Biofuels: why we don?t need them By Mike Pope

Biofuels come in two basic forms: ethanol produced from agricultural crops such as sugar or grains and mostly used as a partial replacement or additive to petrol; and biodiesel derived from animal fat or vegetable oils produced by plants such as safflower, rape or palm oil.

Biofuels seem unlikely to be widely used or play a major part in reducing net CO2 emissions or replace fossil fuels burned by internal combustion engines, for the following reasons:

they are a half-way fuel of limited use by existing engines;
alternative, more efficient and cheaper fuel is available for vehicle propulsion;
most internal combustion engines are likely to be largely replaced within ten years;
biofuels produced in large quantities create market distortions and food scarcity; and
their production may damage the environment and habitat for flora and fauna.

Most vehicle engines presently in use can not use ethanol by itself or, in some cases, even as an additive to petrol. Even a petrol mix containing 10 per cent ethanol can cause corrosion of fuel pipes and pumps in some vehicles. True these can be replaced with materials impervious to the corrosive effects of ethanol and this might be done were it considered a cost-effective measure. But this is not the case.

The difference in price between petrol and a 10 per cent ethanol-petrol mix is commonly no more than 2¢ per litre. This is insufficient to justify the cost of changing to corrosion resistant materials. The growing number of vehicles in use, combined with a finite and decreasing supply of oil from underground, makes it certain that the price of diesel and petrol will continue to increase.

If not replaced in part and eventually entirely, the price of these fuels will become unaffordable, particularly for passenger travel by car, within the next three and five years. The widespread availability of an alternative fuel, electricity, makes it certain that electric cars will be produced and used in ever increasing numbers, particularly for commuting in and around major urban areas. Electricity is far more efficient and very much cheaper to use than petrol or diesel, even at present prices.

Spurred by the need to curb CO2 emissions and the rising cost of fossil fuels, it is predicted that the electric motor will replace the internal combustion engine within ten years. There are also compelling economic and political reasons for this to occur.

Battery technology has recently made important break-throughs enabling the production of smaller, lighter, more durable batteries able to hold a much larger charge, ten times greater than conventional vehicle batteries. Importantly, these batteries can be rapidly recharged, in the case of vehicle batteries within minutes rather than hours and manufactured more cheaply.

On-going research by CSIRO, MIT, and others increases the likelihood of further improvements being made in the next three to five years. These improvements will encourage the development and greater use of electric vehicles for commuter and long distance travel.

As a result of these developments, all major car manufacturers include in their range of products at least one model of an electric car. Commercial availability of better performing batteries by 2012 is expected to increase both market size and competition between makers of electric vehicles, resulting in falling prices for new vehicles and the production of conversion kits making it possible to convert many existing vehicles to run on electricity.

Australia currently uses in excess of 20 billion litres of petrol and 10 billion litres of diesel a year. To replace even 10 per cent of these volumes with biofuels produced in Australia would require diversion of land growing food crops for human consumption to fuel production to such an extent that it would distort domestic and export food markets. Availability of food crops would decline, forcing up the price.

As a result of those increases, farmers would quite sensibly use more of their land to increase production of crops which gave them the highest returns. This would entail taking out of production crops fetching a lower price. The latter would in turn become scarce and rise in price until a new price equilibrium for agricultural food crops was found.

In America, market distortion of this kind has resulted in scarcity and increase in cost of certain foods, particularly sugar and grains. This in turn has inflated the price of meat, bakery products, and other foodstuffs containing sugar and grain.

In Australia, this problem has so far been avoided by importing biofuels, particularly from Indonesia and Malaysia. This has resulted in destruction of rainforest in those countries and ever shrinking habitat for flora and fauna, including the endangered orangutan. Cleared land is planted with crops such as oil palm, largely for production of biofuels. This results in rapid depletion of soil fertility and increased CO2 emissions due to destruction of rainforest – short term gain for a long term loss, which can be permanent.

There remains one possibility for production of biofuels which would avoid these problems. That is to have them produced by algae, if they can be genetically modified to sequester CO2 from the atmosphere and use it to produce a biofuel. However, it seems very unlikely that production by this means would be as cost-effective as electricity.

Unless biofuels are able to compete with electricity, there is no economic reason for their production for propulsion, which would merely delay consigning the internal combustion engine to the waste-pile of history. However, production of bio-oil may be important as a source material for the manufacture of fertilisers, plastics and other petro-chemical products.

