Bioethanol Boondoggle

Political viability is more important than commercial viability

Ronald Bailey | December 4, 2007

Congress is finalizing an energy bill that should come to a vote before the end of 2007. Although all the details of the newly negotiated bill are not yet public, an earlier draft mandated that refiners annually blend 20.5 billion gallons of ethanol into transport fuels by 2015, with 5.5 billion gallons of that coming from non-food sources like cellulosic ethanol. The mandate would rise to 36 billion gallons by 2022. This more than quadruples the 2005 directive of 7.5 billion gallons by 2012.

Promoters of the ethanol mandate assert that it would help the United States achieve energy independence and slow the accumulation of greenhouse gases that are driving climate change. Evaluating the scientific and economic claims being made for bioethanol can be vexing, but a few urgent questions come to mind: if bioethanol is such a good energy deal, why must refiners and consumers be forced to use it? Again, if it's such a great idea economically, why does the federal government offer a tax credit of 51 cents per gallon for blending ethanol into gasoline?

In fact, the subsidies are probably higher than that. For example, a 2006 report by the International Institute for Sustainable Development estimated that if one took into account state renewable fuel tax breaks and direct agricultural subsidies that reduce other costs, the total amount of the ethanol subsidy rises from $1.05 to $1.38 per gallon of ethanol

Another big concern is that fuel is now competing with food. A new study from AEI/Brookings Joint Center points out that in 2005, the ethanol program consumed about 15% of U.S. corn production but displaced less than 2% of gasoline use. The International Food Policy Research Institute (IFPRI) just issued a report projecting that if countries simply pursue their current biofuel expansion plans the global price of corn will increase by 26 percent and the price for oilseeds will rise by 18 percent. If biofuel production doubles over current projections, the price of corn rises by 72 percent and oilseeds by 44 percent. The IFPRI report notes that "The increase in crop prices resulting from expanded biofuel production is also accompanied by a net decrease in the availability of and access to food." Even in North America, access to food calories drops by between 2 to almost 5 percent depending on which biofuel production scenario plays out. In food stressed sub-Saharan Africa, available food calories drop by between 4 and 8 percent.

Even cellulosic ethanol produced using waste products like wood chips and corn stalks, or fuel crops like switchgrass or hybrid poplars do not solve the food/fuel conundrum. "The trade-offs between food and fuel will actually be accelerated when biofuels become more competitive relative to food and when, consequently, more land, water, and capital are diverted to biofuel production," concludes the IFPRI report. And there is no avoiding the trade-off between conservation and ethanol production. Already, U.S. farmers have taken 4.6 million acres out of the 36 million acres of farmland put aside in the Conservation Reserve Program (CRP) to raise fuel crops. Switching land from the CRP to ethanol production will obviously effect wildlife, water usage, and soil erosion.

The most vexing question: Does corn bioethanol actually reduce greenhouse gas emissions? A study last year by Cornell University biologist David Pimentel and University of California at Berkeley engineer Ted Patzek says no. According to the study, "Ethanol production using corn grain required 29 percent more fossil energy than the ethanol fuel produced." And the news was even worse for cellulosic ethanol using switchgrass, which requires 50 percent more fossil energy than it displaces; woodchips needed 57 percent more; and biodiesel burnd 27 percent more fossil fuel than it displaces. On the other hand, the researchers at University of Minnesota offer a much sunnier analysis of the net energy benefits of bioethanol. They find, "Ethanol yields 25 percent more energy than the energy invested in its production, whereas biodiesel yields 93 percent more."

This technical dispute over the net energy balance of biofuels will be resolved some day. In the meantime, a new study from the Oregon State University asks if biofuels are commercially viable? The study finds that they are commercially viable in Oregon if one takes current government incentives into account. Translation: biofuels are not really commercially viable without subsidies. In addition, the Oregon study analyzes the effectiveness of biofuels in promoting energy independence. The researchers find "for all three biofuels evaluated, energy independence is achieved at costs that are 6 to 28 times higher than for other policy options such as raising the gas tax or increasing corporate average fuel economy (CAFE) standards." The AEI/Brookings study estimates that in meeting the current ethanol mandate the costs will exceed the benefits by about $1 billion a year.

