OECD blasts biofuel subsidies

Governments need to scrap subsidies for biofuels as the current rush to support alternative energy sources will lead to surging food prices and the potential destruction of natural habitats, argues the OECD in a report leaked this week. The OECD argues that politicians are rigging the market in favour of an untried technology that will have only limited impact on climate change. [The writer is a member of the BBSRC Biofuels Panel but the views expressed here are entirely his own].

The survey says that biofuel would cut energy-related emissions by 3 per cent at most. The study estimates the US alone spends $7bn a year helping make ethanol, with each tonne of carbon dioxide avoided costing more than $500. In the EU it can be almost ten times as much.

There could also be negative environmental externalities. The report states, 'As long as environmental values are not adeuately priced in the market, there will be powerful incentives to replace natural eco-systems such as forests, wetlands and pasture with dedicated bio-energy crops.'

The survey puts a question mark over the EU's plan to derive 10 per cent of transport fuel from plants by 2020. It says money saved from subsidies phasing out should fund research into so-called second generation fuels, which are being developed to use waste products.

Not surprisingly, the NFU has sought to play down the impact on food prices. Their energy and climate change adviser Jonathan Scarlock said, 'The current high prices of commodities are more down to harvest problems in key exporting countries rather than the relatively small proportion going into biofuel production.' While the price of cereals may have doubled this year, the impact on the retail price of food is likely to be about 5 per cent. However, bread prices in the UK have already gone up more than that.

There is a certain amount of triumphalism among farmers' spokespersons at the moment about the fact that the era of cheap food is over. They point out that the proportion of income spent on food in advanced countries has fallen dramatically.

That's so, but many families with young children are on very tight budgets and with fuel prices going up and nursery fees high have little room to absorb food price increases. They may trade down in product quality. Also, supermarkets operating in a competitive environment will try to hold back prices.