Mitigation of Oil Dependence
The United States alone accounts for 25% of global oil consumption, yet holds only 3% of the world's known oil reserves. Most known oil reserves - approximately 60% - are found in sensitive and volatile regions of the globe. An increasing strain on the world oil supply is also expected as developing countries become more industrialized and increase their energy demand.
Biofuels reduces country's dependency on imported petroleum. Domestic production of biomass resources provides a reliable source of raw materials relatively independent from international disruptions.
In addition, the use of biofuel allows countries to coordinate their agricultural and energy policies while creating local and regional economic development opportunities. While the relative importance of every country's priorities may vary by region, countries using biofuels attain benefits in all of these three areas.
The world is full of under-utilized land that can grow biomass, which the new technology will require. According to the Food and Agriculture Organisation(FAO), the world has a bit less than 1.4 billion hectares of land under cultivation. Estimates from the Geographic Information System have shown that around 95 countries have more than 700 million hectares of good quality land not utilized for cultivation. Depending on assumptions about productivity per hectare, today's oil production represents the equivalent of some 500 million to 1 billion hectares of biofuel, so the production potential of biofuel is in the same ball park as oil production today.
Even if the large potential of biofuel is not maxmized, it will put a cap on the price of oil because it has a much more elastic supply compared to that of oil. This causes the price of oil to be set at the marginal cost of bio-energy, independent of the production decisions of OPEC. If OPEC tries to raise prices above the price at which biofuels become highly profitable, it will only crowd in more biofuels because of its more elastic supply. Oil producers will still be rich, but they will have lost the incentives to form a cartel.
