All posts by Tim Joslin

Spanish practices

There are voices of sanity out there. Tim Congdon has written several sensible pieces on the Rock affair in the FT. He points out in the latest that the ECB has bailed out the Spanish banks in a way the BoE refused to do for NR. I’m a little surprised, though, that he doesn’t mention that at least one Spanish bank – Santander, which owns Abbey – directly competes in the mortgage market with UK banks. They – and all other European and US banks who might want to operate in the UK retail market, perhaps by snapping up A&L, B&B or even NR itself – have now been put at a significant competitive advantage. Knowing how the ECB will behave in a liquidity crisis, they now know they need to maintain less liquidity than their UK peers and can therefore use their capital more efficiently.

But, from a BoE view, of course, the NR cock-up has been self-defeating. No major bank operating in the UK market will ever allow itself to be totally reliant on the BoE again. They’ll make sure they can also draw on funds from the ECB, the Fed and/or other central banks. Presumably they need to retain a relationship with the BoE if they want to offer banking services in the UK, but they will rely on this as little as possible. The BoE will become marginalised. Hmm, maybe I’ll see the day when I buy my UK daily paper with euros.

Unless, of course, the BoE lets everyone know that it has learnt lessons from the liquidity crisis, and will take specific actions – working in concert with other central banks as central banks should, or they’re not really central, are they? . Scapegoating Northern Rock makes it more, not less difficult to calmly identify what mistakes were made by who, and what policy adjustments should be made by whom. And, of course, so does reappointing Mervyn King. Perhaps we should start calling the BoE the UK’s peripheral bank.

Postscript (1) : An article in the Telegraph this morning shows exactly how small UK banks (and building societies) are being penalised by having to use a back-door (larger UK banks with a direct relationship with the ECB) to access liquidity in the euro which is unavailable in sterling. Of course, the British consumer will ultimately pay for this. The Telegraph reports that: “Bankers said the fact that UK lenders were having to access the ECB through the back door exposed failures at the Bank of England.” Quite.

Postscript (2): And the Guardian notes that “… mortgage experts are trying to predict the winners from the credit crunch and concluding that Abbey could come out on top because of the funding available to its Spanish parent, Santander, through the European Central Bank.” Surprise, surprise.

The Darling Buds of Fannie Mae

Don’t worry, the point of the title will be revealed!

It’s amazing how emotion so often overrules reason. This is how we’ve made the biofuel blunder. Mark Lynas, bless his organic cotton socks, gloats that “the environmentalists” were right about biofuels. That’s really funny, Mark, because I thought the problem was that too many “environmentalists” thought biofuels were a good idea. Their emotions gave them the wrong answer. The greens aren’t really green. My emotions – including a visceral horror at the idea of destroying nature to fuel cars – and presumably yours, are supported by reason.

But when we come to a case like the Northern Rock affair, reason barely has a chance. Because the reds aren’t really red. They don’t believe in fairness. No, much more important to them is the comforting illusion that “the people” are in control (we’ll just blip over the last 80 years of European history, shall we?). So my breakfast is tainted with bile as I read from Volks Comrade Hutton that:

“The free-market fundamentalist proposition that the market is the spontaneous natural condition and any form of public interaction is therefore unnatural – which feeds Northern Rock shareholders’ extraordinary sense of entitlement – is to misdescribe reality.”

And there’s me and Rousseau thinking the state was a necessary evil! Thanks for putting us right, Will! I’m a bit confused though: why isn’t “the market” a “form of public interaction”?

But what I really object to in Hutton’s piece is the throwaway: “Northern Rock shareholders’ extraordinary sense of entitlement”. Here Hutton reveals his true colours. It’s not about fairness at all. He wants to create a public space where he can project his emotions. A dictatorship of the commentariat, perhaps. No, if by “red” we mean greater equality, the reds aren’t red. They just want to return to the ways of organising things that led to rivers of blood in the 20th century. Maybe it’s in that sense that they are “red”.

