Biofuel targets may risk fuel supply
Published: 03/04/2010, 12:06:26 PM
Today's biofuels targets risk causing another oil supply crunch in the middle of this decade, a key report for the international energy ministers' meeting in Mexico this month has warned, according to the Financial Times.
The report, which will be a central topic for discussion at the summit, says there is an "urgent need" to review existing biofuel policies. It says targets to boost the use of biofuels create uncertainty over future oil demand, and so ran the risk of prompting oil-producing countries to cut investments in projects needed to ensure sufficient oil supply once the world emerges from recession.
"Oil-producing countries ... are justified in being cautious in making new investments in new production capacity if there is a risk that energy security and climate change policies in consuming countries could destroy the corresponding demand," says the report, which was written by a former head of OPEC, the oil producers' cartel, and a former head of the International Energy Agency, the oil-consuming countries' watchdog.
New targets for more advanced forms of biofuel should be considered only after careful evaluation of their long-term sustainability, the report states.
"Setting strong and ambitious targets before ensuring sustainability, as has been the case for most first-generation biofuels, adds to uncertainty of supply, which could increase market volatility in the medium term. This in turn would increase energy security risk rather than improve it," it says.
The main opposition to biofuels targets, such as the European Union's goal of their comprising 10% of all transport fuel by 2020, has come from those who argue biofuel production pushes food prices higher. However, such opposition generally does not encompass second-generation biofuels, which have smaller carbon footprints and use sources such as algae that do not compete with food.
Governments such as the US are providing financial backing for research into second-generation biofuels, but they are still not ready for commercial use.
Biofuels legislation ran into trouble two years ago when international organisations and national governments feared the boost in biofuels production was pushing food prices higher, especially in the developing world. EU targets came under review and plans to extend them were shelved.
The report is released as energy ministers prepare to meet at a summit of the biggest oil consuming and producing countries in Cancun, Mexico, at the end of this month. The International Energy Forum, created in 1991, is the highest level venue for dialogue between the two sides, whose past disagreements have led to oil shocks followed by global recessions.
Ministers last met in Rome in April 2008, when oil prices were moving towards their peak of US$147 a barrel, which they reached three months later. Since then prices have fallen back to US$70-US$80 a barrel.