It’s now well-established that large-scale U.S. production of biofuels such as ethanol from corn has accomplished little or nothing (or even negative) in its stated goals of reducing oil dependence and cutting emissions of greenhouse gases, and has functioned instead as a full-employment program for agribusiness (and a political production racket for Iowa and other corn-growing states).
The most recent confirmation comes in Climate consequences of low-carbon fuels: The United States Renewable Fuel Standard, an article by researchers at the University of Minnesota in the Oct. 2016 peer-reviewed journal Energy Policy. As neatly summarized in Climate Central, they found that the Renewable Fuels Standard has cut U.S. oil demand only slightly since 2006 and has even caused a net increase in our total greenhouse gas emissions. The culprits: ethanol’s low Btu content, its high energy-production inputs, and the “rebound effect” of subsidized gasoline leading to higher consumption. And the researchers deliberately excluded CO2 emissions from burning the ethanol in car engines, making their findings of a net increase in GHG’s even more damning.
This is important context for the thorny question of whether, and how, carbon emissions from burning bioenergy — renewable energy made available from materials derived from biological sources (a category that includes both biofuels like ethanol and biomass like wood used to generate electricity) — should be included in prospective carbon taxes. It may help to break down the issue into a series of questions:
- Would carbon-taxing bioenergy act as a brake on monocrop agriculture for growing biofuels or large-scale forest-cutting for harvesting biomass?
- Should credits or offsets be offered for carbon sequestered by growing crops for biofuel or trees for biomass?
- Or should some or all bioenergy sources be exempted from carbon taxes because they are or might be roughly carbon-neutral?
The debate over biofuels and economics has tended to focus on mandates and subsidies rather than carbon taxes — unsurprisingly, given the absence of carbon-taxing in the U.S. and the prevalence of large biofuel subsidies, primarily via the Renewable Fuel Standard. Mandates and outright subsidies alike override market price signals in the face of strong evidence, such as the U of Minnesota study noted above, that biofuels’ lifecycle emissions often exceed those of fossil fuels they displace. Analysis of land use changes induced by biofuels mandates has raised additional doubts about net climate benefits as well as concerns that biofuel crops are displacing food crops.
Then there are regulatory or legislative pressures on EPA to categorize biomass burning as carbon-neutral in the regulations that comprise the Clean Power Plan. This prospect has spurred a pushback campaign over lifecycle emissions of biomass.
Let’s start with the fact that combusting biofuel or biomass into bioenergy releases carbon dioxide, just as combustion of fossil fuels does. Unlike fossil fuels, however, the plant sources of bioenergy sequester carbon, through photosynthesis. A “carbon neutral” bioenergy source would be one that sequestered as much carbon in its growth cycle as it released later when burned as fuel, with the sequestering occurring concurrently with the burning, or nearly so, rather than decades hence, when the negative emissions count for less in stabilizing atmospheric CO2 levels.
Even short of that ideal, burning biofuel or biomass that has sequestered a significant part of the CO2 emitted in combustion might seem preferable to burning fossil fuels. On the other hand, combustion of forest biomass emits up to 45% more CO2 than coal when used to generate electricity, according to some estimates, primarily because of the fuel’s high moisture content results in poorer combustion efficiency. And given the diversity and complexity of our and other countries’ energy systems, it’s not at all clear that burning biomass or biofuels would substitute for fossil fuels in the first place.
Biofuels – Driven by Mandates and Subsidies
Buckling to pressure from agribusiness and farm-state senators and representatives, but also citing biofuels’ asserted climate and energy-security benefits, Congress included a “Renewable Fuel Standard” in the Energy Policy Act of 2005. The standard mandated annual production of 7.5 billion gallons of biofuel by 2012, a figure raised to 9 billion gallons for 2008 and 36 billion gallons by 2022. (For comparison, autos and light trucks, which account for just under half of U.S. consumption of petroleum products, burned 140 billion gallons of gasoline in 2015.)
In addition to mandates, biofuels are boosted by subsidies, most notably the “Production Tax Credit” for renewable energy. It amounts to a subsidy of roughly one dollar per gallon of ethanol, and an even larger subsidy for biodiesel of roughly two dollars per gallon.
