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Biofuel Subsidies Are Terrible/Awesome

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Here’s a pop quiz: Biofuels were A) largely responsible for the jump in food prices earlier this year, B) had very little to do with the food price sticker shock, or C) the effects of biofuels are unclear and complex. If you picked ‘C’ then you’re way too reasonable to write press releases for either of the two partisan trade groups that issued statements this week — one calling for the end of U.S. biofuels subsidies and the other lauding their economic benefits.

The Food Before Fuel organization, which includes companies that rely on food prices for their livelihood, like the Grocery Manufacturers Organization, the American Beverage Association and the American Meat Institute, say that subsidies for ethanol should be phased out.

The group’s proposal is based on a national study it commissioned from Ipsos Public Affairs, which found that when those surveyed were told of the USDA’s claim that corn ethanol was responsible for 10 percent of food price inflation, about half of them said they were less likely to support policies backing corn ethanol. And a little over half of those surveyed said that Congress should reduce or eliminate mandates and subsidies for corn ethanol.

Well, the problem with their study is that there is a lot of conflicting data out there. Some, like the President’s Council of Economic Advisers, have said that food price increases can thank biofuels for a 3 percent of bump, while a formerly secret, and then not-at-all secret, World Bank report claimed that biofuels were responsible for as much as three-fourths of the former jump in food prices. And from looking at the recent drop in oil prices, which coincided with a drop in food prices, some are speculating that the main contributor is the price of crude.

That’s what the Biotechnology Industry Organization (BIO) — a trade group that includes biofuel sellers — are saying:

American consumers should not be fooled by ongoing attempts to misplace blame for this year’s rise in food prices on biofuels. The evidence before consumers is clear: crop prices have fallen dramatically in the past few months as oil and gas prices have declined…This connection between oil and crop prices has been noted by agricultural economists throughout the year. Yet many policymakers continue to be distracted by a spurious food vs. fuel debate.

BIO says it thinks that the current federal mandates that call for the production of 21 billion gallons of advanced biofuels by 2022 is “a tremendous opportunity for jobs and growth,” that will “replace 4.1 percent of U.S. oil imports” and keep “$8.4 billion in the U.S. economy rather than sending it overseas.” Well, when you put it that way, that sounds pretty good.

It’s all rather depressing for someone trying to figure out how to effectively fight climate change. The data is so conflicting that we’re compelled to do the following: Call 50 people and tell them that biofuels are responsible for poverty, hunger, and high food prices and ask them if they back policies that support them. Call another 50 and tell them that biofuels can reduce carbon emissions and oil imports and have no effect on food prices, and ask if they would back policies that would support them. Take the results and line your cat’s litter box and you’re all set.

6 Responses to “Biofuel Subsidies Are Terrible/Awesome”

  1. Jeff Baker

    If you’re driving around on gasoline, chances are you also have up to 10% ethanol in your fuel. So credit ethanol for replacing toxic methanol based MTBE and for oxygenating your gasoline, without contaminating your ground water. Studies show that ethanol lowers the price of gasoline by 15%. This saves us billions of dollars every year. Take note of the thousands of jobs and billions of dollars in county, state, and federal tax revenue that ethanol is generating. Every dollar in ethanol subsidies spins-off ten dollars worth of economic stimulus.

    People who live in states with blender pumps, like S. Dakota, Minnesota, and Iowa, save more on fuel. Because locally produced ethanol goes straight to the retail pump, instead of being shipped far away to a gasoline blending terminal and then shipped back to gas stations. Thus, local ethanol blender pumps have an advantage over the centralized oil industry. Blender pumps are being supplied by locally produced ethanol, so long distance shipping costs are eliminated. Part of the blending subsidy may also be passed-on to consumers. That translates into higher efficiency and cheaper fuel at the pump. You can also try different ethanol blends like E-20, E-30, E-40, to find out which one gets your vehicle the best mileage for the money. One man documented 20% better mileage on E20 than he got on regular gasoline. That’s why blender pumps are sweeping the Corn Belt and will also be installed in emerging ethanol states, such as Texas, California, Arizona, Tennessee, Louisiana, Florida, New York, Pennsylvania and others.

    Louisiana now has the most advanced ethanol development program in the country, expected to get a 5 to 1 return. Renergie Inc. is building 10 sweet sorghum based modular ethanol plants around the state, which will supply local ethanol directly to local blender pumps. Another approach in Texas and Arizona is to integrate ethanol refineries with cattle feeding operations and dairy farms. The adjacent manure is converted into biogas CHP for plant production power, and the distillers grains byproduct is fed to the adjacent cows to produce milk or meat. This is better than a 3 to 1 return.

    You can also credit the corn ethanol industry for laying the groundwork for the emerging cellulosic ethanol industry. Poet Ethanol is equipping their corn ethanol plants with cellulose capability, which will also make them energy self-sufficient. Same with Chippowee Valley Ethanol and others. Ethanol efficiency is improving dramatically. What may have been true 5 years ago is not true today. You can take outdated ethanol studies and throw them in the trash.

