Biofuels
"Diesel fuel made from oilseeds, petrol replaced by ethanol made from corn, sugar or grain - or even straw. They're here and are starting to change energy markets" The Economist, May 14th-20th 2005.
The article is interesting because of two aspects. Firstly of course the issue about having alternative stuff besides oil to keep our cars etc moving. Secondly, there is an issue about supply which mirrors current trade policies of the EU and the USA, which try and keep their markets protected to the detriment of the rest of the world.
To me the trade policy issue is even more interesting than burning ethanol instead of petrol, but of course that is probably connected to my current preocupation with the study of quotas, tariffs and so on. After having spent a bit of time thinking about the CAP (Common Agricultural Policy) of the EU, I really have come to be disgusted at this piece of completely regressive policy: not only is it disproportionally expensive for low income EU citizens, incredibly bad for the environment (ever heard of the green revolution?), but also does the CAP hurt producers in developing countries who have comparative advantages producing many goods that are protected by the CAP. I do not want to get into the CAP here, but what is starting to emerge in the ethanol market is looking like it could go down the same road, creating unfair balances on the way (tilting the benefits, as usual, towards the EU and the US).
With current high oil prices, the ethanol imported from Brazil to the US could have been competitive even without government subsidies (governments subsidise biofuels for ecological and energy security reasons), had it not been for a tariff.
Many obstacles, like building engines that can deal with ethanol, and opposition by car manufacturers and oil firms are starting to be overcome, and on the horizon emerges.... supply, or in other words, where to get the stuff from.
Now, the country that stands out is Brazil which has both the expertise (it lead the way after the oil shock of 1973, by producing ethanol from sugar cane, and building cars that run on it) and the capacity to produce and export huge quantities (Brazil's ethanol output in 2004 was some 15.5 billion litres, expected to rise to 23 billion litres in 2010, according to Alfred Szwarc, ethanol advisor to the Sao Paulo Cane Agroindustry Union). Along with Brazil, there are South Africa, Peru and Guatemala emerging as global ethanol supplying countries, to form what promises to become an important market.
However, and here I am coming back to trade issues, since the EU's offer to buy a billion litres a year from Brazil tariff free has caused protests from EU farmers, who see ethanol production as a new market for themselves. The maddening but so common twist is that US American costs 50% more than Brazilian ethanol, and European costs 150% as much.
So.... a huge comparative advantage at something that might well take over from oil in the future, for a whole bunch of countries that could use that to make a significant leap towards a prosperous future.
BUT NO.... (and this drives me mad beyond reason) in come the Europeans and US Americans, imposing quotas, tariffs and whatever they can, to distort global trade in their favour, thus keeping countries that could provide the stuff much cheaper and more efficiently, in downright poverty. It just makes no sense to me. And here it is not "just" sugar or some other raw agricultural product, but something that is going to have a significant impact on the environment, and may even extend to global politics... Imagine a world less dependent on fossile fuels...
Trade policy � la EU (or US) is one of the biggest international crimes unfolding every day.
(also check out http://www.planetark.com/dailynewsstory.cfm/newsid/27916/story.htm, and can anyone please teach me how to put snazzy links into my postings, so that the ugly ones like this one don't show?)
