Manna from Decatur
On the fraud of corn-based motor fuels
This is the second of the two pieces I wrote for Illinois Issues. I had by 2007 run out of patience with what I had long before come to see as the fraud of corn-based motor fuels, and it shows in this piece.
Our wise heads in Washington, D.C., and Springfield have come up with a novel way to keep the cars running—convert taxpayers' cash into ethanol. Patriots have embraced it as a substitute for foreign oil, greens as a substitute for planet-killing fossil fuels, politicians as a substitute for a liquid fuels policy and engineers as a bridge fuel until they figure out how to make fuel from switchgrass or discarded chewing gum or old Victoria's Secrets catalogs. As a result, corn ethanol enjoys broader public favor than married sex or the Bill of Rights.
As a domestic alternative to "foreign" oil, corn ethanol is undeniably patriotic. (What could be more American than corn?) Unfortunately, corn ethanol output is a puddle compared to the oceans of gasoline Americans burn each year. Total U.S. ethanol production capacity will soon hit a bit more than 4 billion gallons of gasoline equivalent; annual gasoline consumption in this country runs to some 140 billion gallons. An energy specialist with the Illinois Department of Commerce and Economic Opportunity was quoted in this magazine last year as saying that increased use of ethanol should contribute to lower prices as consumers rely less on volatile crude oil. This is a little like saying that increased use of their cars should contribute to less road congestion in Chicago as commuters ride less on an unreliable CTA. Basing a nation's motor fuel supply on a raw material whose abundance depends on Midwestern weather—well, OPEC has its storms, but at least their sheiks don't lose oil to droughts or spring floods or corn blight. And ethanol not only costs more to make, the cost goes up as more is made because the price of corn tends to rise with demand—as it did earlier this year.
It is fantasy that we can grow all our nation's motor fuel. Yes, we have lots of land, but not much of it is suitable to corn, and corn has lots of uses other than getting Mom to the mall. Even assuming good weather—and further assuming perfectly compliant farmers, and that it doesn't take more oil to make ethanol than it saves, and that the world finds something else to feed its chickens and hogs and cattle—most estimates agree that even the entire U.S. corn crop could provide less than 20 percent of the nation's oil needs. That's not insignificant, but simply inflating the nation's car tires to the proper pressure and boosting the fuel efficiency a bit would save as much and at much lower cost.
Corn ethanol would be a poor oil substitute even if it were available in reliably large amounts. It costs more to make and to buy than gasoline, and at best it returns only modest energy savings compared to gasoline and real but modest benefits in tenns of air pollution and greenhouse gas emissions.
The last are important, of course, but some of us are more concerned that becoming the Saudi Arabia of corn ethanol might pose other, local environmental costs. Corn is one of the most energy-intensive and water-intensive crops there is. Planting more of it means more land farmed, and farmed harder, with the risk of topsoil loss and lakes filled with mud or turned into algae soup by excess nutrients washed into them from fields. And while oil refining pollutes, too, the effects of corn cultivation, while relatively benign, affect vastly more land—and sea. In July it was reported that the summertime "dead zone" of oxygen depletion in the Gulf of Mexico is expected to reach its largest extent ever; scientists speculate that the ethanol-driven increase in com production may explain it.
The costs are not only environmental. Americans, as motorists and taxpayers, subsidize the com ethanol industry by anywhere from five to 10 billion bucks a year, depending. For example, geezers who still can might recall that ethanol was a child of the 1970s oil crisis (actually, crises). The United States had a great deal of corn, and not a whole lot of oil. To encourage the use of ethanol as an oil substitute, Congress in 1978 agreed to give a federal tax-credit to refiners and marketers of gasoline that contained ethanol.
The credit, which has been renewed periodically ever since, and extends in its present form until 2010, is 51 cents per gallon of ethanol used. The subsidy was intended to help stimulate demand until the ethanol industry could get on its feet. That was nearly 30 years ago, and the industry has yet to take a step without a helping hand. The credit's backers argue that some subsidy is still needed because it still costs more to process the stuff than it does to process gasoline, but that is a better argument for not making it at all.
Cheaper ethanol can be had. The problem is that the people who make it don't belong to the Farm Bureau. Brazil's tropical climate allows that nation to produce ethanol from sugar cane, which is cheaper than corn ethanol, packs more energy punch per gallon and is easier on the environment, assuming farmers don't clear forests to grow it. Alas for motorists. Congress during President Jimmy Carter's administration slapped a tariff on imported ethanol to protect the infant industry in this country. At 54 cents a gallon, the tariff prices Brazilian ethanol out of the U.S. market.