The problem with the Northern Rock affair is that the State has become involved far too deeply. Brown and Darling (while Mervyn King sits back and breathes a sigh of relief) have been able to use public indignation at the “taxpayer” taking risks over NR to create a smokescreen around the UK’s mishandling of the liquidity crisis – which might otherwise have had the dire consequence of loss of public support for, shock, horror, the independence of sterling itself – and at the same time expropriate for the State assets that are possibly worth several billions. Nationalising Northern Rock is less about the economic needs of the British people (who will be worse off as a result of this sorry little affair because people will be less willing in future to take the risk of lending money to them, with the result that the capital they need to borrow to buy their homes will cost them more), it’s more about their emotional needs. The NR shareholders have become (inappropriate) scapegoats for those bad feelings about excesses in the City. Rather than create a fairer society (by, for example, raising the minimum wage) we’ll all try to feel a little bit better, shall we?

Maybe reason can get us a little further. Let’s try to analyse the situation. Here’s what Larry Elliott wrote in yesterday’s Guardian:

“The bank has a good mortgage book and, given the tendency of house prices in Britain to rise, there is no reason why the taxpayer should lose out. … Once ministers decided against administration, nationalisation was always preferable to a lopsided public-private option that, as illustrated by the £2bn Metronet bail-out, would have meant nationalising the risk and privatising the profits.”

A poor analogy as NR is not being nationalised because it has negative net assets. It’s being nationalised because… um, why exactly is it being nationalised?

It’s always a good idea to ask the right question. In this case , let’s ask who is better off after nationalisation, compared to a private sector solution, and who is worse off? Who is taking what risks in each scenario? The private sector options were that shareholders and/or new investors would put in more cash – at least £700m. The Government would receive a punitive interest rate on the Bank of England loan, an upfront arrangement fee of £200m (maybe more) and a later share in profits of a similar amount (the amount of this the Gov’t wanted was the deal-breaker). Conditions would presumably include no dividends until after the Bank’s loan is paid and Gov’t oversight of the business at least until then to prevent any undue risk-taking. In other words NR would be run in a similar way whether it was nationalised or not.

There are actually 4 cases to consider: nationalisation and continued private ownership on one axis and making money and losing money on the other.

If the nationalised bank loses money the taxpayer will lose the full amount lost, if it makes money the taxpayer will gain the full amount gained. Presumably Gordo is happy to take this risk, which implies he wouldn’t have been taking a huge risk had he allowed the private sector solution. Oh, what tangled webs we weave… But let’s go on.

I must have missed a small detail. Aha! Here it is. After nationalisation the taxpayer may have confiscated all the shareholders’ funds. Let’s say these are worth £2bn (about £4 a share). If it does manage this, the taxpayer will only lose out if the bank loses more than £2bn. If legal action goes against the Gov’t, though, (and I so hope it does!), the shareholders will get their £2bn back and the taxpayer will be carrying all the risk. I hope you’re happy with that, Mr Indignant. Nationalisation only makes sense, it seems, if the Government is able to expropriate shareholders’ funds. Hmm. But let’s just check that conclusion by looking at the counterfactual set of possibilities.

If the bank had remained private, though, and lost money, the shareholders would lose out first. Let’s say the shareholders put in £700m now and another £800m as the mortgage market worsens over the next couple of years. They already have £2bn, we’re assuming. The bank would have to lose £3.5bn before the taxpayer loses out. Hmm, do you suppose the taxpayer is taking more risk, or less, than if the bank is nationalised?

What if the bank makes money as a private entity? Well, the shareholders would make a profit, but only after they’ve paid to the “taxpayer”:

  • say 3 years times 1% above market rate on a loan of £25bn, which comes to £750m;*
  • an estimated £200m arrangement fee;
  • another £200m from profits.

