Green Industrial Policy: A Climate Necessity

Industrial policy – government support of the manufacturing sector – has long been lampooned as the archetype of failed state intervention. Yet it has seen resurgence as of late, resurrected as a potential strategy for  “green growth.”(1)

The idea of promoting specific industrial aims through government strategy is subject to frequent ridicule. In supporting entrepreneurial activity, policymakers must navigate the dramatic tension between promoting certain initiatives theoretically tied to the public good without permitting capture by special interest. Decoding how particular industrial sectors or urban areas become particularly innovative – biomedicine in Cambridge, MA, or technology in Silicon Valley, CA – has proved a monumental task for economists.

Until recently, it appeared, scholars had arrived at a singular verdict. Industrial policy rarely succeeds, and if it is to have a chance of generating genuine growth, careful design and implementation are paramount.(2) The government, the conventional wisdom holds, should not be in the business of picking winners and losers. The problem, according to industrial policy’s more nuanced critics, is that the government best serves as a catalyst for early-stage projects, but often overstays its welcome. (3)

The complete absence of government involvement in the cultivation of industry and entrepreneurialism is the preserve of only arch-libertarian utopias. The true question is less a matter of “Do governments directly contribute to technological innovation?” and more a question of “How do the governments sponsor innovation, and how much credit should they get for fostering novel ideas?”

Recent scholarship has challenged the prevailing sentiment that the American government has had little impact on the seminal entrepreneurial developments of the past half-century. In her provocatively titled book The Entrepreneurial State: Debunking Public vs. Private Sector Myths, the economist Mariana Mazzucato has gone to great lengths to show how, in the words of economic policy journalist Jeff Madrick, “less and less basic research is being done by companies today. Rather, they focus on the commercial development of the research already done by the government.”(4)  Increasingly, that research is focused on relieving our seemingly intractable reliance on fossil fuels.

Reducing carbon emissions and fostering growth are often cast as irreconcilable goals. That any serious attempt to curb fossil fuel extraction would prove economically deleterious is a mainstay of arguments against decisive action on climate change. “Green growth” provides a rhetorically convenient and theoretically sound moniker for, broadly, policy approaches that encourage low-carbon economic activity, and initiatives that directly support the development of low-carbon technologies.

Empirically, markets are more likely to promote innovation when energy prices are high.(5)  In an influential American Economic Review article published in 2012, Daron Acemoglu of MIT, Philippe Aghion of Harvard, and colleagues found environmental disaster avoidable when governments act swiftly and deliberately with policies that encourage innovation in a low-carbon direction.(6)  In developing countries, the promotion of policies that are both pro-growth and environmentally conscious is not unachievable. (7)

In a recent column, the Nobel Prize-winning economist Paul Krugman found cause for cautious optimism in market-based solutions to climate change. His faith comes from progress in renewable energy technology, leading him to tentatively declare, “It’s even possible that decarbonizing will take place without special encouragement, but we can’t and shouldn’t count on that.”(8)

This newfound hope construes technology as a potent means to avoid entrenched political debates about climate policy. If a disruptive, all-encompassing, low-carbon renewable energy were successful at scale, the collective action problems that define climate change would be significantly reduced.

Yet the global energy infrastructure is predominantly outmoded – designed, from extraction to consumption – for fossil fuels. Even with profitable renewable energy technologies, the social good derived from low-carbon energy generation may outweigh benefit to private industry.  (9)

Critiques of industrial policy range from objections to its efficacy to paranoid claims of Marxism and subversive command economies. Within economic parlance, however, the detrimental impacts of carbon constitute an externality – a market failure that requires government intervention to address. Furthermore, renewable energy represents a particularly fraught problem of coordination.

Take solar power as an example: an advanced panel requires massive public investment to scale, the ability to feed into existing grid infrastructure, friendly tax policies to encourage adoption of solar power by utilities, and – certainly in the long-term – development of energy storage mechanisms.

Even with the potential for markets to naturally move towards renewables, the likelihood that these coordination problems will be endogenously addressed is low. Democratic governments must therefore identify and correct some of these market failures.

The intensity of the climate crisis suggests that green industrial policy may serve as an exception to a general avoidance of industrial policy. Larry Karp and Megan Stevenson, two economists at the University of California, Berkeley, argue that because green industries rely so much on future government policy (subsidies for individual customers adopting renewables, for example) there is little incentive to make large investments in the present.  (10)

Technological change is rarely achieved through unilateral policies. The rich history of how innovations come to fruition demands that policymakers operate with a varied toolkit, not hidebound ideology. Objections to industrial policy, emblematized by the controversy over Solyndra and loan funds dispensed by the Department of Energy in President Obama’s first term, have collapsed into partisan boondoggles rather than well-founded policy debate.

In reality, industrial policy related to energy has long been deployed in the United States. Support for ethanol, a commodity that plays well politically, has been strong since the oil crisis of the 1970s, despite the attendant environmental impacts. Furthermore, subsidization of the conventional oil industry constitutes a kind of industrial policy, although it is rarely directly derided as such. (11)

While a market-based solution to the climate crisis that emerges from a disruptive energy technology is an alluring ideal, a crisis cannot be addressed through a fevered reliance on the potential for innovation. It has to be actively encouraged. The exigencies of environmental decline, and the perverted role of carbon in the economy – CO2 will hit 400 ppm in May – demand a direct government role in energy innovation. (12)

Danny Wilson is a History and Science Concentrator at Harvard University, and the former chair of the Environmental Action Committee.

(1)The economist Dani Rodrik introduces the term “green industrial policy” in his thorough overview, see manuscript, Dani Rodrik, “Green Industrial Policy,” paper written for the Grantham Research Institute, July 2013. Paper at http://www.sss.ias.edu/files/pdfs/Rodrik/Research/Green-growth-and-industrial-policy.pdf.
(2)A survey of (usually) negative sentiments towards industrial policy is in Ricardo Hausmann and Dani Rodrik, “Doomed to Choose: Industrial Policy as Predicament,” paper presented at the First Blue Sky Conference, Center for International Development, Harvard University, September 9, 2006. See http://www.sss.ias.edu/files/pdfs/Rodrik/Research/doomed-to-choose.pdf.
(3)Josh Lerner, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed – and What to Do about It. Princeton, NJ: Princeton University Press, 2009. Lerner takes a comparative approach, citing the disparate experiences of countries that have adopted different policies designed to promote new industries.
(4)Jeff Madrick, “Innovation: The Government Was Crucial After All.” The New York Review of Books, April 24, 2014. His review is of Mariana Mazzucato, The Entrepreneurial State: Debunking Public vs. Private Sector Myths.” London and New York: Anthem Press, 2013.
(5) See Richard G. Newell, Adam B. Jaffe, and Robert N. Stavins, “The Induced Innovation Hypothesis and Energy-saving Technological Change,” The Quarterly Journal of Economics 114, no. 3 (1999): 941-975; and David Popp, “Induced Innovation and Energy Prices,” American Economic Review 92, no. 1 (2002): 160-180. Popp in particular argues that incentives in the form of taxation and regulation play a crucial role: “My results also make clear that simply relying on technological change as a panacea for environmental problems is not enough.”
(6)Daron Acemoglu et al., “The Environment and Directed Technical Change,” American Economic Review 120, no. 1 (2012): 131-166.
(7)Alex Bowen, Sarah Cochrane, and Samuel Fankhauser, “Climate Change, Adaptation, and Economic Growth.” Climate Change
(8)Paul Krugman, “Salvation Gets Cheap.” New York Times, April 17, 2014.
(9)David Popp, “Innovation and Climate Policy,” National Bureau of Economic Research Working Paper 15673
(January 2010).
(10) Larry Karp and Megan Stevenson, “Green Industrial Policy: Trade and Theory.” Policy Research Working Paper 6238, October 2012.
(11) Ibid, 34.
(12) For the Keeling Curve, a measure of atmospheric CO2, see http://keelingcurve.ucsd.edu/.
The_Earth_seen_from_Apollo_17

Climate Change Migration and Social Innovation

Climate change threatens to displace millions of people either across national borders or to new regions of their own country. While scientists cannot predict the exact number, a joint academic, civil society, and UN study concluded that “the scope and scale could vastly exceed anything that has occurred before” (CARE International et al, iv). Extreme weather events, rising sea levels, desertification, and other environmental disruptions will make certain parts of the globe uninhabitable. Residents of developing countries and small island states are particularly vulnerable to being driven from their homes.

Academics and advocates have urged states to take immediate action and recommended various ways to minimize the disruption faced by cross-border and internal migrants. This essay examines two model instruments. A Convention on Climate Change Refugees was proposed by Tyler Giannini and me in a 2009 article in the Harvard Environmental Law Review. The Peninsula Principles on Climate Displacement within States were initiated by the nongovernmental organization Displacement Solutions and finalized and adopted by in 2013 by an international group of climate change experts that included lawyers, policy makers, and scholars. While these instruments differ in structure and scope, a comparison illuminates elements essential to any framework seeking to address the humanitarian impact of climate change migration: a focus on victims, a range of assistance, shared responsibility, and implementation mechanisms. Both models also approach a complex legal problem from an interdisciplinary point of view.

Two Frameworks

The proposed convention strives to address the needs of cross-border climate change migrants. It defines a climate change refugee as “an individual who is forced to flee his or her home and to relocate temporarily or permanently across a national boundary as the result of sudden or gradual environmental disruption that is consistent with climate change and to which humans more likely than not contributed” (Docherty & Giannini, 361). The proposed convention’s provisions fall into three categories. First, they mandate different types of assistance for climate change refugees. Second, they spread responsibility across host states, home states, and the international community. Third, they establish administrative bodies to ensure other provisions are effectively implemented. The proposed convention would ideally come in the form of a stand-alone legally binding instrument.

The Peninsula Principles seek to minimize the impact of climate change migration on individuals displaced within the boundaries of their own country. They define climate displaced persons as “individuals, households or communities who are facing or experiencing climate displacement,” which is “the movement of people within a State due to the effects of climate change including sudden and slow-onset environmental events and processes, occurring either alone or in combination with other factors” (Peninsula Principles, 16). The principles open with a preamble laying out their humanitarian purposes and international sources as well as an introduction with definitions and overarching provisions. The rest of the document is divided into five sections: general obligations, climate displacement preparation and planning, displacement, post-displacement and return, and implementation. Conceived as an international normative framework, the Peninsula Principles aim to provide “a clear and consistent soft law basis for… practical actions” (Peninsula Principles, 10).

Common Elements

The proposed convention and the Peninsula Principles adopt divergent strategies to an emerging global crisis. While the convention would be a legally binding instrument covering climate change refugees, the principles are designed as a non-binding set of norms applicable to climate displaced persons. A closer look, however, reveals common elements that should serve as the basis for any legal framework that deals with climate change migration.

Focus on Victims

Both the proposed convention and the Peninsula Principles focus on the needs of climate change victims, not the interests of the states from which or within which they migrate. These humanitarian instruments stress the importance of nondiscrimination in order to ensure that individuals receive assistance regardless of their age, sex, race, religion, or other status (Docherty & Giannini, 377-378; Peninsula Principles, 16). In addition, they emphasize the value of victims’ involvement in choices that affect their future. The proposed convention requires the agency established to implement its provisions to “take into account the opinions and concerns of climate change refugees themselves and allow them to participate in decision-making” (Docherty & Giannini, 388). According to the Peninsula Principles, states should consult with climate displaced persons and obtain their consent before relocating them, except when there is an imminent threat to life or limb (Peninsula Principles, 19, 22).

Range of Assistance

The proposed convention and the Peninsula Principles agree that states should provide a range of legal and practical assistance to climate change migrants. Both frameworks require protection of human rights and delivery of humanitarian aid. Drawing on the model of the 1951 Refugee Convention, the proposed convention obligates states to guarantee both civil and political rights, such as access to courts and the freedom to associate, and economic, social, and cultural rights, including rights to education, employment, and housing (Docherty & Giannini, 376-377). The proposed convention goes beyond the Refugee Convention, however, in order to ensure that “basic survival needs are met” (Docherty & Giannini, 378). The Peninsula Principles similarly call upon states to ensure climate displaced persons receive “support[] in claiming and exercising their rights,” and they specifically highlight rights related to housing, livelihood, and access to the justice system (Peninsula Principles, 17, 27). On a more practical level, the principles declare that states should provide humanitarian assistance, such as food, water, shelter, health services, and sanitation (Peninsula Principles, 25).

While the frameworks mandate remedial measures after migration has occurred, they also urge states to take preventive steps. Under the proposed convention, home states are obliged “to the extent possible, to address increased refugee flows before they reach the crisis stage. Crisis prevention could consist of either attempting to eliminate the need for migration or preparing to handle it in an organized way” (Docherty & Giannini, 381). The Peninsula Principles devote a section to “climate displacement preparation and planning.” The principles state that, in advance of climate displacement, countries should develop risk management strategies, identify possible relocation sites, and create institutional frameworks to facilitate the provision of assistance when it becomes necessary (Peninsula Principles, 19-25).

