Farm state politicians, entrepreneurs and venture capitalists have sold biofuels to rest of us as a way to revive rural America, attack the problem of global warming and reduce our dependence on foreign oil.
In response, investors and taxpayers have poured many millions of dollars into corn ethanol. The returns have been skimpy.
That, at least, is the conclusion of a new report from the Worldwatch Institute called Red, White, and Green: Transforming U.S. Biofuels. The unhappy news is that we don’t seem to have learned much from our dismal experience with corn ethanol, and unless things change in Washington, we’re going to burn a lot more of it.
“From an environmental perspective, corn ethanol has not delivered in terms of climate benefits,” says Alice McKeown, an author of the report.
Worse yet, we could repeat the problems all over again with so-called next-generation biofuels. That’s sorghum, below.
Both the science and economics of biofuels are complex, McKeown told me by phone earlier today after I read the 50-page report, which offers a useful overview. It’s easy to find people who will argue about precisely how much corn ethanol reduces greenhouse gas emissions, if at all. (It depends on how and where the corn is grown, and how the ethanol refinery is fueled, among other things.) There’s also lots of debate about the impact of corn ethanol on food prices. (Recall the 2007 tortilla riots in Mexico.) Currently there’s a raging debate going on in Washington about whether the rising demand for corn generated by biofuels is is causing farmers elsewhere to turn forests into land for food or biofuels cultivation.
The study says:
Of particular concern is the link between biofuels expansion and the global conversion of land for agriculture, as biofuel crops compete with forests and food crops for limited land and other resources.
The ethanol industry hates the idea that it might be held accountable for the so-called indirect land use effects of corn ethanol. You can read Tom Zeller’s blog post and Kate Galbraith’s blog post, both at The New York Times’ Green Inc., for more on this controversy, which will be fought out this fall in Congress.
Despite those uncertainties. there are some things we do know about corn ethanol. For one thing, we know that the ethanol industry has been built with massive government subsidies—a $1 a gallon production credit, along with a Renewable Fuel Standard (RFS) mandate that will require production of 36 billions of biofuels by 2022, as well as import tariffs on imported sugar-cane ethanol from Brazil. The tariffs persist despite the fact that Brazilian ethanol is cheaper to produce and better for the environment. The fact that presidential campaigns begin with caucuses in Iowa has been very, very good for the corn ethanol industry.
Government support “is the only reason the industry is up and running,” McKeown says. “Otherwise it wouldn’t be profitable.” Even so, much of the industry has failed to survive the combination of rising corn prices, declining oil prices and the credit crunch. Last October, VeraSun, the nation’s second-largest producer of ethanol, went bankrupt. So far in 2009, ten ethanol production plants have filed for bankruptcy, including those operated by Aventine Renewable Energy and Pacific Ethanol, according to Zacks.
“When is this going to be considered a mature industry that doesn’t need support from the government?” McKeown asks.
What’s more, while about a third of the corn grown in the U.S. this year will be used to make transportation fuels, ethanol will supply only about 10% of those fuels–not enough to bring the U.S. significantly closer to energy independence, according to the Worldwatch Institute.
Nevertheless, corn ethanol isn’t going away anytime soon because the government mandate ratchets up every year. Under the mandate, up to 15 billion gallons a year of biofuels don’t have to meet newly-imposed sustainability standards if they are supplied from existing plants. “That 15 billion mandate is probably going to be met by corn ethanol,” McKeown says.
So as we move gradually to so-called next generation biofuels such as cellulosic ethanol or fuels made from algae, what can we take away from the experience with corn ethanol? The Worldwatch Institute has three eminently sensible recommendations:
1. Base the tax credits for ethanol and biodiesel on performance, with fuels that achieve deeper greenhouse gas emissions reductions eligible for greater support.
2. Revisit the Renewable Fuel Standard mandate to ensure that it will promote second-generation biofuels instead of propping up first-generation biofuels.
3. Lower or eliminate the ethanol import tariff for fuels that meet sustainability criteria.
Put simply, we shouldn’t provide taxpayer-funded benefits without a demonstrable environmental payoff.
The trouble is, next-generation biofuels have been slow to arrive. And while a big pile of government money is on the way to speed their development–the Department of Energy has committed $385 billion for six cellulosic ethanol plants, according to Worldwatch–there are no guarantees that they won’t generate environmental problems of their own, especially if adapted at a large scale.
My own take? For all the promise of biofuels (and, for that matter electric cars), we should not overlook less glamorous actions that will provide clear-cut environmental benefits right away. Supporting public transportation, for one. (The Washington D.C. metro system, which I ride, is literally breaking down before our eyes.) Driving smaller, more efficient cars. Working from home. Riding bikes.
