Bookmark and Share

Biofuel, Economics, and Society

Daniel De La Torre Ugarte


Biofuels may be an important economic contributor in the coming decades. Proper biofuel management can:

  • provide economical, more environmentally friendly fuel worldwide;
  • decrease world poverty;
  • decrease food insecurity; and
  • increase the environmental performance of the agricultural sector.

March 2010


Ethanol plant in West Burlington, Iowa. Photo: Steven Vaughn.

Do you think biofuel production is sustainable?

Biofuel sustainability depends on agricultural improvements.

Ugarte: No, not currently. Biofuels do not grow as stand-alone products or grow within isolated soil. Biofuels are developed from the agricultural resources that we have and use now. Unfortunately, agricultural production emits greenhouse gases that contribute to global warming.1 When you combine emissions data from agriculture with the amount of greenhouse gases produced by other sectors, the total figure is substantial.2 Even if we improve the environmental performance of agricultural production, we are not addressing the problem of how we currently use agricultural resources. So, we cannot claim that biofuels developed within the current agricultural sector can truly become a sustainable activity.

If we improve the agricultural system, can biofuels become sustainable?

Biofuels are a means to a goal.

Ugarte: Definitely. I think that it is important to understand that biofuels do not have to be the goal of production, but rather, a means to a goal. An important question to ask ourselves is: how can we use biofuels to improve the overall environmental, social, and economic performance of the agricultural sector? If we try to understand this issue holistically, we will find that as we improve the environmental performance of agricultural activity, as we put value into environmental goods, we will see a significant improvement in the environmental performance of biofuels. I think the two components—agricultural sector development and biofuel production—can support each other because biofuel growth will result in a demand for agricultural resources.

Biofuels can be an instrument of change.

This demand for agricultural resources is going to generate higher price levels, and these prices are probably going to be high enough to bring new investment into agriculture. We do not know the type of investment it will bring, however. Will this investment replicate the same model of industrial agriculture that we now have? Or rather, will this investment transform the way we: grow crops, use agricultural land and landscape, use forestland, and, even the way we eat? I think that if we look at the issue through this lens, biofuels could become an instrument of change—even if there is an environmental cost to pay for it in the short term.

How significant is the connection between biofuel prices and agricultural practices?

Higher prices have negative and positive impacts.

Ugarte: There is no question about the danger of high prices. The other danger is the potential cost to the environment if we were to continue down the current path, that is, to increase the use of biofuels significantly without environmental concerns. We are already seeing an environmental impact that suggests biofuel expansion may be increasing. We are not putting enough attention to the role of biofuels in addressing not only energy, but also global environmental and the challenges of poverty elimination.

As for higher prices, there are positives and negatives: the positive side is that biofuel production can initiate new investment in agriculture. If that investment results in improved environmental performance and improved infrastructure so that farmers can have access to a share of the agricultural price of the food bill—the changes are positive.

On the negative side, however, higher agricultural prices, if not controlled, could result in very damaging social impacts.3 This is not only because the price of food could increase beyond what should be acceptable, but also because in many countries, those higher prices are going to challenge environmental incentives, such as:

  • Environmentally sensitive land, such as the tropical forest that might become agricultural land.
  • Large-scale farming might expand to the detriment of smaller farms.
  • Land grabbing might become appealing.
Land grabbing for biofuel production could be detrimental.

We have seen a rise in land grabbing in the last couple of years, [that is,] when countries or global corporations lease or buy huge tracts of land in developing countries for their own agricultural use.4 These purchases could be seen as a positive endeavor because they might bring investment to an impoverished area. We would have to wonder, however, where the products from those acres would go during an agricultural crisis.

  • Will the crops feed the country that grows them?
  • Will the crops be taken automatically to feed the country that owns the land?
  • Alternatively, perhaps, will the food go to a corporation’s shareholders that own the land?

What are the pros and cons of a corporate-run biofuel industry?

Biofuel expansion needs better regulation.

Ugarte: There are parallels to the food system when it comes to pros and cons: if biofuel expansion is not regulated appropriately, we could be facing a disaster because the potential energy demand is tremendous. Just imagine a scenario, in which oil prices return to what we saw recently—70, 80, 90, or $120 [USD per barrel]; this state would automatically create a huge demand for ethanol because at such high prices, almost any ethanol would be profitable. Without proper regulation for expansion, in terms of what type of land is used and with regard to the trading price, we could end up with more disadvantages rather than advantages.