That is, well over £1bn. [*Postscript 23/2/08: Oops. Actually, I’ve seriously overstated the case. The arrangement fee was for converting the debt to bonds to be sold a commercial rate, and putting a Gov’t guarantee on them. At this point, punitive interest would no longer be payable on the debt. But the basic point stands – the taxpayer would have got a few hundred mill under the private sector solution, which it won’t receive now it’s nationalised the bank].

So the “taxpayer” is taking a lot more risk by nationalising the bank than not, but may potentially make more profit, as long as it isn’t tripped up by the “independent” valuer or in subsequent court cases.

These are the two assumptions underlying the Gov’t’s decision to nationalise Northern Rock:

  1. They’re with Larry when he says that: “The bank has a good mortgage book and, given the tendency of house prices in Britain to rise, there is no reason why the taxpayer should lose out.” i.e. they think it’s unlikely they’ll be in that loss-making scenario.
  2. They believe they’ll get the shares in the bank for nothing, or virtually nothing.

Now, I think these two assumptions are actually incompatible. By the time legal avenues are exhausted, the courts will know whether the bank is going to lose or make money in the longer term, and therefore whether the shareholders’ assets were worth anything.

With a bit of luck the courts may also judge that a large part of NR’s predicament has been caused by Gov’t bungling – they should have put liquidity into the markets before NR failed, etc. (bit of a litany, here). The Government is attempting to confiscate assets, pure and simple. Perhaps this is the sort of world Hutton and Elliott want to see. See you in Hell, boys!

There are 2 other reasons why the Government has gone for nationalisation:

  • populism, since they’ve done nothing to dispel the popular notion that the taxpayer is actually spending money “that could be used to pay for hospitals”, etc.
  • control: Brown is a control freak and when it comes to the crunch he wants to keep his cards where he can see them. He’s terrified by the thought of being a hostage to fortunes at Northern Rock in the run-up to the next election. This way, he can put any bad news off until he’s gone to the polls.

Before I finish, I ask myself why else should NR’s shareholders’ have “an extraordinary sense of entitlement” as Will puts it? Well, Will, perhaps it’s because everyone else is exhibiting “an extraordinary sense of entitlement”. Let’s forgive “the taxpayer” who is being kept in a state of appalling ignorance. What about the depositors in NR, whose panic is one of the causes of the present imbroglio? They lent people money to buy houses and then suddenly decided en masse to call in the loan. Nice. The depositors who put their personal interest above that of the bank and the community that rely on it, and above the fellow depositors behind them in the queue, were at the time entitled to £2,000 and then 90% up to £35,000 if the bank ran out of money before they got to the front of the queue. “ffs didn’t they know the risks they deserve nothing more”, to quote (adapted) some graffiti on a Downing Street petition. But, of course, the depositors are Darling’s darlings and the rules can be changed overnight, so that these people don’t have to worry about anyone other than themselves. Just take all your money out, says Darling, don’t worry about everyone else! It’s a wonderful life for some, isn’t it! Will, perhaps you can explain, so we’re all clear, whether this the sort of support for self-interested behaviour is the kind of “public interaction” you’d like to see more of?

Here’s a disaster scenario “Dangerous” Darling is leading us into, in his desire to pander to the public. He’s now going to get the “taxpayer” to guarantee all deposits in the UK, up to say £100,000. So, you and I may as well take the highest interest rate we can find anywhere. Don’t worry about whether the bank might go bust! And he’s encouraging banks and building societies to offer 25 year mortgages, so Mr Diddums doesn’t need to worry so much about his £200,000 mortgage. Oh, and I nearly forgot, funding from retail deposits is doubleplusgood, funding from international capital markets is doubleplusungood. Let’s roll on to say 2020, and house prices have been kept up by Darling’s new babies, those jolly reassuring 25 year fixed rate mortgages! (Because that’s what it’s all about, really – the electorate will not easily forgive a Gov’t that they think has caused a drop in the value of their homes. Remember Major!). But back to the story. By 2020 inflation is rearing it’s head again, and, unlike in the “Panic of 2007-8″, it fails to recede. This time the world really is running out of oil and land to grow food on. The base rate climbs to 10% and keeps on going up. Retail interest rates reach 15%. House prices really do crash to something like the cost of building a house (which is where they should be in the long-run), and keep on going down… (supply and demand, you know). And all those building societies have made 25 year loans at 7%, but are having to compete by paying more than twice that for the cash they have lent… Depositors don’t care, they can just keep shopping around for the best rate for their AAA rated £100,000. So, paying out 15%, taking in 7.5%… What do you think is going to happen? Perhaps Mr Indignant, the taxpayer, will not remember his Darling quite so fondly when he has to pick up the tab for all those failing building societies.

