Council on Hemispheric Affairs
Ethanol Fuels Are Not Necessarily The Universal Cure
As the Bush administration continues to push its alternative fuels agenda, it has become increasingly evident that corn-based ethanol could be as much the global villain as a boon to society. Instead of improving the environment and moderating oil prices, corn-based ethanol could result in mass deforestation, strained land and water resources, increased food prices, augmented poverty and swarms of farmers uprooted from the land. While the negative effects of corn-based biofuels are obvious, Washington continues to emphasize their importance, while increasing the size and number of subventions to the ethanol industry. This is being done despite the adverse ramifications that its cultivation is having on the sites where it already is being produced, with the situation likely to further deteriorate in the near future.
The Emergence of Ethanol
Ethanol is a substance created by the fermentation of simple sugars. In the United States, corn is the main source for ethanol production, while other countries like Brazil rely on a sugar cane process as well as other plants and byproducts to be used in making alternative energy sources. Typically, ethanol is mixed into gasoline creating “gasohol,” resulting in higher octane ratings, improved combustion, and is viewed as more environmentally friendly. Currently, around 30% of gasoline in the United States contains some ethanol, and U.S. initiatives indicate the possibility for much larger concentrations in coming years.
Before corn-based ethanol became prominent in U.S. industries, lead was used as a performance enhancer when added to gasoline. It was not until the 1970s and 1980s that corn-based ethanol began to replace lead—a very toxic substance—mostly due to the oil embargo that the Oil and Petroleum Exporting Countries (OPEC) imposed in 1974. Amid the clamor of American voices calling out for energy independence, President Jimmy Carter gave his memorable speech on April 18, 1977, ushering in a new era in U.S. economic history. From this point on the U.S. would try to cater to its high energy demand from its own domestic resources. To Carter, this decision was the “moral equivalent of war” between the U.S. and OPEC. Thirty years later, it seems that America is losing its own self-designated “war” and is likely to continue to suffer unnecessary loses in this conflict unless it pursues a fundamental change in its economic policy.
An Economic Giant
Over the past few years, a combination of increasing oil prices and generous government subsidies has resulted in the continued expansion of the U.S. ethanol industry. According to the Council on Foreign Relations, as of 2006, 110 ethanol refineries have been built in the U.S., with 73 more under construction. It is estimated that by the end of 2008, ethanol production will have reached 11.4 billion gallons a year. In his 2007 State of the Union address, President George W. Bush set out goals to produce over 35 billion gallons of ethanol fuel by the year 2017. He added that the U.S. also plans to cut petroleum consumption by 20% over a ten year time span.
The tumultuous ethanol industry receives Midas-like support as a result of direct government subventions which equaled about $8.9 billion in 2005. These include tax cuts, grants, and government loans in order to encourage production and remain economically competitive with conventional gasoline. The federal government for example already has established a tax credit of 51 cents for every gallon the industry produces. Although accompanied by severe consequences, with continued government support at such a high level, it is quite possible that Bush’s consumption goals could be fulfilled within the stipulated time period.
Feeding Cars and Starving the Poor
On March 29, 2007, Cuban leader Fidel Castro berated Bush’s economic initiatives for ethanol production in the Cuban Communist party newspaper Granma, stating that using corn, or any food source, to produce ethanol could result in the “premature death” of upwards of three billion people. He explained that the drive to produce corn-based ethanol would hike up food prices around the world, adversely effecting poverty in developing countries. Castro then restated his beliefs in a second article, also published in Granma, on April 3. Although the ailing Cuban president is known for adamantly and automatically opposing U.S. foreign policy initiatives, it would be foolhardy for the U.S. to ignore his foreboding message on this subject.
As a result of the Washington-backed initiatives, an enormous volume of corn is being consumed for ethanol production. Consequently, the decreasing availability of it as a food crop and for livestock has contributed to the rise of corn futures from $2.80 to $4.38 a bushel. This recent price hike occurred over the course of several months and is said to be the sharpest increase in the past ten years. Thus, fewer low income consumers are able to purchase corn-based products, which is a very serious detriment to countries where corn is a staple of a population’s diet.
Mexico already has been significantly affected by the rising costs of corn. Because 107 million Mexicans rely on corn as their main source of sustenance, its soaring increase has sent shockwaves throughout the country’s corn-related industries. The price of tortillas in Mexico has risen by 100%, resulting in mass protests by tens of thousands of enraged consumers last January. Recently inaugurated Mexican President Felipe Calderon stated that the price increase of corn is unjustifiable and “threatens the economy and millions of families.” In response to the strike, Calderon signed an accord that limited the price of tortillas to 8.50 pesos per kilogram, and increased the quota of duty-free corn products imported from the United States. Despite Calderon’s efforts to regulate corn prices, the situation remains unresolved, since the accord expired in May.
