Guest Post: Ineffective biofuels mandate

A guest post from PaulL, a regular commenter:

The government is planning to introduce a biofuels mandate, which the Herald reported on recently (paywalled).  As we’ve come to expect from this government, the mandate won’t achieve the outcome it aims for, makes no economic sense, will have unforeseen impacts, and is poorly timed.  Of course, it has the potential to be popular with green voters, despite achieving nothing.  The Herald canvas none of these concerns at all, simply noting that it’s intended to reduce emissions, and that it’s been talked about for a long time without ever having been implemented (but no interest in explaining why).

I’ll address each of my statements in turn.

Firstly, this mandate is unlikely to achieve the goal of reducing carbon dioxide emissions.  This is partly because biofuels don’t actually reduce carbon dioxide emissions much, because they tend to consume a lot of diesel and other fossil fuels in growing the plants.  The net reduction of carbon dioxide emissions is low or even non-existent.  Eric Crampton has a good article on this, there is a substantial literature on the matter that he is drawing on. 

Biofuel mandates and subsidies are more often a political tool to lock up votes in marginal electorates via pork barrelling.  In particular this is true of primary votes in Iowa (a large corn state, and the first US state to vote in primaries), and the sugar electorates in Australia.  NZ has a proportional voting system, we don’t need pork barrelling in marginal electorates.  This government also hasn’t typically been in favour of subsidies to farmers (even overseas farmers).

It also won’t reduce emissions because transport fuels are already covered by the ETS.  Any reduction in transport fuel emissions simply reduces the transport fuel credits used from the ETS, and leaves those credits available for someone else to emit.  The whole point of having an ETS is that it drives the least cost reductions in emissions – so if adding ethanol to fuel was already the cheapest way to reduce emissions, it’d already be happening without a mandate.  If it’s not the cheapest way, then that means we could be getting higher emissions reductions from the same spend of money.  This means that the policy is economically illiterate, or I guess if I’m being kinder just makes no economic sense.  The most economically sensible way to reduce emissions is to simply buy credits from the ETS and shred them (or to simply issue fewer credits in the first place). 

It will have unforeseen impacts.  Increases in biofuel use means diversion of arable land from producing food to producing biofuels.  In particular it means diversion of corn, grain and sugar from food uses (as animal feed or directly as human food) to biofuels.  This will, on balance, increase food prices and reduce food availability.  The government appear to not be considering this (therefore, an unforeseen consequence – unforeseen of course only by the government, because plenty of other people forsee it). 

Those with a mechanical bent, particularly owners of classic cars or boats, will also know that biofuels behave differently in your engine.  Sure, for most modern cars they have been engineered to expect this up to around 10% biofuel.  But my 2003 boat probably won’t, my brother’s 1984 ute probably won’t, and potentially your 10 year old lawnmower or weed eater won’t either.  These costs will fall on individuals, fixing pipes and hoses that are impacted by the ethanol.  These impacts will disproportionately fall on those who drive older cars (likely poorer people).

Finally, the timing of this announcement shows once again a tin ear from this government.  At a time of high fuel costs, and the government having just cut excise tax (temporarily), they’re now talking about adding 5-10c a litre of costs to transport fuels (costs that are likely to achieve no sensible policy outcome).  Furthermore, during a war in the Ukraine that is impacting exports of food crops, in particular corn and wheat, the government is talking about introducing a policy that would divert corn and wheat into the creation of biofuels.  Sure, NZ is a tiny part of world demand, but in the same way we should “do our bit” for climate policy internationally, we should “do our bit” for food security.  The Paris agreement on climate change in fact specifically requires that climate change policies not threaten food production, and specifically mentions the fundamental priority of food security.

Bottom line, this is a policy that won’t actually reduce carbon emissions for two entirely separate reasons, will increase costs, will have negative impacts on some NZers, and will increase the diversion of food crops to fuels at a time of war and where poorer countries are about to have severe shortages of those same food crops.  It takes a special talent to spend money to achieve nothing, and at the same time make the world worse.  We can only hope that it also turns into a political albatross as people understand the proposal.

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