Biofuels, Ethanol Give Food for Thought

By Harold Brown

Harold Brown, Senior Fellow, Georgia Public Policy Foundation

A lawsuit filed this week against the federal Environmental Protection Agency accuses the agency of penalizing refiners for failing to meet “unattainable and absurd” cellulosic biofuels quotas outlined in EPA’s renewable fuels standard.

The EPA mandates the purchase of biofuels formulated in part from biological materials including switchgrass, wood chips and agricultural waste. But the oil and gas industry trade association, the American Petroleum Institute, argues that the quotas set an unrealistic goal because no such cellulosic biofuels are produced on a commercial scale in the nation.

Refiners unable to meet the cellulosic biofuels mandate represent just the tip of the iceberg.

Biofuels, mainly ethanol, are booming in the 21st century. They crept over from the 20th century then accelerated. That rise shows that food is now plentiful, even in excess. Transport has priority over eating. Corn is fuel. The specter of starvation has so nearly disappeared from the globe that we now use food for fuel; all that is needed is to convert it to ethanol.

Is converting food to ethanol really necessary, logical or economical? The U.S. government decided 32 years ago that it might be and put billions of dollars into making it so.

Memories of the 1970s Mideast oil squeezes and an oil price of $40 per barrel produced the Energy Security Act in 1980. Congress launched an $88 billion program, including the U.S. Synthetic Fuels Corporation, to develop alternative fuels. In less than five years, however, oil was down to $20 per barrel, and in 1986 the Synthetic Fuels Corporation died.

The idea didn’t die. Recurrent oil crises brought repeated interest in ethanol for motor fuel. Brazil showed it could be done with sugarcane ethanol. But U.S. ethanol production rose only slowly, from a half-billion gallons in 1984 to 1.6 billion in 2000. The Energy Policy Act of 2005 gave ethanol a gigantic boost. In it, Congress mandated the use of 12.95 billion gallons of renewable fuels by 2010; that mandate was slightly exceeded.

More than $20 billion in tax relief also encouraged ethanol use. The tax credit for ethanol blended with gasoline was $5.4 billion in 2010 alone. Loan guarantees for refinery finance and research grants added billions more over the years.

Ethanol would not need subsidies if it were really competitive with gasoline. The Congressional Budget Office concluded in 2009 that without subsidies, the “break-even ratio” was 90 cents per gallon of retail gasoline to $1-per-bushel-corn. By that yardstick, two years (2004 and 2005) out of the last 30 were favorable for corn ethanol.

The political argument for increasing ethanol use has been independence from foreign oil, high oil prices, reducing carbon footprints and even creating jobs. This nation produces almost 1,000 barrels of fuel ethanol per day, having bypassed Brazil in fuel ethanol production in about 2005. Oil imports peaked in 2005 and decreased by 9 percent by 2010, but increased ethanol use was not responsible. Gasoline sales decreased 25 percent during the same period and ethanol accounted for only 8 percent of motor fuel in 2010.

At about the same time international food prices began a steep rise, led by cereals. Corn prices received by U.S. producers rose from $2 per bushel in 2005 to over $6 in 2012 (with the drought, they may reach $10 per bushel). During the same period, ethanol production in the U.S. tripled, using 40 percent of the corn produced in 2010.

Many groups weighed in on the link between increased ethanol production and rising food prices. A summary written for the World Bank in 2008 concluded that the large increases in biofuels would not have occurred without “subsidies, mandates, and tariffs on imports,” without which “food commodity price increases would have been smaller.”

The tax credit disappeared at the end of 2011. It seems that substituting ethanol for gasoline has been marginal at best and has satisfied almost no pressure group except farmers and ethanol blenders. Even the environmental lobby doesn’t like it. The Clean Air Task Force says about biofuels, “… they offer few discernible benefits;” a Natural Resource Defense Council blog calls products like corn ethanol “dirty biofuels of the past,” and the National Wildlife Federation sued EPA to prevent more land being plowed to produce corn for ethanol.

In spite of the facts that ethanol delivers no more energy than required to produce it, that its use doesn’t improve the environment or that it raises food prices, it is still in gasoline. The tax credit for ethanol lapsed at the end of 2011 but mandates, which EPA has the authority to “adjust,” continue.

Trying to solving multiple environmental, political and resource challenges with a government-sponsored technological fix almost always leads to inefficiency. A century ago our country had a similar inefficiency. It then harvested corn from 25 percent more land than today, and fed much of it to the 27 million horses and mules that pulled its plows and wagons. Why do we need to go back to feeding our food to (iron) horses?

With few exceptions, people have historically used fuels that were most economical or convenient. Ethanol meets neither test. A mandate that citizens burn biofuels – especially ethanol – as a motor fuel makes about as much sense as the Eighteenth Constitutional Amendment banning its manufacture, to prevent citizens from drinking it.

(University of Georgia Professor Emeritus R. Harold Brown is a Senior Fellow with the Georgia Public Policy Foundation and author of “The Greening of Georgia: The Improvement of the Environment in the Twentieth Century.”)

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