Or walking–which costs you nothing, improves your fitness, reduces your dependence on foreign oil, generates zero GHG emissions (other than those from the food you need to fuel your body) and requires no support from Congress.
Photo of Venice Beach by vmiramontes (Creative Commons)
“When is this going to be considered a mature industry that doesn’t need support from the government?” McKeown asks.
Dunno. When is big oil not going to be supported by the government?
When is there going to be a level playing field for the two fuels?
When do we fess up that the difference between the environmental impact of fossil fuels and that of ethanol, which DOES NOT require fossil fuels of any kind to be made, if done properly, is MASSIVE?
When is war overseas going to be factored into overall impact, environmentally as well?
When are people going to stop whining about doing biofuels wrong and do it right?
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Marc,
This is a disappointingly one-sided post from a usually thoughtful blogger. I’ll give you the benefit of the doubt and say that you were throwing it out there to start a conversation and take you up on the offer.
Before I get into the substance of their argument, there are a few errors that need to be corrected. First, ethanol does not receive a “$1 a gallon production credit.” That’s biodiesel. There is a 45 cent per gallon tax credit that goes to blenders of ethanol, not producers.
Second, the tariff does not exist to keep Brazilian ethanol out of the U.S. We are and will remain their largest export market for some time. It exists to offset the tax credit which was established to encourage the growth of a domestic industry. The ethanol produced locally gives enormous economic benefits to taxpayers that you don’t get from ethanol imports.
Third, the ethanol industry does not hate the idea of being held accountable for any carbon emissions that are caused by ethanol. What we are opposed to is being assigned a massive carbon penalty for indirect effects before those effects are fully (or even partially) understood and before we calculate the indirect effects of all of the other fuels we compete against.
Fourth, two of the three things Worldwatch Institute are asking for are already being done. The RFS mandates 36 billion gallons of renewable fuel, 21 of which come from cellulosic ethanol and other advanced biofuels. In order to qualify for the RFS, those have to provide at least a 50 or 60 percent decrease in greenhouse gas emissions relative to gasoline. Cellullosic ethanol that meets those targets receives the $1 per gallon tax credit.
But what I’d really like to address is their contention that government support “is the only reason the industry is up and running.” Isn’t that true of all renewable energy sources? Isn’t the problem we’re facing one that was caused by our addiction to cheap fossil fuels that are harmful to the environment? If ethanol had a level playing field on which to compete with petroleum, it could easily compete. Until that day arrives, government support is crucial to keep our only existing alternative to oil.
I think a few clarifications would be helpful.
First, Nathan is correct on the tax credits amount. The tax credit for ethanol is 45 cents per gallon and for biodiesel is $1 per gallon.
Regarding the ethanol tariff, the effect is to reduce the amount of foreign ethanol imported into the U.S. Although some Brazilian sugarcane ethanol is imported through a back door—known as the Caribbean Basin Initiative—the amount is limited and would arguably increase if the tariff was reduced or eliminated. Several members of Congress proposed a bill earlier this year to lower the tariff and allow in more foreign sources of sustainable biofuels.
The larger issue, however, is the question of indirect land use changes. In fact, the effects of these changes have been studied and are reasonably known (covered in the full report). The issue is not whether these effects have an impact and are measurable, but rather that when they are included the climate benefits estimates for corn-based ethanol are slashed dramatically—which has caused an outcry from the industry. We saw this earlier this year when California attempted to include land use changes in their low carbon fuel standard (delayed due to industry pressure) and when the EPA proposed a rule in May including land use changes as required by law (the industry has successfully added a measure to the moving climate bill to delay this for five to six years.) Both processes—California and the EPA—relied on transparent, science-based methods.
Regarding what the RFS will accomplish, the Energy Information Administration estimates that the mandate for 21 billion gallons of advanced biofuels will not be met by 2022. It’s important to note that the EPA can lower the annual volume requirements for advanced fuels and that the mandate itself is not a guarantee that the production levels will be met.
Concerning the first reader’s comment, current corn-based ethanol relies on significant fossil fuel inputs, including fertilizers and pesticides, farm machinery, irrigation pumps, biofuel refineries, and transport of the final fuels, among others.
Readers who are interested in how we can draw from a diverse set of energy options to cut our emissions and reduce our dependence on fossil fuels may be interested in another report by Worldwatch titled, “Low Carbon Energy: A Roadmap.” (download for free at http://www.worldwatch.org/press/prerelease/EWP178.pdf)
Many thanks,
Alice McKeown
Worldwatch Institute
Mark,
Love your blog and read every one the moment they come out. Have never felt the need to comment until this article, which seems too tolerant of a biofuel that is ineffective in that its financial returns minus govt subsidies are negative.
