The ethanol scam, con, fraud, boondoggle, looting, tax, myth, price inflater is a study in governmental willingness to set obviously wrongheaded policies in law in the name of the General Welfare. Ethanol is being sold as a route to energy independence and as a way to reduce pollution. Its consequences for food production and costs are too rarely discussed among Americans. Its cost is too little understood. There are glaring problems with the mandated requirements for present and further ethanol use, which must be known to the politicians who have given us the ethanol laws. A shocking immorality is revealed in this story. This story is rich in the lesson that politicians cannot be entrusted with the Public Interest or the General Welfare without the most severe limitations of their power, such as are imposed by the Constitution, but whose provisions they ignore. This is not surprising, since Teddy Roosevelt and Woodrow Wilson began a long history of blatantly ignoring the limits of their power and trained Congress to do the same.
Let us follow the story of Congress and their mandates for ethanol use and their subsidies to encourage its production and use. Archer Daniels Midland began pushing for the use of ethanol as a fuel additive to reduce pollution in the 1970s. In the early 1980s, they were producing 175 million gallons of ethanol a year. ADM established a close working relationship with Sen. Bob Dole (Rep., Kansas) and gave the Republicans more than $1 million in the 1992 election and Democrats about $455,000. Bob Dole then helped ADM and corn farmers to line up billions of dollars in subsidies and tax breaks. The Cato Institute estimated that almost half of the profits of ADM were the result of product sales protected by or or subsidized by government in 1995. The 10% ethanol and 90% gasoline mixture E10 was required, especially in the winter months, in areas deemed to have a smog problem, under the rationale that the ethanol additive burned more cleanly.
The 2005 Energy Policy Act requires refiners to use 7.5 billion gallons of biofuels and specifically 250 million gallons of cellulosic ethanol in 2012. This cellulosic ethanol is ethanol made from plants or plant parts other than the corn fruit and the sugar of sugar cane. In 2006, ADM produced more than 1 billion gallons of ethanol. 200 subsidies and tax breaks were providing between $5.1 and $6.8 billion to make sales of ethanol possible. In June, Congress passed The American Fuels Act of 2007, which had been introduced by Barack Obama (Dem., IL), Tom Harkin (Dem., IA), and Richard Lugar (Rep., IN) to mandate increased use of biodiesel and provides tax credits for the production of cellulosic ethanol. This law requires the production of 36 billion gallons of ethanol by 2022. Of this amount only 15 billion gallons of ethanol are expected to come from corn, since that will be a bit more than half the present corn crop. The remaining 21 billion gallons of ethanol and biodiesel must come from other sources, which have not been developed. When introduced, the proposed bill was even more outrageous: it called for a mandate of 60 billion gallons of biofuels by 2030! Former Sen. Edwards called for 65 billion gallons of biofuels by 2025. Sen. Clinton voted against ethanol 17 times before she began her presidential campaign and turned into a supporter. Sen. McCain, who had been a doubter, became more positive when his campaign was well underway. Obama, Edwards, Clinton, and McCain were driven by the desire for votes in the Iowa caucuses. President Bush has been an enthusiastic supporter since his 2006 State of the Union address.
None of the sources of ethanol or biodiesel are even close to being economical and competitive with fossil fuels and nuclear power. The least subsidized source is ethanol from sugar cane, but we grow little sugar cane in the U.S. Brazil grows more than any other country and produces the cheapest ethanol, but it is nonetheless heavily subsidized in Brazil where a dictator first established the ethanol use requirement in 1975. There they directly subsidize hydrous-ethanol (5% water), ban diesel-powered cars, put a 21.5% import duty on foreign ethanol, and provide an alcohol storage program. They also provided subsidies to car manufacturers who made cars capable of running on ethanol concentrations which started at 10% and grew to numbers as high as 26%, though this number varies through the 20 to 26% range under democratically elected governments. Because of this commitment to ethanol, Brazil has found that ethanol made from corn in the U.S. is cheaper than ethanol made from sugar cane in more marginal land brought under production for the purpose in Brazil. They import American ethanol, despite the protective tariff!
So where does ethanol production, essentially that from corn, stand in the U.S.? About 5.4 billion gallons per year (bgy) was produced in 2006. Most of this went into the E10 gasoline fuel mix, which is 90% gasoline. The Congressional mandate is for 9 bgy in 2008, 15.2 bgy in 2012, and finally 36 bgy in 2022. This is a hugely ambitious program and yet the 36 bgy will provide the energy equivalent of 7% of current oil use. And that figure is a figment of the imagination for a number of reasons which we will examine.
Ethanol from corn requires energy to produce it. This energy needs to be measured to understand what part of the enormous effort to create 36 bgy of ethanol will actually result in a net energy gain. What fraction of the 7% substituted for gasoline in cars can really be realized as new energy? Corn requires plowing, fertilizing, and harvesting, which commonly uses diesel fuel on the farm. The fertilizer requires that large amounts of natural gas be used to make it. This fertilizer then has to be transported to the farm. Further fuel is often used to irrigate the corn fields. The corn when harvested has to be delivered to the fermentation plants where it will be converted into ethanol and that process requires fuel to generate heat and energy to handle and move materials. Waste water has to be disposed of and cleaned up. Once the ethanol is made, it cannot be transported in relatively efficient gas pipelines because its water content makes it incompatible with the seals and other materials of pipelines. So, more expensive transport by truck and train is required.
