In March 2007, Earth Trends published a monthly update focusing on the uncertainty of the global biofuel industry. Since this publication, world fuel ethanol production has increased from 12 billion gallons in 2005 to an estimated 17 billion gallons in 2008. One of the key factors behind this rapid increase in production is the growth of the transportation sector. Global motor gas consumption increased by 21 percent throughout the world between 1990 and 2003. The four most prominent boosts occurred in the U.S., China, Japan, and Iran as shown in Figure 1.
Figure 1: Motor Gasoline Consumption in the U.S., China, Japan, and Iran from 1990 to 2003
Source: EarthTrends, 2009
When coupled with population projections , which are estimated at 9 billion by 2050, and higher disposable incomes in developing economies, we can only expect this figure to further increase. This high demand for motor gasoline combined with the greenhouse gas emissions of the transportation sector (which in the United States accounted for 29 percent of 2006 greenhouse gas emissions and 47 percent of the net increase in total emissions since 1990) are key motivations behind the expansion of the global biofuel industry (EPA 2009). Yet, the most drastic and recent change for the global biofuel industry may be the plunge in the global economy. This post revisits the state of the biofuel industry in the recent world economic strains.
Current Economic Climate
In 2008, in the midst of the global economic downturn, the real GDP of advanced economies declined by 7 ½ percent and global stock markets fell by 50 percent since 2007 (Roubini 2009). During this same period, biofuel related commodity prices of items like maize, as shown in Figure 2, fell and global fuel demand decreased (Cala 2009).
Figure 2: Maize Commodity Prices From 2005 to 2009
Source: Food and Agriculture Policy Institute, Iowa State University, 2009
Yet, as pressure remains from the international community for countries to cope with climbing greenhouse gas emissions, progress in biofuel technologies using commodities like maize and sugar cane continue to be a key response to global climate change. This is attributed to use of these commodities as the main feedstocks for biofuel.
Current Sector Climate
However, in the current economic conditions some biofuel industries may not last long enough to help countries meet the requirements to lower greenhouse gas emissions. In September 2007, Spain’s largest ethanol plant suspended production due to economic pressures (Murphy 2009). Archer Daniel Midland Company (a U.S. based company), in March 2009, reported sharp reductions in net earning due primarily to declines in net profit margins. Similarly, in May 2009, Infinity BioEnergy of Brazil filed for bankruptcy protection upon “suffering from falling prices and lack of credit due to the global economic crisis.”
Germany
Underpinnings from government policies could alleviate growing credit challenges and increase fuel demand. The German government, for example, is looking toward the renewable energy sector as an impetus for recession recovery. Its government is spending 50 billion euros from its stimulus package on energy efficiency measures which include biofuel technology. The goal is to reduce carbon dioxide emissions by 40 percent of 1990 levels by 2020. According to Germany’s deputy environment minister, Astrid Klug, jobs in the renewable energy sector will “triple” by that same time (Scheven 2009).
United States
Similarly, Chairman Henry A. Waxman of the U.S. Energy and Commerce Committee and Chairman Edward J. Markey of the U.S. Energy and Environment Subcommittee propose in the American Clean Energy and Security Act of 2009 further development in technologies limiting greenhouse gas emissions. Through clean vehicle technology with an emphasis on advances in renewable energy sources, like biofuel from maize and sugar cane, the government aims to reduce emissions to 97 percent of 2005 levels by 2012. The U.S. government also hopes to boost jobs through clean energy curriculum development grants and increased funding for energy worker training programs.
Source: Guardian, UK, 2009, Photograph: Mark Blinch/Reuters
Future Expectations
Despite a nearly 17-month and counting global economic recession and a decrease in world fuel demand, the enthusiasm for renewable energy sources from biofuels does not appear to be slowing. High income economies like Germany and the U.S. are taking this as an opportunity for technology investment and job creation. These activities will likely cause commodity prices to continue increasing from 2006 values once global economies rebound. Increased investments in biofuel technology and job creation is additionally apt to increase land use for monoculture in high ethanol fuel production areas like the U.S., Brazil, E.U., China, and Canada. The challenges this continued growth poses for commodity pricing, land use, and agriculture food production remain in question.
EarthTrends Datasets:
Population: Total population, both sexes
Transportation: Motor gasoline consumption
Additional Information:
The China Post, Commentary: 2009 seen to be year of global recession with worst still ahead
Earth Policy Institute: Why ethanol production will drive world food prices even higher in 2008
FAOSTAT: PriceSTAT (December 2008)
Reuters: Brazilian ethanol firm seeks bankruptcy protectionOther Sources:
Cala, Andrés. “Awaiting biofuels' return to spotlight.”
International Herald Tribune, May 19, 2009, Energy: Special Report.