Biofuels are commercially questionable, do not materially advance energy independence, and may not even help reduce greenhouse gas emissions. Naturally, Congress wants to mandate them. Why? Well, Iowa caucus voters win; Archer Daniels Midland wins; and special interest contributors to political campaigns win. Bioethanol is just a subsidy boondoggle masquerading as a solution to America's energy problems. But it does help get some politicians elected.

Ronald Bailey is Reason's science correspondent. His most recent book, Liberation Biology: The Scientific and Moral Case for the Biotech Revolution, is available from Prometheus Books.

Comments

|12.4.07 @ 4:40PM|#

Don't get me started. I'm warning y'all.

|12.4.07 @ 4:45PM|#

But we have to do something!!!

|12.4.07 @ 4:46PM|#

Already, so if this bill is expected to pass, and I buy corn futures right now, how am I not guilty of insider trading?

BakedPenguin|12.4.07 @ 5:19PM|#

The Oregon State study doesn't address biodiesel using recycled oils / fats. Since this is ~80% of the volume of biodiesel, going from $1.80 / gallon to $.05 / gallon will greatly increase its commercial viability. Subsidies would not be necessary.

Admittedly, most oils are already recycled, and using exclusively recycled oils would limit the growth in biodiesel production. OTOH, it would also remove the argument about energy inputs - since the oils had already been used for their primary purpose.

|12.4.07 @ 5:19PM|#

Already, so if this bill is expected to pass, and I buy corn futures right now, how am I not guilty of insider trading?

Don't you have to act on information not available to the general public for it to be considered insider trading?

A magazine article is something available to the public at large

|12.4.07 @ 5:32PM|#

a 2006 report by the International Institute for Sustainable Development estimated that if one took into account state renewable fuel tax breaks and direct agricultural subsidies that reduce other costs, the total amount of the ethanol subsidy rises from $1.05 to $1.38 per gallon of ethanol.

That doesn't sound very sustainable.

Dave B.|12.4.07 @ 5:41PM|#

Won't mandating by law that billions of gallons of ethanol be blended in with gasoline make adoption of alternative energy sources more difficult? Gasoline companies would be in violation of the law for developing realistic alternatives that don't involve corn.

|12.4.07 @ 5:43PM|#

Perhaps yet another reason to examine if campaign contributions are just another form of speech that requires protection. Could words ever be as persuasive as dollars with something that makes so little sense as this?

src|12.4.07 @ 5:50PM|#

I've been worried about this since the bill went up. We're paying farmers to be wasteful, in essence: to grow less food corn and to emit (in total) more greenhouse gases.

But it seems like policymakers will serve the farm lobby for a long time yet.

BakedPenguin: yes, biofuel is different. Cellulosic ethanol is also different, I think, because it's more efficient to produce and doesn't compete with food (scraps left over after you harvest the corn.) It's not that there are no viable alternative fuels; it's that ethanol is a bad alternative.

matt|12.4.07 @ 6:05PM|#

Think of how many of our food products involve corn (readily available data on the net; needless to say its a lot of stuff and more than you'd think).

Think of that, combined with a 72% increase in the price of said corn.

Now think of where your grocery prices have already headed in recent months (in case you didn't notice, way the heck up), and think of how much they'd go up if a very common ingredient doubles in price?

How many farmers who now grow crops other than corn would switch to corn, since it will obviously be much more profitable for them to do so? Less 'other crops' = less food supply = higher prices.

Why are so many people hung up on ethanol? It's extremely inefficient to produce, it would have a dramatic impact on food prices in the USA, and it's really not anything that is expected to have a significant positive impact on the environment.

Let people know! Information is power, and if people *really* knew the true impact of an ethanol mandate, they would oppose one! Please forward this article to your friends and family and spread the word!

|12.4.07 @ 6:16PM|#

Perhaps yet another reason to examine if campaign contributions are just another form of speech that requires protection. Could words ever be as persuasive as dollars with something that makes so little sense as this?

