The Ethanol Quandary

The New York Times had an article yesterday on the economic growth that ethanol is spurring across rural America, even in places like Grinnell. However, the article only grazed on the hidden costs and unintended consequences of this boom.

The rise in the use of ethanol has raised corn prices considerably. As this article from Bloomberg News mentions, corn “surpassed $4.20 a bushel Jan. 17, almost double its September price.” This has big consequences for American consumers. Hogs, chickens and cows rely on corn for their feed. This has led to higher prices for pork and beef but also for soybeans, which serve as an alternate feed for livestock, not to mention all sorts of other foods ranging from bread to pop.

However, the consequences have been far graver internationally. In Mexico, the rise of corn prices has led to a giant surge in the price of tortillas, which is the basic staple for most poor and working class Mexicans. The result has led to most poor Mexicans being forced choose between spending “up to a third of their income on tortillas — or eating less or switching to cheaper [and much less healthy] alternatives.” It is beginning to ripple into a political crisis with over 75,000 Mexicans holding a protest against the rising prices 10 days ago.

Ethanol isn’t even that good for the environment either. The Bloomberg article points to a June 2006 study by researchers at the University of Minnesota in Minneapolis that found that there may be a net increase in greenhouse gas emissions as a result of growing more corn for ethanol. The article goes on to explain that this happens because “crops have to be irrigated, plowed with tractors, doused with nitrogen fertilizers and transported to ethanol distilleries, which power their machinery with natural gas or coal. Croplands are less effective than forests or grasslands in absorbing carbon dioxide, the heat-trapping gas blamed for global warming.”

The final issue is that the ethanol boom creates an unsustainable boom in corn prices. If a Democratic Congress raises CAFE standards as expected, Americans will be consuming less gasoline, not to mention gasoline alternatives such as ethanol. However, this is only small potatoes compared to the long term issue. The President announced an initiative several years ago to make hydrogen fuel cells a viable option by 2020. Even if that estimate is off by ten years, that will create a real long term issue. If, by then, growth in alternative fuels has continued at the current pace, much of our nation’s agricultural sector will be geared towards producing ethanol, biodiesel and other substitutes for gasoline. However, there is no need for a substitute for gasoline when you’ve found a substitute for the internal combustion engine. This creates the inherent potential for a farm crisis that would dwarf the one in the 1980s.

As the use of alternative fuels increases, these issues will become more pressing. The question is how to deal with the difficult balance between spurring economic growth in rural America and decreasing our dependence on Middle Eastern oil on one hand and keeping food prices low for consumers and protecting our economy and environment in the long term on the other. There is no easy answer but it is a question that should be and needs to be asked.

3 comments February 12th, 2007

Ethanol is as ethanol does

With gas prices soaring to above $3/gal in parts of the country it is no wonder that people are talking about alternative energy. Here in Iowa, of course, we like to talk a lot about ethanol, because we grow a lot of corn, one of the materials that can be turned into ethanol.

The Department of Agriculture announced this week that increased demand for ethanol is driving corn prices up, so at least Iowa farmers can receive some benefit from the high gas prices.

Meanwhile, lawmakers in Washington are considering legislation that would mandate an increase in the amount of ethanol used for fuel. Both Democrats and Republicans from the Midwest are proposing legislation, and while they think that it is useful to both be working on similar proposals, it seems unlikely that any bills would actually pass as midterms approach. There is concern that mandating the use of ethanol might not be the wisest move right now:

“To say that we have to incorporate these huge volumes of ethanol into gas regardless of what they cost is not very good policy if you’re trying to moderate gasoline prices,” said Bob Slaughter, president of the National Petrochemical and Refiners Association.

Furthermore, there is speculation that the dramatic increase in corn-derived ethanol costs may actually be contributing to high gas prices. So as a recap, so far we’ve got people saying high gas prices are driving up corn prices and other people saying that high corn prices are driving up gas prices. This economist though says that the only thing determining gas prices is good ol’ supply and demand.

So lets complicate things a little further: according to the same Register article there are also proposals in Congress to end the 54 cent per gallon tariff on imported ethanol. Places like Brazil are big ethanol producers, but they make it from sugar cane, not corn. However, it is uncertain if this would really reduce gas prices. Not to mention,

Latham, a close ally of House Majority Leader John Boehner, said the tariff cut would be unlikely to pass the House.

Another question that is being debated is how useful ethanol really is. While the debate over gas prices is one thing, the larger issue here is renewable energy. Is ethanol really a viable energy resource? Recent studies coming out of Cornell University have found that ethanol actually takes more energy to make than it produces. Basically that is bad. So even if ethanol could replace a sizable chunk of our foreign oil imports we might be better off looking for ways to power our vehicles with natural gas or coal (the biggest electricity producers in the U.S.).

What a lot of people are depending on in the future of ethanol is that there will be some technology advances. However, those advances are expected to come from finding new sources for ethanol, like plant wastes and wood chips. So what does this all mean? I don’t really know either, but it seems like the benefits Iowa derives from the ethanol industry might not be there in the future. (Maybe we should be focusing on that other renewable energy resource that we have a lot of…wind!)

1 comment May 12th, 2006