Misplaced Priorities; Ethanol Promotion and its Unintended Consequences.

When the state of Iowa becomes a priority in the US presidential election, it is only a matter of time before agriculture dominates the discussion. Indeed, US presidential candidates Hillary Clinton, John McCain, and Barack Obama all brought out their metaphorical overalls to sing praises of corn farmers before the February caucuses. Such kowtowing to Iowa's farmers has become a quadrennial tradition in the United States, where federal corn subsidies totaled US$37.3 billion from 1995 to 2003. The United States' funding of corn farmers stems largely from precedent, a desire to keep the heartland happy, and perhaps even a romanticized conception of small farmers. However, the subsidies also have significant roots in one of the most confounding environmental programs of the past 30 years: ethanol fuel.

According to The Economist, over 200 distinct subsidy programs provide US$7 billion each year to participants in all levels of ethanol production and supply. Since the 1970s, untold billions in handouts have been given to corn farmers, "big ethanol" refining companies such as Archer Daniels Midland, and gas stations in an effort to boost ethanol's profile in the US market. And if federal subsidies to all parties involved in the production of ethanol were not enough, the US government currently places a US$0.54 per gallon tariff on imported ethanol. Several state governments have started subsidy programs as well. This amount of market protection is inordinate for a fuel whose true value--without government support--seems low.

While subsidies are often percieved to be good for US business, the magnitude of government handouts to corn farmers in the United States produces pernicious consequences around the world. Government actions have artificially increased US demand for corn, driving up the prevailing world price of corn by over 50 percent since 2006. While rising world food costs are not the fault of the US ethanol regime alone, support for ethanol does play a significant role in rising prices. This effect is especially dire for poor countries accustomed to years of falling food costs. In addition to its direct implications on the world food market, ethanol--touted by US policymakers as a solid source of renewable energy--may not be a viable alternate fuel. There remain practical concerns to its implementation, and there is no consensus on the fuel's environmental benefit.

After considering corn-derived ethanol's questionable status as an energy-efficient fuel, along with the unintended food price blowback of its subsidization, US government policies in support of ethanol look fundamentally unsound. while political realities may not allow for the removal of distorting subsidies, the US government may enentually realize that money should shift from the production of ethanol itself toward research being conducted to make the existing industry more efficient. If ethanol production technologies are streamlined, less corn would be needed to produce the same amount of product. This would eliminate the need for subsidies, which are in part causing rising food prices and nearly eliminating ethanol's environmental benefits.

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Hungry for Fuel, Hungry for Food

The hype surrounding ethanol raises concern about the dangerous and increasing integration between energy markets and agriculture. Demand for food products now depends not just on the literal hunger and nutritional consumption of humans, but also on a "hunger" for energy. This growing connection has an underlying moral dilemma; is it fair to produce fuel from food that otherwise could have been used for nourishment? The answer to this question is debatable, and largely unclear.

Some other, more pragmatic economic questions have empirical answers. Data shows that mixing energy and agriculture markets has severe policy blowback, affecting consumers at home to the developing world's poor. As prices of corn have risen from subsidies, so have the prices of its grain substitutes--wheat, barley, and others. Processed foods that use the grains as staples have also increased in price, a result which hits foreign and US consumers squarely in the pocketbook. Consumers worldwide are increasingly angry: in early 2007, Mexico City faced riots over the doubling in prices of corn-based tortillas.

C. Ford Runge and Benjamin Senauer, professors of applied economics at the University of Minnesota, noted in their 2007 article in Foreign Affairs that "biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security." The same article also cites figures which indicate that continuing high oil prices (which are likely, considering the ongoing conflicts in the Middle East), would raise corn prices by 41 percent by 2020. Given overall food price increases, the number of "chronically hungry" people in the world could also rise to 1.2 billion by the same year.

Food price increases are most devastating for the world's poorest consumers. Congress' desire to establish a functional ethanol infrastructure through subsidies has increased food prices to the point that farmers in sub-Saharan Africa, Asia, and Latin America are often unable to afford feed for their farm animals. Poor consumers are simply unable to afford food for themselves and their families. Small price increases could starve poor families in the lesser-developed world, and the price increases driven in part by the ethanol craze are much larger than marginal. Over the course of last year, corn prices rose 50 percent from 2006 levels, and wheat prices more than doubled in price per ton. Blind promotion of ethanol is at least partially to blame for these increases.

A Questionable Environmental Solution

Although its distortionary effect on the world food market is immediate and palpable, ethanol also runs counter to environmental sensibilities. There is no consensus on whether it is even an efficient, viable alternative fuel source. US ethanol is derived from domestically grown corn, which requires fossil fuels to harvest and ship to refineries. Similarly, as the final ethanol liquid product cannot be transported through pipelines because it requires absolute purity and low-water levels, additional fossil fuels are required to transport ethanol to gas stations on trucks, barges, and trains.

Some research has found that ethanol is efficient overall in that more energy is created by ethanol fuel than is used to produce it. According to a BusinessWeek report, scientists at a lab funded by the US Department of Energy have found that ethanol delivers about 1 million British Thermal Units (BTU) of energy for every 0.74 million BTUs of fossil fuel consumed. Gasoline, in contrast, consumes 1.23 million BTUs of fossil fuel for every 1 million BTUs delivered. These results are corroborated by a 2006 National Academy of Sciences study, which found an equivalent 25 percent positive net energy balance for corn grain ethanol. As time goes on, ethanol production should slowly become more efficient in terms of net energy balance, as has been the trend over the past few decades. Cellulose-based ethanol, which is derived from a biomaterial found in most plants, is considered to be a more energy efficient version of corn ethanol. It is currently being promoted as a more environmentally friendly, efficient alternative.

While some data indicates that ethanol already is, or is at least becoming, more energy efficient, there is still no scientific consensus on whether it is good for the environment. Some choose to focus less on energy efficiency and more on the carbon emissions that result from ethanol's production and use. Robert Bryce, a fellow at the Institute for Energy Research, claims, "Virtually all studies show that greenhouse gases associated with ethanol and gasoline are about the same once the entire life cycle of the two fuels are compared."

Even if ethanol can be considered more environmentally friendly than gasoline, it still remains to be asked whether it can even be practically introduced as viable replacement for gasoline. The answer to this question is much clearer. If the United States were to depend entirely on domestic crop reserves for ethanol for energy, demand would outstrip supply to such a degree that even if the entire biomass of the United States were used to produce ethanol, there would still be an energy shortage. Tad Patzek, an environmental and civil engineering professor at the University of California, Berkeley, noted in remarks to the National Press Club in 2005 that "compared with current energy use in the United States, the impact of biomass is almost negligible, regardless of its source."

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Patzek asserts that there are several alternatives to funding the ethanol behemoth that would probably help the environment more than the increasingly prevalent use of mixed ethanol and gasoline, or "gasahol." The first is to ensure that car tires are properly inflated, and the second is to increase fuel efficiency of today's vehicles by just three to five miles per gallon. Patzek also suggests investment in solar energy, which "is at least 100 times more efficient in delivering work than corn ethanol." Even if ethanol is energy efficient, it will never be able to replace gasoline as the United States' main source of fuel. As Patzek makes clear, many different types of measures and alternate energy sources could more significantly reduce humans' impact on the environment at a lower cost than the continued rollout of ethanol.