Biofuels have come under withering attack in recent months. Critics contend that federal government-mandated use of ethanol and biodiesel made from grain and vegetable oil is driving up commodity prices, damaging the livestock, dairy and poultry industries, and prompting sharp increases in domestic and world food prices. Critics also charge that biofuels damage the environment and do little to ease dependence on foreign petroleum.

The reality is something altogether different. Commodity prices have indeed reached record levels, and retail level food prices have been increasing faster than the inflation rate. But ethanol is only one of the many factors behind high commodity prices, which include record world oil prices, strong demand for food and energy from China and India, a weak US dollar, bad weather in major commodity-producing and exporting countries, and speculation. In short, biofuels play a relatively minor role in the spike in commodity prices.

Critics generally fail to recognize that biofuels are increasingly important to enlarging the supply of motor fuel and reducing pressure on world crude oil supplies. The increasing global demand for oil, combined with constrained global production, means that a relatively small shortfall in the oil supply can translate into signifi cant short-term price increases.

According to the UK research firm F.O. Licht, global production of ethanol is projected to reach 20.4 billion gallons (485 million barrels) this year. In terms of energy content, 485 million barrels of ethanol are the equivalent of 320 million barrels of gasoline. So, if this ethanol were not available for use, the world’s refiners would need an additional 1.9 million barrels of crude oil per day (700 million barrels), or 2.2 percent of current world production. A gap of even this small magnitude would likely result in a short-term price increase of about 27.5 percent, which would push crude oil prices up as much as $36 per barrel to more than $167 per barrel.

World ethanol production has nearlydoubled in just the last fi ve years. The two largest producers – the US and Brazil – account for nearly 78 percent of global ethanol production. A large share of the growth in global ethanol production is attributable to government policies aimed at improving energy security and combatting rising oil and gasoline prices, which have displeased consumers and bloated trade defi cits. And global ethanol production is expected to continue growing as world crude oil prices remain high.

The market for ethanol in the US has benefitted from the decision made by refi ners to voluntarily remove MTBE (an oxygenate found to contaminate ground water supplies) from the market, and from the Renewable Fuels Standard provisions of recent federal energy legislation. The Energy Independence and Security Act of 2007 requires that 36 billion gallons of renewable uels – largely ethanol – be used in the nation’s motor fuel supply by 2022. This will amount to nearly 30 percent of motor fuel use. The Renewable Fuels Association says the US ethanol industry currently has the capacity to produce more than 8.5 billion gallons of ethanol annually. Plants that would account for an additional 5.1 billion gallons are currently under construction and will be producing within a few years.

Ethanol does expand the quantity of gasoline available to consumers around the world. However, since ethanol has a lower energy content than gasoline, there is not a one-to-one substitution of one for the other. The btu content of ethanol is about two-thirds that of gasoline (76,330 btu/gal for ethanol compared to 116,090 for gasoline).

It seems clear that the only realistic avenue available, for consuming nations that have to reduce the impact of skyrocketing oil and motor fuel prices, is to increase supply. Since the American Congress continues to refuse to authorize drilling in domestic crude oil reserves such as the Arctic National Wildlife Reserve (ANWR), or offshore, biofuels represent an increasingly important tool for expanding fuel supplies and moderating prices.

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