Btw my little story is not entirely dissimilar to what happened during the Savings and Loans crisis in the US in the 1980s and 1990s (but with its causes back in the 1970s). It was a financial disaster that makes the Northern Rock fiasco seem like losing a fiver on the Grand National. And when it happens, what we’ll need are something like the romantically named Fannie Mae and Freddie Mac in the US.

But perhaps Will thinks this would all be a good thing. Perhaps in Will-world the public should take the risk for those lucky enough to have £10,000s in the building society and lucky enough to be able to take out a hefty 25 year mortgage. The bigger the mortgage, the more risk we’ll all take on on their behalf, eh, Will?

Evaluating biofuels

Government reports on biofuels talk about the “GHG savings” of biofuels made from particular crops (often referred to as biofuel “feedstocks”). This is fundamentally the wrong approach. In the attached paper, Biofuel Payback Periods (pdf), I present a method of assessing the worth of growing biofuel crops in terms of the potential of the land on which they are grown to store carbon if biofuels aren’t grown.

Just considering “GHG savings” is like comparing company profits without taking any account of the company’s size (e.g. the capital employed) – for example, £1m profits in a year might be a good performance for the local filling station but would be a disaster for, say, BP.

Pathetic patio policy reporting

I realise that in my previous post I referred to a Guardian article “EU bid to freeze out patio heaters”.  I hadn’t intended to give the Guardian the honour or the Google benefit of my link, as I’d noticed the following meaning-free statement:

“…the Energy Saving Trust says patio heaters use as much energy as a gas stove hob does in six months.”

Is that as much energy in a week, a day or an hour as the hob uses in 6 months?  OK, maybe a few words got lost, but the fact that this sort of thing gets past the Guardian sub-editors so often suggests a culture of innumeracy.  And, indeed, if we look closer [so unreliable are numbers in Guardian articles that I often just blip over them], we see that just 2 paragraphs earlier we’re told that:

“Government figures put [annual] emissions from all domestic patio heaters at 22,200 tonnes of carbon dioxide – 0.002% of the total [annual] UK carbon dioxide emissions.”

I’ve had to add the “annual”s for clarity – this sort of vital detail is left out so often in the Guardian I barely notice it any more.

Anyway, I think to myself, that doesn’t sound quite right.  0.002 is 1/500th, and we’re talking percentages, so it’s 1/500th of 1/100th of the whole.  In other words, we need to multiply the 22,200 tonnes by 100 * 500, that is by 50,000, to get the “total [annual] UK carbon dioxide emissions”.  This comes to 1.11 billion tonnes of CO2, about  – in fact, suspiciously, almost exactly – twice the actual figure for UK annual emissions, according to DEFRA data.  So the true figure is that about 0.004% of the UK’s annual CO2 emissions are attributable to patio heaters.

I should say that the Guardian is not alone in this particular error.  The Independent has this to say on the topic:

“Government figures show that domestic patio heaters produce a total of 22,200 tonnes of carbon dioxide, which is 0.002 per cent of the total UK carbon dioxide emissions, while televisions produce 4.6 million tonnes of CO2 each year.”

A startlingly similar paragraph to the one in the Guardian, I think you’ll agree!  I presume this error originated in a 3rd party source – perhaps a government statement, or maybe from someone with an interest in keeping the figure as low as possible – but the culture of  innumeracy in the media allows such errors to slip through time and time again.