Instead of restricing the citizenry's rights, how about we do a little constrictin' on Congress' ability to plunder the treasury on silly shit like this?

Take away their spending toys and watch the problems go away. Bonus: We get to keep our rights and freedoms and ADM and other contributors have to go back to trying to make an honest living, instead of picking our pockets. (Yeah, I was laughing as I wrote the part about ADM too.)

Geotpf|12.4.07 @ 6:21PM|#

Ethanol is promoted for the following reasons:

1. Corn is grown in Iowa, which means any Congressman who ever wants to run for President (that is, all of them) has to be for it.
2. Big agriculture (aka ADM, etc.) is for it.
3. The CAFE rules are rigged to let the Detroit 3 continue to make large SUVs if they are E85 compatible (which is fairly cheap to do, like $100 more a vehicle). Plus, it's good PR for them (GM in particular pushes thier E85 vehicles as proof they are "green"). Never mind that the vast majority of these vehicles will never be fueled with E85.
4. It's a domestic fuel source, as opposed to where oil comes from-pleasant places like Russia, Venezuela, and the Middle East.

Of course, without government subsidies, it doesn't make economic sense, even with oil at $100 a barrel or more.

|12.4.07 @ 6:30PM|#

Gasoline companies would be in violation of the law for developing realistic alternatives that don't involve corn.

We're paying farmers to be wasteful, in essence: to grow less food corn and to emit (in total) more greenhouse gases.

Why are so many people hung up on ethanol? It's extremely inefficient to produce, it would have a dramatic impact on food prices in the USA, and it's really not anything that is expected to have a significant positive impact on the environment.

Car-bon tax! Car-bon tax! Car-bon tax!

|12.4.07 @ 7:01PM|#

Perhaps yet another reason to examine if campaign contributions are just another form of speech that requires protection. Could words ever be as persuasive as dollars with something that makes so little sense as this?

If candidates were somehow, in a fantasy world, limited to a fixed, taxpayer funded amount (goodbye fringe parties), they would still be for this stupid ass program because voters in Iowa want it and presidential wannabes deem Iowa, with its pissy 7 electoral votes, extremely important.

Why don't the voters in NY, California, Florida, Texas, et al, punish these pandering whores is the real question. The answer to that is beyond my cognitive abilities.

|12.4.07 @ 7:03PM|#

The answer to that is beyond my cognitive abilities.

Unless you give credence to my "Americans are dumber than whale shit" hypothesis.

|12.4.07 @ 7:36PM|#

Energy independence is a fraud. Assume that the cause celebre of the moment, higher CAFE standards, actually reduced gasoline consumption by an amount sufficient to eliminate imported gasoline. It won't, just as it didn't when CAFE was first enacted, but bear with me. If it did, the reduced demand would lower prices. Foreign oil sources would have to lower prices to compensate. Since oil is a fungible commodity, gasoline producers will buy it from the cheapest available source. If that's foreign, they'll buy it there. We won't have eliminated foreign oil at all, but we will have impoverished ourselves for no good reason. To make this work you must make gasoline made from foreign oil *illegal*. That's a supremely good way to screw up our economy big-time.

I'm ignoring the question we should all be asking: why shouldn't we use foreign oil, in as high a percentage as we can? If peak oil is a true hypothesis (I don't agree), as "energy independence" crowd says, then using up everybody else's oil makes ours much more valuable. Once everybody else runs out, then start producing our own oil. It will make us fabulously rich.

|12.4.07 @ 7:40PM|#

Energy independence is a fraud.

...and Saddam had weapons of mass destruction...

|12.4.07 @ 7:45PM|#

...and Saddam had weapons of mass destruction...

Huh?

One is an obvious conclusion from the straightforward application of economics. The other is an intelligence estimate from evidence both ephemeral and manufactured.

