A recent study published in the journal Science states that biofuel production actually creates more greenhouse gases than traditional oil-based fossil fuels. For those of us who have been caught up in Ethanol mania here in the U.S. (see the recent passing of the energy bill), this news has to be shocking. According to the energy bill, the U.S. is committing billions of dollars to new biofuel production, but instead of spending money to help the environment it appears that we are spending money to make things even worse.
As this news travels through Washington D.C. it would not be surprising to see some adjustments made to the recently passed bill. If the study proves to be factual, then it would be extremely imprudent to continue on the current path. Of course, seeing as our government loves to throw money away, I wouldn’t put it past them to overlook this, but I would be very hesitant as an investor now to invest in anything related to biofuels.
In the U.S. farmland prices, as well as corn, have skyrocketed largely due to Ethanol. If suddenly the government were to no longer require the use of Ethanol, or other biofuels, the value of corn and farmland would likely take a dive. This would be good news for most of the world, considering the enormous increases in the price of food, among other corn based products. However, farmers and those invested in farmland would not be so happy.
Needless to say investors should stay away from Ethanol producers, and possibly corn as well. In addition farmland investment should be looked at carefully, although there are many other things farmland can be used for other than corn. Commodities in general should still continue their bull run for a while longer. Those who have invested or who are considering investing in alternative biofuel production such as switch grass, jatropha, palm oil, and so on should do more intense research into this report. Not all biofuels are created equal. Some may cause more damage than others, and some biofuels might still be lucrative in certain locations even if this report is correct in its assessment. If biofuels are something that you want to invest in, then it would be wise to do in-depth due diligence about the sustainability of the industry before hand.