Can Big Oil make way for biofuels?

Can Big Oil make way for biofuels?
How the price of crude may shape the future of a low-carbon alternative

One low-carbon form of energy that could play a significant role in reducing planet-warming greenhouse gas emissions is biomass, which can be converted to biofuels, bioelectricity and bioheat. Just how significant that role will be in the coming decades will depend largely on bioenergy’s cost-competitiveness and policies designed to incentivize bioenergy use. A key determinant of bioenergy’s share of the energy market is the price of crude oil. On first glance, it seems intuitive that the higher the oil price, the more opportunity for bioenergy to break through. But will this always be the case?

Not necessarily, concludes a new study by researchers at the MIT Joint Program on the Science and Policy of Global Change that takes a closer look at the influence of oil price on the penetration of bioenergy, greenhouse gas emissions (GHGs) and land use. The MIT study shows that under certain conditions, a higher oil price can lead to lower bioenergy production—and less deforestation to clear land for the cultivation of bioenergy crops.

To arrive at these and other findings, the researchers used the MIT Economic Projection and Policy Analysis (EPPA) model, a global economy-wide computable general equilibrium model with detailed representation of bioenergy and land-use change. They ran EPPA to simulate the impact of different oil prices on bioenergy production, GHG emissions and land use from 2015 to 2050, modeling four scenarios under no climate policy or a rising carbon price. In the first scenario, the reference oil price rises four percent annually from about $75 (in 2010 dollars) a barrel in 2015 to about $124/barrel in 2050, based on projections of available resources, technological progress and energy demand. In the other three, the reference oil price is held constant at $50, $75 or $100, each fixed price based on continually adjusting the quantity of oil resources throughout the simulation period.

As expected, the simulations showed that as a general rule, higher oil prices lead to more biofuel production and lower GHG emissions. But they also produced some counterintuitive results.

First, if the use of biofuels is driven by mandates of total fuel use, higher oil prices will reduce total biofuel use.

“If there’s a mandate that ten percent of fuel use come from bioenergy, if you increase the oil price, that leads to a decrease in overall oil demand,” says Niven Winchester, the study’s lead author and a principal research scientist with the MIT Joint Program. “So there’s less gasoline being driven overall, and if you take ten percent of that, the bioenergy goes down.”

Second, higher oil prices can result in less deforestation.

“The expectation is that when you increase oil prices, you use more bioenergy, requiring more land use and leading to more deforestation,” Winchester explains. “But how do you get higher oil prices? Oil reserves are lower than you expected, so incomes go down, reducing demands for food and other land-based resources, leading to less deforestation.”

The researchers—Winchester and Joint Program research assistant Kirby Ledvina—also found that oil prices drive not only the quantity of bioenergy production but also the form that bioenergy will take. When oil prices are high due to a global carbon price, a wide range of biofuels (dominated by low-cost LC ethanol) penetrate the energy market, but when oil prices are lower (thereby increasing oil and gas production), fewer biofuel options are economically viable and less biomass is used for heat and electricity. Introducing a carbon price also reduces differences in oil use and GHG emissions across all four oil-price scenarios. 

The study’s findings—both the intuitive and counterintuitive—could be helpful in shaping and revising bioenergy policies aimed at boosting biofuel penetration and stabilizing the climate through reduced GHG emissions and deforestation. They underscore the need to pay more attention to factors that cause oil prices to rise or fall, and their economy-wide impacts.

The study was funded primarily by BP.


Photo: Switchgrass has been touted as a promising source of biofuels. (Source: eXtension Farm Energy Community of Practice)