Shared Responsibility

Recognizing that climate change is a “global problem” with an “international cause and transboundary effects,” the two frameworks create systems of shared responsibility (Peninsula Principles, 12; Docherty & Giannini, 379). Both instruments place primary responsibility on the state where the migrants are located. The proposed convention obliges the host state to take the lead on protecting climate change refugees’ rights and providing them adequate humanitarian aid. The home state should supplement that assistance “to the extent possible” by implementing preventive measures and facilitating emigration when it is necessary and refugee return when it is feasible (Docherty & Giannini, 379-382). Because there is no host state in the case of climate displacement, the Peninsula Principles assign all of those responsibilities to the home state.

Given affected states’ limited resources and the problem’s global origin, the two frameworks identify international cooperation and assistance as essential to the solution. According to Docherty and Giannini, “The home and host states should not have to bear the burden of climate change refugees alone because, for the most part, their actions are not the root of the problem” (382). The proposed convention obligates the international community to provide support either to affected states directly or to humanitarian organizations that can deliver aid (Docherty & Giannini, 384). The Peninsula Principles list international cooperation and assistance as one of their general obligations, stating that “[c]limate displacement is a matter of global responsibility, and States should cooperate in the provision of adaptation assistance . . . and protection for climate displaced persons.” The Peninsula Principles grant affected states the right to seek assistance and demand that other states and international agencies provide it (Peninsula Principles, 18).

Implementation Mechanisms

To make the above elements a reality, the two frameworks require implementation mechanisms. The proposed convention focuses on three international bodies. It creates a global fund to “manage the provision of international assistance” (Docherty & Giannini, 385). It establishes a coordinating agency, akin to the Office of the UN High Commissioner for Refugees, to facilitate protection of human rights and delivery of humanitarian aid (Docherty & Giannini, 388-389). It also forms a body of scientific experts to determine who qualifies as a climate change refugee, assess each state’s financial responsibility, and conduct studies to help states better prepare for migration (Docherty & Giannini, 389-391). The Peninsula Principles urge affected states to implement the provisions on preventive and remedial measures at “local, regional, and national” levels (Peninsula Principles, 18). According to the principles, states should adopt relevant laws and policies, earmark financial resources, and “take all appropriate administrative, legislative and judicial measures . . . [to] support and facilitate the provision of assistance and protection to climate displaced persons” (Peninsula Principles, 24).

An Interdisciplinary Approach

Neither human rights law nor international environmental law adequately addresses the humanitarian problem of climate change. Traditional definitions of refugees and internally displaced persons do not encompass climate change migrants, and environmental law does not specifically deal with human migration. For this reason, the proposed convention and the Peninsula Principles take an interdisciplinary approach.

In general, human rights law influences the types of assistance mandated by the climate change migration instruments, while international environmental law informs their more administrative provisions. The proposed convention turns to the Refugee Convention for guidelines on human rights protections for cross-border migrants (Docherty & Giannini, 376-377). It draws on the 1992 UN Framework Convention on Climate Change (UNFCCC) for models for its global fund and body of scientific experts, and for the precedent of assigning international assistance duties according to the standard of “common but differentiated responsibilities” (Docherty & Giannini, 385-391). The Peninsula Principles explicitly build on the 1998 UN Guiding Principles on Internal Displacement by requiring human rights protections and humanitarian aid for climate displaced persons (Peninsula Principles, 16). The Peninsula Principles also call on states to include climate displacement in their National Adaptation Programs of Action, which are mandated by the Conference of the Parties to the UNFCCC (Peninsula Principle, 24).

The interdisciplinary approach of the two climate change migration instruments extends to borrowing from other sources of law, including humanitarian disarmament and indigenous rights. The proposed convention bases its humanitarian aid requirements on the groundbreaking victim assistance provisions in the 2008 Convention on Cluster Munitions, which absolutely bans cluster munitions and establishes positive obligations to mitigate the harm caused by the weapons’ past use (Docherty & Giannini, 378). The designers of the proposed convention also recommend an independent and inclusive negotiating process similar to the Oslo Process that created the cluster munition treaty (Docherty & Giannini, 398-400). The Peninsula Principles look to the 2007 UN Declaration on the Rights of Indigenous Peoples, which recognizes these peoples’ unique relationship to the land. To reduce the impact of climate change on indigenous peoples, the principles state that relocation planning should maintain or replicate “rights to access traditional lands and waters” (Peninsula Principles, 24). Because no existing legal framework comprehensively deals with climate change migration, these solutions to the problem combine components of various precedents that have been tested and found effective.

Conclusion

The proposed Convention on Climate Change Refugees and the Peninsula Principles apply to different categories of climate change migrants and represent different types of legal instruments. Their commonalities, however, should be seen as essential elements of climate change migration law whatever form it may take. The interdisciplinary approach espoused by both the proposed convention and the Peninsula Principles is also crucial to the success of efforts to help people forced to flee their homes and ways of life. Climate change migration is a new humanitarian problem that requires an innovative solution.

Bonnie Docherty is a lecturer on law and senior clinical instructor at Harvard Law School’s International Human Rights Clinic.

References

A Cost and Benefit, Case Study Analysis of Biofuels Systems

Within the past decade, biofuels have become key research initiatives and investments for many states with implications for agricultural and developmental economics. Recent innovations in both first generation (1G) and second generation (2G) biofuels herald a long-term emphasis on energy sustainability and efficiency. 1G energy crops include corn, grains, and sugar cane while lignocellulosic biofuels (2G) derive from corn stover, sugarcane bagasse, and various forest residues. This paper presents a methodology for the economic analysis of investment in different types of biofuel systems. Our paper aims to determine whether 1G and 2G biofuels would be a viable economic and financial investment for typical developed and developing nations, respectively. First, we will collate and analyze the empirical findings on the socioeconomic effects of biofuels to construct a cost-benefit analysis, focusing on US-based and international case studies. We will then analyze the energy and emissions potential of biofuels. Following the qualitative report, we will offer a preview of our Net Present Value (NPV) model and its final results.

 

Socioeconomic Cost-benefit Analysis (Biofuels)

The Socioeconomic Impact of First Generation Biofuels

Impact of Biofuels in Current Consumption and Production in U.S.

As of 2013, first generation biofuels have enjoyed regular and assured growth in the US. First generation biofuels must demonstrate a 20% reduction in lifecycle greenhouse gas (GHG) emissions compared to the baseline of the original fuel (U.S. D.O.E., 2013c).  As a result of this standard, biofuels, predominantly starch ethanol and biodiesel, have been increasingly introduced into fuels since 2005, when the standard was originally implemented as part of the 2005 Energy Policy Act. This trend has endured thanks to the Energy Independence and Security Act of 2007 (EISA) Renewable Fuel Standard (RFS), which requires the blending of renewable fuels with traditional petroleum-based fuels.

Today, biodiesel production is an estimated 135 million gallons in December 2013 with a capacity of 2.2 billion gallons per year (U.S. D.O.E., 2014a). Ethanol production is 1.2 billion gallons in December 2013 with a capacity of 13.852 billion gallons per year (U.S. D.O.E., 2014b).  This is a large increase from 2012, during which time the nation experienced a month-to-month decline in biofuel production due to the drought afflicting many of the nation’s agricultural regions. With the ebbing of the drought in 2013, biofuel production resumed. Ethanol production averaged 925,000 bbl/day in 2014, while biodiesel production averaged 87,000 bbl/d.

 

Anthony Uchicago2

Source: U.S. Department of Energy, 2014a

Projected Consumption and Production in U.S.

Over the following several decades, biofuels experienced some growth, but remained a small portion of the US liquid fuel supply. According to the U.S. Energy Information Administration, biofuels will grow by about 0.4 million barrels per day from 2011 to 2040, thanks to the RFS mandate (U.S. D.O.E., 2013a). This growth rate could increase if the RFS were increased, though for the moment that seems unlikely. However, despite the mandate, overall biofuel growth will remain limited as a result of decreased gasoline consumption, according to a prediction from the Energy Information Administration (EIA). This decline, down to 8.1 million barrels per day in 2022, will also cause biofuels to fall short of the EISA 2007 target. As a result, the mandate is not likely to cause any additional growth in biofuels in this half-century. After 2020, second generation biofuels will overtake 1G biofuels and provide most of the industry’s growth. Annual ethanol consumption is projected to decline to 14.9 billion gallons by 2040. Despite the decline, ethanol will continue to be the primary biofuel in the United States.

Anthony Uchicago1

Source: (U.S. Department of Energy, 2013c)

 

International Impact of Biofuels in Current Consumption & Production

Internationally, biofuel production and consumption is dominated by the United States and Brazil. In 2011, the two nations comprised 70% of global biofuel consumption and 74% of global production (U.S. D.O.E., 2011b). Biofuels in the United States are dominated by corn-based ethanol, while those of Brazil are primarily sugar cane-based. Both fuel types have been growing in use and consumption in the past decade. Other countries, such as France, Germany, and China, contribute to global biofuel production and consumption as well. France, Germany, and other countries favor biodiesel in keeping with the high proportion of diesel vehicles in those countries. Meanwhile, China prefers to use ethanol as a motor fuel. However, in no country other than the United States and Brazil do biofuels contribute a significant portion of the country’s motor fuel or energy supply.

International Projected Consumption and Production

Mirroring current levels, biofuel consumption is projected remain rather low on global scale, even when both 1G and 2G biofuels are included. The total increase in renewable energy consumption, which includes biofuels, is projected to be a meager 4% and to contribute between 11% and 15% of global energy consumption by 2040. More specifically, transportation fuels, the primary use for biofuels, are projected to grow 1.1% per year, or 38% overall, by 2040 (U.S. D.O.E., 2013b)  Among transportation fuels, non-petroleum liquid fuels, a category predominantly composed of biofuels, will experience 3.7% annual growth until 2040, with most of this growth occurring in the United States and Brazil. Overall, while it may seem impressive, this growth is small, if not negligible, in the face of global energy growth. Total global energy consumption will experience 56% growth between 2010 and 2040—from 524 quadrillion British thermal units (Btu) to 820 quadrillion Btu. This overall energy growth will primarily occur in developing countries, while the future of biofuels as a mainstream fuel will probably remain in the US and Brazil.

Environmental Impact and Emissions

Despite its occasional proclamation as a “green” fuel, first-generation biofuels, primarily ethanol, are not without their own GHG emissions. While ethanol does produce fewer overall GHG emissions than gasoline, its production is still an energy intensive process with secondary effects. Gasoline generally produces 8.91 kg CO2 per gallon, compared to 8.02 kg CO2 per gallon for E10 ethanol and 1.34 kg CO2 per gallon for E85 ethanol. Based on a study by Dias de Oliveira et al. (2005), corn-based ethanol requires 65.02 gigajoules (GJ) of energy per hectare (ha) and produces approximately 1236.72 kg per ha of carbon dioxide (CO2), while sugar cane-based ethanol requires 42.43 GJ/ha and produces 2268.26 kg/ha of CO2 under the assumption of non-carbon neutral energy production.  These emissions accrue from agricultural production, crop cultivation, and ethanol processing. Once the ethanol is blended with gasoline, it results in carbon-savings of approximately 0.89 kg of CO2 per gallon consumed (U.S. D.O.E., 2011a).

Secondary Effects

Beyond emissions, 1G biofuel production has many side effects. These effects include negative impacts on land and water, loss of biodiversity, and air pollution. Unlike fossil fuels, the production of biofuels requires large tracts of arable land for production in addition to land for the physical conversion plants. As a result, it suffers from many of the same issues as agriculture itself. These problems include water diversion and pollution, exhaustion of arable land, and destruction of natural habitats.  However, since biofuels can increase the demands on agricultural cultivation, these secondary effects can spread across a wider area as biofuel production grows.

 

Impact on Food Supplies

Price

Since 2000, global food prices have been increasing rapidly. These price increases have affected both developed and developing countries and have been seen globally. The spike in prices eased in 2009-2011 due to the Great Recession, however, food prices have maintained their upward trajectory nonetheless. Causes typically cited for food price increases include competition by biofuels, production issues, policy decisions, and droughts. Biofuel production contributes to the growth of food prices by reducing food production. Corn, as the primary crop used for biofuels, has seen the greatest price increases, and 70% of the growth in corn production was for biofuel production (Mitchell, 2008).  However, due to the nature of the international food market and the usage of other crops, such as sugarcane, for biofuels, prices for all major crops have increased. An estimate by the International Food Policy Research Institute indicates that biofuels may be responsible for 30% of weighted food price increases from 2001-2007 (Rosegrant, 2008).  Continued growth in biofuels can be expected to continue to add to the growth in food prices.

Supply

Based on its agricultural capacity, the United States will never be capable of producing enough first-generation biofuels to meet all of its fuel and energy needs without compromising its food supply and that of other nations that depend on the US for food. In 2005, it took 14.3% of the US corn production was used to replace a mere 1.72% of gasoline usage (Hill et al., 2006).  To achieve a significant long-term reduction in fossil fuel usage through first-generation biofuels alone would be impossible due to this prohibitive impact on the food supply.  As will later be discussed, second generation biofuels may have greater potential to reduce fossil fuel usage while maintaining food supply.

