Corn Ethanol: Fueling our Nation's Insatiable Hunger

Fall 2009
Experience and Other Evidence Essays

Article 3 of 12

As our nation's economy grows and faces increasing competition from countries like India and China, its energy needs will continue to expand. In a world economy that is dependent on cheap, reliable fuel, our nation needs to adapt to rising world fuel prices in order to simply survive. Currently, the United States is investing in many technologies so that it may produce electricity cheaply; at the same time, it is looking for a solution to burning expensive gas in our cars. The favored solution of our government is to subsidize corn based ethanol; various subsidies have already been passed by both federal and state governments to encourage the production and use of corn ethanol to help replace gas consumption. However, corn ethanol is not a viable solution to using gas and the subsidies supporting its use should be discontinued.

As a child, I loved driving through corn fields fed by these subsidies. Of course, I only knew corn as a delicious food, but as I grew older and talked with my parents, I learned more about the economics of corn production. My father grew up in Missouri, a corn state, and helped teach me how American agricultural policy is being used to respond to America's oil addiction. I became fascinated with the politics and economics of American subsidized corn ethanol and, over time and with further research, I have learned that while this policy of subsidizing corn ethanol might have been useful in the past, it is no longer a sensible method for the replacement of gas.

In response to the 1970s oil crisis, the U.S. began to develop new energy technologies which included corn ethanol. However, despite this research corn remained largely an agricultural product until the mid 1990s when many states instituted corn ethanol subsidies to help the ethanol industry pay for rising corn prices. However, these subsidies overcompensated, and as a result more companies decided to produce ethanol from corn, since they could produce it cheaper than it really cost to make. As a result, corn was largely diverted from feeding people to fueling cars. Current policy has expanded on the policies of the 1990s. Gas prices just recently dropped from record highs and the Bush administration, in the Energy Policy Act of 2005, proposed regulations that aim to double the use of ethanol by 2012.

Despite apparent government support for corn ethanol, there is little basis for the claims that are made regarding this fuel: that it will lessen our dependence on foreign oil, lower gas prices, stabilize fuel markets, and lower emissions. Furthermore, not only are these claims invalid, but overproduction of corn ethanol due to these subsidies end up hurting consumers in unintended, but related, ways such as by causing rising food prices. While the market for E10 (the highest percent of ethanol in gas that an average car can effectively use) "will be saturated in the next few years, possibly as soon as 2010" (Knoll xvi), the market for E85, ("74% ethanol by volume") which can only be burned in specially manufactured cars, is nowhere near its saturation point (Biofuels 3). However, while E10 does seem to be "price competitive with petroleum fuels" (Biofuels 4), "could reduce [Greenhouse Gas] emissions" (Wang), and will help "to reduce our nation's dependence on oil" (Ethanol 1), E85 is an absolutely foolish and incredibly poorly thought out substitute for gas. Corn ethanol, while potentially useful in small quantities to offset some consumption of gas, has reached (and possibly outgrown) its greatest benefit and should no longer be subsidized by the United States government.

One reason our government supports corn ethanol is that it believes corn ethanol provides a cheaper source of gas for Americans. However, E85 cannot compete with gas due to the fact that it has a "higher per-mile cost--in comparison to that of gasoline," meaning that at current prices (even with various subsidies) one would need to purchase more ethanol for more money than gas to travel just as far (Bergeron 6). This is because while per gallon corn ethanol costs about the same as gas, E85 produced from corn has "24.7 percent less energy per gallon than conventional gasoline," meaning refueling has to be done more frequently, and shipping costs are significantly higher (Biofuels 3). The most important measurement of how effective a fuel source is is how much one has to pay per unit of energy. Corn ethanol fails this test and is far from a cheaper source of fuel for Americans.

One might argue that while prices are higher for corn ethanol than for gas, these higher costs pay for price stability and a less risky market and economy (due to the benefits of diversification of portfolios, and by reducing dependence on a fuel whose price is determined by politics and heavy speculation). However, a study from the "National Survey of E85 and Gasoline Prices" shows that there is a "volatility of E85 prices (2) which closely track[s] that of gasoline" (6). In fact, prices of ethanol from 2003 to 2006 ranged from 100 nominal cents per gallon to just under 400 (Biofuels Figure 23). It seems as if, by replacing gas with corn ethanol, we would simply be replacing unstable prices due to foreign politics for unstable prices due to weather and price changes in ethanol's "most important inputs [which] are [themselves] subject to volatile prices" (Low 74). If E85 has such volatility in market price, and its price is, in fact, no more stable than that of gas, it should certainly not be subsidized based on the claim that it has price stability.

