Aside from rejecting biofuel expansion and use for environmental reasons (see Biofuels (Land and Water Concerns)[1] and Biofuels (Miscellaneous)[2] ), the production and use of biofuels from an economic perspective does not make much sense either. Proponents of biofuels say their increased production will increase the supply of transportation fuels and therefore lead to lower prices. Critics of biofuels point out ethanol often costs more, not less, than gasoline, either because of production costs or supplies that can’t keep pace with government mandates, and therefore leads to higher prices at least in the short run.
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The example given in the brief extract above refers to the price of biofuels as setting the "economic" cost.
ReplyDeleteThe real issue with the financial cost of biofuel is the fact that for such fuels to compete in the market they must either be subsidized or mandated as a percentage of other fuels in the market.
The result is to distort the market both for producers of fuels and for consumers.
Consumers must pay twice: once to subsidize the fuel via taxes and once to pay for the higher price of the mixed fuel which is subject to artificial shortages.
That is all on the financial side, the money transactions. However, economics looks deeper at the underlying cost to the economy of market distortions.
Space limits me to mention only one economic consequence. In the US market prices generally reflect resource costs through the long chain of transactions from primary producers.
Biofuels need subsidies because the cost of production, including energy costs, exceed the value of fossil fuel energy contained in the biofuels.
American agriculture is so industrialized that biofuels need substantial fossil fuel energy for their production. Thus, from an economic point of view, biofuels are not an efficient way to reduce reliance on fossil fuels.
Space prevents me from mentioning the adverse effect that ethanol has on vehicles and the consequent long-term costs to consumers..
An economic analysis would expose biofuels as an immense boondoggle, a huge scam on the American consumer.
There is hope on the horizon for an alternative energy source.
China is developing thorium reactor technology. So with a bit of luck, America will be able to license from China safe nuclear reactors unconnected with the production of weapons-grade material.
The possibility of using Thorium has been around for a long time, and gotten nowhere. There are those who think it is a pipe dream. I'm inclined to agree with them.
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