In international locales, we expect largely similar results, particularly in smaller, more densely populated nations. Currently, Brazil, the other major biofuel producer, has more of their fuel provided by biofuels. However, as their population grows and becomes wealthier, we can expect this percentage to decrease as they run into similar agricultural supply problems. If the United States and Brazil, two of the world’s largest agricultural producers, currently experience such difficulties, we can reasonably expect that most other nations will experience similar obstacles.

1G versus 2G

In recent years, the socioeconomic and environmental sustainability of first generation biofuels (1G) has been called into question. The viability of 1G energy crops such as corn, grains, and sugar cane is uncertain, primarily because they compete with food crops, and may not even offer significant GHG emissions reduction. Although there is a tendency to consider sustainability issues regarding 2G energy crops, there are important lessons to be learned from the sustainability challenges posed by 1G crops (Carriquiry et al. 2011). The major sources of lignocellulosic biofuel feedstocks (2G) are as follows: agricultural residues (corn stover, sugarcane bagasse), forest residues, and herbaceous and woody energy crops, including perennial forage grasses like miscanthus (Miscanthus giganteus) and switchgrass (Panicum virgatum).

Issues commonly classified as either environmental, economic or social are often related to each other in complex ways (Mohr & Raman, 2013). For example, food security issues arising from diversion to 1G biofuels might be resolved by production of 2G biofuels because they are not produced from feedstocks commonly used for food production. However, food security quickly becomes a relevant issue when non-food energy crops are grown on land that could potentially be valued in food production or if biofuel production using agricultural residues can be linked to 1G feedstocks. While 2G biofuels can be grown on otherwise marginal land, this land could possibly be utilized by the poor for subsistence (Mohr & Raman, 2013).

Nonetheless, cellulosic energy crops are promising because of their environmental benefits. Madhu Khanna (2008) listed the following potential incentives for transitioning to 2G biofuels: reduced soil erosion, improved sequestration of carbon in the soil and lower inputs of energy, water and agrochemicals. Khanna (2008) notes that environmental benefits vary, among other factors, with the ability of different crops to sequester carbon into soil and with energy input requirements .

Costs of Production

Khanna’s report (2008) includes useful quantitative metrics for assessing the economic viability of cellulosic biofuel energy crops. From a production standpoint, miscanthus can produce 742 gallons of ethanol per acre of land, which is nearly twice as much as corn (399 gal/acre, assuming average yield of 145 bushels per acre under normal corn-soybean rotation) and nearly three times as much as corn stover (165 gal/acre) and switchgrass (214 gal/acre). Production costs are a big impediment to large-scale implementation of 2G biofuels, and their market demand will depend primarily on their price competitiveness relative to corn ethanol and gasoline. At this time, costs of conversion of cellulosic fuels, at $1.46 per gallon, were roughly twice that of corn-based ethanol, at $0.78 per gallon. Cellulosic biofuels from corn stover and miscanthus were 24% and 29% more expensive than corn ethanol, respectively, and switchgrass biofuel is more than twice as expensive as corn ethanol.

Social Impact

Availability of land is undoubtedly one of the key considerations in the discussion of future potential for biofuels. According to a 2010 report published by the World Bank, a major advantage of using agricultural residue crops to produce biofuels is that they do not require additional land. Barring secondary environmental effects, such as their potential usefulness as ground cover, residue crops should have almost no direct impact on food prices. Biofuels produced from crop and forest residues have significantly less land requirements than do dedicated energy crops, such as switchgrass and miscanthus (Carriquiry et al., 2011). Job creation and regional income growth are also important factors to consider in assessing the viability of 2G-biofuel productions. According to a 2010 report published by the International Energy Agency, there is potential for job creation in the cultivation of feedstocks based from dedicated energy crops. If production is based on residue use, then existing farm labor can be utilized, thus prolonging employment past the harvest season (Eisentraut, 2010). Feedstock cultivation and transportation do not require skilled labor and thus there will be a sufficient workforce even in developing economies. The use of residues can also bring added revenue to the agriculture and forestry industries, with beneficial impact on local economies and rural development.

Greenhouse Gas Emissions

Life-cycle analysis is often used to estimate the potential for various biofuel feedstocks to reduce GHG emissions in comparison with gasoline. Khanna’s findings (2008)show that corn and corn stover can reduce greenhouse gas emissions by 37% and 94%, respectively, in comparison to energy equivalent gasoline. Switchgrass and miscanthus, however, are carbon sinks, meaning that they accumulate and store carbon-containing compounds for indefinite periods of time. A more comprehensive table compiled by the World Bank (Carriquiry et al., 2011) shows the relative GHG emission mitigation properties of various biofuels (see below) .

Biofuel Type Emission Reduction (%)
Sugarcane ethanol 65 – 105
Wheat ethanol -5 – 90
Corn ethanol -20 – 55
Sugarbeet ethanol 30 – 60
Lignocellulose ethanol 45 – 112
Rapeseed biodiesel 20 – 80
Palm oil biodiesel 30 – 75
Jatropha biodiesel 50 – 100
Lignocellulose diesel 5 – 120

Source: Carriquiry et al., 2011

Net Present Value (NPV) Model

In addition to our socioeconomic analysis, our full paper contains a net present value (NPV) model that details the economic viability of 1G and 2G biofuels in several national cases.  There are four cases divided among two countries, a representative developed country (United States), and a less developed/developing countries (Brazil). These countries have exhibited potential for biofuel investment in terms of research, land, and crop allocations. The model simulates the rate of return (in dollars), or net benefit, of a conventional investment in 1G generation biofuels and a new investment in 2G generation biofuels over a 15-year time frame. Relevant ratios and metrics given the resulting numbers will also be analyzed in context. We also hope to compare these model figures with that of a coal plant, and if these lands were used to grow regular food crops instead–what is the efficient economic investment? Finally, given this wealth of empirical and quantitative data, we will construct general investment and policy recommendations with applications in policy and economics.

For the purposes of the model, we simulated costs and revenues of Ethanol versus Miscanthus/cellulosic ethanol for the biofuels comparison. We then compare these numbers with the amount of energy per gallon of gasoline and compare this with the price per gallon.

Aggregate Results

Tabulation of Findings:

Description (CASE) (‘000 US$) Developed Nation (2G) CASE A Developing Nation (2G) CASE B Developed Nation (1G) CASE C Developing Nation (1G) CASE D
Operating Profit 209,313 -1,176,017 166,952 -91,300
Net Present Value 100,690 -1,011,217 40,982 39,224
Return on Investment 1.41 0.32 1.17 0.73

 

CASE Table 1: Profit, NPV, and ROI Values

Case A has the highest NPV and Operating Profit. A developed nation with the right amount of investment and the relatively low input costs to produce 2G biofuels can capitalize on the earning potential of 2G biofuels, specifically miscanthus-based cellulosic ethanol. In this case, developed nation plants with well-developed and optimized 2G biofuel plants stand to earn substantial profits.

When choosing between Case A (2G) or Case C (1G) biofuels plant operation for developed nations, Case A 2G biofuels has the highest NPV and should be the preferred choice. We expect this result to hold, especially in the near future when 2G biofuels production becomes more efficient and realizes its cost-savings in inputs as compared to 1G biofuels. While the current capital, chemical, and maintenance costs for 2G biofuels projects are above that of 1G, feedstock costs tend to be lower and projected revenues are higher. Assuming input prices stay the same and innovation and R&D on 2G biofuels leads to lower capital and conversion costs, 2G biofuels could be considered a rewarding investment for developed countries that generates a growing stream of profits.

Case B, or developing nation (2G) plant, should not continue because of a negative NPV value; that is, sustained investment losses. This is because 2G biofuels require large investments initially and revenues would be needed to help cover the cost. In addition, in many developing nations, costs can be high due to corruption, waste and inexperience handling the technology and production processes; furthermore, export or domestic markets can be difficult to find or penetrate.  Another factor is the high relative cost for businesses in developing countries to convert their machinery to biofuel production.

For Case D, we find that while the NPV is positive, indicating that we should push through with the investment, the operating profit is actually negative. Thus, the NPV calculation is deceptive as the project is kept alive by FDI or by financing from investments. The investment in 1G in most developing nations can proceed, but would require some significant public-private investments for the plant and operation survive and produce. Most developing nations are familiar with the production of 1G biofuels, although investment costs may require external support.

Clearly, Case A has the highest ROI of the four cases due to its high potential revenue and low expense of 2G biofuels production.  Although Case D has a positive NPV value, its return to investment is very low and is less than 1, suggesting that in the long-run, 1G biofuels production in a developing country could be unsustainable and unprofitable.

The model findings agree with the empirical evidences presented in Section II. Although the future of biofuels seems secure for most developed countries like the US and developing countries with already robust biofuel industries, such as Brazil, the use of biofuels as a mainstream fuel outside these types of countries is unlikely.

Summary of Recommendations

From the Table, we see that 2G biofuels are generally more profitable than 1G biofuels, although 2G biofuel revenues per gallon in developing countries lag behind those of developed countries. It is possible that the lack of a strong export market and lower domestic demand will reduce the revenue per gallon of a developing nation’s biofuel yield. The lower demand could result from less emphasis on biofuel policy or from the cost of converting machinery to accept biofuels. These developing nations may have to reduce the price of their biofuels to lure buyers away from relatively cheaper gasoline, leading to smaller revenues and risking economic losses in the long run.

Revenues from developing countries for 1G and 2G biofuels can be quite substantial though the profit per barrel is negative due to the high relative cost and inadequate revenue generation to offset these costs. Revenue generation for 2G biofuels is much higher than that of 1G biofuels, suggesting that 2G biofuels could be a lucrative investment for most developing countries in the future, as technology and domestic operations become more inexpensive. For most developing nations, the cost of producing 1G biofuels is cheaper and industry is more familiar with the technology to produce these kinds of biofuels.

The US has the highest production capacity for biofuels and nets the largest NSAR value based on revenues per gallon, while Brazil has the next highest value. Profits per gallon are still generally higher for developed nation 2G biofuels as opposed to 1G biofuels, as reflected in the higher revenue amount for 2G biofuels.

The US and Germany are capable of producing both kinds of biofuels at a profitable rate; however, capacity and total land allocation will ultimately decide the potential of a developed country to produce biofuels.

Anthony Gokianluy,  Matthew Cason,  & Rohit Satishchandra are Green Economics Consultants, The Green Economics Group, University of Chicago. Mr. Gokianluy also serves as a client consultant.  They would like to thank Professor Theodore Steck, M.D. of the University of Chicago and the Center for International Studies for their assistance throughout the writing process.

This article is a commentary on the actual research paper, which can be found here

References

Climate Change and Investments in Sustainable Land Management

Land degradation and climate change perspectives provide a case for action to address the threat to food security in the eastern Africa region. The research work done in Vihiga, western Kenya underscores the complexity of undertaking conservation in smallholder farming systems. In smallholder farming landscapes, land degradation is more complex, and is associated with changes in socio-ecological conditions and increased vulnerability of agro-ecosystems to shocks and uncertainties (Nyssen, Poesen and Deckers 2009).  We note also that there is a need for a holistic approach for addressing land degradation. An examination of smallholder farming systems is required to better understand the factors that explain the low technology adoption rate, as well as to seize opportunities to facilitate wide scale investments in sustainable land management (SLM) (Dercon and Christiaensen 2010,). It is also crucial to take into account the significant expected reduction in productivity due to climate change, as it will have a direct effect on the vulnerability of smallholder farmers (Nelson et al. 2009, Rarieya 2009).We also consider other challenges facing the smallholder farmers: Barret and Swallow (2006) assert that increasing population numbers, diminishing soil productivity resulting from land degradation and poor marketing access limit productive investments. As poverty is endemic in the smallholder farming systems of East Africa, low-income levels reduce the capacity of farmers to invest in land quality improvements.

We seek to understand investments in conservation by smallholder farmers from highly erodible areas of the East African highlands in the context of climate change.  We pay specific attention to the role of rural household income sources on investments in sustainable land management.  Though often viewed as stable, smallholder farming systems are undergoing rapid change (Giller et al. 2011). We define non-farm income as coming from non-agricultural enterprises undertaken either on-farm or away from the farm. Natural resource management (NRM) income streams refer to natural resource-based enterprises that are undertaken off the farm and mostly in communal lands or even in public and trust lands. These definitions allow for differences in policy action targeting smallholder farms, communal lands, and other common property regimes.

The article has derived insights from the Lewis model of the role of dualism in the process of economic transformation (Lewis 1954), on structural change in the smallholder farming systems to amplify the significance of the non-farm sector (Bigsten and Tengstam 2011). Expansion of the hired labor market may cause changes in self-employment and wage employment in the rural areas occupied by smallholder farming systems.  What do these changes portend in light of the reduced land sizes, high population growth and increased significance of the cash economy in the rural areas?  Specifically, what influence does this scenario have on sustainable land management in the fragile but agriculturally important smallholder farming systems of the East African highlands?

Methodology

We surveyed of a random sample of 320 households and 494 farm plots in the Vihiga District of Western Kenya.

The high population densities in the study area provide a primary focus for tensions on land use that threaten the sustainability of smallholder farming systems. Climate change perspectives further accentuate uncertainties in scaling up sustainable land management, and more specifically adaptation and conservation at a landscape level.