There is absolutely nothing in common between them except, perhaps, that you don't like them.

|12.4.07 @ 7:49PM|#

I was alluding to the ulterior motives we have for occupying Iraq for the last four years, and how maybe those blinds would have been more transparent if we had a higher degree of energy independence.

Sorry for my brevity.

|12.4.07 @ 8:02PM|#

Since the US tromping around the Middle East with the delicacy of a rhinoceros is one of the main causes of supply disruptions and high oil prices, I think you should open yourself to more imaginative conspiracies.

In particular, since the petroleum industry histories of both Bush and Cheney are with mid-sized domestic oil firms, it is more likely that they are intentionally trying to make foreign oil more expensive and dangerous in order to increase the economic and political demand for domestic oil.

Guy Montag|12.4.07 @ 8:31PM|#

Ron,

if it's such a great idea economically, why does the federal government offer a tax credit of 51 cents per gallon for blending ethanol into gasoline?

You mean the price crisis could be averted if we just drop the taxes on organic hydrocarbons by 51 cents/gallon?

Oh, where is your guy who says switch grasses can grow anywhere without additional irrigation or fertilization? Sounds nutty to me and his posts of the recent past seem to contradict your sane and sober comment.

I forgot if I have mentioned this before, but some reporter in the late 1970s/early 1980s mentioned the fact that switching to ethenol would put energy in competition with food. Forgot who it was, but I have remembered it all of this time.

Remember: C8H18, organic, powerful, renewable.

robc|12.4.07 @ 8:51PM|#

This will make beer more expensive. Therefore, it must be stopped.

|12.4.07 @ 9:28PM|#

How can you cite such discredited "researchers" as Pimentel and Patzek with a straight face after they have been so thoroughly discredited? The best summary of their errors appears in Alex Farrell (et al)'s article in the Jan. 27, '06 issue of "Science." For a broader summary of what is wrong with their claims see Robert Zubrin's "Energy Victory", 2007, Ch. 7.

|12.4.07 @ 9:36PM|#

Thank you Ron Bailey for showing once again the horse shit corporate welfare that is ethanol.

|12.4.07 @ 9:43PM|#

One thing Ron seems to be forgetting is that fossil fuels are also heavily subsidized (in particular, they get a free public garbage dump for all sorts of nasty chemicals). Very few renewables stand a chance without either removing fossil fuels' subisidies OR attempting to create equal subsidies for alternatives. The former is preferable, of course.

|12.4.07 @ 10:28PM|#

I forgot if I have mentioned this before, but some reporter in the late 1970s/early 1980s mentioned the fact that switching to ethenol would put energy in competition with food. Forgot who it was, but I have remembered it all of this time.

I know my father cautioned about this.

But he was not some bigshot reporter. He was just an obscure Mathematics Professor at a not-so-obscure Canadian University.

|12.4.07 @ 10:32PM|#

Chad,

I'm real willing to get together and work on removing all subsidies. How about you?

In fact, I'd like to see as serious a separation of Science and Technology and State as we currently try to have between Church and State.

Think that might work?

src|12.4.07 @ 10:48PM|#

People do seem to ignore cautions, don't they?

When I was in high school, I worked in a geneticist's lab, and I remember he made a big trip to a biofuel company to persuade them that grain ethanol was inefficient and Chlamydomonas reinhardtii (plain ol' pond scum) was the energy source of the future. He came back very disheartened; they hadn't listened.

Well, ethanol's still inefficient, and algae are still vastly more productive, but so far remains in the research stage (maybe because it hasn't received much attention yet.)

|12.4.07 @ 11:12PM|#

"Oh, where is your guy who says switch grasses can grow anywhere without additional irrigation or fertilization? Sounds nutty to me and his posts of the recent past seem to contradict your sane and sober comment."

Dun Dun DUNNN!
http://en.wikipedia.org/wiki/Switchgrass

Paul|12.4.07 @ 11:30PM|#

But we have to do something!!!

