27 October 2006 13:09 [Source: ICIS news]
By John Richardson
SINGAPORE (ICIS news)--There’s been a lot of talk lately about the lack of a level-playing field for biofuels because of the heavy subsidies being pumped into support the sector’s shaky economics.
The sector’s economics are certainly questionable when you consider that the current route to ethanol would require huge land-usage to make only a small contribution to motor-fuel demand in the ?xml:namespace>
Even an environmental group recently called for an end to US biofuel subsidies, saying they were not well targeted or efficient.
But there is a strong argument to be made that the oil industry has itself enjoyed subsidies for many years.
Take the current debate around
The ballot proposes levying fees for oil extracted from Californian state-owned land, generating an estimated $4bn in revenues by 2017, which would be used on researching alternative energy technologies.
The pro-ballot camp argues that the current absence of fees is an effective subsidy, encouraging extraction and discouraging efforts to reduce consumption.
The biofuels industry needs support at this stage in its development in order to develop technologies that are economic, investors in the sector argue rather predictably, as do the environmentalists.
But it’s not just environmental worries that are driving the white-hot interest in renewable fuels.
Nexant ChemSystems, in a prospectus it produced for its Liquid Biofuels: Substituting for Petroleum report, pointed out other drivers such as:
*Long-term fuel supply security and reducing geopolitical pressures resulting from imported petroleum and natural gas
*National balance of payments issues
*Rural development and boosting the agricultural sector
But in the end the dominant issue has to be environment, especially in the developing world.
The problem is so acute that doctors recommend babies be taken out of the city every few months to escape the poor air quality. An estimated 400,000 people die prematurely in
Subsidies for biofuels, at least for the time being, might be a sensible approach to trying to resolve the problems being generated by hydrocarbon pollution.
The huge complication is what subsidies to choose in order to avoid backing the wrong technologies, and how long the subsidies should remain in place.
But as the environmental pressure intensifies on growing evidence of global warming, governments might have little choice but to keep diverting money to the biofuels industry.
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