News 2012 EBI Bioeconomy Conference: Q-and-A with David Zilberman

The fifth Berkeley Bioeconomy Conference sponsored by the Energy Biosciences Institute was held in March 2012, drawing more than 40 speakers over three days. They addressed topics that ranged from an evaluation of the global consequences of European Union policies, to a presentation on plant genetics and the future of agriculture, to the question of whether world biofuels’ mandates are affecting the poverty and nutrition of the rural poor.
   
“The conference has attracted leading researchers mostly on the economics of biofuel and biotech, and the content and messages have changed with the evolution of economics and the reality of biofuel,” said Berkeley Professor David Zilberman, EBI principal investigator and organizer of the conference since its inception.

At the close of the conference, Zilberman was interviewed about the issues yet facing the world bioeconomy:

1. Now that conference has been held for five years, what has changed as the years have gone by and biofuels research has advanced?

Zilberman: The conference has attracted leading researchers mostly on the economics of biofuel and biotech and the content and messages have changed with the evolution of economics and the reality of biofuel. Some themes have evolved over the years and new insights were added as well. The four main issues in the first year were:

  1. The trade-off between food and fuel. This was becoming a hot topic as the conference was in the midst of food price hike of 2008.
  2. The environmental effect of biofuels. This conference was among the first to witness firsthand (Tim) Searchinger’s results, which raised an immediate debate.
  3. The promise of second-generation biofuels. Presentations emphasized that the future of biofuel is to move to new feedstocks that are not food products that will rely on new technologies that would be ‘greener’ in terms of GHG emissions.
  4. The importance of government policy. The biofuel industry cannot survive on its own and intervention is justified to pay for environmental and other benefits but researchers had begun to identify basic flaws and limitations of various forms of interventions.


These themes evolved throughout the years. Presenters in the second year emphasized some of the geographic aspects of biofuel, the promise of growing sugarcane as feedstock in Brazil and Africa and institutional challenges of designing environmental sound and equitable policies. There were several studies that emphasized subsidies of biofuel in the U.S. can be counter-productive and may even increase overall fuel use because it will be cheaper. While at the same time rigid mandates may cause severe food supply shortages when overall corn production is limited. Thus in the second year, there was a large emphasis on the need to have flexible policies.

The third year emphasized the economic instability of the biofuel industry and the fact that it will have boom-and-bust cycles depending on the relative prices of fuel vs. food. When the prices of fuel are high and food is low, biofuel refineries make a killing. When the prices of food are high and fuel is low, biofuel refineries may go bankrupt because they have to contract expensive corn to produce relatively cheap fuels. This implies the role of insurance and clever contracting. The issue of contracting with respect to second-generation and expansion of biofuel were also emphasized. Another topic that was emphasized was that the strict regulation of agricultural biotechnology limited the supply of food product. Less restrictions on GMOs may be increased the food supply and reduced the tension between biofuel and food.

The fourth year emphasized some of the regulatory issues. The limitations of policies of biofuel standards that include indirect land use effect have been emphasized as well as the spread and impact of second-generation will depend on what exact policies the government would introduce. There is also an emphasis on the importance of subsidization of second-generation biofuel because of the fuel security and balance of trade gains that it provides. Another issue that was emphasized was the importance of forest products as a source for feedstocks in second-generation, and that the feedstock will vary across locations due to differences in agroclimatic conditions. Lastly, it became clear that first-generation biofuels became economically viable and its subsidization was no longer justified- at the same time, subsidization worked because it lead to a new industry where learning by doing and improved efficiency made industry viable which has important implications for second-generation.

Three new themes emerged this year.