*** Rant alert ***

As a sociologist and sometime class warrior, I observe this systematic journalistic innumeracy and ask myself, cui bono? – who benefits?  Well, since numeracy would be a desirable quality in a journalist, and the supply of journos far exceeds demand, why wouldn’t strict tests be used to select those permitted to enter the profession?  This is the case for many other professions – or does anyone think innumerate doctors would be a good idea?  Of course, a historical explanation is called for, but the result of this institutional characteristic is that meritocratic considerations are less important than – IMHO – they should be in controlling entry to the profession.  And perhaps, I suggest, privilege is more important.  Why do I say this?  Well, a privileged background is likely to supply contacts which always help when trying to enter a profession where there are limited opportunities.  Privilege also gives prospective journos the ability – and the confidence – to make financial sacrifices, which are necessary to gain a foothold in the profession.  In other words, we end up having our opinions disproportionately shaped by the comfortable middle-class.

*** Rant over ***

The story goes on.  “Eco soundings” in today’s Guardian notes that:

“No initiative from the European parliament has attracted quite so much attention as last week’s 592-26 vote in favour of phasing out patio heaters. The 26 opponents almost all came from the UK Independence Party… “

Incredible.  It crossed my mind to drop our middle-class friends a letter.  Surely, at least one of the 592 MEPs must have considered that this action might have unintended consequences?  Clearly the European institutions are now so delirious at the thought of having a project that justifies their existence, that rational thought is starting to desert them entirely.

I found it so hard to believe that virtually none of our MEPs is able to separate in their minds what will happen if their policy is adopted, from what they would like to happen, that I wondered if in fact it was me who was mistaken (it wouldn’t be the first time).  I started to wonder if Brussels was in fact thinking of banning (or trying to ban) outdoor heating rather than outdoor heaters.  Will the practice be banned, or just the products?  And of course, the numerous media reports by the BBC, the Guardian, the Times, the Telegraph all fail to provide sufficient clarity.   I have to find what appears to be a definitive source, which clearly says:

“MEPs urged the Commission to establish timetables for the withdrawal from the market of all the least energy-efficient items of equipment, appliances and other energy-using products, such as patio heaters.

How can it be so difficult for our news sources to get this point across clearly?

*** Rant alert ***

Our MEPs are clearly quite happy for landlords to use less efficient means – such as  electric heaters – to heat their outdoor spaces, as long as it looks  like they’re doing something.  As usual, government measures to try to solve a problem risk being totally counter-productive.  Because, of course, it’s not really about solving problems at all – it’s all about maintaining or increasing their own authority.

*** Rant over ***

Pathetic patio policy

It’s back to the 80s! Bring on “Ashes to Ashes“! The British media are in a frenzy. The Eurocrats are once again trying to take away our hard-won freedoms! What were we fighting for at Dunkirk and the Battle of Britain? They’ll be telling us we can only have straight bananas next!

Yes, those EU parliamentarians are questioning the wisdom of heating the outdoors.

A more rational response would be to say “fair point mes frères” (as “If…” might put it) and consider what might be a sensible policy response.

Let’s cut to the chase. Government edicts have a nasty habit of creating unintended adverse consequences. Indeed, much of the UK’s use of patio heaters is blamed on the recent ban on smoking in indoor spaces. The stated objective was to reduce passive smoking, in particular by bar staff. I won’t argue with that but the Government’s mistake was (as usual) to go further and try to tell us all what to do. Restricting people’s rights (i.e. to smoke) where these impinge on the rights of others (i.e. to breathe clean air) is one thing, but going any further than that is unjustifiable. Politicians appear to be the last to realise that the world has changed: no longer do people accept the authority of government to moralise and control their behaviour. Government should just ensure order. But I digress. In this instance, it’s quite clear that indoor smoking rooms (separately ventilated and away from where drinks are served) should have been allowed. And I haven’t even yet mentioned the light pollution, noise pollution, (and outdoor smoke and pavement congestion) I have been subjected to since the ban.

