Wednesday, April 23, 2008

The Environment Versus the Poor

In the wake of Earth Day, and in the run-up to the conference on energy dependence and aviation this Friday here at UPS, is the need to confront the stark truth that goods in the world are scarce and that attending to one concern often produces unintended consequences. Case in point: the mounting evidence that the production of biofuels is greatly contributing to rising food prices, food shortages, and even widening hunger and starvation in the developing world. According to the New York Times:

The food crisis is not only being felt among the poor but is also eroding the gains of the working and middle classes, sowing volatile levels of discontent and putting new pressures on fragile governments.

In Cairo, the military is being put to work baking bread as rising food prices threaten to become the spark that ignites wider anger at a repressive government. In Burkina Faso and other parts of sub-Saharan Africa, food riots are breaking out as never before. In reasonably prosperous Malaysia, the ruling coalition was nearly ousted by voters who cited food and fuel price increases as their main concerns.

“It’s the worst crisis of its kind in more than 30 years,” said Jeffrey D. Sachs, the economist and special adviser to the United Nations secretary general, Ban Ki-moon. “It’s a big deal and it’s obviously threatening a lot of governments. There are a number of governments on the ropes, and I think there’s more political fallout to come.”

Indeed, as it roils developing nations, the spike in commodity prices — the biggest since the Nixon administration — has pitted the globe’s poorer south against the relatively wealthy north, adding to demands for reform of rich nations’ farm and environmental policies. But experts say there are few quick fixes to a crisis tied to so many factors, from strong demand for food from emerging economies like China’s to rising oil prices to the diversion of food resources to make biofuels.

It's the last that is of particular concern as governments are encouraging and subsidizing the production of biofuels as a means of reducing emissions responsible for global warming. The problem is that government involvement is distorting the market, as subsidies for biofuels artificially change the market incentives to convert farm crops into biofuels and to replant cropland to produce grains for biofuel production. These decisions then raise the global price of food staples that, particularly in the developing world, contribute to food shortages, riots, and starvation. According to the International Food Policy Research Institute:

biofuel production accounts for a quarter to a third of the recent increase in global commodity prices. The Food and Agriculture Organization of the United Nations predicted late last year that biofuel production, assuming that current mandates continue, would increase food costs by 10 to 15 percent.

Of course, there are other factors contributing to the rising cost of food. Escalating oil prices raise the price of transport, burgeoning populations and improving economic conditionks have increased demand, and droughts and other disasters have destroyed production. But costs accruing from biofuel production are entirely within the ability of the developed world to control. Furthermore, there is little evidence that biofuels do, in fact, contribute positively to the regulation of global warming. According to a New York Times article from February 8, 2008, biolfuels may be more harmful to the environment that the fuels they replace.

Almost all biofuels used today cause more greenhouse gas emissions than conventional fuels if the full emissions costs of producing these ''green'' fuels are taken into account, two studies published Thursday have concluded.

The benefits of biofuels have come under increasing attack in recent months, as scientists took a closer look at the global environmental cost of their production. These latest studies, published only by the journal Science, are likely to add to the controversy. These studies for the first time take a detailed, comprehensive look at the emissions effects of the huge amount of natural land that is being converted to cropland globally to support biofuel development.

The destruction of natural ecosystems -- whether rain forests in the tropics or grasslands in South America -- not only releases greenhouse gases into the atmosphere when they are burned and plowed, but also deprives the planet of natural sponges to absorb carbon emissions. Cropland also absorbs far less carbon than the rain forests or even scrubland that it replaces.

Together the two studies offer sweeping conclusions: It does not matter if it is rain forest or scrubland that is cleared, the greenhouse gas contribution is significant. More important, they discovered that, globally, the production of almost all biofuels resulted, directly or indirectly, intentionally or not, in new land's being cleared for food or fuel.

''When you take this into account, most of the biofuel that people are using or planning to use would probably increase greenhouse gases substantially,'' said Timothy Searchinger, lead author of one of the studies and a researcher in environment and economics at Princeton.

So, if biofuels are actually harmful to the environment and contribute to hunger and starvation in the developing world, why would governments encourage their production? Because biofuels subsidies are politically popular. As pressure increases on the governments of the US, Europe, and Japan to lift the agricultural subsidies that undermine development, biofuels have emerged as a way to protect the politically important farm constituency without appearing to do so. But a market distortion is a market distortion. Even discounting the non-beneficial nature of biofuels, clearly if their production was left to the market, farmers would be producing food instead. That is reason enough for the governments of the developed world to stop subsidization and incentive programs.