Corn and Oil


Stuart Staniford surveys various liquid alternatives to oil and concludes that the only one that’s truly sensitive to oil prices is biofuels. Today, that primarily means ethanol:

Biofuel production growth appears to be extremely oil price sensitive, and increased the fastest and reached the largest volume in response to the mid-to-late 2000s oil shock.  I have argued in the past that there are structural reasons for this: given the comparatively low capital requirements and small plant size of biofuel plants, they can respond much faster to episodes of high oil prices than can the other sources, all of which tend to involve larger, slower-to-build, more capital intensive plants.  This has important implications for food and land prices in future oil price shocks.  Food prices are likely to rise quickly and markedly in response to oil shocks, public policy permitting.

Italics mine. I don’t have a lot to add to this at the moment, but it’s a thought-provoking, chart-laden post. Worth taking a look at.

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