Biofuel economics from a US perspective: past and future

With the vast number of government programmes around the world supporting virtually every phase of biofuels, there is a strong commitment towards the development of these fuels. However, our current knowledge base of biofuel production, marketing and environmental impact is filled with uncertainty. To shed light on the uncertainty, especially from a US perspective, this review of the biofuel economic literature attempts to determine the most fruitful areas of economic research. As a foundation, it is currently accepted that the US maize-based ethanol industry is sustainable with present government incentives and regulations, while cellulosic-based ethanol is not. Thus, without major new government incentives it is unlikely the USA will achieve goals set by various energy policy acts. The literature indicates a governmental system approach is required which advances biofuels to markets. Such an approach integrates research, regulatory initiatives and education. In terms of the food versus fuel issue, markets are very responsive to price shocks which will mitigate food inflation. However, market gyrations will occur, which will negatively impact the world’s poor. With government incentives and regulations, the short-run future of biofuels is bright, while in the long run, biofuels will contribute to, but are unlikely to dominate, our future fuel supply.