Sometimes even the “unintended” part of the phrase “unintended consequences” is barely audible. The EU, for example, wants 20% renewable energy by 2020. This is supposed to help us towards reducing GHG emissions by 20% by 2020 (or something). Never mind that biofuels – which increase GHG emissions – count towards the 20% renewables, but nuclear power – which reduces GHG emissions – doesn’t. Methinks the devious hands of vested interests too easily steer the guiding hand of government (if you get the gist).

There will also be other – perhaps truly unintended – consequences because of contradictions between the 20% renewables target and the 20% GHG reduction targets. Choices have to be made. If we invest in renewables then maybe we’ll invest less in efficiency. CHP – avoiding transmission losses – would (presumably) not count towards the 20% renewables target. And, a gripe I’ve made before (there’ll be a link when I remember where): policies such as the ludicrously expensive feed-in tariffs (which make the British Renewables Obligation look positively rational) employed in Germany and elsewhere on the Continent have the effect of diverting the world’s limited supply of solar panels to Northern Europe and away from regions where they would actually generate more energy.

The question of the precise unintended consequences of a ban on the sale of patio heaters was at the back of my mind at the weekend when I was sitting in a semi-enclosed outdoor area – in a chilly Rotterdam, as it happens. When I got up to leave, I realised that, as well as a patio-heater, there was another heat source behind me. Yes, a wall-mounted electric heater.

Now, until our electricity supply is decarbonised it is much more efficient to generate heat by burning gas (for example) locally, than in a power-station in order to produce electricity to turn back into heat. Losses of heat at the power-station and power during transmission (etc.) make heating with electricity 2.3 times as bad for global warming than using gas patio heaters, according to this thoughtful article in The Register.

The Register article suggests that:

“…depending on usage, electric heaters could be more efficient than LPG ones. If the area to be heated isn’t actually going to be occupied for most of the day, then electricity is probably better…”

But now I recollect my return journey to the UK, on an also chilly Sunday morning last weekend. I was in the waiting room at Bishop’s Stortford for an extended period, marvelling at the comparison of the organised incompetence that is rail transport in the UK (the train I was waiting for was apparently delayed by both a broken rail and a defective train) compared to the miraculous am-I-really-awake efficiency of the Dutch railways. There was an electric heater on the waiting-room wall. The only problem was that it was operated by a timer-switch. It stayed on for 5 minutes or so. Amusingly, and typically, there was no sign advertising that the switch was intended for customer operation. It was only after sitting shivering for 15 minutes that – in a moment of mild insubordination – I pressed it to see what would happen. Was the device on the wall actually a heater and not an air-conditioner? Would it work? Would the station staff come running?

The heater helped, but not that much. I thought at the time that the waiting room might have been warm had the heater been on continuously for some hours. The point is that The Register overstates the case for the electric heater. Heat on continuously warms the whole of the air in a room, the furniture, the walls, the ceiling and the floor. Heat is a cumulative thing. Flashing back to the enclosed outdoor space in Rotterdam, then, if you took away the patio heater, but wanted your customers to feel just as warm, you would need to put in just as much heat with additional electric (or other) heaters as the patio heaters are supplying now.

The correct policy (as ever) is not micromanagement by government, but policies aimed purely at increasing the cost of producing GHGs. Millions of consumers and businesses will then make choices – in ways government is unable to predict – that result in reduced GHG emissions. The invisible hand of the market will be much more effective than the clumsy hand of government.

Carbon offsets: adding is not enough

Following a recent Cambridge Energy Forum meeting on carbon offsetting and a subsequent email dialogue between myself and Philip Sargent, I would like to clarify some terms and describe a critical problem with carbon offsetting.

