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12.10

By Patrick E. Meyer, Ph.D.

Introduction

In these times of economic hardship, job creation and government spending are particularly critical issues. In the context of the energy sector, these issues are principally crucial.  To create jobs, some argue, nations should shift their energy workforce to the biofuel sector, given that the growth potential of biofuel industries is substantial and that biofuels require about 100 times more workers than fossil fuels to produce the same amount of energy. In biofuel-rich nations, the sector serves as a strong backbone during economic downturn. Brazil, for example, employs as many as one million people in their biofuel sector.

Much of the global biofuel industry’s growth is due to government subsidies which promote the adoption of alternative fuels and vehicles and the development of infrastructure. Governments of the world spend an estimated 43-46 billion USD on renewable energy and biofuels technologies annually, but those funds are dwarfed by the 557 billion USD spent on subsidizing fossil fuels.

In this six-part series on biofuel and biomass energy, I discuss the most critical issues surrounding the biofuel industry. In previous installments, I discussed biofuel basics, outlining the general premise of the biofuel industry (Meyer, 2009a); emissions impacts and infrastructure development (Meyer, 2009b); land availability, conversion, and deforestation (Meyer, 2010a); the food versus fuel and profit versus hunger debates (Meyer, 2010b); and water usage and biodiversity (Meyer, 2010c). In this final chapter, I discuss the impact of the biofuels on job creation and the role of government spending in industry development.

Job Creation

Biofuel development serves as a method to avoid carbon emissions, increase environmental protection, and enhance security of energy supply on a national level. But as biofuel industries continue to develop, the primary driving forces are less likely to be environmental and more likely to be employment potential and job creation (Domac et al., 2005). The employment potential for the global biofuel industry is significant. On average, biofuels require about 100 times more workers per joule of energy content produced than the highly capital-intensive fossil fuel industry (Renner & McKeown, 2010).  And as global petroleum output declines, fossil energy jobs may become scarcer, allowing a shift to the labor-intensive biofuel industries. 

The biofuels industry does not only need farmers, but also requires a broad range of expertise, including engineers, scientists, policy makers, economists and laborers.  The opportunities in environmental science and biotechnology are particularly promising. It is estimated that in the United States, all types of biomass operations together employed about 136,999 people directly in 2006 and another 310,000 in supplier industries (Renner & McKeown, 2010). There has also been an increase in indirect employment—that is, jobs generated within the economy as a result of expenditures related to the sale of biomass and biofuels (Domac et al., 2005).

Examples of specific biofuel industry employment are numerous. For example, in the state of Iowa it has been reported that nearly 600 new jobs in the ethanol industry have been created in biofuel-specific areas and biotechnology (AP, 2007).  The boom is due to the 25 to 30 new ethanol plants in the state.  Similar situations will be likely throughout agriculture-based states in the United States.

Outside of the United States, the emerging biofuels industry holds the potential to bring widespread wealth to some areas in the form of thousands of new jobs. The European Union Member States have been contemplating stringent policy instruments to boost their production and use of biofuels (Gohin, 2008). The European Commission estimates that nearly 200,000 farm jobs will be created through these policies, generating positive social induced effects in poor and remote rural areas (EC, 2007). Other analyses show the job creation potential of these policies to be lower (about 43,000), depending upon overall economic factors leading to fluctuations in production costs and land values (Gohin, 2008). But whether the high or low estimate is considered, either option creates tens of thousands of jobs at a minimum.

In Brazil, one of the most successful examples of biofuel industry development, it is estimated that the ethanol program has created 700,000 to 1,000,000 jobs, providing immense rural development benefits (Domac et al., 2005; Renner & McKeown, 2010). Elsewhere, where biofuel industries are just beginning to mature, studies show an enormous potential for job growth. For example, a study of the economic feasibility of producing palm oil-based B5 and B10 biodiesel in Mexico to reduce diesel fuel consumption found that the cultivation of oil palm may lead to the creation of about 922,000 direct jobs (Lozada et al., 2010).

