Besides bad mouthing from environmental NGOs, biofuels are very often deemed too expensive for travelers and transporters to accept an increased contribution that would help reduce the carbon footprint of transport. Trust me, I have heard this argument so many times, for instance from airlines shying away from using non-mandated Sustainable Aviation Fuels (SAF).
Such a misconception must be vigorously challenged if we want biofuels to play their rightful transition role in the “greening” of transport. Looking to the past price fluctuations of oil products may help.
Except during the 1973 and 1979 oil shocks, the inflation-adjusted price for one barrel of crude oil mostly remained in the US$30-40 range until the 2000s, when the full extent of financial deregulation, initiated in the 1970s, culminated with Bill Clinton’s and Allan Greenspan’s blessing of the repeal of the Glass-Steagall Act.
Since then, the multiplication of financial players, commercial banks and hedge funds, and Gordon Gekko’s motto “greed is good”, have led to numerous trading stints, such as short-selling or panic buying, leading to an increased volatility for commodities, with swift boom-and-bust cycles, exacerbated by lemmings-style rumors and anticipations, further enhanced by artificial intelligence (AI) trading today.
Make no mistake, commodities markets that have existed since the 19th century, like the Chicago Board of Trade (CBOT), are useful to balance supply and demand, but one can legitimately question why the crude oil price would drop by a factor of 8, from US$160 to 20 per barrel in the past decade when demand volume always exceeded supply by a safe 2% on average. This translated to some 1.5 million barrels per day, the equivalent of the consumption of a top 10 Western economy like France.
Sure, geopolitical concerns have been many since the 2008 financial crisis: oil-rich Middle East conflicts and unrests in Libya, Syria or Iraq, the Iran nuclear program crisis, China GDP growth hiccups, the fracking surge, you name it. Other commodities have also suffered major setbacks that were climate-related: cereals or sugar, for instance, and yet volatility has been less marked for those. During the past decade, corn prices went as high as US$6-8 per bushel before 2014, and dropped to US$3-4 per bushel for the rest of the period, a factor of 2.
This long development to explain why the U.S. motorist has had to face a roller-coaster of prices at the pump, at a high US$4 for a gallon of regular in July 2008, to a low of US$1.60 in February 2015. Taxes acted as a damper: on average US$3.2 per gallon in 2011-2013, US$2.2 in 2015-2017, after the oil bust of 2014. But it takes more than price fluctuations to stop the relentless growth in road travel in the USA: 20 % higher in 2019, compared to 2008, the year of the financial crisis, measured in passenger-miles for light duty vehicles.
And as we will rely on the internal combustion engine and its liquid fuel, petrol or diesel, for the foreseeable future, before we trade king oil for king electricity as our main worry, after the 2040s in my opinion, we can, at least, try to visualize the financial consequences of raising the ethanol content of petrol from the present 10% (E10) to 30% (E30), a level considered in many scenario analysis as a strong possibility in 2050, mixing first generation and advanced, with a combination of higher blends, such as E15-E20, and E85 for flex-fuel vehicles (FFVs).
Using the CBOT future price of ethanol up to 2030, US$1.7 per gallon, benefiting from a tax break as regulatory support for renewables, increasing the ethanol content from 10 to 30% could actually reduce the price of petrol at the pump. Even if only advanced biofuels, like cellulosic ethanol, make up the jump from 10 to 30%, with a price that would be double of corn-based ethanol, petrol would only increase by less than half a dollar, twice less than variations observed in the previous decade, as described above.
And 200 million tons of CO2 would not be emitted every year, assuming cellulosic ethanol emits 80% less than fossil-based gasoline, no small beer in the struggle to curb GHG emissions and limit the consequences of global warming. So why wait? We can buy us some more time to adapt to this brave new world we are promised and history shows we can afford it.
Philippe Marchand is a Bioenergy Steering Committee Member of the European Technology and Innovation Platform (ETIP) and recently retired from TOTAL where he served as Senior Biofuels Expert.