The Gold Standard and other sets of rules for carbon offset projects rely on a test of “additionality”. This test basically states that, for a carbon offset project to meet the standard, it must be demonstrable that the reductions in carbon emissions would not have happened anyway. Examples of projects that would pass the additionality test are a wind farm in China that would not otherwise have been funded; energy saving light-bulbs in South America that would not otherwise have been provided; and projects to filter HFC23 from factory emissions that would not have happened otherwise. Critically, the test of additionality is only made within the scope of the carbon offset project.

The are various problems with the concept of additionality – such as the virtual certainty of moral hazard coming into play (e.g. wind farms might not be funded another way simply because China knows carbon offset money is available) – but I believe the most significant flaw is that the test is incomplete. The problem is that we are dealing with an open system – global energy production and consumption – and not a series of closed systems. The easyJet flight you offset, VAT free, for £1.77, and the Chinese windfarm are not the end of the story.

We need another test, which I term “subtractability”. That is, there needs to be an onus on the carbon offset provider to prove that the carbon emissions saved really are subtracted from total global carbon emissions. Several types of carbon offset project fail this test and must be consigned to the fig-leaf category.

Of the 3 examples I gave earlier, the first two both fail the “subtractability” test. They run into what I have previously termed “the displacement fallacy“. For example, China is using energy as fast as it can produce it. The wind-farm may simply mean they produce and use more energy than they would have done otherwise. Similarly, people given energy-saving lightbulbs may simply be able to afford more electricity for something else, or power cuts may become a little less frequent in their country. [Note that I am not arguing that such projects themselves are not worthwhile – I’m merely pointing out that they most likely will not successfully offset your carbon emissions].

Projects that directly remove or destroy GHGs, such as those to capture HFC23 from factory flues, pass the subtractability test, but may run into other problems, as we heard at last week’s Cambridge Energy Forum. In fact, since the types of project that pass the subtractability test – such as tree-planting – tend to fail in other ways, it’s difficult to see how carbon offsetting can do more than salve peoples’ consciences.

Biofuels Are Not the Answer

By Tim Joslin
Full Article (pdf)

The threat of global warming has led governments around the world to encourage the use of biofuel, in particular in the transport sector, in the hope of displacing fossil fuel. The UK, following an EU Biofuels Directive, is introducing a Road Transport Fuel Obligation (RTFO), requiring fuel providers to ensure that 5% of their total road transport fuel sales “is made up of fuels from renewable sources” by 2010.

It is already well-known, through the efforts of, in particular, George Monbiot, that a large-scale diversion of agricultural land to the production of biofuel will set up competition between food and fuel, between people and cars. Vast tracts of rainforest are already being cleared to create more land on which to grow biofuel crops, such as oil palm. Governments may argue that they can manage these problems, whilst continuing to promote biofuel use. This is doubtful.

But there are even more fundamental arguments against biofuels. This paper shows that the use of biofuel to supplement fossil fuel for vehicle transport is not only disastrous in practice, it is also flawed even on its own terms, in two distinct ways:

  1. plant-growth on land is one of the main ways in which CO2 is removed from the atmosphere. Land is therefore a resource in the fight against global-warming. Even under optimistic assumptions, growing biofuel crops will not reduce atmospheric levels of CO2 over any timescale of up to more than a century, compared to preventing deforestation or even simply leaving already cleared land alone and allowing natural plant growth to capture carbon.
  2. we know that within a few decades we must dramatically reduce our reliance on fossil-fuels, especially in the transport sector, where capturing and sequestering carbon emissions would be very expensive. In terms of achieving this objective, the use of biofuel is counter-productive. Instead of encouraging investment in energy supplies that are renewable for the long-term, measures such as the RTFO incentivise businesses and individuals to make further investments in technology for burning fossil fuels. Government should instead encourage a technological path from hybrid cars, through plug-in hybrids, to electric cars. Instead of continuing to burn carbon, our future transport energy needs can be met by the generation of electricity using true renewable and/or nuclear technologies.

Biofuels are not the answer.

Full Article (pdf)