In Nigeria, the Renewable Energy and Energy Efficiency Partnership (REEEP), a public-private clean energy partnership established at the World Summit for Sustainable Development, has been working to create Africa’s largest biofuels market based on the Brazilian example (Osterkorn, 2006).  Funsho Kupolokun, group managing director of the Nigerian National Petroleum Corporation estimates that the initiative would create more 200,000 new jobs.  In South Africa, biofuel initiatives have won strong government support due to estimates that the programs would create a large number of new jobs and halve regional poverty by 2014 (MPOC, 2007).  It is estimated that every ethanol plant in Africa would create up to 100,000 jobs. High hopes for biofuel-related job creation have been expressed in a range of countries, including Colombia, Venezuela, Indonesia, Malaysia, India, China, Tanzania, Uganda, and Senegal (Renner & McKeown, 2010; UNEP, 2008).

In a previous installment of this series, I discussed the possibility that increased biofuel development would have an unfavorable impact on food prices. While this may be true, the predicted increase in food prices under biofuel expansion scenarios may be offset by the added benefit of income gains directly through job creation related to biofuel production (Ewing & Msangi, 2009).

At the same time, there have been warnings against planning for a long-term period of growth in the biofuels industry.  In Iowa, for example, it has been argued that the state does not have enough corn to accommodate more than a total of 60 ethanol plants (by the end of 2010 the state will already have 50) (AP, 2007).  As discussed in earlier installments of this article, biofuel production is absolutely limited by land availability and water availability. Thus, there certainly would be some upper limit to the number of jobs which would be created.  The boom may be temporary and countries and regions should be cautious to not create a huge army of biofuel-specialists for which in 20 years time there may be only limited work available.

Government Spending

Governments around the globe are putting considerable capital behind biomass and biofuel development. In total, governments of the world provided approximately 43-46 billion USD to renewable energy and biofuels technologies, projects, and companies in 2009 — of which the U.S. government accounted for an estimated $18.2 billion (Feinberg, 2010). Approximately $7 billion of the U.S. renewable energy funds were spent on the biofuels sector with about $5 billion of that taking the form of fixed, direct payments from the U.S. government to grain and cotton farmers (Brasher, 2010; Feinberg, 2010).

Despite the magnitude of government spending, many people do not realize that the U.S. biofuel industry is highly dependent upon a myriad of federal and state legislation, regulation and funding. In fact, there are currently hundreds of programs in place which subsidize nearly every stage of the ethanol and biodiesel supply chains (Koplow, 2006).  Liquid biofuels have been subsidized largely on the premise that they are domestic substitutes for imported oil, they reduce greenhouse gas emissions, and they encourage rural development.

Further, biofuels are often supported through government procurement programs which incentivize the purchase of vehicles that are intended to run on biofuels in an attempt to increase the potential size of the market.  Such programs are often successful and expanded in second- and third-phases and many federal and state agencies are now requiring that newly procured vehicles run on E85 whenever practical (Koplow, 2006).

An issue of particular debate is why, if governments’ goals are to increase biofuel industry development, do most governments continue to simultaneously subsidize traditional fossil fuels? Although the abovementioned biofuel subsidies may sound generous, the fact remains that government subsidies for renewables are dwarfed by subsidies aimed at fossil fuels (Feinberg, 2010). Despite the 43-46 billion USD spent on renewable energy and biofuels technologies in 2009, it is estimated that a staggering 557 billion USD was spent on subsidizing fossil fuels in 2008, up from $342 billion in 2007 (IEA, 2010).

Subsidies for farmers and the renewable energy industry, which are a fraction of fossil fuel subsidies, could be at stake if the new Congress cuts government spending, as some have pledged to do (Brasher, 2010). The existing corn ethanol industry can survive without federal subsidies, but developing biofuels from new feedstocks such as crop residue and switchgrass, sources of plant cellulose, would require billions of dollars in additional government assistance, said Bruce Babcock, an Iowa State University economist (Brasher, 2010).

