The Government’s sustainable biofuels mandate requires fuel wholesalers to introduce biofuels to reduce greenhouse gas emissions from April 2023. Basil Sharp says the policy is likely to have unintended consequences.
New Zealand's pending biofuels mandate, according to the Government, will increase the uptake of biofuels, establish a significant biofuels industry in New Zealand and, it is claimed, follow the implementation of mandates in more than 60 countries including the US, China, and Brazil.
But how viable is this here, what feedstock will be used, and at what economic, environmental and social cost?
The formation of fossil fuel deposits takes millions of years – transforming dead organic matter into deposits of coal, oil and gas, sources of energy which have been extremely useful for the way we have lived.
But now, the world is struggling to tackle the consequences of the combustion of fossil fuels (greenhouse gas emissions) and implement a transition to low carbon alternatives such as biofuels.
Sourcing energy from biofuels mimics what nature did millions of years ago – it involves harvesting organic matter and transforming it into a useable product to be used in transport and heating. We are trying to achieve, in a generation or less, what took nature millions of years.
New Zealand has a range of feed stock options for the production of biofuel, such as tallow, off-cuts from wood, and dedicated crops such as maize and sugar beet. Tallow as a feed stock for the production of biodiesel is perhaps a stand-out in New Zealand, given the prominence of pastoral agriculture. Rendered from beef and mutton, tallow can provide a feedstock for biodiesel as well as other products, such as soap and fabric softeners.
The technology for transforming these sources into liquid fuels exists, but the real challenges are economic and environmental.
Transforming biomass into liquid fuel requires energy – so we need to ask, what is the difference between the energy content of the fuel we want and the total energy used in producing that fuel?
It is disingenuous of our political leaders to point out that other countries have mandated biofuel supply without recognising the different feed stocks that different countries have, or the role of government subsidies to support the biofuel industry in those countries.
Well, it depends. The net energy gained depends on the feed stock, such as whether they are first-generation biofuels produced from crops such as maize, sugar beet and animal wastes, or second-generation biofuels produced from non-food crops and waste biomass.
It also depends on the energy source used to transform the feed stock into the fuel we want. To illustrate: ethanol production from corn in the US using coal-fired technology can deliver a net energy gain greater than one – that means more energy out than energy in. In contrast, producing ethanol from sugar beet in the UK using natural gas delivers a net energy gain of less than one – less energy out than in.
We also need to account for the emissions associated with the coal, natural gas and diesel used, particularly if transport is involved in collecting the feedstock and delivering it to the processing plant. We also need to consider the fertiliser used for growing dedicated crops and the land used for rotational forestry land use.
Now for the economics, such as the cost of production. Brazil grows a lot of sugar cane and the cost of producing ethanol is about the same as producing petrol, but not so in the US where the feedstock is typically corn and the cost of production exceeds that of petrol – hence the massive subsidies that go into encouraging farmers to grow corn in the US. But in both countries the cost of producing biodiesel is greater than the cost of producing fossil fuel-based diesel. A recent estimate reported by Radio New Zealand puts the price of producing bioethanol and biodiesel at around 1.5 to 1.8 times as expensive as their fossil fuel counterparts.
Economic policy needs to account for costs against the benefits – and that the mandate displaces cheaper alternatives by requiring energy companies to supply biofuel. This will inform both fuel producer and consumer behaviour.
If there is a commercial opportunity to make a return on investing in biofuels and supplying the market it will happen without the need for government intervention. But it is disingenuous of our political leaders to point out that other countries have mandated biofuel supply without recognising the different feed stocks that different countries have, or the role of government subsidies to support the biofuel industry in those countries.
According to the International Energy Agency biofuels received US$38 billion in subsidies in 2020. This is significantly less than US$440 billion that goes into supporting fossil fuels (another topic for discussion) but the evidence that subsidies have resulted in higher crop prices – therefore, consumers pay more for corn-based food stuffs – is beyond dispute.
Without further consideration, the mandate on biofuels in New Zealand is likely to impose costs on business, households, distort the relationship between costs and benefits and result in unintended consequences. In the end, consumers will pay, not only what they use to fuel the car they drive, but also for the food they eat and other household products, and incur the economic as well as the social impact of price hikes. Let’s see the cost benefit analysis before jumping in with mandates simply because other countries have.