Interviews with experts and knowledge of the local environment enabled us to derive the empirical relationships and formulate hypothesis. In the analysis, specific land management practices are dependent on household income streams while controlling for land quality, household and community level factors. To understand the effects of land degradation and climate change perspectives, this study tests the following hypothesis: Firstly, non-farm and natural resource-based income strategies elicit negative effects on investment in sustainable land management technologies and practices due to the competition for labor.  Secondly, Natural Resource Management (NRM) income activities are primarily undertaken by smallholder farmers to enable them to maintain necessary household liquidity levels; and thirdly, the community’s cultural attachment to land may sway farmer households from the pure profit maximization motive. The study focused on erosion control measures as part of SLM and particularly on terracing, manure application and agroforestry.

CONCLUSIONS

Although much has been learned from diverse experiences in sustainable resource management, there is still inadequate understanding of the market, policy and institutional failures that shape and structure smallholder farmer incentives and investments decisions. Climate change has also negatively impacted soil and water conservation efforts in the region, thus complicating efforts towards landscape level conservation. Direct effects of climate change have included unpredictable rainfall, which hurt many of the smallholders who undertake soil and water conservation. Although there are various types of sustainable land management practices and technologies that have been adopted in various parts of the region, creating a wide-scale landscape-level conservation process has remained elusive.

Our survey of  sustainable land management practices suggest that erosion prevention was significantly greater in farms with only a single plot of land, lower food stock, higher education level of household head, and higher non-farm and crop income. Worryingly, we found no connection between the need for erosion control an investment in this area.  Due to the irregularity of remittance payments, households that had a unit more income through remittances exhibited less investment in erosion prevention. Evidently, households finance levels are becoming crucial in decision-making. This lends credence to our guess that NRM income could be acting as a safety valve.

Agroforestry was also positively influenced by NRM income activities, while manure application had no significant effect on investments in SLM.

These results were counter-intuitive as they rejected our expectation of competition for labor between farming and non-farm activities. Evidently non-farm and NRM-income activities improved household level liquidity, providing necessary investment capital.  The nature of NRM income activities, which is mostly undertaken in common property areas, provides insight into its effect on investments in agroforestry. There is, however, need to carry out further studies on NRM income activities and, more specifically, on its relationship with household energy requirements.

Most smallholder farmers valued crop production primarily for food security, not for income generation. Unstable market prices accentuated constraints in marketing basic food products such as maize and beans. As land becomes fragmented, plot sizes and the scale of crop production are reduced. This notwithstanding, all the farmers interviewed engaged in crop production and demonstrated a strong attachment to their land and to smallholder farming in particular. Farm level financial liquidity was addressed in different ways. A majority of smallholder farmers without non-farm income sources engaged in natural resource management to meet their immediate financial needs. Increased NRM activities were environmentally degrading and tended to corrupt public and community landscapes.

Investment in land quality improvement is also linked to community level institutional factors. Rural economies in developing countries are less competitive due to pervasive impediments and week environmental regulations. Due to the lack of regulation of common-property natural resources, off-farm natural resource-based income is often detrimental to conservation at the landscape level.

This paper provides the context for addressing the challenges faced by diverse stakeholders and smallholder farmers in surmounting land degradation problems through sustainable management of agro-ecosystems.  The three sustainable land management practices addressed in this study showed varied factors affecting their adoption and investment therein.  Primarily, policy support for SLM need to address specific measures separately as these measures demonstrate varying responses amongst smallholder farmers. Based on these results, we propose that sustainable land management programs should focus on the broad landscape level to capture and understand interactions between plots, farm levels and common property areas. There is also a need for more analysis on the socio-economic importance of the natural resource based income strategies, poverty status and associated ecological costs borne out of decisions made by farmers facing increasing challenges wrought from increasing population and decreasing farm sizes.

The rural space is urbanizing rapidly, and policy support needs to be leveled towards initiatives with multiple benefits, including various forms of non-farm activities that are conservation friendly and provide support to smallholder farmers.

Joseph Tanui,, Rolf  A. Groeneveld,  Jeroen Klomp, Jeremia  Gasper  Mowo, and Ekko C. van Ierland co-authored this article.   Tanui, Goeneveld, Klomp, and van Ierland are members of Environmental Economics & Natural Resources Group, Wagenigen University, The Netherlands. Tanui and Mowo are at the World Agroforestry Center.

References

What Are the Right Policies for African Agriculture?

There are pressing needs to pay more attention to African agriculture. A staggering 23% of Africans are undernourished – about 239 million people in total (FAO, 2012). Much of this hunger is associated with poor agricultural output. Grain yields per hectare in Africa are only 37% of those achieved in Asia (USDA, 2010). The population is increasing rapidly, and while Africa’s food imports and exports were about balanced in 1980, the value of food imports to Africa in 2007 exceeded exports by $US 22 billion (FAO, 2011). Africa has been able to a certain extent to overcome the effects of its poor food production through imports and food aid, but the recently experienced volatility of world food prices and the expected increased global demand for food as the world population increases to 9 billion by 2050 demonstrate that Africa can no longer depend upon a global abundance of cheap food to supply its import market.

Africa faces multiple challenges in producing enough food. Almost 60% of Africa (not including the non-productive hyper-arid deserts) is classified as drylands (statistic derived from Kigomo, 2003; UNSO/UNDP, 1997). Drylands are defined as places where the ratio of annual precipitation to potential evapotranspiration is less than 0.65 (Leeuw et al., 2014), and are further divided into arid, semi-arid and dry sub-humid areas. The scarcity of water in the drylands (often with only one short rainy season per year) places a severe limitation on agriculture. African soils are geologically old, severely weathered, fragile and typically quite infertile. Poorly developed infrastructure hinders the development of value chains and efficient markets. Rural finance is poorly developed and land tenure is often weak. Many African farmers already have to cope with major fluctuations in the weather, particularly erratic rainfall. All of this makes African agriculture susceptible to the effects of climate change.

Most predictions of the effects of climate change point to increases in season-to-season weather variability and an increase in severe weather events including droughts and floods (Rosenweig et al., 2001). Temperatures will rise (IPCC, 2014), which will cause potentially catastrophic shifts in the distribution of different crops and crop varieties. Africa is expected to suffer badly. For example, maize yields (which are relatively tolerant to increased temperatures) across Africa and Latin America have been predicted to fall by about 10% per year by 2050, equivalent to an annual loss of $2 billion (Jones and Thornton, 2003). This relatively modest figure masks large country-to-country variation, with many countries in Africa expected to perform much worse that the continental average. Changes associated with increased temperatures could significantly shift the areas currently suited to different crops in Africa, leaving only 12-15% of suitable cropping areas overlapping with currently cultivated areas (Burke et al, 2009). The total costs across Africa of adaptation to a 2°C mid-century increase in temperature has been predicted to rise to about $23 billion per year, of which over $2 billion will be for agriculture. A further increase in temperature would dramatically affect these adaptation costs. Farmers who are already vulnerable to external shocks will find it increasingly difficult to sustain an agricultural livelihood.  Considerable efforts will be needed to make African agriculture resilient to climate change. This will be challenging, since much of African agriculture currently does not bring in enough income to fund investment for adaptation to climate change. Policy makers will have an important role in enabling a transformation of agriculture.

The structure of land holdings in Africa perpetuates poverty and frustrates development efforts.  Most African farmers are smallholders. Most farms in Africa are smaller that 2 hectares; the median size across the continent is 1 hectare, with much smaller plots where land has been repeatedly subdivided (Eastwood, et al, 2008). Smallholders are not inherently inefficient: there is ample evidence that smallholder farming can be very productive (Larson et al, 2012). The challenge is how to make a smallholding sufficiently profitable to help a family out of poverty.  The small size of farms limits financial gains even from very productive investments. Surveys of small farms in Asia and Africa show that the average median net income gain from improved agriculture on smallholdings is only $268/hectare/season, with a de facto limit of about $700 (Harris and Orr, 2014). For a family of (say) five, this leaves income below any poverty line.

This observation challenges much development policy that focuses on improving smallholder production. Certainly, improvements in smallholder agriculture can improve food security. The hunger index for Malawi fell from 29.9 to 16.7 between 1990 and 2012 (IFPRI, undated), and much of this improvement can be attributed to increased maize production on smallholdings resulting from fertilizer subsidies. But though making people less hungry is a worthy humanitarian aim, increased food production does not always cause economic development or ameliorate poverty.  A continued focus on smallholders is often supported by donors and national policy makers on the basis of their relative efficiency (in terms of crop yield per unit area), the availability of family labor and the success of smallholders outside of Africa, principally China (see discussion in Conway, 2011).  This focus, however, is counterproductive.  Collier (2009) warns that poverty is intrinsic to this peasant mode of economic organization and “we have become blinded to this evident fact by our own romantic attachment to the preservation of society which is the antithesis of modern.” Ultimately, all successful developed countries have moved most of their populations out of agriculture, leaving fewer people to farm larger plots more efficiently. There is little reason to believe that development in Africa will follow a different path, and increased efficiency of large-scale land use should allow the necessary investment to adapt to climate change.

The challenge for policy makers, therefore, is to increase production, incomes and food security for smallholders while encouraging farming to evolve from its smallholder base into larger farms. These can be achieved by encouraging the diversification of agriculture, increasing the planting of high-value crops, adding value through local processing and adopting new technology. These remedies, though, are only possible in areas with good, well-managed soil, plentiful water, and a market for high-value and processed commodities. Where these do not exist, as in much of the rain-fed agriculture of Africa, these recommendations might serve only to keep farming communities mired in deep poverty traps.

Farmers’ rights to use land across Africa are often poorly protected. Many farmers do not have secure tenure, and they can lose their land to richer speculators or more influential members of their communities. States of “legal pluralism” exist where formal codes of land ownership (such as the issuing of title deeds) co-exist with traditional ways by which communities allocate land to people. Such pluralism often leads to confusion over property rights that leave the poorer members of the community unable to protect their lands. It is important for policy-makers to make land tenure regimes equitable and transparent so that farmers can elect either cash-in the value of their farms and move to other ways of earning a living, while others consolidate land into larger farms.

However, in order for smallholders to transfer to other professions, rural populations need education and health services to prepare them for jobs in the wider economy. In other words, many of the pre-requisites for the development of agriculture and economies in Africa lie outside of the agricultural policy domain.

Though new technology has improved food production outside Africa, it has not been widely adopted in Africa (Bationo and Waswa, 2011). Earlier methods for increasing production were based on the Green Revolution and involved improving crop varieties and increasing the use of productive inputs, principally fertilizers. These techniques, though effective, are severely limited by the diversity of conditions in Africa, especially on small farms. Soil characteristics, rainfall variability, access to inputs and the operation of markets all affect the decisions that farmers make and the success of their farming operations. These conditions vary, sometimes across surprisingly small scales.  Indeed, it is not unusual for soil conditions to vary considerably within one field, and farmers must find ways of working with all of the variables in a way that minimizes their risks and optimizes the probability of getting a reasonable return on investment (Lynam and Twomlow, 2014). Poor farmers seldom take large risks in the hope of getting an exceptional yield because they fear serious economic failure. As a result, the uptake of improved technology in Africa has been slow, and there is a serious perceived “uptake gap”.  New ways of farming have not been adopted at the rate that many people have expected when compared with successes elsewhere, especially the Green Revolution in Asia. The process of adoption of new ways of farming has proved to be difficult and challenging. It is widely recognized that simple “silver bullet” technologies (such as improved varieties and appropriate fertilizers) are necessary but ultimately inadequate, and farmers require improvements to many aspects of crop production at once.  For example: (1) better management of crop residues can improve soil quality, which in turn helps the soil to hold water and avoid the effects of droughts. So-called “fertilizer trees” (members of the legume family) can be used to increase the nitrogen content of soils, sometimes achieving the same results as artificial nitrogenous fertilizers at lower cost. (2) Better security of rights to use land often encourages farmers to invest more in the long-term improvement of land management because they are assured of reaping the long-term benefits. (3) Improving farmers’ access to credit, and insurance allows increased investment while reducing risks. Scientists have been working for several decades to understand how these issues interact and how best to improve farmers’ yields and incomes (Chambers et al, 1989; Coe et al, 2014). This poses challenges for policy makers. It is relatively easy to justify investment in the development of a new crop variety or farming technique, as the potential benefit (under controlled conditions) can be easily demonstrated. It is a greater and longer-term challenge to understand and improve entire crop production and marketing systems. This implies taking agricultural development out of its exclusive agricultural silo, and bringing in policy makers and practitioners from other areas, including finance, water resources, transport, infrastructure and banking, and others. This is a constant challenge given the separation of responsibilities across government ministries and donor departments

As stated in the preceding paragraph, agriculture needs to be understood in terms of systems that involve many governmental sectors outside of agriculture. Equally, farming exists within ecological systems that have great effects on production. African agricultural landscapes tend to be mosaics of different kinds of land use, with fields, trees, grassland and water all interspersed (Milder and Hart, 2014). The non-farm parts of the landscape are valuable to the farmers. Trees in the landscape control the supply of water to farms and can affect the local (or distant) weather (Van Noordwijk et al, 2014); when they are removed, farming suffers. Areas of grassland are often vital to support farmers’ livestock; if they are not properly managed, an important source of food and income will be compromised. The landscape is a haven for beneficial insects that pollinate crops and consume pests. Farms are dependent on water bodies in the landscape. If policy makers ignore the multiple benefits of landscapes, they run a serious risk of reducing farmers’ resilience to the effects of climate change; for example by exposing agriculture to increased water run-off, greater soil erosion and the removal of shade necessary to combat increasing temperatures.