The rapidly changing international corn market also has affected the prices of other produce. Due to the high demand for corn, farmers in the U.S. are now planting more acres of the commodity. This has decreased the production of other crops, such as wheat, soy and rice, making them more expensive and less available. Beer prices also have risen due to the substitution of barley for corn. Even the price of meats and poultry such as turkey, chicken, pork, beef as well as eggs and dairy products are beginning increase due to the high cost of feeding farm animals. Fidel Castro may have a point; current U.S. economic policy seems to indicate greater interest in fueling cars than feeding people.
Is Ethanol Really Better For The Environment?
In May of 2007, the United Nations issued a report warning the world against the production of ethanol. The report stated that thus far, the production of ethanol has resulted in “the destruction of endangered rainforests, contamination of soil, air and water and the expulsion of rural populations from their homes.” Because more acreage needs to be cultivated in order to produce the amount of corn, sugarcane and other foodstock needed for ethanol production, farmers around the world are wantonly cutting down forests to make way for new plantations. In the long term, the Amazon Rainforest, for example, will experience vast deforestation due to Brazil’s increased sugarcane production in order to meet its ethanol export goals. This inevitably will result in the slow degradation of one of the Americas most precious and fragile ecosystems.
The UN also added that “where crops are grown for energy purposes, the use of large scale cropping could lead to significant biodiversity loss, soil erosion, and nutrient leaching.” Fidel Castro warned the U.S. that corn-based ethanol production will not only damage the environment, but will also put increasing pressure on the world’s already dwindling water supplies, possibly resulting in future water wars.
In a COHA interview with Boston University’s International Relations professor Kevin P. Gallagher, he asserted that we have found ourselves in a “climate constrained insecure world,” where we must shift our dependence away from fossil fuels and have a more climate friendly energy policy. Moreover, Gallagher stresses that “corn-based ethanol is not a panacea to solve a country’s climate and security problems.” He emphasized that currently the U.S. has the opportunity to develop a more efficient energy path, but with its present, poorly managed corn-based energy policy, the U.S. is “taking one step forward and two steps backward.”
Gallagher also pointed out that the corn, wheat and soy sectors are highly concentrated, meaning that at times “only two or three firms can control 75% to 85% of the market.” This raises possible concerns that these firms are manipulating the price of their products, thereby artificially impacting the commodity market to their advantage, but not necessarily to society’s benefit. Because these mega-firms face so little competition, it is relatively easy for them to drive up the price of their products in order to generate greater profits. At the present time, corn-based ethanol production is benefiting mainly the larger firms.
In Mexico there are only a relatively small handful of tortilla makers whose prices, as mentioned above, have rapidly shot up. Yet it is very important to note that these tortilla prices increased somewhat faster than the price of corn in general. While the situation in Mexico is currently under investigation, its present fate illustrates the importance of rapidly addressing this issue.
It is evident that while ethanol, as an alternative to fossil fuel, may be beneficial to the general population by reducing and stabilizing fuel prices, its consequences may far outweigh such advantages. As Food Rights Coordinator Celso Marcatto at ActionAid in Brazil stated, “The benefits of biofuels cannot be achieved at the expenses of increased food shortages, environmental degradation and poverty.” Unfortunately, that is what the U.S. is inadvertently setting itself up for in the future.
Alternatives To Corn-Based Ethanol
The U.S. currently uses more energy per unit of GDP than do most other countries in the world. Yet there are many ways the U.S. could utilize its energy more efficiently. For example, steel mills in the U.S. use more energy per dollar than their equivalent in Germany or Japan. The Japanese car company Toyota is currently using its hybrid technology to manufacture more fuel efficient cars. Germany uses energy efficient light bulbs from which it derives huge savings. The U.S. needs to use the eco-technology which now exists to mirror these countries by adapting them to its own use.
Wind and solar energy, a function of geography, should be a key component in the U.S.’s quest for energy efficiency. Professor Gallagher suggests that former President Carter’s energy policy had the U.S. “perfectly positioned to, by now, be the world leader.” Yet because the succeeding administrations strayed away from Carter’s path, the U.S. is now far behind. “We have engineers and ingenuity but the current administration has locked itself into a specific framework and is resistant to change,” says Gallagher. The U.S. still has time to alter its course toward a more energy efficient arrangement. Hopefully, the White House will acknowledge its current unwise economic policy and join other governments that value the use of eco-friendly energy.
This analysis was prepared by COHA Research Associate Eliana Monteforte
June 12th, 2007