Released September 6, 2012
By Larry Martin, Principal of Dr. Larry Martin & Associates, Senior Fellow at the George Morris Centre, and a member of the Research Advisory Committee of the Macdonald-Laurier Institute
We pump bio-fuels into our cars, they have an effect on the price of the food on our tables, and their production takes up a sizable proportion of industry. Yet in North America and Europe, it is unlikely the bio-fuel industry would exist without government encouragement. Governments mandate that a minimum portion of fuel must be produced from non-traditional sources, then subsidize their use and protect the market with import tariffs. The mandates for ethanol are currently at least 10 percent of gasoline production in the United States and 5 percent in Canada.
Bio-fuels include ethanol and bio-diesel. In North America, ethanol is mainly produced from corn, with a small amount produced from wheat. It is also made from sugar in countries such as Brazil. Sugar is far more energy efficient than the starch in grains. Bio-diesel is commonly made from rapeseed oil in Europe and from recycled oils in North America.
Most of the growth in North American biofuels has occurred since 2005 following the establishment of product mandates, subsidies, and rising energy prices. In the most recent crop year, over 40 percent of the historically second-largest US corn crop was used for ethanol production. Canada uses roughly 30 percent of its corn production and 4 percent of its wheat to produce ethanol, although this is complicated by the fact that Canada tends to be a net importer of corn.
In recent years, roughly 45 percent of world rapeseedii production was used to produce bio-diesel, mainly in the European Union.
Using grain to produce biofuels continues to be controversial, especially after this summer’s drought in the North American corn belt. This paper is provided as a background on a number of issues surrounding the production and use of bio-fuels in North America, including energy and environmental efficiency, the limits to bio-fuel’s energy contribution, its effect on food prices, and a proposed alternative source of ethanol.