Recent years have seen the promotion of “landscape approaches” that attempt to integrate the management of different sectors across agricultural and non-agricultural land.  Milder et al. (2014) found that many of these were designed mainly as environmental conservation projects with agricultural development being of secondary importance; but nevertheless the benefits to agriculture were clear. Policy makers can increase their capacities to think and plan at a landscape level by escaping from their policy silos and working in partnership with a range of actors with interests in development across landscapes. For example, food security as a policy matter is often left to ministers of agriculture. Ethiopia has successfully used much broader partnerships to tackle food security. In addition to greatly increasing agricultural production, issues as diverse as conditional cash transfers, environmental restoration, infrastructure development, gender and non-farm income generating activities have been brought together to tackle the persistent scourge of food security (Dorosh and Rashid (2013); CHF, undated).

The challenges facing African agriculture are stark even without the effects of climate change. However, the good news is that solving today’s challenges will increase capacities to deal with the effects of climate change in the future. There will not be a “silver bullet” solution to the effects of climate change on agriculture, and the lessons referred to above on the importance of an integrated and holistic policy approach will be even more important. One policy on its own is unlikely to be “good” (although it may be “bad”), but mutually reinforcing policies across a number of sectors can lead us towards agriculture that is truly “climate-smart”.

Dr. Philip Dobie is a Senior Fellow World Agroforestry Centre, Nairobi, Kenya and Adjunct Professor, University College Cork, Ireland.

References

 

Development and Global Sustainability: The Case for ‘Corporate Climate Finance’

Climate change is as much an economic issue as an environmental and ethical one. Increasing climate resilience in developing nations and moving to a low-carbon economy globally will require significant capital outside of normal government channels and beyond business as usual. While the roles of multilateral public finance actors such as the World Bank and the newly created Green Climate Fund have received broad attention, this article argues the case for engaging transnational private finance sector actors (such as insurers, institutional investors, banks) as key providers of and conduits for ‘corporate climate finance’ in developing nations.

Introduction

Climate change is as much an economic issue as an environmental and ethical one. The imperative of climate change mitigation is to urgently cap global warming at two degrees Celsius (2°C) in order to prevent catastrophic global change. In order to do this, global GHG emissions must level by 2020 and then reduce by half by 2050 (European Commission 2013).   Yet scientists nearly unanimously predict that without urgent policy and multi-sectoral action the world will warm by 4°C above the preindustrial climate by the end of the century (World Bank 2012). Such a rise would instigate unprecedented heat waves, droughts, flooding, cyclones and wildfires in many of the world’s poorest regions (IPCC 2014) with serious impacts on infrastructure, ecosystems and human services that are likely to undermine development efforts and global development goals (World Bank 2012). To date, most attention has been directed at multilateral arrangements for mitigation and adaptation provided by developed to developing nation states, which is consistent with the common but differentiated responsibilities and respective capabilities of Parties to the United Nations Framework Convention on Climate Change (UNFCCC).  Less consideration has been given to the role of financial intermediary actors. This is a curious oversight because mitigating greenhouse gas (GHG) emissions and adapting to inevitable climate impacts will not only require behavioral and technological change; it will also require lots of money.

Massive financial mobilization in the order of US$15.2 trillion of additional costs for both developed and developing nations will be required for global GHG emissions mitigation, which is an exponential increase on the current annual investment of US$160 billion (Green Climate Fund 2013). In order to assist adaptation in developing nations, trillions of dollars will be required to upgrade and expand energy and transport infrastructure (World Bank 2010); and additional annual investment of nearly US$800 billion will be required for electricity expansion, modern cooking fuels, energy efficiency, and renewable energy (World Bank 2013).

In short, moving to a low-carbon global economy and increasing climate resilience in developing nations will require significant capital outside of normal government channels and beyond business as usual. Indeed it will involve one of the largest market and economic transitions in modern global society.

Given this reality, the finance sector has a key role to play in helping address climate change in terms of assisting developing countries with adaptation. Public finance actors, such as the World Bank and the newly created Green Climate Fund, tend to take the spotlight here. Far less attention has been given to the potential of and processes for directly engaging private finance sector actors as positive societal change-agents. Specifically, transnational private sector financial actors that are headquartered in developed countries are global economic gatekeepers and financial intermediaries, making them critical actors in the transition to a low-carbon global economy. They comprise insurers (especially re-insurers), institutional investors (especially pension funds) and banks. The potential of these private finance actors to assist climate change adaptation in developing nations and also the shift to a low-carbon economy globally has been largely unnoticed by scholars and policy-makers. The purpose of this article is to demonstrate that we need to start paying attention now.

Public Climate Finance

The role of financial capital in addressing climate change becomes clear by examining its relevance to sustainable development and ‘the environment’ more generally. Financial support for projects and technological innovation will almost always have environmental effects of some kind whether adverse or beneficial. Wholesale decisions regarding future development often arise in the finance sector; so this is where future pressures on the environment begin. As Richardson notes: “[i]f sustainable development is understood to imply, among other things, maintenance of natural and human-made capital for posterity, the role of capital markets must be recognized as pivotal to this goal.” (2006:309)

Since the 2007 Bali Action Plan, international action on climate finance has centered on the provision of financial aid by developed countries to developing countries via public (usually multilateral or bilateral) institutions to build their resilience against climate variability (e.g. Chaum et al. 2011; Brahmbhatt 2011; Fankhauser and Burton 2011) and facilitate mitigation. For example, Climate Investment Funds are managed by the World Bank and implemented jointly with regional developing banks, which can leverage support from developed countries and buy-down the costs of low-carbon technologies in developing countries. Another option is the Green Climate Fund (GCF), a new multilateral fund that was agreed by Parties at the 2010 UNFCCC conference as an operating entity of the UNFCCC’s financial mechanism. The GCF’s purpose “is to promote, within the context of sustainable development, the paradigm shift towards low-emission and climate-resilient development pathways by providing support to developing countries to help limit or reduce their greenhouse gas emissions and to adapt to the unavoidable impacts of climate change.” (Green Climate Fund 2014). It will do this by allocating funds pledged by developed nations – US$100 billion per year by 2020 – to both mitigation and adaptation activities in developing nations, especially the most vulnerable (Cancun Agreements, Decision 1, CP16). The GCF is still under construction; its Board will aim to decide essential matters of how the GCF will receive, manage, programme and disburse funds in May 2014 (Green Climate Fund 2014).

There is no doubt that multilateral efforts are vital. In particular, the GCF is a most welcome and timely global initiative; however, there are at least two initial concerns. First, looking at the sums of money cited in the Introduction, US$100 billion is insufficient to meet the task at hand. Due to the limited availability of public funds, investments at scale will also require private sector funding. To this end, the GCF employs a Private Sector Facility (PSF) to promote the participation of private sector actors in developing countries, particularly “small and medium-sized enterprises and local financial intermediaries.” (Green Climate Fund 2013:1). Private sector entities (like Google or Coca Cola) can provide funds through the GCF’s External Affairs division, alongside public contributions. This raises the second concern: that a vital opportunity to directly engage the private finance sector will be missed under these arrangements. Neither the PSF nor the External Affairs (donations) division will capture or engage multinational and transnational financial intermediaries, such as a large U.S. pension fund or a European bank.

Why does this matter? Private finance sector actors are economic gatekeepers with access to large and multiple pools of money and the innate ability to move it around. Their raison d’être is to make intermediating decisions about where money (as an asset, debt or equity) comes from and where it flows to (via sourcing, allocation and advisory processes). In short, they have a central role to play in climate change efforts because, as noted by Lord Stern, “reducing emissions and adjusting to climate change involves investment and risk” (UNEPFI 2007:2).

The Case for ‘Corporate Climate Finance’

Accordingly, we need to be thinking about how best to directly engage private finance actors to facilitate the capital required for global mitigation and adaptation measures. And we need to consider these actors separately to the broader ‘private sector’ due to their unique financial functions and abilities.

Specifically, there are two main groupings of private finance actor relevant to facilitating mitigation and adaptation measures. First, transnational banks that engage in project finance, corporate lending and asset management. These actions are important by sheer weight of numbers: global markets can be more valuable and affluent than some developed nations. Commercial and investment banks have unique ability to access those markets in ways that can address climate change. For example, from January 2007 to July 2013, , private green investment totaled US$5.2 trillion, of which nearly US$2.4 trillion was invested in renewable energy alone (Ethical Markets 2013).

The second grouping is institutional investors that invest through debt or equity. Institutional investors comprise asset/investment managers such as banks, asset owners such as pension funds, and insurance companies. Indeed, in Australia and New Zealand alone, the Investor Group on Climate Change (IGCC) represents institutional investors with approximately AU$900 billion of funds under management (IGCC 2012). These funds invest in several markets and assets for which adaptation investment will be required, namely: property (residential and commercial), transport infrastructure (roads, bridges, airports), social infrastructure (hospitals, prisons), utilities and network infrastructure, and agriculture (IGCC 2011). Equivalent coalitions reside in most developed nations; for example, the European Institutional Investors Group on Climate Change is based in the U.K. and currently represents assets of around €7.5 trillion; the North American Investor Network on Climate Risk supports 100 institutional investors with assets exceeding US$10 trillion (Ceres 2013).

Private finance actors are key players in mitigation and adaptation efforts because their raison d’être is to facilitate and channel finance, in very large amounts, around the world. This is not an ad hoc process reliant on the charitable disposition of the corporate actors involved. It is driven by business case logic, which in its simplest terms can be summarized as the desire to make money and to not lose money.

 The Importance of Business Case Logic

Unlike public finance entities or philanthropic public companies, the private finance sector has never been known for an ‘international ethics’, ‘societal benefit’ or otherwise charitable approach to doing business. In one of the first qualitative studies on corporate climate finance published recently in the Stanford Journal of Law, Business & Finance, I addressed the question of what drives early-moving banks in market economies to ‘go green’ (Bowman 2014). I found that they are driven by business case logic, which comprises profit increase (directly via fee generation and indirectly via competitive edge) and risk mitigation (financial, regulatory, and reputational). Crucial to these findings was a deeper understanding of ‘corporate reputation’ in business practice: it comprises not only the well-established ‘social reputation’ or social license of a firm but also a reputation for good business sense and delivering excellent service that helps large corporate clients to flourish. I termed this phenomenon ‘client service reputation’, and it was a prime motivator for climate-related products, services and new market entry. Banks are fighting for a fixed universe of clients and there is a fixed size of the purse. So by helping corporate clients to survive and thrive in an increasingly carbon-constrained world, banks help themselves by enhancing their competitive advantage and thus fee generation. Under the impetus of client service reputation, banks could be agnostic about climate change; their ‘green’ driver was the greenback not a desire to save the world.

Importantly, interplay between reputation and regulatory context became apparent when examining banks’ perspectives of climate change as a risk or an opportunity. In large part, their perspective was jurisdiction-specific and shaped by regulatory context. The regulatory context included not only government interventions – namely a carbon price, financial incentives for renewables, a GHG reduction target, or even direct coercive social regulation such as the U.S. Community Reinvestment Act of 1977 (12 U.S.C. 2901) – but also social pressure from non-government organizations (NGOs) and civil society. The more sophisticated and stable the state interventions, the more that banks saw climate change as an opportunity, and leveraged regulatory incentives to enhance their client service reputation, social reputation, and profits. The weaker or less certain the state interventions, then: (a) the more important NGO activity and voluntary industry standards became to mobilize better corporate behavior; and (b) the more likely that banks saw climate change as a risk. In such a regulatory context banks focused on strategies for downside prevention, particularly for protecting their social reputation. In other words, banks that were primarily driven by risk mitigation were reactive, particularly to social pressure, and their aim was to keep ‘business as usual’ running as smoothly as possible. They were less likely to be proactive and innovative in addressing climate-related issues.

 The Role of Policy

Based on that earlier study, it is clear that government policy has an important role in shaping the behavior of private finance actors. A strong policy framework will incentivize proactive and innovative approaches by private finance actors in addressing climate change through their lending, financing, investing and shareholding practices. Specifically, policy that modifies risks and returns for investors and also “the information and processes they use in investment decisions” will influence whether and to what extent private sector finance flows to adaptation and low-carbon initiatives (Pierpont 2011:3). The key is to leverage and deploy resources at the necessary scale. To this end, public policy for private finance plays a crucial role: it can establish the incentive frameworks needed to catalyze high levels of private investment in mitigation and adaptation activities.

Given the heterogeneity of projects, investors, and climate risks, there is no one-size-fits-all prescription for designing effective climate finance policy; precise solutions will vary from country to country. Nonetheless, we now know that private finance actors make decisions based on business case logic, which comprises a cost/benefit analysis of projected returns and potential risks inherent in an investment or project. Accordingly, existing and new government policies for mitigation and adaptation need to be measured against this generic benchmark: ‘how do they support the business case for private investment and financing?’

