … complement … hydrocarbons and function in a world of liquid fuels.”

    Exactly. Some of us have been trying to make this point for ages. But I do not believe that the biofuels industry is actually in such a conflict with the oil industry as it likes to pretend it is. The head of ADM, one of the biggest producers in the United States, comes from Chevron. In Canada, Husky Oil, Suncor and Shell have all invested in ethanol production. BP and now Exxon have invested heavily in biofuel research in the United States. A major petroleum refiner recently purchased most of VeraSun’s bankrupt ethanol plants.

    In short, the dispute among these industries is not so much whether biofuels is in their mutual interest but who gets to control production and distribution.

    The bigger mistake that UNICA has made, however, is cozying up to the Renewable Fuels Association (RFA) and the producers in Europe. It seems to feel that if they don’t hang together, they’ll hang apart. That is true only to a small extent. Most critics of biofuels policy are not against biofuels per se but of producing biofuels unsustainably (especially diverting grains and oilseeds to their production) and heavily subsidizing them — precisely because subsidizing and mandating biofuels perpetuates the era of the infernal combustion engine.

    The members of the RFA are not friends of Brazilian ethanol. When it serves their purpose to point to Brazil as a shining example, they will. But for the rest of the time they invoke the national security argument (Brazilian ethanol is foreign fuel!) and fight tooth and nail to maintain the import tariff.

    By the way, your observation that “The most successful usage of biofuels is in flex-fuel vehicles where consumers can opt to use either gasoline or ethanol at will, depending on price, but also depending on availability” is valid only for Brazil. In Canada and the United States, FFVs have mainly been built as a way to bypass corporate average fuel-economy (CAFE) standards, and there are many more running inefficiently on gasoline than even more inefficiently on E85.

    • Annette Hester says:

      There is much truth to what you say. However, at the Ethanol Summit, UNICA’s discourse was “us” versus “them” as in “ethanol” versus “oil”. Hence, my comment.

      As for your observation about the links with RFA, I couldn’t agree more. UNICA is calibrating its approach, but do note that it was lobbying by the RFA that is behind the huge mandates for ethanol inbedded into US legislation. Without government mandates ethanol consumption wouldn’t be nearly as high.

      Finally, thanks for the clarification on the Flex Fuel vehicles. You are absolutely right.

      Cheers,
      Annette

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