Some people argue that electricity is predominantly generated from burning fossil fuels such as coal, gas, or oil, the main sources of CO2 emissions. An increase in demand for electricity to fuel cars and other vehicles would therefore add to those emissions. Biofuels would not. This contention is only true if the electricity used to recharge vehicle batteries is in fact generated from fossil fuels. At present, biofuels are not used for this purpose.

A growing amount of Australia’s electricity needs are beginning to be generated from renewable sources such as hydro, wind power, solar and, lurking on the doorstep, the massive potential of geothermal energy. Government has mandated that 20 per cent of our electricity needs must come from renewables by 2020. That target may be exceeded well before 2020, allowing battery recharging without increasing CO2 emissions. Further, most recharging can be undertaken at night when much electricity production would otherwise be wasted.

Many other countries are in a similar situation to Australia. Some have higher renewable energy targets and a few, like France, generate nearly all their electricity needs without using fossil fuels.

Even though biofuels only emit CO2 that has been taken from the atmosphere by the plants from which they are made, they still produce emissions. Electricity produced from other renewable sources does not and, importantly, it is cheaper.

The only reason for opting to produce or use biofuels for propulsion would be some strange desire to cling to use of the internal combustion engine and the pollution associated with it. That price is too high. We do not need biofuels. Electricity is a far better option for vehicle propulsion being cheaper, widely available and much more efficient.

Electric vehicles – why we need them

We need electric vehicles because we can no longer afford the cost of fossil fuels, oil dependency, or the pollution produced by vehicles which use fossil fuels.

Cost of fuel

The price of diesel and unleaded petrol has recently been more affordable because demand has fallen significantly due to the global recession. This has seen the price for a barrel of oil fall from $US148 to a low of $US36, though the Tapis price does appear to be stabilising at about US$45-50 a barrel.

As recovery of the economy occurs, demand for vehicle fuels will increase and return to a point where it exceeds supply; probably in 2010. Fuel prices will then begin to increase and are likely to do so sharply, returning to about $1.50 a litre, then continuing to rise further. CSIRO estimates that by 2020, unleaded petrol is likely to cost $8 a litre. Clearly, that is not affordable.

Why should recovery from recession force prices to increase so much? Three of the more important reasons are an increase in the number of vehicles, economic growth, and falling oil production.

Although vehicle sales are falling in many countries, they continue to add to the total number of registered vehicles. The rate of increase may be less but it is increasing. Encouraged by relatively low and slow moving fuel prices, vehicle sales will also grow in emerging economies such as those of China and India. In both countries there has been growth in the number of middle-income earners, hence the demand for cars.

There are cogent reasons for believing that a commensurate increase in oil production will not, indeed can not occur. This is due to the imminence of “peak oil”, reluctance of producers to increase production and development of technology making cheaper alternative fuels usable.

Peak oil is the point where global oil production reaches a maximum and thereafter declines as availability from oilfields decline. That point is either with us now, or will be in two to three years, and it will be accompanied by growing global demand and a growing inability to supply.

Crude oil is a finite commodity and as its availability decreases, its price will increase. With that increase, it will become profitable to extract the relatively small quantities that remain in oil fields hitherto regarded as exhausted. It will also stimulate exploration for new oilfields and no doubt some will be discovered; though it is unlikely to be sufficient to reverse the global decline in oil production.

A significant increase in the price of oil will make it profitable to extract it from oil sands and shales, and possibly from coal. However, production costs are likely to be such that vehicle fuels will be prohibitively expensive and unable to compete with cheaper alternatives – bio-fuels and of course far cheaper, widely available electricity. Growing scarcity will price oil out of the fuel market.

Cost of oil dependence

A common belief is that Australia is self-sufficient in oil, able to meet all its needs from domestic oilfields and can export its surplus. Not true.

Australia does export some oil, mostly heavy or high sulphur content oil which our refineries can not handle. Remaining domestic production meets about 70 per cent of our needs and the shortfall is imported. Moreover, our dependence on oil imports will steadily grow as the economy expands, the number of vehicles grows and the frequency with which they are used increases.

We have no control over the price we pay for oil, whether it is produced in Australia or imported. That price is influenced by the Organization of the Petroleum Exporting Countries (OPEC) and determined by the international oil market which, in our region, means the price paid for oil in Singapore.

Australia is hostage to the vagaries of a skittish global oil market and the decisions of OPEC members because it has to compete on the world market for a finite commodity. In doing so, it spends billions of dollars on oil imports.

This contributes to a growing trade deficit – the difference between the value of its imports and exports. For years, this deficit has been increasing despite growing revenue from other mineral exports and as the volume of oil we produce begins to decline.

