Maize, called corn in the US, is one of the world's great staple crops. It is consumed directly, fed to food animals, and processed into oil and sweeteners. The US is the largest consumer and producer of corn, growing more than twice as much as next largest producer China. A rise in corn prices causes a rise in food prices in general, and shortages have even caused riots in some countries. As important as corn is to the world's food supply it would seem the height of insanity to convert corn into automotive fuel. Yet last year, for the first time, more of the US corn crop went into the manufacture of ethanol fuel than for livestock feed, corn's traditional main use. About 40% of US corn now goes to ethanol, and though there is serious talk about dropping the $0.45 per gallon government subsidy, ethanol producers remain sanguine about their future. Why? Because the federal government will still mandate the mixing of ethanol with gasoline even if it no longer subsidizes its use directly.
On June 16 the US Senate voted 73-27 for an amendment to end the $0.45 subsidy for every gallon of corn ethanol blended into U.S. gasoline and rescind the $0.54 per gallon import tariff. The tariff was mainly aimed at protecting the US ethanol industry from Brazilian producers of sugarcane ethanol. The bill the amendment was attached to did not pass in the end. Even so, the fact that such a measure was passed at all in the Senate has been interpreted as a clear sign that both the subsidy and import duty will be eliminated in the near future. Indeed, at least one of the many debt ceiling plans being bandied about on Capitol Hill does just that, though the justification is revenue enhancement, not improved energy or environmental policy.
Federal subsidies for corn ethanol have long been considered untouchable in Washington, being backed by corn belt politicians of both parties. And with the run up to next year's presidential election well under way, the importance of voters in corn producing Iowa looms large in the minds of Republican nomination hopefuls. According to a report in the New York Times, Three Republican presidential candidates—Tim Pawlenty, Ron Paul and Rick Santorum—are seeking to eliminate or phase out the subsidies, even at the risk of alienating Iowans. Another, Jon Huntsman, has decided he will not even participate in the Iowa caucuses, reportedly in large part because of his antisubsidy record.
It would be better if they were making whiskey.
Strangely, representatives of the ethanol industry are not very upset by the impending demise of the subsides that have fed their businesses for decades. That's partly because ethanol use will continue to benefit from government support, mainly in the form of a Federal mandate. The renewable fuels standard requires 7.5 billion barrels of ethanol to be blended into automotive fuel in 2012, up from 4 billion in 2006. Meanwhile, rising world oil costs have driven up the price of gasoline to the point that corn ethanol's cost of $2-2.50 per gallon is becoming competitive.
All of this revolves around ethanol's reputation as a green fuel, something that this blog has disputed in the past. Ethanol's problems include inflating food prices, negative net energy gain, increased agricultural runoff and excessive water consumption. And we are not alone in decrying corn ethanol's fatal flaws. Even green leaning Bill Sweet, author of IEEE's Energywise blog, has declared ethanol a bad deal. Back in 2007, Sweet quoted T. J. Rodgers, former chairman of SunPower Corp and an acknowledged energy industry expert, on the nature of the ethanol industry.
The ethanol industry has this big-picture view: we do what’s good for the ethanol industry. Using hundreds of millions of dollars of soft political money, they have convinced the world that ethanol is currently a green fuel—which it is not.
Ethanol is so bad that even the prophet of climate calamity and dingbat doomsayer, Al Gore, has denounced using corn to make the stuff. Still the green weenies and ecological dim bulbs continue to flog ethanol as a “green” energy source and essential for rescuing the planet from the horrors of global warming. Even the US EPA and the California Air Resource Board have come out against ethanol. Yet the government mandates live on.
So do not be fooled into thinking that removing the direct subsidies will end the ethanol scam. The only change dropping the subsidies will cause is forcing American consumers to pay for their ethanol directly, rather than through a government give-a-way.
Given the government's debt crisis debacle, and the seeming inability of politicians of all stripes to rein in spending, it is little wonder that they have made a hash of ethanol policy. In fact, the best ethanol policy would be no policy at all—no subsidies, no mandates, no government involvement of any kind. Even the Federal Government can't mismanage something it doesn't manage at all.
Be safe, enjoy the interglacial and stay skeptical.
Cartoonist Mike Lester's take on making ethanol from corn.