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Ethanol and the future of biofuels

Once known as bootlegger’s moonshine, ethanol is now the rising star of alternative energy. What does that mean to the price of food and fuel?

Made from corn and mixed with gasoline, ethanol has been touted as the fuel of choice to drive Americans toward energy independence, lower greenhouse gas emissions, and rural prosperity. But when grain prices began to rise last year and a food shortage hit the poorest regions of the world, that drive toward a cleaner, greener future took an unexpected turn. Ethanol is now at the center of a high-octane debate about the future of alternative fuels and how to get there from here.

The debate focuses on state and national policies designed to jumpstart the development of renewable forms of energy. These government policies invest millions of taxpayer dollars in the commercialization of biofuel industries through subsidies and mandates for mixing ethanol into gasoline.

A lot of new research explores home-grown alternatives to petroleum, alternatives such as canola-based biodiesel and forest thinnings spun into cellulosic ethanol. But today, only corn-based ethanol has an established technology that can deliver the volume that is required to meet the federal Renewable Fuel Standard. That standard, part of the Energy Independence and Security Act, mandates the use of 36 billion gallons of renewable fuel by 2022 and offers direct subsidies of 51 cents for each gallon. This “blender’s credit,” which goes directly to oil companies, was reduced to 45 cents per gallon on January 1.

ethanol petrol. photos © stock.xchng, illustration Tom Weeks
water droplets on cornfield

A few states support federal policies with subsidies of their own and Oregon is among them, requiring that all gasoline pumped in the state contain 10 percent ethanol. At the moment, most of Oregon’s ethanol fuel is made from corn imported from the Midwest. As food costs soared along with record-breaking gasoline prices, some people were quick to blame government support for the ethanol industry.

A recent conference at Oregon State University brought together economists from around the nation to discuss the price of food and energy and the economic effect of policies that subsidize development and use of biofuels.

The picture is more complicated than corn feeding cars instead of people. It combines the falling value of the dollar, the rising price of petroleum, droughts in many grain-growing parts of the world, and an increased demand for both food and fuel in many developing nations. Using various sources of information, the economists at the conference blamed the rise in biofuel production for anywhere between one and 30 percent rise in food costs worldwide. And a recent World Bank report linked biofuels to as much as 75 percent of the rise in world food prices. So, debates are wide ranging about the impact of biofuels and what the best policies should be for Oregon, the nation, and the world.

Harry deGorter, a Cornell University economist at the conference, argued that biofuel support policies are unintentionally subsidizing gasoline consumption. Existing federal and state tax credits for biofuels may total over $20 billion per year by 2022, he said, effectively canceling the goal of reducing consumption of imported oil. “That makes about as much sense as bailing out a sinking boat while simultaneously drilling holes in the hull.”

To be sustainable, biofuels must compete with fossil fuels in cost effectiveness, according to Mark Partridge from The Ohio State University. For example, in the fossil fuel industry, supplies of raw materials can be stored indefinitely underground and the existing network of production and delivery depends on relatively few jobs. Costs are low. According to Partridge, biofuel production cannot be a jobs-creation program if it is to compete sustainably with the current efficiency of fossil fuels. Ethanol plants hire relatively few workers and therefore may not be effective in creating jobs and boosting rural economic development.

The biofuel boom and rising food prices have boosted the price of agricultural land, according to John Penson, a Texas A&M University economist. In little over a year, land values have doubled in parts of the U.S., including Oregon. Such steep and rapid rises in land values can force an unsustainable debt burden for farmers, Penson said, if they borrow money against high-priced land and crop values suddenly fall. A similar situation in the 1970s led to many farm bankruptcies across the U.S.

straw bale photo © stock.xchng
algae photo by Lynn Ketchum
OSU researchers are exploring new sources of energy that do not compete with food crops, sources such as cellulosic ethanol made from leftover straw or biodiesel made from algae.

Increasing corn prices will result in more acres planted in corn, which may have significant impact on the environment, according to JunJie Wu, an Oregon State University economist. “Biofuels are touted as sustainable and clean,” Wu said. “And yet corn is one of the most water- and chemical-intensive crops.” He suggested that increased reliance on corn-based ethanol could lead to increases in nitrate water pollution, soil erosion, and loss of soil carbon.

OSU economist Bill Jaeger questioned the effectiveness of energy policies that focus on corn-based ethanol, which he says requires large amounts of energy to produce. “It is as if policy-makers have chosen a winning technology before evaluating its consequences,” he said. There may be other, more effective ways to reach the goals of energy independence, reduction of greenhouse gas emissions, and rural prosperity, Jaeger said. “We don’t want to find out years from now that we spent billions of dollars but achieved very little toward our goals.”

Brent Searle, an economist at Oregon’s Department of Agriculture, argued that current policies are an important first step. He compared the ethanol industry to early stages of the computer industry, when the products were big, clunky, and slow. But you have to start somewhere, he said. He pointed to new studies that show that ethanol now has a lower carbon footprint than gasoline and that biofuels helped hold the cost of fuel below what it would have otherwise been. Most important, Searle says, support for corn-based ethanol is paving the way for cellulosic ethanol, the next generation of biofuel in Oregon.

Instead of kernels of corn, cellulosic ethanol uses waste materials left over from cutting timber, pruning vineyards, or harvesting corn. The mechanism needed to break down these tough fibers and extract ethanol-making sugars is being explored by researchers, including OSU food chemist Michael Penner, whose pioneering work uses grass-seed straw as a feedstock ethanol.

And on the horizon, beyond cellulosic ethanol, is a third generation of biofuel that does not require farmland at all. OSU bioengineer Ganti Murthy is exploring the capacity of algae to produce both ethanol and oil, with the idea that energy could someday be generated from pond scum on wastewater.

As science and technology evolve, so do industries and policies and possibilities. “Food and fuel are part of a complex shifting international landscape in which Oregon is one part,” said OSU economist Munisamy Gopinath, who helped bring together the conference. “Our role as economists is to provide information about this complex landscape so others can make informed policies to guide Oregon’s future.”