March 2010

Ethanol plant in West Burlington, Iowa. Photo: Steven Vaughn.

Do you think biofuel production is sustainable?

Ugarte: No, not currently. Biofuels do not grow as stand-alone products or grow within isolated soil. Biofuels are developed from the agricultural resources that we have and use now. Unfortunately, agricultural production emits greenhouse gases that contribute to global warming.¹ When you combine emissions data from agriculture with the amount of greenhouse gases produced by other sectors, the total figure is substantial.² Even if we improve the environmental performance of agricultural production, we are not addressing the problem of how we currently use agricultural resources. So, we cannot claim that biofuels developed within the current agricultural sector can truly become a sustainable activity.

If we improve the agricultural system, can biofuels become sustainable?

Ugarte: Definitely. I think that it is important to understand that biofuels do not have to be the goal of production, but rather, a means to a goal. An important question to ask ourselves is: how can we use biofuels to improve the overall environmental, social, and economic performance of the agricultural sector? If we try to understand this issue holistically, we will find that as we improve the environmental performance of agricultural activity, as we put value into environmental goods, we will see a significant improvement in the environmental performance of biofuels. I think the two components—agricultural sector development and biofuel production—can support each other because biofuel growth will result in a demand for agricultural resources.

This demand for agricultural resources is going to generate higher price levels, and these prices are probably going to be high enough to bring new investment into agriculture. We do not know the type of investment it will bring, however. Will this investment replicate the same model of industrial agriculture that we now have? Or rather, will this investment transform the way we: grow crops, use agricultural land and landscape, use forestland, and, even the way we eat? I think that if we look at the issue through this lens, biofuels could become an instrument of change—even if there is an environmental cost to pay for it in the short term.

How significant is the connection between biofuel prices and agricultural practices?

Ugarte: There is no question about the danger of high prices. The other danger is the potential cost to the environment if we were to continue down the current path, that is, to increase the use of biofuels significantly without environmental concerns. We are already seeing an environmental impact that suggests biofuel expansion may be increasing. We are not putting enough attention to the role of biofuels in addressing not only energy, but also global environmental and the challenges of poverty elimination.

As for higher prices, there are positives and negatives: the positive side is that biofuel production can initiate new investment in agriculture. If that investment results in improved environmental performance and improved infrastructure so that farmers can have access to a share of the agricultural price of the food bill—the changes are positive.

On the negative side, however, higher agricultural prices, if not controlled, could result in very damaging social impacts.³ This is not only because the price of food could increase beyond what should be acceptable, but also because in many countries, those higher prices are going to challenge environmental incentives, such as:

• Environmentally sensitive land, such as the tropical forest that might become agricultural land.
• Large-scale farming might expand to the detriment of smaller farms.
• Land grabbing might become appealing.

We have seen a rise in land grabbing in the last couple of years, [that is,] when countries or global corporations lease or buy huge tracts of land in developing countries for their own agricultural use.⁴ These purchases could be seen as a positive endeavor because they might bring investment to an impoverished area. We would have to wonder, however, where the products from those acres would go during an agricultural crisis.

• Will the crops feed the country that grows them?
• Will the crops be taken automatically to feed the country that owns the land?
• Alternatively, perhaps, will the food go to a corporation’s shareholders that own the land?

What are the pros and cons of a corporate-run biofuel industry?

Ugarte: There are parallels to the food system when it comes to pros and cons: if biofuel expansion is not regulated appropriately, we could be facing a disaster because the potential energy demand is tremendous. Just imagine a scenario, in which oil prices return to what we saw recently—70, 80, 90, or $120 [USD per barrel]; this state would automatically create a huge demand for ethanol because at such high prices, almost any ethanol would be profitable. Without proper regulation for expansion, in terms of what type of land is used and with regard to the trading price, we could end up with more disadvantages rather than advantages.

To explain further, the problem here is that regulators tend to try to establish policy once a disaster has happened. Because we know in advance, however, that there is a real possibility that this energy demand could happen, regulators should anticipate this problem. Those with influence should use biofuels as an instrument of change—with the goal of allocating agricultural resources to the production of biofuels in a way that not only benefits the producers but also helps nations to transition to a new agricultural system—without overburdening the consumer. We will have to accept the fact that corporations may have to take a leading role in this; nonetheless, consumers and regulators should have a say in the role they should play.

Are there economic impacts on industries not directly connected to biofuel production?

Ugarte: If you own livestock, or you are a rancher, biofuel production may be a negative for you. If you work in the health industry, biofuel production may be a positive for you. It depends on where you are sitting whether a more expensive animal or livestock sector, which produces a more expensive meat, is a plus or a minus. Moreover, if it is a minus for ranchers, perhaps the government, the state, or the system should create an opportunity for those ranchers affected to adjust to a new way of livestock farming.

On the other hand, we should understand that a continuous increase in the consumption of meat in our diet has many health consequences. By getting our protein not just from animals but other sources as well, we could reduce not only our environmental costs, but also our health costs. In addition, we would decrease labor hours lost at work if we are healthier. We rarely consider such things as positive returns on investment because the results are not immediate—it can take from three to seven years to see a sustained change.

Economically, do you find that the advantages and disadvantages are the same no matter what the crop?

Switchgrass, Panicum virgatum, is a perennial grass native to North America. Ethanol production using switchgrass depends on development of technology. Photo: Wikimedia Commons.

Ugarte: No. If you target corn or soybean for production, it will benefit the producers of that crop mainly. However, if you open up the competition to include what is called cellulosic crops like switchgrass [i.e., a grass (Panicum virgatum) native to North America used as rangeland forage and hay⁵], you expand the benefits of the agricultural sector beyond corn producers. Switchgrass can be planted in different types of soil, and this crop could replace cotton, hay, soybeans, or corn. By growing a variety of crops for biofuel production, corn producers would not lose out. Corn would become more valuable, and corn crops would experience a price increase.

The regulators’ focus should be on the big picture of the agricultural sector combined with a vision of the best direction for all of society. These important issues need to be debated publicly.

What is the bottom line on biofuel’s impact on society?

Ugarte: The bottom line is biofuels can play a positive role in:

• improving energy independence,
• our fight against poverty,
• the challenge of global food insecurity, and
• our goals to improve environmental performance.

For these things to happen, however, we have to have the right policies in place that will spur investments towards these goals. Without these crucial elements, the biofuel developers could end up reproducing the same system of agriculture, production, and consumption in the same way that has resulted in our current levels of world poverty, food insecurity, and inadequate environmental performance.⁶ So, the choice is ours. We have to have a clear vision of where we want to go and how to go there, as well as to recognize the role of biofuels. We can influence how biofuels figure into the grand scheme of things so that we improve the overall performance of the agricultural sector in terms of poverty alleviation, food security, and environmental performance.

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