While it takes anywhere from months to decades for plants to sequester carbon through photosynthesis, combustion and release of carbon’s combustion product, carbon dioxide, happens in seconds. And ramping up production of biofuels and biomass shifts land out of other carbon-sequestering uses, typically forests or food crops. Even under optimistic assumptions about timing and baseline scenarios, it’s clear that little if any large-scale production of biofuels or biomass anywhere in the world even approaches carbon-neutrality.
Cornell biology professor David Pimentel and U-C Berkeley engineering professor Tad W. Patzek concluded in a detailed analysis that production of leading biofuels uses more fossil fuel inputs than they displace, i.e., that their lifecycle emissions exceed those of fossil fuels. While this finding has been challenged by subsequent analysis that assumed more efficient farming and production methods, it sparked much-needed scrutiny of the assumption that biofuels are carbon-neutral.
The predominant biofuel produced in the U.S. is ethanol derived from corn. Ethanol is now blended into almost all gasoline sold here and accounts for roughly 10% of total U.S. motor fuel. The modern industrial corn production cycle is extremely carbon-intensive; equipment for harvesting corn is fuel-powered, as are fermentation and distillation of corn into ethanol. In addition, corn plants deplete soil nitrogen, which must be replaced by constant doses of fertilizer. A principal fertilizer feedstock, hydrogen, is derived from natural gas. Indeed, the corn-to-ethanol production cycle is so carbon-intensive that a carbon tax applied to its fuel inputs (including natural gas) would internalize much of ethanol’s climate cost, obviating somewhat the need for a tax on the end-product.
Other bioenergy fuels such as wood chips, cellulosic ethanol, methanol, sugar cane and biodiesel have their own distinct lifecycle fuel inputs and carbon emissions, raising the thorny issue of assessing and taxing their lifecycle carbon emissions.
Debate Over Bioenergy’s Net Climate Impacts
Notwithstanding critiques of about biofuels’ net-energy value by Pimentel and a handful of other researchers, bioenergy was favorably viewed in energy circles until recently on account of its being domestic, abundant and non-fossil. That consensus was eventually undermined by Tim Searchinger at Princeton and Joseph Fargione of the Nature Conservancy. Their analyses, first published in 2008 and recently updated, underscored the importance of accounting for greenhouse gas emissions resulting from:
- converting land to biofuels production, e.g., burning tropical rainforest to clear land for sugarcane production;
- loss of existing carbon sequestration capacity of forests, grasslands and even food crops;
- land use changes to boost food production abroad to replace lost exports when U.S. land is shifted to biofuels.
Searchinger’s and Fargoine’s analyses sparked widespread criticism of biofuels mandates and subsidies. Biofuels interests countered that some crops can yield both food and biofuels and that increased yields can avoid or mitigate the need for additional acreage. The critics responded that removing all biomass from land reduces the carbon sequestration potential of soil; for example, harvesting corn for food and burning the residue (stalks, leaves and cobs) as fuel releases CO2 that would otherwise reside in soil for years or even decades.
Heated debate over biofuel mandates and subsidies continues to the present. The latest controversy centers on EPA’s proposed rule to characterize biomass burning as a carbon-neutral replacement for fossil fuels under the Clean Power Plan — an issue covered smartly in June 2016 by the Washington Post and in October 2016 by New York Times economic columnist Eduardo Porter.
How Should a Carbon Tax Treat Biofuels and Biomass burning?
Mandates and subsidies for fossil-fuel intensive biofuels such as corn-derived ethanol are so large that eliminating or reducing them would almost certainly do more than a carbon tax to curb these fuels’ artificial price advantage. Similarly, a decision by EPA to classify biomass fuels as “carbon neutral” in its Clean Power Plan regulations would boost that sector more than a well-designed and hefty carbon tax would shrink it.
Nevertheless, a carbon tax shouldn’t compound these perverse incentives by further incentivizing biofuels and biomass to replace fossil fuels. It also shouldn’t dilute the “pull” of a carbon tax toward truly renewable and low-carbon alternatives. Indeed, a carbon tax should, and likely would encourage production of bioenegy only to the extent it reduces lifecycle CO2 emissions vis-à-vis alternatives that would likely be deployed in their absence.