This is something, so we're doing it.

|12.5.07 @ 8:34AM|#

Do it for the children. The children of the corn.

|12.5.07 @ 9:35AM|#

Lee Terry, Republican from Nebraska is on C-SPAN now, and I think he just said he likes corn but the 15 billion mandate may be going too far. He does support increasing CAFE standards, which doesn't sound very Republican to me. Energy prices will sort out the demand for fuel efficiency at the consumer level. The energy bill just plain sucks.

adrian|12.5.07 @ 9:39AM|#

so if corn goes up in price, so do tortillas, and mexican food, thus solving our illegal immigration problem?

|12.5.07 @ 9:43AM|#

Judging from the articles and comments on this site it seems like agriculture is a zero-sum system. People talk about the percentage of existing corn used for ethanol production, as if no more corn could possibly be grown; and earlier in this thread, about how if more corn were grown, it would result in other crops not being grown. Conceivably, if the price of corn went up, so eventually would the production.

Either the possibility of simply growing more of these crops is simply being ignored, or we're already using all the world's potential farmland... in which case we have much more serious problems than energy independence and global warming.

New World Dan|12.5.07 @ 10:00AM|#

>so if corn goes up in price, so do tortillas, and mexican food, thus solving our illegal immigration problem?
And our obesity problem too! As for the guy that warned about it rasing the price of beer, all I can say is, quit drinking crappy beer! Or don't, that leaves more good stuff for me.

And if the PEAK OIL!!!1! people are right, then we need not worry about global warming either! It's win all around!

Russ 2000|12.5.07 @ 10:01AM|#

What about ethanol from hemp?

Lord Jubjub|12.5.07 @ 10:52AM|#

The problem with expanding corn production into lands formerly allowed to be fallow or returned to wild is that it reduces that lands ability to to trap water runoff and increases the fertilizer load in the runoff.

There are considerable environmental hazards to growing such a finicky crop as corn.

|12.5.07 @ 11:17AM|#

The most generous realistic estimates of ethanol energy input-output ratios are on the order of 1:1. Petroleum fuels are roughly 17:1.

Only in America could public policy be formulated to turn a vital food source into an inefficient motor fuel.

This is lunacy on a vast scale.

|12.5.07 @ 11:23AM|#

There's a big difference between turning a waste product, such as used vegetable oil or surplus corn, into a fuel source and manufacturing the product with the intent of creating a fuel source.

In the first instance, the used oil or the surplus corn is largely free, you already have it, if you don't use it then it will go the compost pile, landfill, burn pit, etc. It is highly cost competitive because the only "fuel cost" is the incremental investment needed to convert it to a usable form of energy.

However, if you have to manufacture the raw material for the energy source then entirely different economics come into play and those economics are not always very favorable. Manufacturing capacity is limited and more of one product, or a shift in the end use of the product, generally means the public has less of the initial product. Costs will rise thus encouraging the construction of new manufacturing capacity but if the product is corn, and the manufacturing capacity is farming, then the capacity is ultimately limited by the area in which corn can be commercially grown.

I'd compare the ethanol mandate to a recycling mandate. Recycling is a good idea, and I encourage everyone to "pitch in", but if I take it to the ethanol extreme then I'd open an aluminum mine so I'd have something for the recycle hopper. It makes economic sense to utilize waste products, it doesn't always make sense to shift the focus of manufacturing capacity.

Mark Bahner|12.5.07 @ 12:27PM|#

Biofuels are commercially questionable, do not materially advance energy independence, and may not even help reduce greenhouse gas emissions.

Careful. Biodiesel from algae--particularly algae with enhanced CO2 from power plant exhausts--is a "biofuel."

Biodiesel from algae may be commercially questionable (particularly at present), but it could certainly materially advance energy independence and reduce greenhouse gas emissions.

http://www.popsci.com/popsci/science/ee6d4d4329703110vgnvcm1000004eecbccdrcrd.html

|12.5.07 @ 8:11PM|#

Chad,

"I'm real willing to get together and work on removing all subsidies. How about you?

In fact, I'd like to see as serious a separation of Science and Technology and State as we currently try to have between Church and State.

Think that might work?"