Overall, a federal regulatory mix in both developed and developing countries is required to encourage, leverage and procure private financial resources for mitigation and adaptation at the necessary scale.  Details of exactly what policy measures will work and in what circumstances, particularly accounting for heterogeneity, requires lengthy analysis and is beyond the scope and intent of this article. Suffice to say here that rrecommended instruments include: public-private co-financing arrangements, concessional loans, payments for environmental services, improved resource pricing, charges and subsidies, risk sharing and transfer mechanisms (IPCC 2014); creative use of insurance products such as parametric insurance to fund increased insurance premiums for wild weather-related disasters (Swiss Re 2011); and the use of market policy mechanisms such as tax credits, feed-in-tariffs, grants and climate bonds (Bowman 2014).

In this way I advocate taking the IPCC (2014) suggestion of overlap between mitigation and adaptation activities and extending it to climate finance. Indeed, I see significant overlap between (a) financial mechanisms for adaptation that protect both physical and fiscal assets from the risks of climate change, and (b) financial mechanisms for mitigation that assist the transition to a low-carbon economy. For example, fund managers need to invest in low-carbon options in order to protect pension funds, which are a long-term fiscal asset, from the adverse impacts of climate change. Such impacts include decreased returns on investments in climate-vulnerable or carbon-intensive industries. It is this overlap that makes corporate climate finance for adaptation a unique beast.

Yet, there will be challenges in moving forward. For example, possible conflicts of interest may exist between the goals of nation-states and those of transnational corporations given their different constituencies. Importantly, community benefits or ‘social returns’ on infrastructure investments do not feature in a conventional commercial business case. This means that finance actors are less likely to make major infrastructure investments in developing nations that yield high social returns – such as improving the climate resilience of electricity or water utilities – if there is not high enough economic return to outweigh the risks. Conversely, private financiers can (and do) support lucrative projects that concomitantly produce deleterious socio-environmental outcomes. This is where policy becomes so important: climate bonds; proactive insurance; and co-financing arrangements (where the federal government provides part or concessional finance) can harness private finance for public good. By covering upfront costs and mitigating project risks, policy can leverage private finance in the public interest, directing it to where it might not otherwise flow and away from where it otherwise might.

Another  challenge is more technical than socio-political: improving the availability and quality of information for investors. Improved information resources are crucial for private finance actors to manage climate-related risks and make long-term investment decisions, otherwise private sector actors “will fail to develop economically efficient responses for climate change adaptation and risk management” (UNEPFI and SBI 2011: 19). Specifically, financial actors require ‘applied’ research and tailored information, such as sectorial analyses, regional scenarios, databases of adaptation and clean tech projects, and extreme weather events both historical and predicted (UNEPFI and SBI 2011; Economics of Climate Adaptation Working Group 2009).

Private finance actors can supply a solution here – to the benefit of the broader private sector and public agencies. Leading insurers and other financial service providers have developed statistics and competencies in these areas, including extreme weather and loss databases and catastrophe models. Moreover, finance actors desire collaboration with research institutes and other partners to help develop information services and formats (UNEPFI and SBI 2011). Thus, a further role for policy-makers in both developed and developing nations is to encourage co-operation between private finance actors and government agencies and/or universities to exchange and enhance experience and knowledge ‘on the ground.’

Conclusion

At the World Economic Forum in Davos earlier this year, World Bank President Jim Yong Kim said “In 20 years, all of us will be asked the question, ‘What did you do to fight climate change?’” He highlighted that leaders “both from the private sector and from governments, have in their power to act in substantive ways.” (World Bank 2014). This article has argued the case for engaging the private finance sector as a separate species of private sector actor with the innate albeit unlikely ability to act in a substantive way through the provision of ‘corporate climate finance’. The raison d’être of financial actors is to facilitate and channel finance from the private sector around the world using business case logic, which includes exploiting opportunities where the policy settings are conducive to doing so. Public policy that targets private finance can establish the incentive frameworks needed to catalyze high levels of private investment in mitigation and adaptation activities at scale. In this way, the goals of climate change adaptation in developing nations and also the global transition to a low-carbon economy may be more expeditiously realized.

Dr. Megan Bowman is a Research Fellow in the Centre for Law, Markets and Regulation, Faculty of Law, UNSW Australia, Sydney. She has previously participated in the Stanford/Harvard International Junior Faculty Fora and written widely on environmental law and business strategy. This article is part of her broader study of climate finance. Dr. Bowman can be contacted at: megan.bowman@unsw.edu.au

References

Public Climate Finance Should Fund Regions, Not Projects

In the coming decades trillions of dollars will be spent on climate change mitigation and adaptation, and a significant portion of those funds will flow from the developed world to the developing world, for reasons both ethical and economic.   Successfully mapping diverse sources of funding from the developed world onto politically, geographically, and technologically diverse developing regions will be a complex task, however, and we must learn from the shortcomings of current climate finance efforts to be successful.  This article 1) highlights how poorly most existing international climate finance handles the complexity of the regions where it invests, especially when it funds isolated projects, 2) examines a very important success story of region-based support of wind energy in Kazakhstan, and 3) concludes with a recommendation that public climate finance prioritize large, systematic evaluations of regions before funding individual projects within them, to close knowledge gaps and eliminate barriers that currently hinder both public and private investment.

Introduction

It is increasingly clear that trillions of dollars will flow from the developed world to the developing world in the coming decades as a result of global climate change.  Some of this will be for mitigation, especially due to the low mitigation costs found in the developing world, including some of the lowest costs in the world for renewable energy (Krewitt 2009, WEC 2013) and two thirds of the world’s revenue-positive efficiency improvements (Farrell and Reemes 2009). Some will be for ethical and humanitarian reasons, especially given the developed world’s responsibility for the bulk of GHG emissions to date and the difficulty developing regions have adapting and/or developing sustainably on their own.  A large fraction will also have to occur for economic reasons, as investors and companies find opportunities in emerging markets, especially in the form of profitable investments in renewables and efficiency.

This diversity of investment sources widens the pool of available funds and will be necessary for securing the large amounts of funding needed for effective action, but managing the complexity of many different funding sources, especially timing and scaling them alongside each other, presents a significant challenge.  This challenge is further compounded by the complexity of the regions where money will be invested – geographically, environmentally, developmentally, and politically diverse areas often very different from developed countries, and often without the full range of robust physical and political infrastructures (i.e. electric grids, regulatory agencies, governmental stability) that are the basis for change in the developed world (IPCC 2012).

Fortunately, there have been many early international climate finance efforts, which provide us with valuable lessons (in this article we define climate finance broadly, to include both public and private funds).   This article covers the scale of current efforts, then examines their most pervasive difficulty, namely Northern investors’ lack of deep knowledge about regions where they might invest, and Southern developers’ lack of knowledge about available finances or difficulty acquiring and coordinating them.  These factors have caused significant inefficiency in performance of investments to date, and have reduced the scale of investment, especially by risk-averse private investors.   Lastly, we examine a significant success story in Kazakhstan, where public finance was used to close knowledge gaps, remove local barriers to investment, and reduce risk, paving the way for large private investment in wind energy.  We conclude with recommendations for a “region-based” approach where public sector financing is used to 1) conduct holistic evaluations of high-need or high-economic-potential regions, working closely with local governments and organizations to close knowledge gaps and note unique difficulties for investment, 2) then create long-term “roadmaps” and sequences of actions needed for effective development, mitigation, and adaptation in each region, and 3) make clear to public and private investors what steps are needed and who is best positioned to fund each one, and work with local governments and developers to help them find and integrate different sources of funding.  While this is surely an ambitious undertaking, we think recent international climate finance efforts show that closing knowledge gaps in both the North and South in a systematic way is mandatory if we want to make investments efficient and large enough in scale.

Current International Climate Finance

Currently around $359 billion is spent yearly on climate change mitigation and adaptation (94% and 6% of the total, respectively) (Buchner 2013).  Only 25% flows internationally (mostly from the global North to the South), and the vast majority of this international flow is from public sources, as the private sector perceives investment in regions with unfamiliar geography and regulatory frameworks as risky (Buchner 2013).   This is in spite of the aforementioned opportunities for low-cost renewables and profitable energy efficiency improvements in emerging markets, but unfortunately the performance of publicly funded projects in these regions shows that this risk-aversion by private financers may be warranted.

The Clean Development Mechanism (CDM) provides an instructive example of the mixed results of publicly funded international climate finance.  It is the most prominent public effort to fund mitigation in the global South, allowing Kyoto Protocol signatories to meet their emissions reductions targets in part by funding mitigation projects in developing countries.  This should allow for low-cost mitigation with lots of important knowledge transfer and developmental co-benefits, and it has leveraged an estimated $315 billion to date (UNFCCC 2013).

Unfortunately, its performance on these projects is questionable.  While mitigation costs have often been reported near $20/tCO2, these low-cost projects are dominated by large scale hydro power projects in China (the country where 68% of funds have gone), which critics say are not “additional,” meaning that they would have still been executed in the absence of CDM funding (CDM Policy Dialogue 2012).  The kinds of “additional” projects that are most seriously needed at scale, like industrial and energy system efficiency improvements, biomass energy, and solar installations, have had mean costs over $200/tCO2 and sometimes well into the thousands of $/tCO2.

Many of the CDM’s difficulties result from significant knowledge gaps – for example, investors do not fully understand all of the relevant geophysical, regulatory, political, and economic factors in different regions (CDM Policy Dialogue 2012).   This makes assessment of additionality and reliability a prior assessment of mitigation costs very difficult, and is especially problematic given that even local efforts funded internally by developing countries can be derailed for reasons that international investors may not expect.  One example is the lack of well-maintained roads and effective public utilities that has undermined Malaysia’s expansion of micro-grids (Bullis 2012).   This lack of regional knowledge also leads to relatively small, uncoordinated investments which may not be nearly as effective as coordinated support of large, long-term regional changes to basic infrastructure and energy systems that will be needed for serious and cost-effective mitigation(Creutzig and Kammen 2009).

Unfortunately, a lack of knowledge is also pervasive amongst potential recipients of funds, who are often unaware of opportunities or not adept at completing the full CDM application cycle.  This causes some regions to be systematically ignored (only 7% of funds have gone to India), while large, well-funded developers (especially in China) attract the majority of funds (CDM Policy Dialogue 2012).

Closing Knowledge Gaps, Planning Long-Term for Whole Regions: Success in Kazakhstan

To be sure, knowledge gaps and uncoordinated funding are not only a problem for the CDM.   The percentage of climate finance going to adaptation (6%) is lower than it could be due to knowledge gaps regarding the exact definition of adaptation, the best ways to promote adaptation, and the needed investments and outcomes (Buchner 2013).   Developing countries have made it clear that integrating diverse, unpredictable sources of international aid over time is challenging, and can even lead to macroeconomic problems (Strand 2009).  And lastly, private finance actors have also made clear that they will need to partner with local governments and research institutions to help them close knowledge gaps and reduce risk before they can invest (UNEPFI 2011).

Interestingly, in 1998 the UNDP and Global Environmental Facility (GEF) launched a very successful effort to promote wind energy in Kazakhstan, which focused mainly on identifying knowledge gaps and investment barriers and then addressing them directly.  Their goal was to facilitate the installation of approximately 250 MW of wind capacity by 2015 and 2000 MW by 2030, and while it was clear that Kazakhstan has some of the best wind resources in the world, it was also apparent that there were many barriers to utilizing this potential, including 1) artificially low electricity prices from locally mined coal burned in old Soviet-era power plants whose capital costs were ignored, leading to prices in the range of 2.3-3.5 c/kWh (USD), 2) lack of local technical expertise in wind power and local experience building wind farms, making feasibility studies and bankable proposals impossible to execute, 3) no detailed maps of wind potential with the kind of precision needed for investment choices, 4) hesitancy of utilities to add intermittent renewables to the grid (GEF 2011).

Over the course of a decade, the UNDP and GEF worked with local institutions to address these issues.   This included 1) making maps with detailed measurements of wind potential across the country, overlaying these maps with information about the existing grid and power facilities in each region, and disseminating this information as widely as possible 2) making more detailed pre-feasibility assessments of especially attractive regions, employing local Kazakhstanis whenever possible to build local skills and knowledge, 3) training local engineers and utility companies in the basic operation and costs of wind turbines and wind farms, and helping them make the best possible estimates of component costs, operations, maintenance, and distribution costs, etc, 4) working with local utilities to assess how well the existing grids could handle intermittent wind farms, finding that even 2000 MW of capacity (the 2030 goal) could be handled with no substantial changes to the grid, and that only moderate changes would be needed thereafter, and 5) perhaps most importantly, creating attractive markets for wind power by helping the government craft feed-in tariffs to guarantee enough revenue for wind farms even in the presence of artificially low coal electricity prices.  This was a multi-step effort, as the first feed-in tariff had no fixed value and was determined by costly assessments and calculations by developers, who did not want to risk paying for feasibility studies and tariff calculations, only to possibly end up with a tariff too low to make development of a farm worthwhile.  The UNDP and GEF worked with local utilities to determine what minimum feed-in tariff would be worthwhile (settling on 15 c/kWh), and helped legislators enact it.

