The Economics of Electric Cars and Biofuels


An electric car or battery electric car is simply defined as an automobile that is propelled by one or more electric motors, using energy stored in batteries. Compared to internal combustion engine (ICE) vehicles, electric cars are quieter, have no exhaust emissions, and lower emissions overall. In the United States and the European Union, as of 2020, the total cost of ownership of recent electric vehicles is cheaper than that of equivalent ICE cars, due to lower fueling and maintenance costs. Charging an electric car can be done at a variety of charging stations; these charging stations can be installed in both houses and public areas.
According the International Energy Agency, out of all cars sold in 2020, 4.6% were plug-in electric, and by the end of that year there were more than 10 million plug-in electric cars on the world’s roads. Despite rapid growth, only about 1% of cars on the world’s roads were fully electric and plug-in hybrid cars by the end of 2020. Many countries have established government incentives for plug-in electric vehicles, tax credits, subsidies, and other non-monetary incentives while several countries have legislated to phase-out sales of fossil fuel cars, to reduce air pollution and limit climate change.
The International Energy Agency further indicates that the Tesla Model 3 became the world’s all-time best-selling electric car in early 2020, and in June 2021, became the first electric car to pass 1 million global sales. Earlier models with widespread adoption include the Japanese Mitsubishi i-MiEV and the Nissan Leaf. The United States, the European Union, China and General Motors want to make battery-powered electric cars the champion of motorists worldwide. At the same time, United States and European agricultural interests and investors are pouring serious money into biofuels that go into cars and trucks running on liquid fuels. The billion-dollar question is whether they can both be right about the future of transportation. The answer may not be as simple as it seems.
Right now, electric cars clearly have the momentum and the “inevitability” narrative on their side. The Biden administration’s ambitious infrastructure proposal sets aside $174 billion to subsidize electric cars, but little for biofuels. As Bloomberg News has reported, Europe is taking unprecedented steps to phase out gasoline and diesel cars and “bring an end to the almost 150-year-long era of the internal combustion engine.” The United Kingdom has imposed a 2030 ban on the sale of cars lacking a plug, and Germany has extended for four years its subsidies for electric vehicles. China plans to produce 8 million of the vehicles by 2028.
Dr. Robert Duran of Norwich University stressed that the biofuels cause isn’t helped by a legacy of controversy and environmental opposition. This dates back to early concerns about the value of agricultural fuels in abating greenhouse gases, as well as worries about their impact on food prices and fragile ecosystems. That makes it easy to dismiss the idea of pursuing two paths forward as a waste of time and resources. Others suggest this is another sorry example of the schizophrenic policies that we end up with when politicians shy away from choosing between powerful interests, in this case farmers and environmentalists.
But with liquid fuels powering 1.3 billion vehicles around the world now, a “both of the above” approach makes sense. Graham Noyes, Executive Director of the Low Carbon Fuels Coalition noted that a strategy of skipping biofuels and electrifying everything means choosing to use massive quantities of fossil fuels that emit the most toxic and carbon intensive emissions. That same logic explains why the $135 billion a year global biofuels industry is betting that new innovations and investments in efficiencies will not only widen their products’ climate advantage over fossil fuels. It also believes these investments will keep the industry competitive with zero emission vehicles deep into a coming age of electricity, and even beyond.
According to Graham Noyes, electricity out here is the new gold rush, but bright shiny objects aren’t going to get us to the promised land. Investors, corporations and farm-level bio-refineries have been backing that idea with their wallets. Last June 2021, for example, Raizen, an energy company based in Sao Paulo, Brazil, announced it would open a new 21 million gallon a year refinery converting sugarcane to ultra-low-carbon ethanol to cater to increasing demand for cellulosic biofuels. Toyota has been experimenting with a new “flex-fuel” Prius hybrid capable of using up to 100 percent very-low-carbon ethanol. This could result in a climate impact no greater than that of electric passenger cars that plug into dirty power grids in countries such as the United States or Brazil.
At the same time, a heartland biofuels industry that underpins the economies of hundreds of American farming communities is pinning its hopes on such things as a planned $2 billion dollar multi-state pipeline network. By some estimates, this could shrink bio-refineries’ carbon footprint by as much as 25%. The pipeline will capture carbon dioxide emitted during ethanol fermentation and bury it deep underground in North Dakota.
Ian Johnson, Secretary General of the Club of Rome stated that in California, the home state of Tesla and also the country’s largest fuel market, biofuels made from mundane agricultural products have been key in cutting the climate impact of transportation in the state by 7.5% since 2011. The unsung workhorses of this improvement include biofuels made from corn, soybeans, hog and beef fat, manure gases from dairies, and used cooking grease. Renewable diesel from “choice white grease” – the daintier name that traders use for pig fat – already powers some Amazon delivery trucks.
What is unclear is how a dual track to the future of transportation will play out in marketplaces and supply chains. In the United States, the outlines of a coming conflict have already begun to appear. “Ahead: Collapsing corn prices?,” a report recently commissioned by the Agricultural Retailers Association in which representing companies selling farm equipment, seeds and other inputs, predicts collapsing corn prices and farm revenues if the sale of new liquid-fueled passenger cars is banned, as California Governor Gavin Newsom has ordered starting in 2035. The 6 million member American Farm Bureau Federation has joined an alliance with the United States oil industry to fight federal and state electric car subsidies seen as discriminating against biofuels and farming communities.
But many in the United States biofuels industry believe that competition on a level playing field would be much better for the industry and the effort to curb climate change than a brawl in the courts and Congress. They support the expansion of commercial carbon markets, such as one in California, in which fuels and technologies are rewarded based on their contribution to greenhouse gas abatement, as determined by regulators using data and science. A newly-formed alliance of United States car companies argues that improved internal combustion engines will be needed for years. These will benefit from lower-carbon, high-octane liquid fuels, including renewables.


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