With these considerations, we outline three options for carbon-taxing bioenergy:
- We start with a minimal approach that would tax all fossil fuel inputs of bioenergy including those used to manufacture fertilizer for corn grown for ethanol.
- We then consider adding a simple carbon tax on biofuels’ and biomass’ combustion emissions, regardless of upstream sequestration or emissions.
- Finally, we sketch a proposal for a carbon tax that would account for lifecycle emissions of bioenergy by category.
1. Leave carbon content of biofuels and biomass untaxed, at least for now, while taxing fossil fuel inputs to biofuel production.
Criticisms of policies that encourage biofuels have appropriately focused on the perverse effects of mandates and subsidies, especially land-use shifts from carbon-sequestering forestry or food production to biofuel crops. These shifts generally cause significant releases of CO2 as forests are cleared (often burned) and their carbon sequestration potential reduced, and as food cropland is converted, necessitating conversion of other land to replace food production. Biofuels can provide net carbon reduction benefits only if they overcome these emissions, amortized over some reasonable time frame.
A meta-analysis in 2011 by World Bank economists concluded that even a global carbon tax of $100 per tonne of CO2 would raise the fraction of global fuel derived from biofuels only minimally, from 5.5% at present to 6.1%. This suggests that current biofuel mandates and subsidies overwhelm whatever effects even a strong carbon tax would have on biofuels in the near to medium term.
This option would emulate British Columbia, Sweden and Demark, which simply exclude biofuels from the realm of fuels whose carbon “content” is taxed. (This should not foreclose possible future taxing of biofuels’ carbon content, once a carbon tax has been enacted and been incremented upward. For example, British Columbia extended its carbon tax to include ethanol and biodiesel in 2010.)
This option also avoids or at least defers the politically-fraught battle over which biofuels are truly beneficial to climate and avoids the complexity of calibrating a carbon tax to fit the estimated lifecycle emissions of different biofuels, as discussed in option 3, below. Note, however, that the substantial fossil fuel inputs to biofuels would be taxed under this option, causing prices of fossil fuel-intensive biofuels to rise in proportion to a carbon tax.
For example, natural gas (methane) used to manufacture fertilizer accounts for roughly 40% of the fossil fuel energy used to produce ethanol from corn. Because using natural gas to make fertilizer results in the same CO2 emissions as combustion, it would be taxed, along with fuel used to process (primarily distill) ethanol.
Under this option, biomass burned for electricity would also remain outside the purview of a carbon tax, with the exception of inputs of fossil fuels used in harvesting and processing biomass for fuel. While this option does not attempt to assess or internalize the lifecycle or land use effects of biofuels and biomass burning, it does avoid the complexities of estimating carbon content and lifecycle emissions that would be required for a carbon tax to withstand WTO scrutiny.
2. Tax approximate CO2 emissions from final combustion of biofuels and biomass based strictly on product type without attempting to account for carbon sequestered during growth cycles or emitted during harvesting, distillation or other chemical processing or land-use impacts.
One obstacle to subjecting combustion and/or production of biofuels and biomass to carbon taxation is the complexity of estimating carbon emissions from each fuel stream. Tracking each fuel’s source and manufacturing process (not just the final commodity), and developing unimpeachable estimates for each, is obviously a daunting challenge — if not a fool’s errand altogether. Attempts to devise such a system would inevitably devolve into litigation and political struggle with differing results in various jurisdictions, impeding the important work of building broad, global political support for carbon taxes.
An alternative is to apply a simple surrogate for the carbon “content” of each biofuel and for each type of biomass. Rather than taking into account lifecycle carbon sequestration and emissions for the various fuel streams, this approach would simply tax them based on the CO2 emissions rates from their final combustion. Although this option would exclude land use and lifecycle emissions that Searchinger and others have suggested can predominate, it would at least preclude the perverse incentive of leaving bioenergy completely untaxed. On the other hand, this option would also exclude the sequestration benefits provided by plant photosynthesis in growing biofuel and biomass crops.
This option would require development of an agreed “schedule” of typical carbon content from various bioenergy products (independent of growing conditions or process). For example, oak pellets would be assigned a particular emissions factor and would be taxed accordingly, regardless of source. Similarly emissions factors would be developed for wood chips, cellulosic ethanol, methanol, sugar cane and biodiesel.