The governments of many developing nations subsidize biofuel development with the goal of spurring long-term development, but many case studies show that the impact of these subsidies are often diluted or ineffective. For example, a report by the International Institute for Sustainable Development highlights a recent government spending setback in the Indonesian biofuels industry.  In 2007, the Indonesian government hosted an event in Jakarta at which 67 agreements for biofuel developments were signed, worth almost 10 billion USD, with the government committing 1.1 billion USD in the 2007 budget for biofuel infrastructure, farming, training and R&D subsidies. However, increased agricultural commodity prices in late-2007 and 2008 made biofuel production increasingly unprofitable and biofuel companies suffered large losses as the Indonesian government required the sale of biofuels at the same price as subsidized fossil fuels while not providing additional subsidies to cover the higher cost of biofuels. As a result, the companies lowered their biodiesel blend as low as one percent so as to not lose so much money on sales. Due to decreased enthusiasm, the government did not enforce the original blending ratio and the 1.1 billion USD in biofuel subsidies were not disbursed (Dillon et al., 2008). Unfortunately, promised but never delivered biofuel incentives are all too common. Situations like this, in which the original intention was to improve the biofuel industry, have the reverse effect of decreasing consumer and investor confidence.

Although the jury is still out, the gap between what world governments spend on subsidizing fossil fuels and clean energy could narrow considerably in 2010 because the biofuel industry will directly benefit from the disbursement of 188 billion USD in global stimulus funds for clean energy and, second, government spending on fossil fuel subsidies likely decreased in 2010 due to an overall global deflation of oil prices (Feinberg, 2010).

Critics of subsidization of biofuels have argued that the production process of the fuels is itself fossil fuel-intensive, negating many of the benefits of growing the energy resource; and that there are less expensive options for both greenhouse gas mitigation and rural development (Koplow, 2006).  If the production process is fossil fuel-intensive, then some would argue that biofuel subsidies serve to benefit Big Oil rather than an environmentally-friendlier fuel cycle.

Others still have called for general cuts in spending on fuel for private transit of any kind and an increase in funding for public transportation, often with emphasis on electrified mass transit.  These arguments are typically based on the notion that public transportation, if used more widely and regularly, would have a greater effect on reducing fuel cost and environmental damage than would the increased usage of most alternative fuels.

The global biofuel industry holds the potential to create millions of jobs but the creation of those jobs will depend on government enthusiasm towards financially supporting the industry. While opponents of government spending may argue against biofuel subsidies, critical attention should also be paid to fossil fuel subsidies. If, on a global basis, we were to cut fossil fuel subsidies by about 8 percent and apply those funds to renewable energy development, it would constitute a doubling of renewable energy investment. The number of jobs opportunities created from such investment would be enormous and might be the jump-start that the global economy needs to recover and grow in the long-term.

References

AP. (2007). Ethanol Industry May Create Nearly 600 New Jobs In Biotechnology: The Associated Press. Retrieved 23 November, 2010, from http://www.jobbankusa.com/News/Jobs/new_jobs_in_biotechnology.html

Brasher, P. (2010). Biofuel support, farm subsidies may face battle in new House. Des Moines: Des Moines Register. Retrieved 23 November, 2010, from http://www.desmoinesregister.com/article/20101104/BUSINESS01/
11040336/Biofuel-support-farm-subsidies-may-face-battle-in-new-House

Dillon, H. S., Laan, T., & Dillon, H. S. (2008). Biofuels - At What Cost? Government Support for Ethanol and Biodiesel in Indonesia. Geneva, Switzerland: The Global Subsidies Initiative of the International Institute for Sustainable Development.

Domac, J., Richards, K., & Risovic, S. (2005). Socio-economic drivers in implementing bioenergy projects. Biomass and Bioenergy, 28(2), 97-106.

EC. (2007). Bio Fuels Progress Report, Commission staff working document accompanying the COM (2006) 845 final: European Commission.

Ewing, M., & Msangi, S. (2009). Biofuels production in developing countries: assessing tradeoffs in welfare and food security. Environmental Science & Policy, 12(4), 520-528.

