The enigma of ethanol - Trade Only Today

The enigma of ethanol

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Critics claim the corn-based  oxygenate is a huge problem masquerading as a solution

When the federal government mandated increasing the use of alternative fuel sources in the nation’s gasoline supply — mainly corn-based ethanol — it was heralded as the best possible solution for several major issues. Proponents said it would reduce America’s dependence on foreign oil, cut down on pollution and give an added boost to struggling Midwest farmers.

Net U.S. farm income is estimated to increase by as much as $5.4 billion in the next several years, according to the Environmental Protection Agency. That’s in addition to the $5 billion a year in subsidies, $2 billion of which go to corn or former cornfields.

Oil companies get a share as well. For every gallon of ethanol they use, oil refineries get paid 49 cents, according to the Environmental Working Group, a non-profit research and lobby organization. EWG senior analyst Michelle Perez notes these companies plan to make nine billion gallons of ethanol this year.

“Obviously, there are people who have a financial interest in the increased use of ethanol,” says Thom Dammrich, president of the National Marine Manufacturers Association.

From the onset, the marine industry has had its own problems with ethanol-blended gas in its engines and tanks. For a while, it seemed as if the concerns of this industry and a few other anti-ethanol groups were being drowned out by the chorus of ethanol supporters. But now, with food prices at an all-time high, food shortage in some parts of the world and claims that corn-based ethanol does more environmental harm than good, more people, industries and environmental groups are climbing aboard the anti-ethanol bandwagon.

“There’s been an awakening and a realization that it wasn’t a good idea to begin with,” says Dammrich.

That’s what the Environmental Working Group has been saying for the last several years. Perez says policymakers were not listening to scientists or the livestock industry when corn-based ethanol became the golden goose.

“Their concerns fell on deaf ears,” she says. “The politics had to catch up with the science, and that happened in 2007 and 2008.

“I think there is growing support for at least reopening the debate,” Perez says. “It’s just a matter of whether the Corn Belt representatives will listen to the facts and to scientists.”

Ethanol first started showing up in gasoline in a limited number of states a few years ago as an oxygenate when it was discovered that methyl tertiary butyl ether (MTBE) was polluting groundwater.

Ethanol’s use spread with the Energy Act of 2005, which mandated an increase in renewable fuels in the nation’s gasoline supplies from four billion gallons in 2006 to 7.5 billion gallons in 2012.

Then, in his 2006 State of the Union Address, President Bush outlined a plan to reduce dependence on foreign oil by further increasing the use of renewable fuels. Last December he signed into law the Energy Independence and Security Act of 2007. In addition to raising fuel-economy standards and other energy efficiency requirements, the law includes a mandatory Renewable Fuel Standard, requiring fuel producers to use at least 36 billion gallons of biofuel in 2022.

The fossil-fuel content of gasoline and diesel would decline from 136 billion gallons in 2006 to 125 billion gallons in 2030, according to the federal Energy Information Administration. The biofuel content of all gasoline and E85 consumed in the United States, which totaled about 5.6 billion gallons in 2006, increases to 25.8 billion gallons in 2030.

Another supposed benefit of renewable fuels is a reduction in greenhouse gas emissions such as carbon dioxide. The U.S. Department of Energy says ethanol produced from corn results in about a 20 percent reduction in greenhouse gas emissions relative to gasoline. With improved efficiency and use, this reduction could be as much as 52 percent, according to the government agency.

At the same time, however, other vehicle emissions may increase as a result of greater renewable fuel use, according to the EPA. Nationwide, the EPA estimates an increase in total emissions of volatile organic compounds and nitrogen oxides between 41,000 and 83,000 tons in 2012.

“It is a major concern in places like California that have strict air quality needs and regulations,” says Perez from the Environmental Working Group. “The Renewable Fuel Standard falls under the Clean Air Act, but it’s violating other aspects of the Clean Air Act.”

Perez noted that ethanol as an oxygenate is 4 percent to 8 percent of blended gas, but most states are going to ethanol blends of 10 percent or higher. Ethanol becomes a gas substitute instead of an oxygenate and it pollutes the air, she says.

Producing ethanol also creates other environmental problems, according to those lobbying against its use. The increasing demand for corn to meet both food and fuel needs is accelerating the conversion of pasture and forest lands to crop production, according to Scott Faber, vice president of federal affairs for the Grocery Manufacturers Association.

This conversion will release carbon into the atmosphere and reduce the availability of carbon “sinks” that help sequester carbon, Faber said in his May 6 testimony before the Energy and Air Quality Subcommittee of the House Committee on Energy and Commerce. He also says increases in fertilizer use associated with expanded corn and soybean production will increase the amount of nitrogen and phosphorous being washed into rivers and bays and will increase ground-level ozone.

Perez from the Environmental Working Group says biofuels only make global warming worse. “Fertilizers release nitrous oxide, which is 300 times more destructive of the atmosphere than carbon dioxide,” she says.

NMMA’s Dammrich says this is just one more example of why ethanol is not a viable solution to the problems it was supposed to resolve.

“The carbon footprint of producing ethanol is greater than the carbon footprint of using ethanol,” he says. “Ethanol is not necessarily good for the environment.”

The biggest ethanol controversy at the moment, however, is the effect the “food-to-fuel” mandate has on food prices and supplies. The problem has been further compounded by flooding in the Midwest, which has severely damaged corn crops and reduced yields, driving up prices to an unprecedented $8 a bushel. That’s more than double the price from a year ago.

“It’s a fact that corn starts the majority of our food products from beef to colas,” says Norm Schultz, a marine industry veteran who wrote about this topic in a blog for Soundings Trade Only. “In 2007, a quarter of the corn crop became ethanol, not food. This year, that figure is expected to hit 35 percent and, under the energy bill passed by Congress late last year, will continue on up from there.”

Dammrich calls ethanol “a scam.” He says, “All it did was raise corn prices, milk prices, bread prices, meat prices, everything.”

According to the Bureau of Labor Statistics, domestic food prices rose by 4.9 percent during 2007, the largest increase in 17 years. The domestic price of basic staples such as eggs, milk and meat have increased even more dramatically in the last three years, according to Fabor from the Grocery Manufacturers Association. He said food-to-fuel mandates will increase the cost of livestock production by $17.7 billion in 2008-2009, and have already contributed to the loss of hundreds of jobs.

“We estimate that food inflation will rise by 7 to 8 percent over the next few years, as up to 40 percent of our corn and 30 percent of our vegetable oils are diverted from our food supplies to our fuel supplies,” Faber said in his testimony to the House subcommittee. “The Producer Price Index for food has risen at an annualized rate of 10 percent over the past three months.”

Faber goes on to say that using corn-based ethanol does nothing to alleviate America’s energy woes. He says diverting 25 percent of the U.S. corn crop has displaced roughly seven billion gallons of the nation’s 140 billion gasoline supply — or less than 4 percent, when relative energy values are considered. Diverting 40 percent of corn to produce 15 billion gallons of ethanol would replace less than 7 percent of our gasoline supplies, when relative energy values are concerned, he added.

Perez from the Environmental Working Group says even if the United States puts 100 percent of corn supplies into ethanol, it only helps 15 percent of daily gas needs.

“The dent it could make is absolutely miniscule,” she says.

This article originally appeared in the August 2008 issue.

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