Ethanol: Too Much
Hype—and Corn
http://www.businessweek.com/debateroom/archives/2007/02/ethanol_too_muc.html
Ethanol
enjoys subsidies from Congress and has upped corn prices. The rush to
alternative fuels has been unwisely skewed to this one industry. Pro or con?
Pro: BushŐs Cornfield of
Dreams
Amid the explosion of
consumer interest in all things ecological, elected officials are rushing to
promote environmentally friendly policies. In his State of the Union speech,
President George W. Bush announced his proposal to cut U.S. gasoline
consumption by a fifth over the next 10 years, with a major boost in ethanol
and other alternative fuels.
But before the proposal
gets cheered into law, it requires further scrutiny. The reality remains that
ethanol is no magic potion for meaningfully reducing oil dependence and
lowering greenhouse gases. The prospect of boosting ethanol production to 35
billion barrels by 2017 will require massive tax subsidies and produce such
environmental damage that the plan can be considered little more than a dream.
One problem with ethanol
is its cost. ItŐs subsidized by the U.S. government at a rate of 51 cents per
gallon, and federal and state subsidies for the fuel added up to $6 billion
last year. As the number of gallons produced multiplies, so will the cost to
the taxpayer.
Taxes arenŐt the only
burden that will fall on consumers. As ethanol usurps more of the corn crop,
the price of corn rises, boosting food prices. Already, about 20% of the corn
crop goes toward ethanol production, up from just 3% five years ago. That drove
up corn prices 80% in 2006 alone. This week, Richard Bond, the chief executive
of meat producer Tyson Foods TSN,
warned that if corn continues to be diverted from animal feed, consumers will
likely pay ŇsignificantlyÓ more for food.
But even if ethanol costs
a lot, doesnŐt it at least benefit the environment? Not necessarily. Because
itŐs an oxygenate, ethanol increases levels of nitrous oxides in the atmosphere
and causes smog. Researchers are debating the extent to which it reduces
greenhouse gases, with some estimates as low as 5%. Also, ethanol lags gasoline
in fuel efficiency, and it requires fossil fuels like coal or gas to refine and
transport it.
EthanolŐs supporters say
that not all ethanol will come from corn crops, and point to the great promise
of ŇcellulosicÓ ethanol—made from nonfood crops like corn chips and
wheatgrass. But the great hope of cellulosic is dampened by a gaping hole in
the technology: The enzyme that will convert these plants to starch, and thus
ethanol, has yet to be discovered.
So whatŐs the alternative
to Big Corn? If the government is serious about finding cost-effective and
environmentally sound alternatives to oil, it will need to invest more in
research for cellulosic ethanol, as well as for wind and solar energies. Of
course, the other alternative—less costly but surely not as
popular—is conservation. That word was noticeably absent from the State
of the Union speech.
Con: Ethanol Is Our Most Viable
Choice
Ethanol enjoys its
favored status because it constitutes the only real option the U.S. has to
disrupt what President Bush terms our addiction to foreign oil. A congress of
science and economics hasnŐt yet managed to generate other viable technologies
to power our vehicles—and a shift toward greater use of alternative fuels
is clearly necessary. As a nation, we use three times more of the worldwide oil
output each year than the next-largest consumer does, and we contribute far
more than our share of global carbon emissions. That makes BushŐs call for 35
billion gallons of alternative fuels over the next decade practically a mandate
for our role as responsible global citizens.
Additionally, the ethanol
industry plays a crucial role for the U.S. Farm Belt. Higher corn prices are
helping to recharge economically depressed rural economies, and new ethanol
plants bring decent-paying jobs to areas that have suffered chronic
underemployment (see BusinessWeek.com, 01/10/07, ŇWho
Profits from CornŐs Pop?Ó). The 5.3 billion gallons of ethanol used last
year consumed only 20% of the nationŐs corn crop. Meeting BushŐs goal would
still require less than half of the entire corn crop—and thatŐs only if
no new corn production is added.
Moreover, the U.S.Ős
vital agriculture economy depends heavily on healthy corn prices for farmers,
and the current cost of around $4 per bushel is manageable for the economy. The
genius of free-market capitalism will sort out what needs to happen as corn
prices mature and other corn-dependent industries compete for the feedstock.
Ethanol also could become much cheaper than it is now, roughly in line with
unleaded gasoline, if Washington ends tariffs on imported ethanol. That tariff,
54 cents a gallon, distorts ethanolŐs real cost and slows its U.S. expansion.
Archer Daniels Midland ADM,
VeraSun Energy VSE, and
other ethanol producers are spending heavily to research feed materials beyond
corn, Ňcellulosic ethanolÓ (produced from cornstalks, sorghum, wood chips, and
switchgrass), and the like. These efforts would render moot worries that
greater corn use will adversely affect the overall economy. Regardless of feed
source, ethanol has proved a viable industry, as seen by BrazilŐs dramatic
success in converting its fuel systems to the fuel.