The final reason a subsidy might be justifiable for ethanol is if it helped reduce GHG (green house gas) emissions, and as a result reduced hospital costs or lost potential costs due to fewer people dying or getting sick. According to Michael Wang from the U.S. Department of Energy, "corn ethanol could reduce GHG emissions by 18% to 28%... however if coal is used in EtOH (ethanol) plants, corn EtOH may not have GHG reduction benefits" (Wang). Many statistics like this one state that GHG emissions could be reduced by a certain amount, but they assume that the electricity used in the EtOH plants is renewable energy. This assumption is completely misleading because even hybrid cars technically pollute if clean energy is not used to recharge them. In reality, GHG emissions should be calculated based on the assumption that ethanol plants use energy produced by ethanol itself. If the pollutants from producing ethanol were taken into account, GHG reduction in emissions due to ethanol would be less, and might even be zero. As a result, subsidies should not be provided on the basis that ethanol supposedly reduces emissions by 18% to 28%.

Even if a straightforward and reasonable study was done to show that corn ethanol significantly reduces GHG emissions and stabilizes fuel prices, ethanol's negative externalities would negate these unlikely positive effects. The most important negative effect that increased ethanol production would have is that it would raise food prices. "The U.S. ethanol industry [consumed] 20 percent of the available corn supply in 2006," and without increased production, this results not only in increased corn prices, but also increased meat prices, as corn is a preferred feed for livestock (Biofuels 4). Rising corn and meat prices is certainly a negative consequence that is not accounted for in the production of ethanol. Even if corn production were to increase to accommodate this surging demand, a strain would be placed on existing farmland and "other agricultural uses" (Biofuels 5) as well as on "a community's water supply" (Low 75). This increased corn production would cause "irrigated farmland [to be] returned to dry land," and would cause rising food prices for other crops as farmers switch from growing those other crops to growing corn (Low 75). Finally, increased ethanol production would "[put] a considerable burden on the road system," since its raw materials and final product have higher masses than those of gas (Low 86). All of these negative side effects associated with ethanol production would certainly negate the positive effect ethanol might have on GHG emissions. In fact, one could even argue that corn ethanol should be taxed to account for these unaccounted negative costs.

From an economics perspective, subsidies are meant to either pay for unaccounted benefits of a product (positive externalities), or to nudge a potentially profitable product in the right direction (e.g. phones are useless unless other people already have phones, so a subsidy may be required to jumpstart this good). Even though it has already been shown that these subsidies should not be continued based on various claims that corn ethanol is beneficial, some might argue that ethanol still needs to be subsidized so that it can reach a level of competitiveness and so that its true potential can be realized. However, ethanol has reached this level, since the market for E10 (the highest percent of ethanol in gas that an average car can effectively use) "will be saturated in the next few years, possibly as soon as 2010" (Knoll xvi). If ethanol, having reached this level of increased production, cannot compete with gas without a subsidy, then it should not be in the marketplace in the first place because it is being made competitive artificially. Ethanol has already experienced enough of an increase in production to reach its full potential, and it should be left to fend for itself in the free market. Whether or not corn ethanol continues to be produced after subsidies are discontinued will in of itself prove whether or not corn ethanol is a sound substitute for gas.

Corn ethanol is in no way a serious viable alternative to gas and should not be subsidized nor supported in any other way by our government. The original purposes of a corn ethanol subsidy, to push the product to the point where it can be competitive, or to account for a positive externality, no longer apply, and if corn ethanol cannot be competitive without these subsidies it should not be in the market at all. Corn ethanol has already been pushed to (and possibly past) its point of competitiveness and should not be supported based on the claim that it will lessen our dependence on foreign oil, will lower gas prices, will stabilize fuel markets, and will lower emissions. Future technological advances may allow us to harness the "significant supply potential" of "cellulosic biomass," but that time has not arrived, nor will corn ethanol specifically be likely able to reach a competitive point (Biofuels 6). The sooner we realize that subsidizing corn ethanol is not a beneficial practice, the sooner we can start looking for other alternatives to gas, and the sooner our nation can move forward.

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