This kind of long-term commitment to working with all relevant regional partners and identifying and overcoming local barriers is certainly uncommon.  However, the costs and outcomes are well worth noting.  After a decade of work and $2.5 million spent to change local policies and close knowledge gaps (IRENA 2013), Kazakhstan is seeing significant investment in wind energy – a $94 million 45 MW project in the Yereimentau region, funded by the Eurasian Development Bank and the local Samruk Energy, to be completed by 2015 with plans to expand up to 300 MW; a $100 million 50 MW project funded by the China Development Bank (financer of major projects like the Three Gorges Dam); and another project being considered by Samruk Energy which would start with 60 MW in the Shelek corridor and possibly expand to 300+MW.

It seems unlikely that Kazakhstan will meet the UNDP’s original goal of 250 MW installed by 2015, but investor confidence is increasing as more projects are funded and constructed, and with the Kazakhstani government being increasingly vocal and ambitious in its efforts to promote expansion of wind, energy efficiency, solar, and hydroelectric projects, the future of wind power in Kazakhstan is certainly much brighter than it was before the UNDP’s involvement.  The success of this long-term, knowledge-building and barrier-reducing effort also stands in contrast to the many billions of dollars spent so far on individual projects in poorly-characterized regions via the CDM, which has often been spent inefficiently and has not been well integrated with long-term plans in a region or led to large amounts private investment.  We certainly should expect replicating these successes from Kazakhstan in other diverse world regions to be difficult, with unique local challenges (especially in regions with less stability of government or infrastructure) and with even longer timelines if more challenging or costly barriers need to be overcome.  However, given the severe problems climate finance has faced without such robust regional evaluations, and given the very high benefits that can be obtained for very low costs, it seems that these kinds of evaluations should be a main focus of public climate finance in the future, and should be at the forefront of international plans as we construct new mechanisms like the nascent Green Climate Fund.

Closing Remarks, Recommendations

Here we have seen the scale of current climate finance efforts and their mixed success to date.  In particular we have seen the pervasive knowledge gaps and lack of cohesive long-term regional planning that have led to serious inefficiency in public financing, and a lack of private financing altogether.  We have also seen the very large successes possible when money and sustained engagement and effort are used to appropriately evaluate a region or country, identify major opportunities and barriers, and work with local stakeholders and investors to reduce them.   We must keep these lessons in mind as we plan the coming decades of climate finance, to give ourselves the best chance of making investments that are efficient, well suited to each region, and likely to spur large amounts of public and private investment for many decades afterwards.

Daniel Thorpe PhD candidate, Harvard School of Engineering & Applied Sciences.

References

The Last Chance

What if the fate of the world depends on worldwide decisions to be made by the end of 2015, yet few people know and even fewer care?  I am not talking about a Hollywood blockbuster, like Russell Crowe’s struggle in Noah, but about something not so different.  Instead of one great flood, humanity faces the likelihood that major weather disasters – extreme floods, droughts, heat waves, and hurricanes – will become far more frequent than in the past, disrupting food supplies, public health, economic growth and jobs around the world. Our last chance to avoid such a dangerous fate may be just around the corner, in Paris in December 2015.

Such a deadline may seem silly, yet it’s real.  Here’s why.  As the recent reports of the Intergovernmental Panel on Climate Change (IPCC) make clear, the current course of the world economy is filled with grave dangers.  Human-induced greenhouse gases are rapidly warming the planet and already disrupting the Earth’s climate system.  The world has repeatedly agreed to hold the line on the global temperature increase to less than 2 °C Celsius above the pre-industrial temperature.  Yet the current economic trajectory puts the world on course to increase temperatures in the likely range of 3.7 – 4.6 °C by 2100.

The dangers of such a huge temperature increases are enormous.  Not only will extreme weather events become more frequent, but various natural feedback loops could cause runaway climate disruption.  As the Earth warms, the great ice sheets of Greenland and Antarctica may begin to disintegrate, potentially causing ocean levels to rise by several meters.  The Amazon rainforest could die off as a result of repeated drought, thereby releasing massive amounts of CO2 into the atmosphere.  Methane and CO2 buried in the permafrost in the tundra could also be released into the air as the tundra melts.

Some economists have shrugged their shoulders at such risks, blithely claiming that humanity will somehow adjust.  Yet their casualness is belied by history.  Yes, sometimes humanity adjusts successfully to shocks.  Yet at other times, even small shocks can cause major disasters.  Think of the assassination of the Habsburg Archduke Ferdinand exactly 100 years ago that helped trigger World War I.  Or the banking failure that triggered the Great Depression, or the failure of Lehman Brothers that nearly brought down the entire world economy in 2008.  Or the episodes of intense drought in Somalia, Sudan, Yemen, and Syria during the past 20 years that have contributed to mass migrations, violence and regional conflict.

The world is running out of time to deal with these risks. At the Rio Earth Summit in 1992, the world’s governments signed the UN Framework Convention on Climate Change (UNFCCC), pledging to “avoid dangerous anthropogenic interference in the climate system.”  Yet the next 22 years have been dominated by finger pointing and squabbling rather than decisive action.

In recent years, governments have wisely defined “dangerous interference” as a rise in world temperature above 2 °C.  Some great scientists, like my colleague Professor James Hansen, say that even 2 degrees is far too much for human safety.  Yet despite the focus on the 2 °C  limit, we are not even close to achieving it.  With the world economy growing by 3 to 4 percent per year, and with China’s GDP growing at more than 7 percent per year, global emissions of CO2 and other greenhouse gases are soaring beyond safety.

The climate scientists speak of the “carbon budget” that can keep us to the 2 °C goal.  Roughly speaking, we must keep the future cumulative emissions of CO2 below roughly 1 trillion tons. With annual emissions of around 35 billion tons per year, and rising, we have only around 30 years remaining at the current rate!  In practice, the world should cut global CO2 emissions roughly by half – to around 15 billion tons annually – as of 2050, and to near zero as of 2080.  This process is called “de-carbonizing” the global energy system.

Cutting emissions down to size will require huge, decisive, and coordinated actions by all major fossil-fuel producing economies – the US, European Union, China, Russia, GCC (the Gulf countries), Canada, and Australia.  These countries need to cut their production, use, and exports of fossil fuels.  The rest of the world, mostly importers of fossil fuels, will also need to shift from their dependence on fossil fuel imports to low-carbon energy sources such as wind, solar, geothermal, and nuclear power.

The 21st Conference of the Parties (COP) of the UNFCCC, scheduled for Paris in December 2015, may well be the last chance to strike the deal. According to diplomatic agreements reached in recent years, it is at the Paris COP21 that a new global agreement on de-carbonization is to be adopted.  With the carbon budget nearly exhausted, a negotiating failure in Paris next year would likely to kill any remaining chance of avoiding a 2 °C rise in the global mean temperature. •

Admittedly the world today still seems uninterested and disengaged from serious climate negotiations. Yet the future habitability of the planet is at stake. Though climate change is still a “sleeper” in global politics, the high stakes in Paris will begin to penetrate the public mind in the coming months.  Climate negotiations will rise in the political agenda and in the global media.  Whether this happens fast enough to save the planet remains to be seen.

Jeffrey D. Sachs is Director of the Earth Institute at Columbia University and of the UN Sustainable Development Solutions Network.  The SDSN will release a plan for global “deep decarbonization” in July 2014.

Are You a Conservationist or Are You Human?: An Examination of Subjectivity in Conservation

The conservation movement does not belong to one stakeholder.  Instead, it entangles the concerns of indigenous or rural people, their domestic governments, and more recently, international political organizations and NGOs.  However, not all of these stakeholders are considered to be “conservationists.” Historically and presently, conservationists identify themselves as those whose scientific perspective allows them to objectively protect the environment. As The Nature Conservancy (TNC) claims, you can trust TNC because they are “leading with science:” “Its centrality to our mission and work means that…we look unflinchingly at the world as it really is and will be. And that we solve conservation problems by analysis as opposed to assertion and storytelling” (Kareiva, n.d.). Conversely, because of their supposedly detrimental subjectivity and experiential, rather than scientific, knowledge, rural and indigenous people often have not been considered “conservationists.” As the director of the Word Wildlife Fund in Latin America stated in 2002, “We don’t work with indigenous people. We don’t have the capacity to work with indigenous people.” At around the same time, a CI biologist working with the Kayapo in the Lower Xingu region of Brazil echoed, “Quite frankly, I don’t care what the Indians want. We have to work to conserve the biodiversity.” (Chapin, 2004, 21)

This definition of the conservationist has not gone unopposed. In “A Challenge to Conservationists” (2004), Mac Chapin examines contemporary billion-dollar global conservation NGOs, questioning their supposedly objective intentions (Chapin, 2004). Similarly, Karl Jacoby examines the seemingly conservation-minded U.S. government in “The State of Nature: Country Folk, Conservationists, and Criminals at Yellowstone National Park 1872-1908” (2001). He compares the motivations of the government to those of indigenous and rural people, questioning the constructed distinction between conservationists and locals.  Terence Turner examines the indigenous, rather than the conservationist, perspective.  In “An Indigenous People’s Struggle for Socially Equitable and Ecologically Sustainable Production” (1998), he questions whether the purportedly destructive subjectivity of indigenous people bars them from being conservationists (Turner, 1995).  Thus, the arguments of Chapin, Jacoby, and Turner challenge us to question, who is the conservationist?  Is scientific objectivity a necessary prerequisite? Does the subjectivity of rural or indigenous people exclude them from this role? While self-named conservationists believe that science should be the guiding principle of environmental conservation, these authors prove that this objectivist ideal is not realistic (Chapin, 2004). While the label “conservationist” seems to imply an unbiased and selfless relationship with the land, the culture, society, and self-interest of conservationists indubitably influence their interactions with nature and each other.

Chapin refutes the seeming objectivity of contemporary global conservation NGOs by highlighting economic and political influences that have shaped their agendas.  He thus challenges how the “The Big Three”—The Nature Conservancy (TNC), Conservation International (CI), and the World Wildlife Fund (WWF)—define their “conservation” mission and themselves as “conservationists” (Chapin, 2004). These NGOs claim that “biological science should be the sole guiding principle for biodiversity conservation in protected natural areas.” (Chapin, 2004, p. 20) Because they act in the name of science’s impartial principles, these conservationists believe their objectivity to be akin to that of a divine power.  Chapin (2004, p. 21) sites a critic who writes “‘they see themselves as scientists doing God’s work,’” entrusted with “‘a divine mission to save the earth.’” They believe that this godly objectivity enables them to be impervious to the influences of human political and economic institutions. Conversely, these conservationists believe that the political and economic interests of indigenous people render them incapable of carrying out the conservation movement’s mission: to protect nature, not people (Chapin, 2004).

However, as Chapin proves, they are not impervious to the influences of politics and money. The Big Three are just as guilty of acting upon their economic and political interests as the indigenous people whom they fault. While conservationists claim to act in the name of the environment, their financial needs often lead them to advance the anti-conservation agendas of politicians and big corporations (Chapin, 2004). Before 1990, the Big Three only received funding from private foundations and donors.  However, after the expansion of their fundraising reach to include bilateral and multilateral agencies and corporations, they now fall prey to the capitalist interest of businesses (Chapin, 2004). While some of these businesses have environmentally friendly agendas, Chapin argues that often these NGOs “are allying themselves with forces that are destroying the world’s remaining ecosystems” (Chapin, 2004, p. 26). Conservationists may claim that conservation’s agenda is objective and addresses exclusively environmental concerns.  However, because corporations such as Chevron Texaco, ExxonMobil, and Monsanto and capital often dictate this agenda, conservationists instead help destroy that which they crusade to protect.

In addition to corporate interests, the Big Three also fall prey to those of politicians. After 1990, these NGOs began to receive funding from agencies that work closely with national governments, such as USAID and the World Bank (Chapin, 2004). Chapin argues that to maintain these funding sources, the Big Three “are [not] able to openly oppose government corruption or inaction” (2004, pp. 25-6). Chapin believes that these limitations influence these organizations’ relationships with indigenous communities. The Big Three may claim that they do not advocate for the “social welfare” of indigenous people because doing so is beyond conservation’s purview.  However, Chapin (2004, p. 26) suggests that their inaction might be due to financial concerns: he points out that to these NGOs, “siding with indigenous peoples in their struggles or uprisings against those [funding] partners might seem financially unwise.” While these conservationists contend that they are apolitical, the financial interests of the Big Three have left them at the mercy of politics.  Thus, if the conservationist is one who argues for conservation from scientific and objective standpoints, Chapin proves that the Big Three are not conservationists and their agenda is not that of conservation.

