A biodiesel Hummer. "<a href="http://flickr.com/photos/jurvetson/139447357/">Swords to <br>ploughshares</a>" by Steve Jurvetson (<a href="http://creativecommons.org/licenses/by/2.0/deed.en">CC</a>).
A biodiesel Hummer. "Swords to
" by Steve Jurvetson (CC).

Policy Innovations Digital Magazine (2006-2016): Briefings: From Mules to Biofuels

Sep 5, 2008

Farmers and policymakers are wrestling with two main concerns when it comes to ethanol production: the effect of ethanol demand on food prices, and changes in land use that are detrimental to the environment. While families were sharing corn at backyard barbecues this summer, both issues perked up ears across the globe.

The Environmental Protection Agency rejected Texas Governor Rick Perry's request for a waiver on the amount of ethanol that must be blended into gasoline. He contended that the current standards would severely harm the economy through adverse effects on food and fuel prices. In upholding its Renewable Fuel Standard Program, the EPA requires that 9 billion gallons of renewable fuels be blended into the nation's gasoline supply this year. The standard for 2008 was raised in February to 7.76 percent from 4.66 percent, with the overall total increasing to 36 billion gallons by 2022. The EPA review of Gov. Perry's waiver request found that the use of corn-based fuel would "have no significant impact in the relevant time frame."

Grain farmers and the ethanol industry instead blame higher food prices on the spike in oil prices. The U.S. Department of Energy supported the EPA decision. Energy Secretary Samuel Bodman said the country needs a "diverse array of cost competitive technologies and sources to overcome our addiction to oil in a time frame that is consequential, and biofuels constitute a prominent—but not an exclusive—promising pathway."

Some critics of this decision point out that approximately one-third of the U.S. corn crop will eventually go to produce ethanol.

"When you're diverting a third of the [corn] crop to ethanol it has a real impact on prices," said Republican Senator John Sununu of New Hampshire. "To produce a gallon of ethanol takes 1700 gallons of water. Thirty million acres of land, going to produce the corn for ethanol."

Gov. Perry argues that the decision "is a mistake that will only increase the already heavy financial burden on families while doing even more harm to the livestock industry. Any government mandate that artificially props up a single industry to the detriment of millions of Americans is bad public policy."

Others critics—mainly conservation groups—also criticized the decision, arguing that the research only considered the economic impacts of ethanol. The Environmental Working Group's director of government affairs, Sandra Schubert, called the mandate misguided and said it was "forcing farmers to plow up marginal land and wildlife habitat while increasing global warming and dumping toxic fertilizers and pesticides into our precious water sources."

"America should be focusing on viable clean energy solutions like conservation, solar, and wind," said Schubert.

U.S. Senator Dianne Feinstein of California asked U.S. Trade Representative Susan Schwab to investigate whether the U.S. ethanol import tariff violates the rules of the World Trade Organization. The tariff maintains an artificially high domestic price for imported sugarcane ethanol, which is more energy efficient and comes from countries like Brazil. Republican Senator Chuck Grassley of Iowa strongly disagrees with Feinstein's position, arguing that the possibility of a Brazilian challenge at the WTO would cause the United States to take unilateral action to lower the tariff.

"I think it is clear it's within our international legal obligations," Grassley said. "The tariff was accepted by consensus, and I want to emphasize by consensus, by members of the WTO, including Brazil at the conclusion of the Uruguay Round of WTO negotiations, going back at least 15 years."

After the United States, Brazil is the second biggest ethanol producer in the world. Brazil exported two-thirds of its sugar crop last year. Japan's Toyota Tsusho Corporation, the trading company of the Toyota Group that also includes Toyota Motor, is interested in tapping the Brazilian market. The group is conducting a study, with Brazilian state-run energy company Petrobras, to explore the possibility of building an ethanol plant in Brazil's west-central state of Goias. Petrobras and local cane producers would be partners in the new mill that would be built in the Itumbiara vicinity, one of Brazil's most fertile areas.

About 3,000 miles away, Cuba is facing a similar debate over ethanol production. The Caribbean island is modernizing its sugar industry, but its plans to increase ethanol production have been scaled back. Luis Galvez, director of the sugar ministry's Sugar Cane Derivatives Research Institute, said that sugar derivatives such as ethanol will increase along with the modernization but not at the expense of food.

Two years ago, Galvez's opinion of ethanol was quite different: "Our country has begun an accelerated drive to increase alcohol production, modernizing existing distilleries and installing new ones to increase by five times installed capacity." This change in opinion follows former Cuban President Fidel Castro's denunciation of the use of food for fuel. Castro charged that using food for fuel was a crime against humanity resulting in the starvation of billions.

Ethanol production from food crops may be a contributing factor in the recent food inflation, but according to Toni Nuernberg, executive director of the Ethanol Promotion and Information Council, it isn't the only one. She attributes partial causality to drought, population growth, growing protein demand in developing countries, war, transportation costs, crop acreage shifts, and other factors. "Ethanol does not take food from the mouths of starving people," she told Christian Science Monitor.

Brazilian President Luiz Inacio Lula da Silva takes a similar stance, arguing that there is often a failure to distinguish between the different kinds of ethanol. The energy yield from Brazilian sugarcane ethanol production is approximately eight times as efficient, and it costs significantly less to produce, as compared to ethanol derived from temperate crops. In addition, the crop requires fewer fertilizers and pesticides, and Brazilian farmers who grow it do not receive government subsidies.

The issue facing Brazil, which plans to expand its ethanol production, is environmental degradation. Although the best environment for sugarcane is the more fertile center of the country, some critics argue that cattle farmers in the south and center of Brazil are selling their pastures to crop farmers and moving their herds north into the Amazon where land is cheap and deforestation is easy.

This phenomenon may be the exception rather than the rule. Alexandre Strapasson, director of the sugarcane and agroenergy department at Brazil's agriculture ministry, argues that Brazil has more than enough arable land available to keep planting sugarcane—more than 7 million hectares in production already and nearly 160 million hectares of arable land remaining to be sown.

In an effort to address concerns over food for fuel, British oil major BP has formed a partnership with Verenium Corporation to speed development and sales of alternative ethanol made from nonfood sources. Their $90 million partnership is intended to advance development of cellulosic ethanol made from corn crop waste, the tough woody bits of sugarcane, and hardy crops like switch grass. The alliance is one of the largest partnerships to be formed between a multinational oil company and a biofuels startup.

Critics of cellulosic ethanol point out the high production costs. Verenium Chief Executive Carlos Riva said the company intends to lower the cost of its cellulosic ethanol from the current price of $3 per gallon to about $2 per gallon in the near future. Cellulosic ethanol could be better than corn-based fuel because it produces greater yields, has less exposure to commodity price swings, and offers greenhouse gas emission reductions of 80 to 90 percent.

Another promising source of ethanol is algae. This alternative does not harm the environment, grows in wastewater, or seawater, and requires nothing more than sunlight and carbon dioxide. Theoretically, algae can produce 10,000 gallons of biofuel each year per acre, compared to 300 gallons from an acre of corn. The problem yet again is keeping costs down.

The future of ethanol is unknown. If costs are dramatically reduced, then the notion that we can drill our way to energy independence will become even more of a fossilized idea than it already is. Human society may one day look back at the irony of switching, over the course of a single century, from one form of biomass transportation to another—from horses and mules to advanced biofuels.

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