Biofuels: Green for the Environment or Investors?

Angela Ritter

Biofuels are not a new idea. In fact, they have been around for as long as cars, according to National Geographic. Henry Ford planned to power his Model T with ethanol and early diesel engines ran on peanut oil. But if this is true why are biofuels now seen as the latest development in the world’s race to find clean, renewable energy? Investors have more to do with the recent rise of biofuels than many may realize.

While biofuels were around in the beginning of car production, they were more expensive to develop than pure gasoline and diesel fuel. At that time there were huge petroleum deposits that kept gasoline and diesel fuel cheap and accessible. Therefore, until recently, biofuels were placed on the back burner because of the cost to produce them. However, now that petroleum deposits have been depleted, all over the world there has been a new surge in the popularity of biofuels. But are biofuels as green as their endorsers claim them to be?

Overview of Biofuels

Nvate biofuels, biodiesel and ethanol, fossil fuels

Credit: franky242

Biofuels, by definition, are fuels made from renewable sources known as biomass that must contain over 80 percent renewable materials. There are two generations of biofuels, with the first generation biofuels being made from sugar, starch, or vegetable oil, according to Second generation biofuels are made from sustainable feedstock such as wood, grass, inedible plant parts, and waste from paper and pulp manufacturing. The second generation of biofuels is greener; however the first generation contains the two most common biofuels—ethanol and biodiesel.

Ethanol is by far the most popular biofuel on the market today. It is made from corn or sugar cane and has to be mixed with gasoline to work. The most common ratio of ethanol to gasoline is 10 percent ethanol to 90 percent gasoline and is known as E10. In addition to regular ethanol there is cellulosic ethanol, which is a second generation biofuel that is made from wood, grass, or inedible plant parts. This is the better of the two forms of ethanol because it is made from plants that cannot be used for food. However, cellulosic ethanol is just now beginning to take off in production. The use of regular corn or sugar cane based ethanol far outweighs the use of cellulosic ethanol.

The second most popular biofuel is biodiesel. It is made from a combination of methanol and vegetable oil, animal fat, or recycled cooking grease. Like ethanol, biodiesel can be used as an additive, typically 20 percent biodiesel and 80 percent pure diesel fuel. However, an added benefit to using biodiesel is that in its purest form it can be used as a complete diesel alternative.

Advantages to Using Biofuels

There are numerous benefits that come from using biofuels. The materials used to make biofuels are renewable. Unlike fossil fuels, biofuels can be made from living or recently deceased plant materials. Biofuels are also considered a clean energy source because they produce less air pollution when burned than pure gasoline and diesel. With the shrinking amount of fossil fuels left, the gap between the cost of biofuels and the cost of using pure gasoline is continually expanding in favor of using biofuels. Because biofuels are made from renewable materials such as corn, sugar cane, grass, wood chips, and inedible plant parts it can be produced almost anywhere. Therefore, using biofuels can help solve the struggle to keep energy domestic. Biofuels are also biodegradable because of the high percentage of natural materials used to make them. This means that a biofuel spill would be less harmful to the environment than an oil spill.

Disadvantages to Using Biofuels

With so many advantages to using biofuels this fuel alternative seems like a great way to segway into a greener era for transportation. However, there are also many disadvantages to consider when debating the use of biofuels. Not all cars on the roads are compatible with biofuels. Using biofuels in a vehicle that is not compatible with biofuel can have detrimental effects on the performance of the vehicle such as deterioration of engine and fuel line parts, as well as residue build up on valves that can hinder engine performance.

Biofuels also require large tracts of land designated for crops used in production, which reduces the availability of land used to grow crops for food. For this reason biofuels have been cited as a contributing factor to the problem of world hunger. In acquiring the land and raw materials needed to produce biofuels forests have been sacrificed. This destruction of woodlands has destroyed the natural habitats of numerous animals and has contributed to the global issue of deforestation. The greatest evidence of the impact biofuels has on forests can be observed in Brazil where thousands of acres of forests have been cleared to grow sugar cane for the production of ethanol.

Nvate biofuels, biodiesel and ethanol, fossil fuels

Sugar cane is used in ethanol production. Credit: Sura Nualpradid

Although biofuels are considered green in comparison to pure gasoline and diesel fuel, biofuels emit large amounts of nitrogen oxide when burned, which is a component of smog, according to Energy for Mankind. Biofuels reduce the amount of fossil fuels used, but not by enough. Although biodiesel can be used in its pure form as fuel, ethanol—the most common biofuel—must be mixed with gasoline. The highest percentage of ethanol that can be present in gasoline is 15 percent with fuel of this ratio being known as E15, but most fuel stations still offer the standard E10.

Investors Change the Debate

The debate over whether or not the pros outweigh the cons of using biofuels has not yet been resolved, but there has never been a better time to invest in biofuels than right now. Major biofuel companies have shown drastic economic gains in just the first few months of 2013 with more growth projected for the future, according to Jason Bond, an experienced Wall Street trader. On the NASDAQ, Biofuel Energy Corp. has risen 25 percent, Gevo Inc. is up 24 percent, Renewable Energy Group has gained 22 percent, and Pacific Ethanol Inc. is up 10 percent, according to Seeking Alpha.

Governmental incentives are believed to be the cause of this sudden growth in the biofuel industry as biofuels were included in the renewable energy part of the “fiscal cliff” deal that went into effect in January. Tax credits given to biodiesel producers in 2012 were extended through 2013 at a time when funds were cut for education and the military. Tax credits were also given for cellulosic biofuel producers. Alternative fueling stations got in on the deal and are able to claim tax credits of up to $30,000, according to Seeking Alpha.

In addition to the tax credits, the Environmental Protection Agency, or EPA, increased the required use of renewable fuels, particularly the production of cellulosic biofuels. The goal of the EPA for cellulosic biofuels was 8.7 million gallons in 2012. This year’s goal is 14 million gallons.

This unprecedented growth in the biofuel industry has led to enormous gains for investors and more are expected to invest in the coming years. But with more investing there is little hope that more investigation into the benefits and risks of biofuels will be conducted.

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