  1. The discovery of new and abundant natural gas resources on the future of biofuel. In particular, it was suggested that it may be useful to use natural gas for methanol and then methanol and ethanol can be combined as an alternative fuel. If this were to happen, then the government needs to develop incentives to adopt flex fuel vehicles.
  2. Possibilities to address some of the food/fuel conflict associated with second-generation by increased reliance on double-cropping in the US. Double-cropping has been important in the production of grains in Brazil and Argentina which suggests that increased demand for agricultural products that is associated with biofuel, increases productivity which is beneficial in the long-run.
  3. While it clear that the second-generation has great potential, the timing and specifications of viable second-generation technologies are still uncertain. There have been already major breakthroughs that reduce the cost of the technology and at the same time there are several novel feedstocks to be considered.


2. What new topics do you expect to emerge as dominant questions over the next five years?

Zilberman:

  • I think that co-evolution of biofuel with natural gas will be an important topic. I think that natural gas will play an important role in fueling vehicles and it may slow the spread of biotechnology but I think that we will see a nice process of co-evolution of the two types of fuel.
  • This will part of a bigger topic which is identifying a portfolio of fuels. We are going through a transition where we will mix various fossil fuels with biofuels. There will be a lot of experimentation that will depend on a lot of policies. The creativity in the biofuel field, both in terms of research and policies is to mix different sources of fuel in a way that will be economically efficient that will not be cumbersome to the consumer and will be environmentally sustainable. To some extent, we operate under some uncertainty and therefore research, creativity and entrepreneurship is very important.
  • A third topic is the future of biofuel policies, to what extent second-generation will be subsidized and to what extent will the government keep its biofuel targets. The value of subsidizing second-generation will be an important area of research.
  • A related topic is the environmental regulation of biofuel. To what extent will people use renewable fuel standards, a low-carbon fuel standard? Will they be integrated with a more general GHG policy? I think the future of GHG policy will determine the details of biofuel policy. Moreover, we have, on the one hand, subsidization, regulation, as well as mandates of biofuel quantity.
  • A specific topic that relates to the environmental regulation of biofuel will be on understanding the indirect effects of biofuel and recognizing which ones are important quantitatively.
  • Finally is the issue of biofuel policies in Brazil and developing countries. Brazil has the potential to drastically increase the supply of biofuel by several times, but its potential has not been realized. What factors affect the supply of biofuel in Brazil and what type of policies can enhance the global utilization of biofuel that will be economically efficient and environmentally friendly. This will lead to investigation of North-South cooperation, biofuel contracting for production, etc.


3. What have we learned about the issues surrounding the economics of biofuels over this period - for example, is there anything that was once debatable now pretty well established or was something that was established now looked at quite differently?

Zilberman:

  • First-generation (using corn in the U.S. and sugarcane in Brazil) has become economically viable due to increased productivity and learning by doing. At the same time, biodiesel in Europe (soybean, rapeseed) and development of economically viable biodiesel is a challenge.
  • At least in the U.S., the biofuel policies worked in producing a viable first-generation industry. Continuing the mandates is important while subsidies for first-generation should stop (now that it is competitive) but a mandate and a subsidy for second-generation are needed.
  • Today the U.S. capacity to absorb new biofuel is limited by the blending walls as well as the limitations of the vehicle fleet. Revamping the blend wall and introducing policies to encourage flex fuel vehicles are needed.  
  • Indirect land use effect of biofuel is positive but much less significant than earlier. It is much less for corn than for soybean. They are also very uncertain. There are also other types of indirect effect. Introducing indirect effect of biofuel regulation is questionable and will be subject to continuous debate.
  • Brazil has a huge potential for biofuel that is under-utilized for policy reasons. One avenue to increase the scale of biofuel is to develop policies and agreements that will allow taking advantage of the areas where biofuel crops can be produced without much environmental damage.


4. Anything you wish to add?

Zilberman:

Finally, I think that policies and regulations have been the largest constraint for the development of biofuel as anything. With smart policies, biofuel can reduce our dependence on fossil fuels, improve environmental quality, and be a mechanism to improve the well being of the farm sector as well as developing countries. First-generation, especially sugar cane is far from reaching its limits and I am encouraged by what I’m seeing of second-generation as we move for sustainable and renewable fuels.


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