Tuesday, March 17, 2009

Pros and Cons of Corn Ethanol

Corn Ethanol

As a gallon of gas averaged at $3 in 2007, the federal government decided to revitalize the energy policy of the United States. To “move the United States States toward greater energy independence and security, to increase the production of clean renewable fuels, to protect consumers from price gouging,” President Bush signed the Energy Independence and Security Act of 2007 on December 19, 2007 (Library of Congress). In order to achieve “renewable fuels,” Congress mandated 15 billion gallons of corn-based ethanol by 2022 (American Coalition for Ethanol). In 2006, American farmers produced 4.86 billion gallons of corn-based ethanol (United States Department of Energy). There are four groups of people are strongly affected by this mandate - farmers, politicians, economists, and low-income families. Through economical, political, and humanitarian lenses, one can see how everybody is affected by corn ethanol.

As farmers diverted more land and resources for corn ethanol, there is an obvious decrease in supply. In early 2008, there were a severe energy crisis and global food shortage. Thus, the price of food had dramatically increased. The price of wheat, rice, and corn had doubled since 2006 (Sachs). Ban Ki-moon, the U.N. Secretary-General, said the cost of some foods is “500 percent higher than normal” (Hanley). This effect has pushed millions of people worldwide into poverty. Food riots occurred in Haiti, Burkina Faso, and Bangladesh (Sachs). The U.N. Food and Agriculture Organization estimated that “923 million people are suffering from hunger in the world” (United Nations). In addition, “largely as a result of high food prices, some 75 million people were pushed into hunger and poverty” in 2007 (United Nations). Experts, according to National Geographic, argue that U.S. demand for corn ethanol is a “large factor in the price hikes” of food (Matalon). One-fifth of a Mexican's “daily minimum wage” is now used to buy a kilogram of tortillas (Matalon). The “dramatic rise in the cost of corn flour has driven up the cost of a dozen tortillas from the equivalent of 30 U.S. cents to 50 cents” (Matalon). The president of the U. N. General Assembly, Miguel d'Escoto Brockman, has criticized the “madness of converting crops into fuels” (Hanley). Lester Brown, the president of the Earth Policy Institute, says “the grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year” (McDermott). Americans are also feeling the effects of the food shortage. At supermarkets, their favorite foods have jumped by 10, 20, and even 60 percent (Gavin). According to the Labor Department, the price of eggs jumped 60 percent since 2007, pasta jumped 30 percent, and fruits and vegetables jumped 20 percent (Gavin). As the cost of corn has escalated, the price of animal feed increased too (Goldman). Thus, farmers worldwide are forced to raise prices to maintain a profit. Ephraim Leibtag, a USDA economist, admits that “higher ethanol production definitely and directly raises the price of corn” as “higher corn prices have an impact on food on the retail level” (Goldman). In addition, the Federal Reserve Bank of Kansas City states that by late 2008, “food price inflation is expected to ease, but remain high by historical standards” (Henderson).

Proponents of corn ethanol argue against these claims. They state that the weakening U.S. economy, bad weather, the dramatic increase in demand for food, the falling dollar, and the escalation of oil prices are causing food inflation. A director at the Renewable Fuels Agency, Geoff Cooper, argues that studies have shown that ethanol is responsible for 2-3% increase in costs (Goldman). The National Corn Growers Association maintains that the cost of food is strongly connected to the price of oil (Renewable Fuels Foundation). In Analysis of Potential Causes of Consumer Food Price Inflation, Informa Economics found that “the costs of labor, packaging, transportation, energy, profits, advertising, depreciation, rent, interest, repairs, business taxes” and strong export demand for products such as dairy and eggs are causing inflation (Renewable Fuels Foundation). Farmers argue that they are being scapegoats for a failing economy.

Many politicians are starting to revolt against the corn ethanol component of the Energy Independence and Security Act of 2007. Recently, Governor Rick Perry has asked the Environmental Protection Agency “to temporarily waive regulations requiring the oil industry to blend ever-increasing amounts of ethanol into gasoline” (Streitfeld). He argues that the ethanol mandate is too high and the corn used for ethanol is “better suited as livestock feed” (Streitfeld). As Texas does not export corn, Governor Rick Perry's opposition is popular. In comparison, the Republican Nominee, John McCain, is a vocal critic of ethanol. However, he has lost a lot of support in ethanol producing states (Love). In the Iowa Caucus, McCain lost to Mike Huckabee (Love). The issue of corn ethanol does not divide politicians by ideology or party or race. Instead, politicians are divided by the area they represent. For instance, some Republican Senators, such as John Thun of South Dakota and Chuck Grassley of Iowa, dismiss McCain's beliefs. In addition, Senator Barrack Obama defends corn ethanol as he's from Illinois. Obama's support had guaranteed him a victory in Iowa this election (Love).

