Fields and refineries

Laveesh Bhandari Posted online: Monday , Feb 04, 2008 at 0003 hrs
A fascinating and troubling story is unfolding in the energy sector. The five-fold rise in petroleum prices in
as many years is creating incentives for the emergence of many new commercially feasible non-
petroleum energy sources. Hence, nuclear power has become more profitable, solar and wind power
have become financially sustainable, and the development of many other experimental technologies has
accelerated. Geo-thermal power is one such example. And most importantly, bio-fuels have gathered
momentum.

Currently the most common bio-fuels are derived from corn, sugarcane, wood (for example, jatropha),
and palm oil; of course great potential exists in deriving them from other agri-products as well, it is only a
matter of time when many other items are brought into the bio-fuel set.

It is said that bio-fuels have great benefits vis-a-vis petroleum based fuels. For one, most transportation is
based on the internal combustion engine that requires clean burning fuels in the liquid form and having
high energy density. Many bio-fuels meet these criteria, and many others currently under development
eventually will. Second, bio-fuels are renewable unlike petroleum, coal and even nuclear fuel. Third, in the
process of plant growth carbon gets absorbed, hence the carbon release at the combustion stage is
countered by the carbon absorption in the plant growth stage. The net result, at least theoretically, is zero
net carbon emission and therefore reduced global warming. Fourth, bio-fuels being agriculture derived
output have tremendously higher employment potential than petroleum based fuel. Thus bio-fuel could
lead to increased equity and reduced poverty. Fifth, since we can produce our own fuel, this would also
contribute to reduced energy dependency for India.

Not surprisingly many countries have taken a pro-active stance where growth of bio-fuels are concerned.
The US has tended to focus on ethanol derived from corn; Brazil is largely focusing on sugarcane. India
has taken the jatropha route combined with sugarcane. And still others are concentrating on palm oil and
vegetable oil based fuels. The character of the fuel differs depending upon the fuel used. Sugarcane and
corn, for instance, yield bio-ethanol whereas jatropha and palm yield bio-diesel. But these are the details,
and this is not where the devil hides.

Let us first take the case of corn. Corn is conventionally used both for human consumption and an
important component of feed for livestock. As petroleum has become more expensive it has become
more profitable to mix bio-ethanol derived from corn with petroleum products. But in the process less is
available for both humans and livestock. The net result has been increased prices of corn tortillas in
Mexico and overall upward movement of food products.

Similar issues have either already emerged, or will emerge, in the case of other bio-fuels that have a dual
use as food consumption for man or animal. The point is that there is a direct impact on food availability
and therefore prices in a range of food products.
But there are also indirect impacts. As a biofuel becomes more profitable, even if it has no other use, it
will impact food prices. Take the case of jatropha — something that our policymakers and corporate
houses have taken a great liking to. Jatropha does not require too much water and is ideal for cultivation
in our wastelands. In theory, therefore, jatropha cultivation would not take away from our foodcrop
production and will only create additional income and employment opportunities. So far so good.

But that is not how markets work. As jatropha becomes profitable even farmers otherwise growing other
cereals will grow jatropha and, if reports are to be believed, have already started to. Moreover, since
productivity levels of cereals and many food crops are quite low, the farmer is much more likely to shift to
other avenues. So this is another type of an impact on food availability.

There is yet another. It so happens that a large part of our cattle graze in the wastelands, and cattle-
owners rarely pay for this facility. Jatropha has leaves that are not exactly palatable for cattle. As jatropha
spreads, the land available for grazing gets limited. This in turn impacts the cost of milk production.
Currently the rise in milk prices is not due to jatropha, but when jatropha claims a significant enough
coverage of land, there will be an impact.

In other words, it will be impossible to limit the spread of bio-fuels once the market emerges. And since
energy is expensive, cultivation will be driven more by energy prices and less by food. The impact on food
availability and prices therefore is bound to be significant.

But if bio-fuels are generally beneficial for producers and the environment, should we not favour their
growth? The answer is yes, but with qualifications. For one, the environmental impact of biofuels is not
unambiguously positive. Researchers have found increased nitrogen oxide emissions, positive carbon
emissions as well as other impacts on the environment. Two, if food prices were to rise, the poor will be
impacted the most, so increased bio-fuel use need not be more equitable or poverty-reducing.

So what is the solution? There are three aspects, and the solutions are all related to policy support for
new technology usage. First, we need to increase general productivity levels in agriculture and food crops
in particular. This will ensure that farmers earn more and consumers pay less. Second, we need to
continuously look for other sources of energy that do not require combustion — solar, nuclear, wind and
perhaps geo-thermal appear to be the only scalable and sustainable sources in the long run. Third, bio-
fuels can also be gotten from cellulose and algae — these sources will have far lower consequences on
food availability.

Of the above the last two developments are some years away. It is increased productivity that is the most
achievable. The technology exists, the seeds exist, the inputs exist, the markets exist, the ability exists; all
we need to do is put them together. India has enough land to service the requirements of both the sectors
— food and energy — significantly. But it somehow is just not willing to invest in its farmers and their
farms.