- The Washington Times - Thursday, May 24, 2007

From preschool to planning funerals, green is in. Very in. But green policies and decisions need to be based on more than a vague desire to save the planet. The principles of the natural sciences and economics must play an essential role — a part of policymaking that often eludes politicians.

The latest examples are the federal government’s efforts to reduce U.S. dependence on imported oil (now more than 60 percent) by shifting a big share of the nation’s largest crop, corn, to producing ethanol for fueling automobiles.

Good goal, bad policy. In fact, in the short- and medium-term, ethanol can do little to reduce the vast amount of oil imported, and federal ethanol policy will have widespread and profound ripple effects on other commodity markets. Corn farmers and ethanol refiners are ecstatic about the ethanol boom, of course, but it is already proving to be an expensive and dangerous experiment for the rest of us.

The U.S. Senate is debating new legislation that would further expand ethanol production from corn. A 2005 law already mandates production of 7.5 billion gallons by 2012, about 5 percent of the projected gasoline use at that time. These biofuel goals are propped up by a generous federal subsidy of 51 cents a gallon for blending ethanol into gasoline, and a tariff of 54 cents a gallon on most imported ethanol, to keep out cheap imports from Brazil. This latest legislation is a prime example of the government’s throwing good money after a bad idea, of ignoring science and economics in favor of politics, and of disdain for free markets.

President Bush has set a target of replacing 15 percent of domestic gasoline use with biofuels (ethanol and biodiesel) over the next 10 years, which would require almost a fivefold increase in mandatory biofuel use to about 35 billion gallons. With current technology, almost all of this biofuel would have to come from corn because there is no other feasible, proven alternative. However, it is unlikely that American farmers will be able to meet such demands: Achieving the 15 percent goal would require the entire current U.S. corn crop, which represents a whopping 40 percent of the world’s corn supply. The irresistible pressure to divert corn from food to fuel would create unprecedented turmoil.

Until the recent ethanol boom, more than 60 percent of the annual U.S. corn harvest was fed domestically to cattle, hogs and chickens, or used in food or beverages. Thus, it is no surprise that competition for corn has doubled its price during the past year — from $2 to $4 per bushel. Because thousands of food items contain corn or corn byproducts, we see upward pressure on food prices as the demand for ethanol boosts the demand for corn: Nationally, food prices were up 3.9 percent in April, compared to the same month a year earlier.

These early effects may be only a hint of things to come. Any sort of shock to corn yields, such as drought, unseasonably hot weather, pests or disease in the next few years could send food prices into the stratosphere. Even Gregory Page, the chief executive officer of agribusiness giant Cargill, a major beneficiary of the ethanol boom, shares these fears, “We just have to be sure that the more-is-better mindset [regarding ethanol] doesn’t get way out ahead of the capacity of the land to provide the fuel. … What we would like to see is some thoughtfulness about what we will do if we have a weather calamity.”

Such concerns are more than theoretical: In 1970, a widespread outbreak of a fungus called Southern corn leaf blight destroyed 15 percent of the U.S. corn crop, and in 1988, drought reduced U.S. corn yields almost 30 percent.

Politicians like to say ethanol is environmentally friendly, but these claims must be put into perspective. Although corn is a renewable resource, it has a far lower energy yield relative to the energy used to produce it than either biodiesel (such as soybean oil) or ethanol from many other plants.

Moreover, ethanol yields about 30 percent less energy per gallon than gasoline, so mileage per gallon in internal combustion engines drops significantly. Finally, adding ethanol raises the price of blended fuel because it is more expensive to transport and handle. Lower-cost biomass ethanol — for example, from rice straw (a byproduct of harvesting rice) or switchgrass — would make far more economic sense, but large volumes of ethanol from biomass will not be commercially viable for many years. (And production will be delayed by government policies that specifically encourage corn-based ethanol with subsidies.)

American legislators and policymakers seem oblivious to the scientific and economic realities of ethanol production. Brazil and other major sugarcane-producing nations enjoy significant advantages over the U.S. in producing ethanol, including ample agricultural land, warm climates amenable to vast sugarcane plantations, and on-site distilleries that can process cane immediately after harvest. At current world prices for sugar and corn, Brazilian ethanol production would remain competitive even if oil prices dropped to around $30 per barrel, but U.S. corn-based ethanol plants would lose money at $40 oil, even with the subsidy.

Thus, in the absence of cost-effective, domestically available sources for producing ethanol, rather than using corn it would make far more sense to import ethanol from Brazil and other countries that can produce it efficiently — and also to remove the 54 cents-per-gallon tariff on Brazilian ethanol imports.

Our politicians may be drunk with the prospect of corn-derived ethanol, but if we don’t adopt policies based on science and sound economics, it is consumers around the world who will suffer from the hangover.

Colin A. Carter is a professor of agricultural and resource economics at the University of California at Davis. Henry I. Miller, a physician and fellow at Stanford University’s Hoover Institution, was a Food and Drug Administration official from 1979 to 1994. His most recent book is “The Frankenfood Myth.”

LOAD COMMENTS ()

 

Click to Read More

Click to Hide