Take a long look at your nearest ear of corn; its golden hue may not just be a hue. These days, as President Bush and his administration attempt to tackle the energy problem for the United States, fields of corn have become our newest saviors.
But before we all bequeath our land to corn farmers and move to Canada, shouldn't we step back and try to think about ethanol realistically? Unpatriotic though it may be of me, I would argue that investing all this time and energy in corn-based ethanol stunts our drive for solving today's energy problems and conveys the wrong message: that we are unwilling to pursue tenable solutions, preferring instead to preserve the political support of certain states.
By signing the 2005 Energy Policy Act, President Bush mandated the country convert about 7.5 billion gallons, or five percent of its annual gasoline consumption, to renewable fuels instead by 2012. The administration is relying on ethanol for a significant portion of this alternative energy growth and if the current hype is any indication of the near future, ethanol supporters in the capital should be smiling, well, ear to ear. Infrastructure is rapidly being developed across the Midwest to facilitate the production of corn-based ethanol — the total number of ethanol plants jumped from 72 in January 2004 to 113 currently in operation, with another 80 or so in development.
But why is ethanol so big? First, the industry's been sheltered like a baby. Subsidies are at $5 to $7 billion a year, which essentially means we're transferring money from millions of working families to a handful of big businesses. Policies such as a 51 cent per gallon tax credit and a 54 cent per gallon tariff on Brazilian imports also seriously disrupt the market mechanisms at play. It's ironic that Bush can so vehemently argue for free markets in the Western hemisphere, yet defends a barrier against cheaper Brazilian sugar-based ethanol imports. Would you rather import ethanol from Brazil or oil from Venezuela? Consumers and the market should decide which alternative fuel is the best alternative.
Ethanol futures have been volatile over the last year, reflecting market uncertainty over the fuel's true value. Currently the December 2007 futures are trading on the Chicago Board of Trade at $1.89, having been well over $2.00 in the recent past. They are heavily dependent on corn prices, which have been steadily rising due to the anticipated increase in demand. The Agriculture Department announced last week that corn acreage will rise 15 percent in the coming year.
Ultimately, the United States doesn't have the resources to produce corn at the levels that would be necessary to fuel the country: limited land and skyrocketing ethanol demand have already created an upward pressure on corn futures, doubling prices in the past year. Rising corn prices hurt millions of ranchers, animal farmers, and others in the U.S.
Higher corn prices, in turn, affect ethanol costs. Already at about $1.45 per gallon, or equivalently $60 a barrel, ethanol's status as a viable alternative fuel is endangered by rising costs. Factor in that it produces about 25 percent less energy than gasoline and ethanol suddenly looks a lot less financially promising.
There are many economists who argue that, all things considered, corn ethanol uses up more energy than it produces. A highly publicized study academic study from Pimentel and Patzek in 2005 argued that even taking into account more efficient production processes, the corn-to-ethanol process consumes about 30 percent more energy than it produces. Although other studies refute this claim, the issue is still being debated in the field. But it's clear that the sign of the net energy balance of corn-based ethanol should not be in question, if we are to pour such vast resources into its future.
But maybe there are social benefits of ethanol? Bad news. The production of corn-based ethanol requires several key inputs besides corn, some of which are in short supply in rural America. For example, three gallons of water are used to produce one gallon of ethanol. Not to mention the impact of the smells and sounds of new plants could have on their neighbors. The environment also suffers, because limited land means fewer crop rotations and an increased corn allocation, both of which cause serious soil erosion. Farmers may themselves be hurt if one day another solution supplants ethanol, rendering the infrastructure and increased corn production useless.
There are many alternatives. MIT's Technology Review in February described the cellulosic ethanol industry, which is produced using woodchips, switchgrass, and other feedstock. It is more energy efficient than corn ethanol, using less fossil fuel and producing double the ethanol per acre, an especially important concern given limited land. That industry, however, remains inchoate due to severe lack of investment. Private investment has been driven by the corn ethanol hype, even though switchgrass could provide more lucrative returns and greater long-term potential than corn.
Simply put, let's keep our options open. We're moving too quickly with ethanol and the reckless embrace could have serious side effects. America can certainly wean itself from foreign oil, but ethanol may not be able to support the weight of hope resting on it.