Monday, December 28, 2009

EU Green Protectionism = Economic Madness

Click to enlarge.
Some excerpts from the new study "Green Protectionism in the European Union: How Europe’s Biofuels Policy and the Renewable Energy Directive Violate WTO Commitments" from the European Center for International Political Economy:

Biofuels production in Europe is heavily subsidized. Support has also been increasing in the past years and today stand at approximately EUR4 billion ($5.76B). Another way to look at subsidies is that every litre of ethanol consumed in Europe gets 0.74 EUR (about $4 per gallon) and every litre of biodiesel 0.5 EUR ($2.72 per gallon). The effective rate of assistance to biofuels (taking account of all measures of support) adds up to more than 250% for ethanol (see chart above). Biodiesel, and especially rapeseed crops, have lower effective rates of assistance (up to approximately 60%).

This structure of support and protection is not economically sustainable. It is rather close to economic madness to pursue the sort of self-sufficiency or industrial policy ambitions that have guided EU policy towards biofuels. The total cost of every unit of biofuel becomes far too high, which slows down the readiness to shift away from fossil fuels.

The biofuels policy in the European Union is a classic example of “green protectionism” – protectionism that is not motivated for the benefit of the environment, but which uses environmental concerns to pursue non-environmental objectives. The European Union runs an extensive policy for subsidies to biofuel production. Border protection increases the level of subsidy by giving a market support from consumers to producers. Standards are used to favour domestically produced biofuels. It is difficult to escape the picture of a policy driven by industrial ambitions rather than environmental concerns. The intention and/or the effect of Europe’s policy is associated with beliefs of self-sufficiency. Obviously, trade is not considered to be an integral part of an environmental ambition to shift from fossil fuels to biofuels.

A serious policy to move towards an increased share of biofuels in Europe’s energy mix needs to reconsider the role of trade in achieving this ambition. A shift dependent on domestic production would increase the welfare cost: expensive local biofuels are favored; cheaper foreign biofuels are restricted. Such a policy borders on economic madness; Europe simply does not have the resources to finance all the domestic production needed. Nor does it have comparative or competitive advantages in producing biofuels.

11 Comments:

At 12/28/2009 10:15 AM, Anonymous Lyle said...

Consider this a continuation of the common ag policy of the EU, instead of mountains of butter we get gallons of biodiesel. Same motivations as ethanol in the US, to benfit the farmers, who punch much above their population weight class in both areas.
Actually the farm subsidy business is as old as the hills, recall the UK's corn laws which were land owner protective acts to keep the price of wheat in the UK high. Started under the first Elizabeth I believe.

 
At 12/28/2009 10:26 AM, Blogger bob wright said...

Meanwhile, the eco-oligarchy seeks to circumvent the democratic process and impose their agenda via judicial fiat.

This isn't representative democracy. This is judicial tyranny.

 
At 12/28/2009 10:35 AM, Anonymous morganovich said...

as written, the US cap and trade bill would rapidly become the largest farm bill ever.

i have a deep suspicion that carbon is being used as a smokescreen to provide massive agricultural subsides masquerading as environmental policy which will allow the old ones to be phased out to gain concessions from the developing world in the next trade round.

 
At 12/28/2009 11:09 AM, Blogger QT said...

Bob,

Very interesting reading. Looks like Charles Krauthammer is pretty much on the money.

 
At 12/28/2009 11:23 AM, Anonymous morganovich said...

bob-

in a perverse way, such lawsuits might be a good thing. courts have standards of evidence and proof. thus far, every time the "settled science" of AGW has been evaluated in such a setting, it has collapsed.

perhaps we can set a a good precedent.

this is especially true with hurricanes where overall global cyclonic intensity has been dropping for years.

http://www.climate-skeptic.com/2008/07/no-detectable-h.html

 
At 12/28/2009 12:42 PM, Blogger randian said...

Green protectionism = classic mercantilism

 
At 12/28/2009 2:33 PM, Blogger bob wright said...

QT:
Thanks for the link. Good stuff.

 
At 12/28/2009 2:39 PM, Blogger bob wright said...

Morganovich:

I think you give the men and women appointed as judges - people no smarter, wiser, or insightful than you and I - way too much credit.

"Hoping judges do the right thing" is a strategy that hasn't worked out so well in the past.

 
At 12/29/2009 1:54 AM, Blogger Michael said...

Not to be a nit picker but I think the Euro conversions are incorrect. Still a significant subsidy.

 
At 12/29/2009 7:50 AM, Blogger Mark J. Perry said...

Michael: I checked the euro conversions to dollars, and I think they are correct, using the ex-rate of $1.44 per euro and 3.78 liters per gallon. What values do you suggest are correct?

Thanks,

Mark

 
At 12/29/2009 11:31 AM, Blogger Michael said...

Thats what I get for making a comment later in the evening! :) Your right I missed the liters. $4 a gallon!! They should be getting "free" ethanol for their cars. Crazy.

 

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