Studies of the net gain in energy from ethanol vary, but the highest estimates are that it produces 1.3 times as much energy as it takes to obtain it. More realistic and recent estimates have tended to conclude that one gets about an equal amount of energy, so there is no net gain at all. A recent study by researchers at Cornell University and the University of California - Berkeley found that it took 29% more energy to produce ethanol from corn than it gave back! What is more, as more and more land is devoted to corn production for ethanol, more and more of the land will be less and less suitable and productive. The amounts of fertilizer and irrigation water needed will increase. The distance to markets may also increase. So more and more energy will be required and the process of producing net energy will become tougher and improbable. So the idea that ethanol is renewable energy is entirely wrongheaded. There is always an exchange of used coal, gasoline, diesel, and electric power for an approximately equal amount of energy in the form of ethanol.
In order to achieve this magnificent goal of zero net energy, we will soon be subsidizing the manufacture of ethanol and other biofuels to the tune of $8.6 billion per year. These subsidizes are further supplemented by tax-exempt bonds to finance ethanol plant construction, loan guarantees, state vehicle fleet purchases of biofuel-using vehicles, irrigation water subsidized by government, and the benefit of the state and federal mandates that require the use of ethanol whether it is economical or not.
This failure to create net additional energy using ethanol, makes a lie of the idea that ethanol will help to make the U.S. more independent of unreliable and unfriendly governments with control of oil resources. There are still more problems with this argument. First, if the object is to have more options for energy, then we clearly should not exclude Brazilian ethanol from the U.S. market by imposing a $.54 per gallon tariff on it. Second, corn-derived ethanol depends mostly on the corn crop output of the Midwest, which is generally a more risky outcome than is the international supply of oil. Based on data from 1960 to 2005, corn yields may readily decline by 11.9% in a given year, while the corresponding year to year equally likely decline for oil from the Middle East is 6.8%. In one out of every 20 years, corn yields can be expected to decline by 31.8%, while the corresponding oil decline would only be 14.9%. A further problem is that corn yields tend to fall if it is too hot in August. Such heat calls for more total energy use to cool homes and cars, which may result in more ethanol use when less future ethanol can be produced due to lower corn yields.
This same failure to create net additional energy also places limits on the argument that we can reduce the amount of money going to oil-rich Muslim countries where that money is used against us by Muslim terrorists and despotic governments by using more ethanol instead of oil. There may be some substitution of coal and natural gas for oil in the making of the ethanol, but these are often substitutes in other of our energy needs anyway. That is, coal and natural gas are used in many industrial processes and in generating electric power in competition with oil. If we use coal and natural gas to create ethanol, we increase their demand and their prices, which then makes oil look more attractive where it can be used as an alternative.
Ethanol has been touted as a means to reduce smog and pollution, as mentioned above. However, a 2006 study by Robert Niven of the Australian Defense Force Academy shows that E10 increases the total emissions of hydrocarbons and toxic compounds relative to gasoline, when evaporative emissions are fully accounted for. E85 is even worse. There is a slight advantage to using E10 with respect to greenhouse gas emissions, if you ignore the energy used to produce it in the first place, but it is microscopic at about a 1 to 5% level. This apparent low level advantage means that it costs about $250/ton to decrease greenhouse gases, according to the International Energy Agency. This is ridiculously expensive, and it actually is much more expensive given that this neglects the greenhouse gases emitted when using the other energy sources used to produce the ethanol. In fact, taking that into account will mean that the use of ethanol will create almost two times as much greenhouse gases as gasoline does.
A given volume of ethanol will produce about 66% as much energy as an equal volume of gasoline. This means that when ethanol is mixed with gasoline, a driver on the road must stop more often to refill his vehicle's tank. In the workplace, this is a cause of decreased productivity. For already busy people, this is a waste of time. For a given amount of transportation need, there must then be more fuel tankers on the road and on the rails and larger fuel storage facilities at refineries, shipping centers, and at the local gas stations to handle the larger volumes of fuel. There must also be more pumps and gas stations to pump it into vehicle tanks. Our time and scarce resources must be devoted to satisfying these requirements.
So, in the interest of a zero-sum game with respect to energy and an increase in greenhouse gases, we are converting valuable foods into vapors. What are the consequences of doing this?
Corn production for food purposes and for ethanol production use was subsidized, according to the Environmental Working Group, to the tune of $9.4 billion dollars in 2005. Note that this is larger than the ethanol subsidy numbers given above because it includes the normal subsidies for corn food production which does not go into ethanol. Corn for food is the most heavily subsidized of the major crops. This money is provided by heavier taxes and earns the taxpayer higher food prices in the grocery store, since some of it is in the form of price supports and it discourages productivity improvements. Corn costs more there as a result and so does corn syrup, corn oil, and meats such as beef, pork, and chicken which depend upon corn feed products very heavily. All the products with these as ingredients cost more because of these subsidies.