Ethanol is too inefficient when produced from corn. This was railroaded through Congress in an election year. Heavy corn producing states were among the few states being fought for between the two-party system (also inefficient, another story another time). Standards for ethanol from corn (not sugar) were heavily lobbied.
Sugar ethanol is highly productive – on the order of 6 times more productive than corn ethanol. This means far fewer acres of forest or food-farmland lost to agriculture because the production yields are so much stronger. Why we have to have ridiculous tariffs on sugar ethanol, or sugar for that matter, highlights just how government intervention can create massive inefficiencies.
I’m all for supporting a biofuel or mode of transportation through subsidies when over the long-term, ie 5-10 years, the demand for the product(s) create financial returns. Financial returns, not forgetting social ones, are the only way that something will remain in existence without subsidies (remember the dot-com companies claiming negative gross margins would make them money? didn’t work.).
Time and research dollars on finding viable fuels from items already available in the US – ie landfills, wind, solar, kitchen grease (pick up a Whopper and fill your car’s tank) kills two birds with one stone. The only reason we have not made this a focus is bc companies want to PATENT their strains of grain and put a lock on the fuel market to their benefit.
Please be a bit more critical in your analysis around why something is currently in place. Your voice carries a lot of weight – please don’t waste it in the wind of rhetoric.
Thanks and keep up the good writing
I appreciate Alice’s response and hope that Marc will allow me to respond in kind. I don’t have the benefit of having read the full report, but I have studied these issues very closely. As I mentioned in my post, the ethanol industry is primarily concerned with two aspects of indirect land use change (ILUC).
First, the science is not nearly as settled as many would lead us to believe. Depending on which report you look at, ILUC either doubles ethanol’s carbon score or isn’t happening at all (according to the creator of the GREET model for calculating fuel emissions). On the direct carbon effects of fuels you don’t see a tenth of that variation. According to Dr. Lee Lynd at Dartmouth College, using biomass from converted land (to produce biofuels or pulp and paper) along with sustainable cropping practices would make any carbon debt from land use disappear.
But that is assuming that using land for energy crops has caused or will cause land use changes on the other side of the world. The data simply does not support this theory. Over the past five years, while ethanol production in the U.S. doubled, deforestation in Brazil declined by 50%. This was primarily due to the passage of laws that addressed the real causes of deforestation and some progressive partnerships between industry and NGOs. Moving forward, due to crop yield increases and the use of waste products (corn cobs in our company’s case) we won’t need new land to produce the biofuels required by the RFS.
The second and I believe more important beef that ethanol producers have with ILUC is that it selects only one indirect, market-mediated effect (land) and applies it to only one fuel pathway (biofuels). It leaves out the indirect effects that come from electric vehicles through increased nickel mining for batteries and increased coal-fired power plants for electricity. It ignores the indirect effects of petroleum, like disposing of petroleum coke and the GHG’s from military protection of foreign oil interests. They also ignore the increasing amounts of oil that come from more carbon-intensive sources like the Canadian Tar Sands. Ironically, while the EPA pieces together nine different models to try to predict the carbon intensity of biofuels 100 years from now, they use five year old data on oil.
The additional five-year study period that was in the final version of Waxman-Markey will give time to further understand a potential carbon emissions source that was first mentioned 18 months ago. As is suggested by Alice, the 15 billion gallons of corn ethanol in the RFS is already grandfathered in, so why not take the time to fully study this theory before including it in law?
Marc,
I agree that ethanol subsidies should be phased out. But corn ethanol is likely to be marginally profitable in the long term with or without subsidies. This is a commodity business with the scale to move prices; it has been causing the price of corn to track the price of oil for a couple years now.
If ethanol subsidies were phased out, the price of corn would fall relative to the price of oil, to the point that it was again profitable to frement corn into ethanol… the main effect of the subisidies is to change the relative prices of corn and oil, by increasing the volume of ethanol.
The industry will be marginally profitable over the long term with or without subsidies. However, the industry is bigger, and the corn price is higher because of the subsidies. Because of peak oil, ethanol will remain part of the fuel mix, and become increasingly necessary. It does not do much for climate change, but it does do something for the liquid fuels problem.
I am all for renewables, but, fact is fact. We should be drilling offshore and producing domestic energy. This will bring oil prices down and make living in America affordable in the now. http://tinyurl.com/mh5p36