Consumers should play a role in energy policy.

To explain further, the problem here is that regulators tend to try to establish policy once a disaster has happened. Because we know in advance, however, that there is a real possibility that this energy demand could happen, regulators should anticipate this problem. Those with influence should use biofuels as an instrument of change—with the goal of allocating agricultural resources to the production of biofuels in a way that not only benefits the producers but also helps nations to transition to a new agricultural system—without overburdening the consumer. We will have to accept the fact that corporations may have to take a leading role in this; nonetheless, consumers and regulators should have a say in the role they should play.

Are there economic impacts on industries not directly connected to biofuel production?

Livestock farming is affected by energy crops.

Ugarte: If you own livestock, or you are a rancher, biofuel production may be a negative for you. If you work in the health industry, biofuel production may be a positive for you. It depends on where you are sitting whether a more expensive animal or livestock sector, which produces a more expensive meat, is a plus or a minus. Moreover, if it is a minus for ranchers, perhaps the government, the state, or the system should create an opportunity for those ranchers affected to adjust to a new way of livestock farming.

On the other hand, we should understand that a continuous increase in the consumption of meat in our diet has many health consequences. By getting our protein not just from animals but other sources as well, we could reduce not only our environmental costs, but also our health costs. In addition, we would decrease labor hours lost at work if we are healthier. We rarely consider such things as positive returns on investment because the results are not immediate—it can take from three to seven years to see a sustained change.

Economically, do you find that the advantages and disadvantages are the same no matter what the crop?


Switchgrass, Panicum virgatum, is a perennial grass native to North America. Ethanol production using switchgrass depends on development of technology. Photo: Wikimedia Commons.

Competition in energy crop farming is good.

Ugarte: No. If you target corn or soybean for production, it will benefit the producers of that crop mainly. However, if you open up the competition to include what is called cellulosic crops like switchgrass [i.e., a grass (Panicum virgatum) native to North America used as rangeland forage and hay5], you expand the benefits of the agricultural sector beyond corn producers. Switchgrass can be planted in different types of soil, and this crop could replace cotton, hay, soybeans, or corn. By growing a variety of crops for biofuel production, corn producers would not lose out. Corn would become more valuable, and corn crops would experience a price increase.

The regulators’ focus should be on the big picture of the agricultural sector combined with a vision of the best direction for all of society. These important issues need to be debated publicly.

What is the bottom line on biofuel’s impact on society?

Ugarte: The bottom line is biofuels can play a positive role in:

  • improving energy independence,
  • our fight against poverty,
  • the challenge of global food insecurity, and
  • our goals to improve environmental performance.
Good agricultural practices lead to food security.

For these things to happen, however, we have to have the right policies in place that will spur investments towards these goals. Without these crucial elements, the biofuel developers could end up reproducing the same system of agriculture, production, and consumption in the same way that has resulted in our current levels of world poverty, food insecurity, and inadequate environmental performance.6 So, the choice is ours. We have to have a clear vision of where we want to go and how to go there, as well as to recognize the role of biofuels. We can influence how biofuels figure into the grand scheme of things so that we improve the overall performance of the agricultural sector in terms of poverty alleviation, food security, and environmental performance.

Daniel De La Torre Ugarte, Ph.D., is an Associate Professor at the Department of Agricultural Economics of the University of Tennessee; he is also the Associate Director of the Agricultural Policy Analysis Center. Originally from Peru, where he received his degree in economics, Dr. Ugarte came to the United States to complete his Ph.D. in agricultural economics at Oklahoma State University in 1992. Ugarte focuses on the analysis of U.S. agricultural policy and the synergism between agricultural and energy policy. He also studies the international impacts of U.S. agricultural policy, and the consequences of trade liberalization, on agriculture. Ugarte was interviewed at the AIBS annual meeting in May 2009.,