I hope that was a sarcastic comment, from what I understand most basic research funding comes from government. How are you going to realistically get corporations to fund basic research with out keeping them from seriously monopolizing their findings? I am asking this seriously, i would love to hear a good idea for a solution.

For example (this does happen to some degree in academia but it is solved by government intervention and the ego's of scientists), a corporation does basic research on the genetic regulation of microbial pathogenesis in sleeping sickness. If they find something patentable but not marketable they will either not divulge the information to the public (which slows down development)or will patent it which depending on how they license it could still slow down research. Basic research is the most useful to society if it is freely accessible, what corporate business model would induce companies to expend resources basic discovery and at the same time maximize the free distribution of that new knowledge?

Our current system isn't perfect by any means but it is functional.

Russell Seitz|12.6.07 @ 12:02AM|#

Ron:
As you know I have been over the ground on the lack of ground to grow biofuel , but now along comes George Monbiot with this :

http://www.monbiot.com/archives/2007/11/06/an-agricultural-crime-against-humanity/

which frankly upstages the both of us, as my best shot was an expression of disbelief as to anything being worse than Biafra.

|12.6.07 @ 11:31AM|#

re the Monbiot article, I thought I had it bad.

I was in the feed store yesterday to buy a 50# bag of sunflower seeds. Two years ago that bag cost $10, last year it was $13, now it's $17. It's the market at work, corn is more valuable as "auto fuel" than as "people fuel" so it's pushing other crops aside. Unfortunately, the "new corn" (to use the Windfall Profits Tax lingo of "new oil and old oil") is grown on land that is sub-optimal for corn (the optimal cropland being where corn has been grown commercially for decades). Crop yield is therefore less and overall agricultural efficiency is less. But, the market is responding to the subsidy stimulus exactly as one would predict.

I've got some birds that may need to go on a diet...

|12.6.07 @ 2:13PM|#

HEMP HEMP HEMP HEMP!!!!

Legalize hemp... forget about corn...

|12.9.07 @ 9:19PM|#

Here's what you do: put a federally-mandated price floor on the price of a barrel of oil, say $80/bbl. If oil costs more than that, there is no tax. If oil costs less than that, then it's taxed for the difference. Only 'dino' oil is subject: oil created from coal, tar sands or oil shale would not be subject.

So, US demand for oil goes down, while there's a guarantee of profitability for the processing of North American energy. Adam Smith says that with artifically-reduced demand, the price should go down. This takes $$$ away from evil brown people and adds $$$ to the treasury.

The best time to put such a 'subsidy' tax on is when oil costs more than the minimum price, like now.

r. nitram|12.10.07 @ 11:38AM|#

Why is everyone so quick to discount the Minnesota research that indicated a net energy gain to ethanol? Has anyone read it besides me?
As for grocery store prices going up because of a commodity price increase. commodities could double and should not make much change in the cost of most groceries. Of course that's not what they'll tell you when, as in the past, they use it as an excuse to raise the prices, but if you do some math investigation you'll see what I mean, the base commodity ingredient is a very small % of the total cost.
Another thing, the additional money paid the farmer for the most part stays stateside and gets recirculated back to you quickly. Have you driven out across farm country lately, there are hardly any farmsteads left and the rural communities are hurting.
However do feel farm & ethanol subsidies are not helping. Farm concentration continues at an alarming rate. Soon you are going to be dealing with a very few walmart size farmers, then see what you pay.

|12.10.07 @ 1:40PM|#

This is more of robbing Peter to pay Paul, and does nothing on reducing our energy consumption.
We need a real energy policy, one that gets us away from Fossil Fuels.

|12.10.07 @ 6:31PM|#

The big problem with most of these alternative fuels is they are based on the most inefficient feedstock for ethanol, Corn. More efficient feedstocks, such as suger (currently under a 51 cent tarriff) or prairie grasses, would probably make alternative fuels more competitive, but this would also require new engines to be created as well as massive capital overhauls. So even as ethanol the fuel becomes cheaper to produce, the costs of new capital would keep the price at or above petrol for some time.