3. Develop a carbon tax framework that estimates net lifecycle CO2 emissions of each biofuel and biomass product while complying with WTO “non-discrimination” provisions.
In addition to taxing emissions from final combustion, this option would tax emissions from production and land use changes, minus credit for the biofuel crop’s estimated carbon sequestration. As in option 2, this would require development of a “schedule” of emissions to reflect typical net emissions from each category of bioenergy. This option would minimize the complexity of assessing the lifecycle carbon of each fuel by source and process by taxing identical biofuel and biomass products within each category at the same rate. It would thus qualify for WTO-sanctioned border tax adjustments because it would not discriminate between identical products based on process or source despite differences in lifecycle emissions.
In some cases, bioenergy appears to offer net climate benefits compared to fossil fuels because of carbon sequestration by plants grown for biofuel and biomass. Nevertheless, the net benefits are severely compromised by bioenergy’s lifecycle emissions from production, processing, land use changes and reduced soil sequestration.
Indeed, mandates and subsidies triggering shifts toward bioenergy have negative side-effects including diverting resources from truly renewable energy sources and efficiency-improvement efforts. Scheduled increases in the Renewable Fuel Standard mandating a tripling of U.S. biofuels production in the next decade would precipitate a massive shift of resources toward biofuels, devastating vast lands, disrupting food markets and jacking up CO2 emissions. EPA currently treats biomass energy (direct combustion of plant material) as carbon-neutral, although the agency may be reconsidering that assumption. If EPA extends its presumption of carbon-neutrality to its Clean Power Plan rules, some coal burning may shift to biomass, with few or no climate benefits, greater emissions of conventional pollutants and damaging impacts on forests.
As noted earlier, eliminating biofuel mandates and subsidies while uprooting the false assumption of carbon-neutrality from EPA’s Clean Power Plan would do more to reduce the unfair advantages of bioenergy than even the most inclusively-designed carbon tax. Nevertheless, to avoid compounding these perverse incentives, carbon tax policy should attempt to at least roughly account for greenhouse gas emissions from production and combustion of bioenergy.
A minimal first step would be to ensure that all fossil fuel inputs to biofuels are carbon-taxed, including natural gas used as feedstock for ammonia-based fertilizers of corn grown for ethanol. A second, additive step would be to tax the carbon “content” of bioenergy products in the same way their fossil fuel counterparts would be taxed. This would exclude credit for carbon sequestered during plant growth while also excluding taxes on upstream production-related emissions.
A further step would be to develop a product-based approach that accounts for typical carbon sequestration during the growing phase, carbon emissions from processing, and implicit emissions from land use changes as well as combustion emissions for each biofuel and biomass type. This would require both a major analytical effort and a big political push, and it would have to be carefully tailored to meet WTO standards for non-discrimination and, thus, not impede global participation in carbon taxation.
We welcome your comments and suggestions on this important, complex and politically-fraught topic.
Climate Central: “Pulp Fiction, The European Accounting Error that’s Warming the Planet” (2015).
Congressional Budget Office: “The Renewable Fuel Standard, Issues for 2014 and Beyond” (2014).
Brookings: Ten years of the Renewable Fuel Standard: What’s been the impact on energy and the environment? (Video of panel discussion featuring Tim Searchinger, 10/16/15).
The Guardian, March 14, 2016: EU green transport target ‘may have increased greenhouse gas emissions’: “European Union renewable energy targets may have increased greenhouse gas emissions because the dirtiest biofuels produce three times the emissions of diesel oil, according to the most complete EU analysis yet carried out. Biodiesel made from palm oil emits more than three times as much and soybean oil around twice as much, when the crops’ effects on land use are considered, the research by the Ecofys consultancy for the European commission found. Europe’s aim of sourcing 10% of its transport fuel to “renewables” by 2020 – mostly biodiesel – will foster crop cultivation on 6.7m hectares of forests and grasslands, the paper says. When the loss of trees is factored in, such ‘first generation biofuels’ would generate around nearly 1bn tones of CO2 equivalent.”