Jacoby complicates Chapin’s argument by questioning the distinction between conservationists and indigenous or rural people.  By pointing out the similarities between the interests and motivations of these two actors, Jacoby also upholds that those who are considered to be conservationists do not always act in the interest of the environment.  Additionally, he points out that, while not conservationists in name, indigenous and rural people often act in the interest of the nature even if they do not proclaim it to be their primary concern. In his account of the controversies surrounding the origins of Yellowstone National Park, Jacoby describes the U.S. government as the predecessor of contemporary conservation NGOs.  Advocating that the government should preserve much of the public domain as permanent state-owned holdings, self-named conservationists, many of whom were political officials and politicians, deemed the government to be “manager of the environment” (Jacoby, 2001, pp. 91-2). Like conservation NGOs, these politicians argued that science should dictate the agenda of conservation: they believed that only “government-appointed technicians” with “expert, scientific oversight” could determine how best to protect and conserve these holdings (Jacoby, 2001, p. 92). They too believed that conservation should not be anthropocentric—disregarding the importance of these holdings to the livelihoods of local ranchers and Native Americans, their goal was to restrict human usage of this land in the interest of preserving it.  Although these conservationists pre-date Chapin’s by more than 100 years, their scientific, non-anthropocentric arguments resemble those of the Big Three.

Viewing local interests as exclusively anti-conservation, political officials differentiated between conservationists and indigenous and rural people.  In so doing, they ignored the identity and opinions of those living in and around the new National Park.  Jacoby (2001) explains that government officials thought everyone in the communities surrounding Yellowstone either illegally poached or supported the crime.  He argues that “poacher” consumed the entire identity of these locals, overriding even racial differentiations: “park officials often lumped [whites and Native Americans] into one uniformly dangerous class,” calling poachers “red or white Indians” (Jacoby, 2001, pp. 96-7).  This dichotomy between the conservationist and the local not only ignored the nuanced views on and reasons for poaching, but also overrode the historical, widespread belief that white people were inherently superior to Native Americans.  In so doing, officials classified these Yellowstone locals not only as anti-conservation, but also as racially inferior criminals.

However, Jacoby proves that this distinction was not warranted. Not all rural folk were in fact poachers; their environmental concerns often paralleled those of conservationists. Additionally, not all conservationists acted purely in the name of conservation—similar cultural influences motivated the actions of both conservationists and rural poachers.  When park officials caught the infamous buffalo poacher Ed Howell in 1894, local newspapers did not exclusively support him.  As Jacoby (2001, p. 101) explains, “far more common…were expressions of local disgust at Howell’s killing of a rare animal.” Jacoby (2001, p. 101) cites the Livingston Enterprise (3/31/1894) as stating “the sentiment here is universal that the small remnant of American bison still in the Park should be protected by rigid laws.” This newspaper’s call for legal enforcement to preserve American wildlife echoes conservationists’ preservation mission and belief that the government should be the “manager of the environment.” Thus, even though government officials may have differentiated between the conservationist and the rural, the views of each party did not necessarily oppose those of the other.

Simultaneously, Jacoby points out that government officials, supposed conservationists, did not act entirely in the name of the environment.  He argues that “many of the factors that animated those rural folk who attacked Yellowstone animated the park’s local defenders as well;” poaching and scouting both involved “tracking and other outdoor skills, the competitive challenge of outwitting an opponent, toughness, and physical bravery” (Jacoby, 2001, p. 104). Like that of poachers, the intrigue of these officials’ position did not lie simply in its potential to help or harm the environment. They too were inspired by traits that American culture regarded as honorable and manly (Jacoby 2001). While conservationists differentiated between themselves and poachers, Jacoby reveals that these theories did not always manifest themselves in reality. The actions of conservationists and rural folk were shaped not only by their concern for the environment, but also by predominant cultural influences. Therefore, while Chapin questions the motivations of the conservationist, Jacoby’s argument questions if we should differentiate between rural people and conservationists, since this differentiation in name does not always reflect differences in motivation.

Turner’s argument challenges the conservation movement’s non-anthropocentric agenda by challenging the notion that the subjectivity of indigenous people bars them from being conservationists.  In so doing, his argument implies that objectivity is not an essential prerequisite for a conservationist.  Because the interests of humans are often intrinsically linked to the environment that immediately surrounds them, it is possible for people to act in the interest of humanity and nature simultaneously. In Turner’s argument, the people of the Brazilian Kayapo tribe do not claim to be objective; they act almost exclusively in their own interest.  Yet, despite their partiality, the communal interest of the Kayapo ultimately proves to align with that of nature because of their interconnectedness with the land.  In examining the conservationist tendencies of the Kayapo, Turner (1998) focuses on their changing leadership. Because of increased interaction with Brazilian society, leadership fell into the hands of educated young men from chieftain families. These young leaders allowed logging and mining companies to work on and essentially destroy Kayapo land, in return for a percentage of their profits (Turner, 1998). The revenue that they gained from these ventures propelled these leaders into the ranks of the Brazilian social elite; thus, these anti-conservation contracts formed “the basis of [these leaders’] life styles and leadership” (Turner, 1998, p. 103). However, this basis proved impermanent.  Other village members challenged these concessions as antithetical to not only communal but also environmental interests. Older chieftains and younger Kayapo members working in the mines “felt the piratical polices of the leaders were damaging an economic and ecological system of which they too formed part, and were keeping them from enjoying their rightful share of the benefits of their de facto participation in the system” (Turner, 1998, p. 107). Turner implies that to these Kayapo members, the environment, the economy, and their tribe are intrinsically linked.

In acting upon these concerns, the Kayapo were able to end these socially and environmentally detrimental practices.  Through “the successful assertion of communal control over the young leaders,” the Kayapo reversed “the ecological and social damage caused by the mining and logging contracts” (Turner, 1998, p. 118). In so doing, they determined ways of generating revenue through ecologically sustainable, self-directed production projects (Turner, 1998, p. 116). By acting in the interest of the community, the Kayapo chose practices that benefited their economy as well as their environment.  Thus, the Kayapo did not need to act in the name of science to uphold the conservation agenda of environmental protection.  Because of the intrinsic link between the Kayapo and the land on which they live, they were able to benefit their environment by pursuing the interests of their community.

Thus, the arguments of Chapin, Jacoby, and Turner challenge us to question, who is the conservationist?   Despite the failures of previous conservationists, is scientific objectivity an essential prerequisite? Does the subjectivity of rural or indigenous people inhibit them from acting in this role? Is the distinction between self-named conservationists and rural and indigenous people warranted? As these authors prove, objectivity is never a realistic goal.  Even if we claim to have a divine, objective, and global perspective, our humanity bars us from fulfilling this goal.  Thus, we must allow the conservationist to be subjective and local.  Similarly, conservation’s agenda can never be purely environmental; it must consider human concerns. By acknowledging our humanity, the interests of our communities, and the human element implicit in conservation, we place ourselves in a better position to act as conservationists within our communities.

Anna Santoleri is a senior at Harvard College concentrating in History and Literature.

References

Algae Biofuel Production: An Untapped Resource with Huge Potential

As the human population continues to grow at an unprecedented rate, climate change and depletion of fossil fuel reserves have caused governments all over the world to shift priorities from unchecked economic growth to investment in sustainable technologies. As a result, the clean energy sector has seen explosive growth in the past decade both here in the United States and in economies all over the world; and this growth rate shows no signs of slowing down anytime soon. The International Energy Outlook 2013 (IEO2013) projects that world energy consumption will grow by 56 percent between 2010 and 2040. Although fossil fuels such as coal, crude oil, and natural gas continue to supply almost 80 percent of global energy use, these global energy demands cannot be met without the growth and expansion of renewable energy sources (International Energy Outlook, 2013). Replacing fossil fuels with renewable energy requires a massive overhaul of the world’s current energy infrastructure, a process that could take decades to complete. While governments continue to funnel money into the development of viable systems to support renewable energy, the world needs an intermediary fuel source to satisfy a portion of our global energy demand while we transition away from fossil fuels. The answer lies in an ancient photosynthetic microorganism that can be found in almost any aquatic environment today: algae. These modern descendants of cyanobacteria represent a robust and diverse group of organisms that have adapted to survive in some of the most extreme habitats on Earth. As our global energy demand increases, we now have a critical opportunity to harness the adaptive potential of algae blooms as a highly productive and sustainable fuel source.

Algae, like other plants, use photosynthesis to convert solar energy into chemical energy. They store this energy in the form of lipid oils, carbohydrates, and proteins. The plant oil can be converted to biodiesel. The more efficient a particular plant is at converting that solar energy into chemical energy, the better it is from a biodiesel perspective. As one of the most photosynthetically active plants in the world, algae grows at extremely fast rates with high lipid content, from which oil can be easily extracted with minimal resource input.

Compared to other forms of renewable energy and biofuels, algae can be cultivated on a large scale relatively easily with very high efficiency. Algal blooms require only sunlight, water, and a rich nutritional medium in which to float in order to proliferate. Since they grow in aqueous suspension with efficient access to water, CO2, and dissolved nutrients, algae are capable of fixing CO2 from the atmosphere and producing biomass much more rapidly and efficiently than terrestrial plants. Algae can produce up to 300 times more oil per unit area than conventional crops such as rapeseed, palms, soybeans, or jatropha. Since algae do not have to produce structural components such as cellulose for leaves, stems, or roots, they have a harvesting cycle of 1–10 days and can grow up to 20-30 times faster than food crops such as corn (McDill, 2009). Therefore, their cultivation permits several harvests in a short time frame, a strategy different from that associated with traditional oil crops with yearly schedules (Chisti, 2007). Unlike terrestrial crops, whose failure costs an entire growing cycle, an algal pond can also be reinoculated to resume production in a matter of days (Pienkos, 2009), a factor that can greatly extend the lifecycle and productivity of algae feedstocks for biofuels.

Algal biofuels also have many positive externalities in terms of environmental sustainability. Unlike traditional feedstocks for biofuel such as corn and soy crops, algae are not a primary food source for humans, meaning that it can be used solely for fuel with little to no impact on the food industry. As well, it acts as a much cheaper alternative to the traditional corn or grain-based feeds (Demirbas, 2008). At the end of the algal life cycle, after oil is extracted, the leftover biomass residue can be used as an animal feedstock or as soil fertilizer. This is a sustainable way to minimize waste while fulfilling the growing demand for animal feed. Algae can also help solve the problem of terrestrial biofuel feedstocks such as corn competing with agricultural resource priorities in land usage. Because algae can be grown without taking up arable land that would otherwise be used for growing food crops, it results in a much smaller land usage footprint. Thanks to recent advances in biotechnology, large-scale cultivation of algae now takes place in closed systems such as raceway ponds and photobioreactors. These systems provide great productivity and control, and produce more output with less light and land area. As a result, algaculture can be feasibly developed on marginal lands deemed useless for the cultivation of agricultural crops, such as arid land, land with excessively saline soil, and drought-stricken land (Schenk et al., 2008). This minimizes the issue of taking away pieces of land from the cultivation of crops. To further decrease its footprint and minimize its usage of natural resource inputs, algae can be grown using water from salt aquifers that is unusable drinking or agriculture (Bullis, 2007). It can even grow in ocean water, the most renewable and plentiful resource on Earth.

In terms of biodiversity, with careful planning, large-scale algaculture can develop with minimal impact on local ecosystems. Since algae can inhabit many “wastewater niches” with low habitability for species such as drought-stricken land and salt aquifers, its growth will not take away significantly from existing natural habitats. Compared to terrestrial biofuel agriculture, cultivation of algae also uses much less land, thus preserving more natural habitat for local biodiversity.

Besides requiring very few resource inputs, growing algae can also help clean up waste by processing ammonia, phosphates, and nitrates from wastewater. Wastewater contaminated with fertilizers, human sewage, and animal waste as well as CO2 emissions from industrial processes, all major pollutants and human health risks, can all be used as nutrients in algaculture. Nitrogen is one of the essential elements required for the growth of algae. Urea and ammonia happen to be a readily available source of nitrogen for algae. Therefore, algae actually thrive on saline, brackish and wastewater from the treatment of sewage, agricultural, or flood plain run-off because they are rich sources of nutrients for the algae (Demirbas, 2011). Because of this, the large-scale growth of algae for biofuel production actually helps to protect our fresh water resources by preventing contaminated water from mixing with the lakes and rivers that supply our drinking water. With just a simple cleaning and sterilizing process through anaerobic digestion, contaminated wastewater becomes suitable for algae growth.

The current global energy crisis and growing environmental concerns, such as imminent climate change and pollution of water resources, have sparked a surge in the clean energy sector. Advanced biofuels in particular have received a great deal of attention given the limitations of first and second-generation corn and cellulosic biofuels. Algae oil presents itself as a very promising source for biofuels given the extremely high renewability and sustainability of algae. As one of the most photosynthetically active plants in the world, algae grows at extremely fast rates with high lipid content, from which oil can be easily extracted with minimal resource input. Large-scale algae growth also provides environmental benefits such as wastewater diversion and atmospheric carbon capture. It can also help alleviate the food supply and land use issues associated with corn-based ethanol. The life cycle of algae can be further sustained by the production of valuable secondary products such as livestock feed. Recent advances in biotechnology to create cheaper production techniques have shown great promise. Algal blooms hold huge potential as an intermediary fuel source given their many environmental benefits. As the world awaits a solution to the global energy crisis, we should all keep algal biofuel on the radar, as it is certain to play an important role in the future of the world’s energy supply.

Lillian Wang is a senior at Tufts University majoring in Environmental Studies & Biopsychology.

References cited

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