It is clearly not in the national interest to perpetuate this dependence for longer than is absolutely necessary. We can and should take action to break our dependence on oil as the source of vehicle fuels by producing and designing vehicles which can be operated by alternative fuels. There are only two possibilities: bio-fuels and electricity.

Bio-fuels are really a non-starter because their production is dependent on use of food crops such as sugar, and grain in the case of ethanol, and oil yielding crops in the case of bio-diesel. The quantity of crops required to even partially replace fossil fuels would inflate prices. The inflationary effects would be pervasive throughout the food sector, make our exports less competitive and, with a growing population, cause a scarcity of domestic food.

Cheap and plentiful bio-fuels might be produced using genetically engineered algae or other organisms. This is certainly a possibility in the future; but would fuels produced in this way be more cost-efficient than electricity? This is unknown at present but seems unlikely since clean electricity can be generated from geothermal heat relatively cheaply.

Consumers will always opt for the cheapest fuel available. That is likely to be electricity produced from renewable sources and Australia is one of the best endowed countries for producing it.

Production of fossil-fuelled vehicles in Australia should have a very limited future, certainly not extending beyond 2015. Over the next three to five years Australian vehicle builders must re-tool for production of electric vehicles and kits needed to retrofit existing non-electric vehicles. Government should now initiate a break with our fossil-fuelled past and our dependence on increasingly expensive oil.

The result will be to strengthen the domestic economy and increase our competitive advantage in production of goods for domestic consumption and export. We know what the future holds for us if we do not act.

We must take advantage of the current difficulties faced by Australian vehicle producers – which are in part of their own making. Government can and should insist that, as a condition of grant funding, the industry re-tool for production of electric vehicles.

Cost of pollution

Vehicles are the third largest source of greenhouse gasses after stationary energy and food production. They account for almost 15 per cent of Australia’s emissions. To meet our international obligations, we must achieve major reduction of those emissions and work towards their eventual elimination. This can largely be achieved by 2020 through production and use of electric vehicles.

It is asserted that such a rapid departure from fossil-fuelled engines would be disastrous for the industry. Those who believe this argue that CO2 pollution from vehicles could be halved by production of cars able to run on an ethanol-petrol mix with 80 per cent ethanol.

This would entail only small modifications to existing engines and fuel systems, and permit unchanged production of vehicle components by sub-contactors. It would eliminate the expense of a radical shift to production of electric vehicles.

Minimum disruption, a significant reduction in CO2 emissions and, importantly, significant reduction of dependence on oil imports. From a car producer’s point of view, it is business as usual. From a government perspective, it sounds seductive since it postpones the need for additional public expenditure on managing the transition to electricity.

No need to retrain staff, re-tool workshops or provide assistance to those affected by the new technology – which would eliminate the need for production, fitting or maintenance of combustion engines, clutches, gear boxes, radiators or exhaust pipes. An attractive proposal – but is it feasible?

It would entail a massive increase in production of ethanol which, as noted above, would cause scarcity and inflation in the food sector of the economy. It would also require agreement of oil refiners and the owners of fuel stations to produce and stock an 80 per cent ethanol 20 per cent petrol mix. Prima facie this does not appear to be something refiners would willingly agree to do.

What finally kills this idea is that the cost of electricity for propulsion is far cheaper than the cost of an ethanol-petrol mix, even at the relatively affordable prices of February 2009.

The advantage of using electricity for propulsion is that, if it is generated from renewables such as wind or geothermal, it produces no greenhouse gas emissions. The result is a net reduction of atmospheric CO2. Use of a petrol/ethanol mix continues to produce a net increase in atmospheric CO2 from the petrol content and re-emits CO2 taken-up be the vegetation from which ethanol was made. It is more polluting than electricity.


Whether produced in Australia or imported duty-free, electric cars would rapidly displace fossil-fuelled vehicles because their use would result in:

lower fuel and operating costs for motorists;
cheaper cars since production costs are less;
use of a fuel which is already widely available;
rapid and permanent reduction of oil imports;
greater competitiveness of the Australian economy; and
significantly reduced greenhouse gas pollution.
Postponing the change from engines running on fossil fuels to electric motors does nothing more than defer the inevitable.

And the Government response to date? To give Holden a $170 million subsidy from the Green Car Fund to produce a new car running on a variety of fossil fuels.

Mike Pope trained as an economist (Cambridge and UPNG) worked as a business planner (1966-2006), prepared and maintained business plan for the Olympic Coordinating Authority 1997-2000. He is now semi-retired with an interest in ways of ameliorating and dealing with climate change.