Feinberg, S. (2010). Subsidies for Renewables, Biofuels Dwarfed by Supports for Fossil Fuels. New York: Bloomberg; Enhanced Online News. Retrieved 23 November, 2010, from http://eon.businesswire.com/news/eon/20100729006062/en/clean-energy/Dirty-Power-and-Energy/Government-Subsidies

Gohin, A. (2008). Impacts of the European Biofuel Policy on the Farm Sector: A General Equilibrium Assessment. Applied Economic Perspectives and Policy, 30(4), 623-641.

IEA. (2010). World Energy Outlook 2010. Paris, France: International Energy Agency.

Koplow, D. (2006). Biofuels – At What Cost? Government support for ethanol and biodiesel in the United States. Geneva, Switzerland: The Global Subsidies Initiative (GSI) of the International Institute for Sustainable Development (IISD).

Lozada, I., Islas, J., & Grande, G. (2010). Environmental and economic feasibility of palm oil biodiesel in the Mexican transportation sector. Renewable and Sustainable Energy Reviews, 14(1), 486-492.

Meyer, P. E. (2009a, 08). Biofuel Review Part 1: Biofuel Basics. Washington, DC: IEEE-USA Today's Engineer. Retrieved 27 October, 2009, from http://www.todaysengineer.org/2009/Aug/biofuels-pt1.asp

Meyer, P. E. (2009b, 11). Biofuel Review Part 2: Emissions Impacts and Infrastructure Development. Washington, DC: IEEE-USA Today's Engineer. Retrieved 16 November, 2009, from http://www.todaysengineer.org/2009/Nov/Biofuels-pt2.asp

Meyer, P. E. (2010a). Biofuel Review Part 3: Land Availability, Conversion, and Deforestation. Washington, DC: IEEE-USA Today's Engineer. Retrieved 18 February, 2010, from http://www.todaysengineer.org/2010/Jan/Biofuels-pt3.asp

Meyer, P. E. (2010b). Biofuel Review Part 4: Food vs. Fuel and Profit vs. Hunger. Washington, DC: IEEE-USA Today's Engineer. Retrieved 01 June, 2010, from http://www.todaysengineer.org/2010/Jun/biofuels-pt4.asp

Meyer, P. E. (2010c). Biofuel Review Part 5: Impact on Water and Biodiversity. Washington, DC: IEEE-USA Today's Engineer. Retrieved 01 November, 2010, from http://www.todaysengineer.org/2010/Nov/biofuels-pt5.asp

MPOC. (2007). South Africa Jumps onto the Biofuel Bandwagon: Malaysian Palm Oil Council: Sub-Sahara Africa. Retrieved 23 November, 2010, from http://www.mpoc.org.za/global-news/south-africa-jumps-onto-the-biofuel-bandwagon

Osterkorn, M. (2006). Nigeria will use Brazilian blueprint to found its new biofuels industry: Environmental Expert and the Renewable Energy & Energy Efficiency Partnership. Retrieved 6 September, 2008, from http://www.environmental-expert.com/resultEachArticle.aspx?cid=22153&codi=7028&idproducttype=6

Renner, M., & McKeown, A. (2010). Editorial: Promise and pitfalls of biofuels jobs. Biofuels, 1(1), 7-9.

UNEP. (2008). Green Jobs: Decent Work in a Sustainable, Low-Carbon World. Nairobi, Kenya: United Nations Environment Programme.

Dr. Patrick E. Meyer is Principal at Meyer Energy Research Consulting, Newark, Delaware, and has provided consulting services for IEEE-USA’s Energy Policy Committee, the IEEE New Technology Connections Portal, and the IEEE Smart Grid Portal.  Holding a Ph.D. in Energy and Environmental Policy from the University of Delaware, Meyer specializes in alternative energy, electricity, and fuel technology policy analysis; global sustainable energy systems; and energy and environmental systems modeling and analysis. Meyer is a member of IEEE and the IEEE-USA Communications Committee, and is IEEE-USA Today’s Engineer Energy, Environment & Sustainability Editor.  Starting in January, Meyer will serve on Capitol Hill as the 2011 IEEE-USA Congressional Fellow.

Comments may be submitted to todaysengineer@ieee.org.