A group of economists is contesting the flurry of research on biofuels' supposed dire unintended consequences: Evidence shows that modeling assumptions were off, they argue in a new paper with potential implications for U.S. energy policy.

Since 2005, various scholars have claimed that biofuels — derived from renewable biological sources such as plants or animal waste — meant to replace or offset fossil fuels would drive up food prices, create unnecessary waste, and increase greenhouse gas emissions by driving down global oil prices and encouraging farmers to increase their farmlands, thus harming ecosystems. But this paper, published in Review of Environmental Economics and Policy on March 11, says more recent research and observable data have shown the grim academic portension was greatly overstated.

"What this paper was trying to do is to separate out what the initial negative hype about biofuels was, and how that has been proven to not be accurate with the data and evidence," said Madhu Khanna, a professor of environmental economics at the University of Illinois, Urbana-Champaign and the lead author of the paper. "In terms of our overall consumption of gasoline, a large percentage of cars in the U.S. are gasoline-based. If we really want to wean ourselves away, we have to find a solution to finding an alternative to gasoline." Biofuels, she said, can still be part of that solution.

When oil prices increased significantly between 2005 and 2007, the federal government passed legislation to increase production of biofuels, using targets and subsidies. As the authors point out, demand for corn exceeded supply capacity, increasing prices in the the short term — and setting off academic alarm bells for the future of a food crop that was also a fuel crop.

But those warnings were overblown, the researchers argue. Many of those predictions failed to account for increased investments in research and growth in crop productivity that would follow the rise in corn prices. As the empirical evidence shows, Khanna told The Academic Times, "Our crop prices are at 2007 levels. … Yes, there was an initial increase in crop prices, and some expansion in land, but since then, yields have gone up, and models have improved, and so, estimates of the actual impact that could be attributed to corn ethanol has gone down quite a bit."

In a study published in 2019 in Energy Economics — co-authored by David Zilberman, who is also one of Khanna's co-authors — researchers found that biofuel prices had an outsize impact on food prices during the food-price crisis that began in 2007. In that study, U.S. ethanol price changes did not have much effect on agricultural price changes before the crisis began, but ethanol price variability explained 15% of volatility during the crisis. 

Furthermore, some economists did not account for the fact that farmers can change crops or grow more than one crop each year; they can also sell corn protein leftover from ethanol production as animal feed. When these coproducts were left out of models, estimates of both land use change and life cycle carbon intensity were inflated. As corn ethanol production ramped up, "there was not enough data available — the standard agricultural models were being adapted very quickly to address this question," Khanna said. "They were getting this huge land-use change effect, because they were underestimating the potential for farmers to increase yields on their existing land."

Likewise, the predicted life cycle carbon intensity of corn ethanol varied substantially depending on a host of factors and, in a model setting, assumptions. According to a 2007 article in Environmental Research Letters, the type of fuel used in producing and processing ethanol, as well as whether livestock eat coproducts when they're dry or wet, causes huge swings in carbon emissions. When the ethanol is produced using coal energy, the authors showed the life cycle carbon intensity is slightly worse than that of gasoline; when the ethanol was produced using natural gas, and livestock ate the coproducts wet, the life cycle carbon intensity was almost 40% lower than gasoline. 

Not many cars are flex-fuel cars that can run on a fuel blend that contains more than 10% ethanol, which holds this biofuel back in the U.S. Still, most gasoline sold in the country contains some ethanol, and the U.S. Energy Information Administration says that about 10% of the total volume of gasoline consumption is ethanol. 

The earlier, flawed predictions of biofuels hurt their reputation, Khanna said. "There was uncertainty about what the benefits were, and that certainly shaped the early public perception about biofuels and fed into the view that critics had that we should not be devoting crops to produce fuel," she explained. 

But, Khanna and her co-authors argue, the evidence shows those predictions have not borne out. Moreover, "Biofuels, particularly second-generation biofuels, have considerable potential to reduce [greenhouse gas] emissions from the transportation sector," they wrote.

The study, "Lessons Learned from US Experience with Biofuels: Comparing the Hype with the Evidence," published March 11 in Review of Environmental Economics and Policy, was authored by Madhu Khanna, University of Illinois, Urbana-Champaign; Deepak Rajagopal, University of California, Los Angeles; and David Zilberman, University of California, Berkeley.