Wednesday, February 20, 2013

Fallow on biofuels

Writing in the Herald, Brian Fallow examines the recent Greenpeace The Future is Here reports' claims on biofuels. The short version? The potential definitely exists - but getting there is problematic.

All in all, a daunting concatenation of commercial risks faces any potential investor in a biorefinery reliant on the harvest from the existing plantation forest estate.

It would be a struggle to muster enough private capital with a hearty enough risk appetite.

And would a future government be able to step out of the long, dark shadow of Think Big to put that much public money at risk?

But the solution to this problem isn't a simple choice between "leave it to the market" (which won't take such a risk) and "get the government to do it". There are policy options between total laissez faire and state control. And in this case in particular, we've already seen a good solution, in the form of Labour's (now repealed) biofuels obligation. This significantly reduces the risk to business by providing them with a guaranteed domestic market for their product. They still have to produce it cheaply enough to compete with imported biofuels - but one of the big variables, oil prices, basically drops out of the equation.

We've seen under National that subsidies and grants aren't enough. If we want to make this switch, we need to create a market. A biofuels obligation lets us do this, and gradually build our way to cleaner energy and energy independence.