Both Illinois U.S. senators voted last year to extend the tariff, arguing that imports are not needed because "domestic ethanol production is sufficient and expanding." Expanding? Bloated might be more accurate, considering that it has been crammed with price subsidies and tax subsidies and artificial demand in the form of mandated blends and spared strenuous competition from leaner producers.
In the case of motor fuels, however, the much-hoped-for clean and efficient future, if it comes at all, will not come for many years. Cellulosic ethanol technologies have been tinkered with for 30 years and are more expensive to make at present than their corn-based cousin—which is why there is not one commercial-scale cellulosic plant in operation. As Robert Bryce writes in Slate, the online magazine, cellulosic ethanol is like the tooth fairy: Many people believe in it, but no one actually sees it.
As the solution to Illinois grain farmers' chronic economic droughts, ethanol also promises more than it delivers. Corn ethanol has been described as "almost a religion" in the Midwest. That exaggerates, but ethanol has been greeted by many as manna from heaven (well, from Decatur, where corn processing giant ADM is located), sent to sustain fanners exiled in the financial desert. Ethanol is now a major new market for corn—distilleries consume a fifth of the country's corn crop, and a big part of that is grown in Illinois—which for a time pushed corn prices above $4 a bushel.
That set farmers to making corn while the sun shines. The state's farmers planted a record 13.2 million acres of corn this year. Whether this will prove wise remains to be seen. High prices seldom survive after the harvest of a big planting, and storing and moving such great piles of the stuff is always a challenge. But farmers are famously hopeful people—who else but an optimist would invest in real estate in rural counties?
The corn market in this country is not a creature of the free market but of Congress. Anew five-year farm bill, now being cobbled together by federal lawmakers, has implications for the corn ethanol market. The previous bill, approved in 2002, included provisions for alternative, farm-based energy grants and loans for research and pilot projects, but the biggest prop it provided to corn ethanol was the Commodity Title, which kept the price of corn low by encouraging overproduction.
For years, the official aim of farm bills was to guarantee food security (although in fact it was to guarantee farm state congressmen's security in office). The new farm bill as drafted has energy security as its official aim. It would (as one commentator put it) make farms rather than oil refineries the focus of U.S. energy policy. That's essential, because the rest of the world has learned how to grow its own food, and there are limits to how many fructose-sweetened soft drinks even Americans can drink.
Some groups on the fringes of the debate hoped that the new bill might reorient commodity policies so as to encourage production of perennial crops for energy, thus nudging both the nation's ag and energy systems toward sustainability. Fat chance. There are elections coming up, so the major crop commodity system is to be left essentially unchanged.
Even at a guaranteed price, however, there is no real money in supplying raw materials to the ADMs of the world. The real money is in processing, which is why fanners and farm co-ops have been such eager investors in ethanol plants. In this they are aping their fanning ancestors. At harvest time 150 years ago, Illinois corn didn't fetch what it cost to ship it either, so farmers converted it into higher-value products like bacon or booze. As of May of this year, farmer-owned agro-fuel plants accounted for some 60 percent of U.S. agro-fuels plants and production capacity (most of which is devoted to com ethanol), and corporate interests owned the other 40 percent.
But thar's gold in them thar fields, at least for the moment, which is why non-farmers who never got closer to a combine than driving past one while on an interstate are getting into the game. A survey by FoodFirst, the self-styled institute for food and development policy, found that nearly nine in 10 of the 86 plants currently under construction are owned by large corporations. These investors have access to capital that allows them to build bigger plants (up to three times the capacity of the typical farmer-owner plant) that will push the farmer-owned percentage of total capacity below 20 percent.
Fanners could get squeezed out of the production game, as well. If com ethanol becomes a true alternative to gasoline, the oil companies—already diversifying into new energy technologies—might well begin to invest in farmland the way they now invest in oil fields. The ethanol boom has pushed up com prices a few cents—for the moment—but the real money is being made by the Monsantos and ADMs.
The New York Times summed up a likely midterm future in a recent editorial, which posed the question, "Will [ethanol] finally kill American fanning as we know it?" The newspaper envisions a Midwest monocropped for fuel com and other fuel feedstocks on land bought up by energy suppliers. "American fanning is poised on the brink of true industrialization," warned the Times, "creating a landscape driven by energy production and what is now called biorefining." Under such a scenario, Illinois grain farming, already industrial in methods, might become industrial in tenns of ownership, too. Farming's energy future may mean becoming something like the state's coal industry, with farmers reduced to the role of miners, working for a wage for energy conglomerates. ■