The economics of corn ethanol is a big issue. Tax payers are required to pay farmers and bio-fuel corporations $0.51 every time they produce a gallon of ethanol (Mufson). Environmentalists and free-trade proponents argue that the ethanol subsidy is a scam (Taylor). Energy independence cannot be achieved with ethanol. According to the CATO Institute, for “corn ethanol to completely displace gasoline consumption in this country,” Americans “would need to appropriate all U.S. cropland, turn it completely over to corn-ethanol production, and then find 20 percent more land for cultivation on top of that” (Taylor). Additionally, Ecologist David Pimentel and Professor Patzek found that “corn requires 29% more fossil energy than the fuel produced” (Pimentel). The energy required to produce corn ethanol is greater than the energy in corn ethanol. Pimentel found this conclusion by calculating the energy required for the farm labor, farm machinery, irrigation, synthetic fertilizer, shipping, and production of growing hybrid corn (Philpott). Additionally, the Agriculture Department reported that it costs $2.53 to produce a gallon of ethanol (Taylor). Because ethanol is so expensive, growers and processors burn fossil fuels such as gasoline and coal to produce ethanol (Pimentel). Simply, spending $3 billion dollars in federal subsidies is a waste of money.

Proponents of corn ethanol argue that corn ethanol has lowered the price of gasoline at the pump. Professor Dermot J. Hayes of Iowa State University has researched the impact of ethanol production on gasoline prices. “Using pooled regional time-series data and panel data estimation,” Dr. Hayes discovered that “the growth in ethanol production has caused retail gasoline prices to be $0.29 to $0.40 per gallon lower” (Hayes). According to the Renewable Fuels Association, the ethanol industry provides employment for 238,000 workers in the United States and it "adds $47.6 billion to the nation's GDP" (Renewable Fuels Association). Thus, ethanol corporations improve rural communities by creating jobs at biorefineries and agricultural sectors. Also, ethanol subsidies have "boosted local household incomes by more than $100 million" while “increasing market opportunities for farmers” and “stimulating capital investment” (Renewable Fuels Association). Finally, economist John Urbanchuk, claims that the ethanol industry pays for itself. In 2007, the industry has provided the federal government an "estimate $4.6 billion in tax revenues" and "nearly $3.6 billion of additional tax revenue for State and Local governments" (Renewable Fuels Association). If OPEC ever establishes another oil embargo, the United States would have access to fuels that could preserve the economy.

Finally, the corn ethanol industries are threatened by Brazilian sugar cane ethanol. According to Forbes.com, ethanol “made from sugar cane packs 8.2 times the amount of energy used in its production, compared with just 1.5 for corn ethanol” (Forbes.com). Sugar cane ethanol cuts “greenhouse gas emissions by about 80%, while corn ethanol only reduced emissions by about 30%” (Forbes.com). Additionally, sugar cane ethanol is cheaper than corn-ethanol and gasoline because it's easy to produce. Corn needs to be turned into sugar for ethanol production. Obviously, sugar canes do not have to go through this process. In order to protect American bio-fuel industries, the federal government enforces a “U.S. tariff of 54 cents per gallon on Brazilian sugar cane ethanol” (Forbes.com). Thus, Brazilian ethanol cannot compete in the U.S. market. This tariff hurts Americans as they can only buy and use American-made ethanol. By using Brazilian ethanol, the United States can lessen its addiction to Middle Eastern oil. However, if this tariff was removed, the corn-ethanol industry would collapse under competition. Jobs linked to corn ethanol production would be lost and hundreds of thousands of families in the “Corn Belt” would be affected.

During the global food shortage, it became clear that the United States and Europe were converting food into ethanol. This raised an ethical question. When is it right to use food as fuel when 900 million people are starving? In reality, the 51¢ per gallon subsidy tempts every farmer to divert more and more land and water and crops to be used for fuel. However, the subsidy has created numerous jobs and investments in rural America. By removing ethanol mandates, subsidies, and tariffs, hundreds of refineries would fail. The economies of Illinois, Iowa, and Minnesota would be devastated. The status of corn ethanol will greatly impact the future of this country.

    Works Cited

Posted by coffee at 10:44 PM
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