Arnold Kling  

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Ricardo Hausmann writes,


Rodrigo Wagner and I have estimated that there are some 95 countries that have more than 700m hectares of good quality land that is not being cultivated. Depending on assumptions about productivity per hectare, today’s oil production represents the equivalent of some 500m to 1bn hectares of biofuels. So the production potential of biofuels is in the same ball park as oil production today.

...Biofuels policy needs to stop being seen through the prism of agricultural support policy – which justifies a 54 cents a gallon US tariff on Brazilian ethanol – and instead become the purview of energy and environmental policies.


I've been a big biofuels skeptic, because of all the subsidies and rent-seeking involved. But read the entire article. As Tyler Cowen says, it goes against one's mental model.

The MIT guys say that we should not be prejudiced against any form of energy, because we are going to need everything--conservation, coal, nuclear, biomass, etc.


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COMMENTS (7 to date)
Barkley Rosser writes:

We still need some improvements in tech to get switchgrass to be commercially competitive without a lot of subsidies. But it is a whole lot more energy efficient than the ludicrous corn/ethanol program, which is driven by Iowa presidential politics, while driving up the price of Mexican tortillas for the poor there. Bah!

It has been pointed out to me that a really serious switchgrass program would eventually run into people being unhappy about formerly "nature" (if not "wilderness") areas being used to grow it for energy use, much like how there is environmentalist opposition on various grounds (endangered bats for one) to more wind mills.

Buzzcut writes:

There's a decent article in Wired this month regarding the challenges of finding enzymes to turn cellulose into ehanol.

John writes:

Good quality land is not a sufficient conditions for productive farming. Indeed, some of the US's highest value crops are grown on what was once wasteland. Profitable farming requires water, climate, a wide range of biological, chemical, and financial inputs, capital, and, most importantly, dedicated human beings who know how to farm.

Even Hausman notes: "countries that have the largest endowment of under-utilised lands are in the developing world, especially Africa and Latin America. Putting that land into production will require a type of infrastructure...Bio-energy will make those infrastructure investments socially profitable, creating a possible stepping stone into other industries...Some policy action in industrialised countries will be required..."

Note that doesn't claim that biofuels investment will be wildly profitable to private investors. Rather, he argues that infrastructure will be "socially profitable" and that "industrialized countries" must take action on behalf of developing nations. In other words, biofuels is another argument to continue the failed development policies of the past 50 years.

I agree with the MIT guys referenced in the blog. Let's not bias energy policies with ill-conceived goverment intervention and subsidies. Get rid of the ethanol tariffs and government subsidies for particular energy sources. If governments must do something, let them offer tournament prizes for energy innovation--based on a ranking by some economically rational outcome.

Better yet, just let the incentives for innovation and investment emerge from energy markets. Let a million engineers and entrepreneurs go to work given the real opportunities shaped by private supplies and demands.

In the meantime, I wish I could hear the loud sounds of oil rig drills going to work--as they once did in the 80s, bringing price peaks to price troughs in a handful of years.

General Specific writes:

"In the meantime, I wish I could hear the loud sounds of oil rig drills going to work--as they once did in the 80s, bringing price peaks to price troughs in a handful of years. "

Look at WTRF Economics for information on rig counts.

More rigs won't necessarily help that much. After the 70s crisis, drilling took place willy-nilly in the US. We have more holes punched for oil than probably all other countries combined. Other than Alaska (which is now in depletion), all that drilling didn't stop our decline. Just slowed it.

Same may hold with the world now. More rigs in the US will do almost nothing (not arguing against drilling, just speaking a reality or fact). More rigs in the countries like Iraq and Saudi Arabia will help but it's not entirely clear whether they've tapped into a lot of the big fruit, so to say, and diminishing returns will set in.

E.g. look at the oil drum analysis of rig count in Russia. Increasing number of rigs producing less and less--basic geology or ecology: diminishing returns.

Lord writes:

A simpler use of switch grass might be harvesting and burial for carbon offset if only the oil being offset were here instead of the middle east.

Matt writes:

I got that biofuel exporters will be less developed nations with underutilized agricultural land.

Why not?

Trevor H. writes:

The comment from Hausman that startled me was:

"If Opec tries to raise prices above the price at which biofuels become highly profitable, it will only crowd in more biofuels. Oil producers will still be rich, but they will not have incentives to form a cartel."

How can the director of Harvard University’s Center for International Development refer to oil producing countries as rich? The GDP per capita for OPEC is about $2500 and is roughly level what it was in the late 1970s.

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