Distillers can produce 2.7 gallons of ethanol from one bushel of corn. American farmers produced 10.5 billion bushels of corn in 2006. If the entire corn crop of 2006 were turned into ethanol, only 28.3 billion gallons of ethanol would result. This would leave us short of the 36 bgy requirement for 2022. Of course, corn will still need to be used for food purposes in 2022 and the thought is that only 15 bgy of the required 36 bgy of ethanol will come from corn. Assuming that other ethanol sources are developed, this requires that the capacity to produce another 9.6 bgy of corn ethanol be developed by 2022. This requires an increase in corn production by 34% relative to 2006, while falsely assuming that our food needs will not increase also between now and 2022. This in turn means that huge tracts of farmland will either have to be diverted from growing other crops or from ranching or that much of the land once farmed long ago in the U.S. and now returned to forests will have to become farmland again.
Much of the land in the U.S. no longer farmed went out of production because it was less suitable for farming than the more efficient lands now being farmed. The loss of forests, which have increased greatly since the early 1900s, will be very substantial. These forests help to remove CO2 from the atmosphere as they grow and remove much more than does land planted in corn. So, those who believe that an increasing CO2 concentration in the atmosphere is a terrible thing, will see some negative effect here. The less suitable farm lands which will be returned to production will require larger amounts of fertilizer, pesticides, and water in general than does the land presently under till for corn. This means that the ethanol produced from this corn will cost more, that more pollution from fertilizer and pesticides will occur, and that more precious water will be used and contaminated. Even on optimal corn-growing farmland, it takes 1700 gallons of water to produce one gallon of ethanol. Another effect has already been observed: land will be planted in corn and rather than rotating with soybeans or another legume, it will be planted in corn again. This will mean that presently good farmland will either need more fertilizer or it will wear out. Meanwhile, the price of farmland suitable for growing corn has increased dramatically, which has increased the costs for those newcomers who would buy farmland to put to use in growing corn either for food or ethanol. The value of farmland in Iowa increased 18% in 2007.
From 2001 to 2006, the percentage of the U.S. corn crop used for ethanol production rose from 3% to 20%. As a result of limited increases in total corn production, the futures price of corn rose by 80% in 2006 alone. University of Minnesota economists C. Ford Runge and Benjamin Senauer wrote an article for Foreign Affairs entitled "How Biofuels Could Starve the Poor." They note that filling the gas tank of a SUV with pure ethanol made from corn takes 450 pounds of corn. This is enough calories to feed a person for a year. The price of beef, pork, and poultry rose more than 3% in the first 5 months of 2007. Tortilla prices rose 60% in Mexico, causing food riots. Butter prices increased 40% in Europe. Pork prices rose 20% in China. All this because the U.S. is the biggest exporter of food in the world. Much of our corn crop has always been exported, but now that it draws higher prices as future ethanol, it is boosting the cost of foods dependent upon corn around the world. Runge and Senauer believe 600 million additional people may go hungry by 2025 due to the increased use of corn to produce ethanol.
Dennis T. Avery, director of global food issues at the Hudson Institute, says "We would effectively be burning food as auto fuel in a world that is not fully well-fed now, and whose food demand will more than double in the next 40 years." Because of the recent advances in many Third World countries, 2 billion people are making the transition from grain diets to meat diets. It takes a lot of corn to feed livestock and to produce the meat they are seeking. The U.S. has been the biggest exporter of this meat and has the potential to profit greatly from the further growth of this market. That cannot happen if we shoot ourselves in the foot by making our meat prices too high due to our escalating corn costs. The market for exported corn products such as corn, corn oil, and high-fructose corn syrup and the products made from them (Coca-Cola, etc.) is also a large one. This is not good for either us or the rest of the world.
On top of this, we tax ourselves heavily to provide for the ethanol subsidies and protections, we endure higher car fuel prices, pay higher food prices, and we have to build new kinds of cars, new kinds of refineries, new storage tanks, new tanker trucks, new rail cars, we use more water, we cause more pollution, and we create more greenhouse gases. So, why do we do this when none of the widely claimed energy advantages hold water when examined? It is because the governments and the politicians who run them always want more power and are eager to hand out goodies to special interests such as ADM and the corn farmers in this case, as long as they can get away with selling a myth to the public.
The mandate for increased ethanol use is adding to the present forces pushing us toward a possible recession. It adds to fuel and food costs and causes much economic uncertainty about the future, which causes less business investment and encourages consumers to spend less on goods and services other than food and fuel. We must kill this ethanol myth. That a representative republic can fall for such a scam is disgraceful. We must prove that we can be fooled only sometimes and for awhile, but then we come awake and exercise our rational faculties and finally Stand Sure against the con artists.
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