Cicero Policy Briefer

Issue 6, November 2006

The rise and rise of biofuels

By Alex Macpherson

Earlier this year, the Swedish government announced its intention to be completely free of its oil dependence by 2020, news which left many environmentalist groups thinking along the same lines for the UK. There are doubts as to whether Sweden will fully achieve its goal on schedule, mainly centred around the need to break its petrol habit; thus, its oil phase-out program will be highly dependent on increasing the proportion of biofuels it uses.

Biofuels—liquid fuels made from plant material and recycled elements of the food chain—have long been seen as a renewable, sustainable alternative to the finite supply of fossil fuels. Crucially, they are both ecologically and economically friendly: not only can they cut carbon emissions by up to 60 per cent compared to fossil fuels, but domestic biofuel production could make the UK less dependent on imported sources of fuel as well as providing a much-needed boost to rural economies.

Interestingly, the idea of powering vehicles with ethanol is far from a modern development: the first combustion engines were conceived to run on it, and prior to World War II it was still seen as a viable alternative to crude oil; only the advent of cheap Middle Eastern oil after World War II decreased interest in it. It is more than plausible that the future of transport power could lie in a return to original industry principles.

Sweden’s progress will be well worth keeping an eye on. Back at home, a measure of the Government’s commitment to the challenges presented in the Stern Review will be the forthcoming Pre-Budget Report and, more importantly, Budget 2007. The extent to which biofuels are included in each of the parties’ policy-making process over the coming six months will be especially key. Encouragingly, the Government has already taken steps towards embracing alternative fuels.

Over the past two years, the Government has dispelled its previous hesitation on endorsing biofuels and committed itself to the development of sustainable alternatives to fossil fuels. Budget 2006 announced that the 20 pence per litre duty incentive for bioethanol and biodiesel will be maintained to 2008-09, and in July of this year the Renewable Transport Fuel Obligation (RTFO) was introduced. This will be the UK’s primary mechanism to deliver the objectives of the EU Biofuels Directive, setting increasing levels of obligation for transport fuel suppliers from 2008 onwards. Introducing the RTFO from 2008 will increase uptake of biofuels and ensure a long-term framework which promotes additional investment. In the short term, the fuels that will be used to meet the RTFO are almost certain to be biofuels, which are available today and can easily be blended into today’s petrol and diesel and used in any vehicle. Drivers filling up at petrol stations will not notice any difference, as biofuels used in low percentage blends (up to 5 per cent) do not change the performance of cars.

The Stern Review emphasised the need for global action, and international experience in this field is also worthy of note—not only in Sweden, but most conspicuously in Brazil. The latter is the largest ethanol producer in the world, and in the 1980s succeeded in mass-producing biofuel for its motor vehicles to the extent that ethanol-powered cars were in the majority for a while. Though their popularity dipped in the 1990s as oil prices fell, this decade has seen a massive surge in the demand for dual-fuel engines which mix ethanol with ordinary fuel. Presently, the use of ethanol as fuel in Brazilian cars replaces gasoline at the rate of around 27,000 cubic metres per day—around 40 per cent of the fuel which would be needed if only gasoline was used.

These are significant figures, and ones which could be hugely influential on future energy policy. Now, with climate change firmly entrenched at the top of the political agenda and in light of this week’s heavy-hitting Stern Review, the issue of biofuels is certain to become yet more prominent.

Alex Macpherson can be contacted on +44 (0)20 7665 9530 or click here to email.