Biofuel, Economics, and Society

ActionBioscience Articles

BioScience Articles

  • » Effects of US Maize Ethanol on Global Land Use and Greenhouse Gas Emissions: Estimating Market-mediated Responses
    In the March 2010 issue of BioScience, researchers present a sophisticated new analysis of the effects of boosting use of maize-derived ethanol on greenhouse gas emissions. Read the abstract or purchase the full article.
  • » Decrypting Biofuel Scenarios
    Steve Nash gives an overview of the hopes and potential pitfalls of adopting biofuels worldwide. (June 2007), Free to read.
  • » Ecology in Times of Scarcity
    John W. Day Jr. and colleagues assert (April 2009), “In an energy-scarce future, ecosystem services will become more important in supporting the human economy.” Read the abstract, or log in to purchase the full article.
  • » Bioenergy and Wildlife: Threats and Opportunities for Grassland Conservation
    Joseph E. Fargione and colleagues (October 2009) present a basis for assessing the impacts of biofuels on wildlife and use this framework to evaluate the impacts of existing and emerging biofuels feedstocks on grassland wildlife. Read the abstract, or log in to purchase the full article.

Read more from Dr. Daniel De La Torre Ugarte

Alternatives to Corn-based Biofuels

Biofuel Issues

Although in the end most scientists believe that biofuel will benefit our planet, there are some relatively short-term costs for the development of this global resource:

  • » Biofuels Threaten Food Security
    A study commissioned by the OPEC Fund for International Development (OFID) and prepared by the International Institute for Applied Systems Analysis (IIASA) concludes that the use of first-generation biofuels will increase food insecurity in the world’s poorest countries and is unlikely to deliver any significant greenhouse gas mitigation benefit for at least 30 years.

  • » Indirect Land Use Change (ILUC)
    According to the Minnesota Farmers Union, Indirect land use change theory uses speculative models and incorrect assumptions in an attempt to blame American farmers for deforestation in [countries like] Brazil. According to the theory, corn used for ethanol displaces other crops, like soybeans. This in turn, causes farmers in other countries, such as Brazil, to cut down rainforests to grow soybeans and fill the demand.

  • » Agrofuel is Not Currently “Green”
    Today’s agrofuel industry is a different breed from the small farmers who produce biofuels responsibly and local biodiesel collectives that recycle spent cooking oil. Agribusiness, oil, energy, and auto companies are rapidly consolidating control over the entire agrofuel sector.

4-H National Science Experiment—Biofuel Blast

Learn more about this experiment, as well as how you can get involved. Visit the National Youth Science Day site and search the Experiment Archives for “2009: Biofuel Blast”

The Energy Action Coalition

Get involved in this youth organization’s campaigns. The 2012 campaign, People Power 2012, gives young people an opportunity to work toward a clean energy economy by volunteering hours to stand up to Big Polluters.

Rainforest Action Network

This group believes that the agrofuel industry is leaving behind the small crop farmer and ignoring protecting the environment. The Network offers several ways to get involved for those who think likewise.

National Sustainable Agriculture Coalition

The NSAC is the leading voice for sustainable agriculture in the USA federal policy arena, joining together the voices of grassroots farm, food, conservation, and rural organizations from all regions of the country to advocate for federal policies and programs supporting the long-term economic, social, and environmental sustainability of agriculture, natural resources, and rural communities.

Biofuel for Kids

Check out these cool sites where kids can learn all about biofuel, as well as participate in online activities:

Lesson: Energy Source Roll (Grades 4–7)

Overview: Students unroll a ball of cloth to reveal objects representing various energy sources. As each object is revealed, students use clues from a set of energy source posters (provided) to help identify the energy source that it represents.

Biomass Activities (high school)

These lessons address alternative energy, specifically biomass. From the South Carolina Farm Bureau Ag in the Classroom.

  1. Jenifer Wightman. Production and Mitigation of Greenhouse Gases in Agriculture. (accessed March 11, 2010).
  2. USEPA. 2009 U.S. Greenhouse Gas Inventory Report, 2009. (accessed January 10, 2010).
  3. Altieri, M.A. and E. Bravo. 2007. The ecological and social tragedy of crop-based biofuel production in the Americas. (accessed December 10, 2009).
  4. Severson, K. 2008. Some good news on food prices. New York Times. (accessed January 10, 2009).
  5. Switchgrass definition. 2009. (accessed January 10, 2010).
  6. For more about U.S. biofuel policy issues see: de Gorger, H. and D.R. Just. 2009. Why Sustainability Standards for Biofuel Production Make Little Economic Sense. Washington, DC: Cato Institute. (accessed January 10, 2010).


Understanding Science