Ethanol Politics

The Government Accounting Office estimates that corn production used for ethanol will increase from 14% in 2006, to 30% in 2012. The House and Senate are currently negotiating a revised mandate for renewable fuels which may increase production from 7 billion gallons today, to 36 billion gallons by 2022, most of which would be corn-based ethanol.

Yesterday's posting provided a wide variety of articles which all slammed ethanol. Some of the larger issues are as follows:

1) Ethanol is not profitable. Most people believe that it only exists today because of politics. It would not exist based upon free markets.

Ethanol production is heavily subsidized by the government. There is a federal subsidy of 51 cents for every gallon of ethanol blended into gas. Some states provide addditional subsidies for each of these gallons. Then there are the normal multibillion-dollar corn subsidies given to farmers. Finally, there are large tariffs placed on importation of the cheaper sugar cane-based ethanol from Brazil. And of course, there are the government mandates which force minimum levels of demand.

2) Fuel vs Food: that is the tradeoff. Each ear of corn that is used to produce ethanol will reduce what is available for food. Already, this has had a huge impact on food prices. Grocery store prices have risen much faster than what the inflation numbers would suggest. The recent Mexican tortilla protests were driven by the higher corn prices. Higher food costs are also impacting the meat, livestock and poultry industries. The US Department of Agriculture reports that corn-based animal feed has increased 60% since 2005 and it is putting pressure on profits.

Other countries are taking opposite positions on this fuel vs. food issue. Reuters reported that Xu Dingming, an official of the Chinese National Energy Leading Group, said "Food-based ethanol fuel will not be the direction for China."

3) Staggering amounts of water are required to produce ethanol. The WSJ and Sacramento Bee articles estimate that one gallon of ethanol requires 1700 gallons and 2500 gallons of water, respectively. This is at a time when water is becoming increasingly in short supply. Parts of the country are already in severe drought stages and water wars are developing. Even in the midwest where most of the ethanol plants are, lawsuits over water rights have begun.

4) Ethanol can be produced from almost anything organic including grass, stalks and animal waste. It turns out that corn is a very inefficient crop for producing ethanol. Some experts believe that corn-based ethanol is a net energy drain; it requires more energy to produce than the energy that it provides. Slightly more favorable, the Sacramento Bee reports that the "Net Energy Efficiency" of corn is only 1.3 as compared to 8.2 for sugarcane. That may explain why sugarcane-based ethanol in Brazil is a huge success.

5) While many acres of land have been devoted to corn and many ethanol plants have been built, there are several infrastructure shortfalls. Most plants are in the midwest, but there are no pipelines because of ethanol's corrosive properties. The number of filling stations which have committed to selling ethanol remains very small. Business Week reports that of the 179,000 gas station pumps in the country, only 1000 pump E85.

6) In terms of environmental footprints (energy production per unit of the earth's area), ethanol is the least efficient provider of fuel. Land required for an oil well is up to 1000 times more efficient than what is required for solar, and solar is about 10 times as efficient as ethanol. Negative implications of converting huge tracts of land for growing corn include a) leveling of CO2-munching forestlands, b) degradation of wildlife habitats, c) soil errosion and d) increased fertilizer use and runoffs.

7) While ethanol does reduce greenhouse emissions, it also generates nitrous oxide (NOX) pollutants which have a vareity of health and environmental problems.