    Companies like Vera Sun and Pacific Ethanol are having problems, because they mismanaged their business. They agreed to buy high priced future supplies of corn, just before the price of wholesale ethanol took a nosedive along with crude oil. That caused sudden imbalances for ethanol producers that they will have to adjust to. Ethanol producers are on a rollercoaster ride with the prices of crude oil, feed corn, and what they can get for their products. The stronger companies are still stable and the industry is viable.

    Corn ethanol was never meant to save the country. But it does supplement gasoline with a clean domestic fuel that replaces some foreign oil. Corn ethanol is capped at 15 billion gallons a year, which is too low. What we should do is take ALL of our feed corn, extract the starch for ethanol, and use mainly distillers grains for domestic feed and export. That would triple our domestic ethanol production to about 30 billion gallons a year. We should increase the blending wall to somewhere between 20 and 30%. And we should mandate that all new vehicles be ethanol compatible.

    Ethanol refineries should not be converted to butanol. Instead, they could be adapted to produce algae, whereby corn sugars are fed to multiply algae in dark tanks, as in the Solazyme system. At corn ethanol refineries, the components for algae production are already in place: CO2, corn sugar, waste heat, nutrient rich effluent and waste water. That would give you biodiesel from the algae oils, ethanol from the algae starch, and additional high protein animal feed to sell alongside distillers grains. This would be more than a 10 to 1 return.

    Ethanol has the potential to be transformed well beyond our expectations. The engines that are coming are smaller, lighter, and more efficient, with a much higher power to weight ratio, because they will be optimized for ethanol, not just gasoline.

  2. Keith Kuper

    Today, nearby ethanol futures are trading at $1.69/gal. and nearby gasoline futures are trading at $1.05. If ethanol were trading on an energy-equivalent basis, it would be at trading at about $.74/gal. (ethanol has about 70% of the btus of gasoline). So, even after 30 years of subsidies, tariffs and mandates, ethanol simply cannot compete with gasoline.

    Ethanol is purely and simply a creature of Corn Belt politicians.

  3. The governments love of Ethanol is just a way to look like they’re doing something, If the morons in government had decided in the 30’s to mandate and subsidize the phone companies we would still be turning a crank to get sara down at the phone company to get us a line. Ask yourself this, if ethanol was not causing the food inflation why would so many food companies spend one dime on such an offense? If ethanol was such a solution why would there need to be so many lobbying groups trying to hold onto it?

  4. Jeff Baker

    This year, the cost of a bushel of corn doubled, rising along with numerous other commodities being bought and sold by speculators, including wheat, sugar and soybeans. Rice, which has no impact on ethanol production, TRIPLED in price. Some speculators may have withheld sizable blocks of commodities in order to create artificial shortages, in order to resell them at a much higher price. Commodities traders were manipulating supply and driving prices, while critics erroneously blamed corn ethanol for escalating food prices.

    When crude oil spiked, the cost of transportation fuels doubled. The cost to ship corn, and foods in general, was a much bigger factor in food prices than the 5 cents per pound that was added to the cost of the corn itself. Ship a ton of corn from Iowa to China and see what happens to the price. The claim that corn ethanol is the main cause for high food prices can NOT be substantiated.

    Now the price of corn is back down to where it was a year ago, but are food prices dropping? No, because the raw materials in processed foods represent only a small fraction of the huge overhead cost of foods sold in supermarkets.

    There is no shortage of corn and no shortage of land to grow it on. We’re using roughly the same amount of land to grow corn that we used 30 years ago, and since then, the yield per acre has more than doubled. After being flat for decades, exports of whole corn increased by 20% this year. Corn farmers would export more if the demand was there. Almost all the corn we export is Not for human consumption. It is Feed Corn. Shipped to foreign countries gaining affluence, like China and India, to produce meat, dairy, and animal products.

    Ethanol refineries produce high protein distillers grains. This is animal feed that produces food. Ten to fifteen percent distillers grains added to the feed of dairy cows increases their milk production by 10 lbs per cow per week. It also puts 10% more meat on livestock and enhances the production of many other foods. This year, foreign demand and exports of distillers grains doubled, and its value increased dramatically. Corn ethanol is not just about fuel. It’s also a system for producing food. And when the energy balance is calculated, that must also be taken into account.

    Over 80% of the corn crop is Feed Corn. We grow all the corn suitable for human consumption that the world can stand, and we could produce much more. There’s plenty of corn and distillers grains available for sale, if you can afford the shipping cost. The cost of the grain itself is minimal.

    The ethanol industry removes the starch from some of our Feed Corn to make fuel. That’s no great loss in the realm of feeding livestock, because cows don’t digest the starch very well anyway. So the industry is taking low value corn starch and converting it into a high value fuel product. And what we have leftover is the more digestible portion of the corn kernel, as animal feed, in the form of high protein distillers grains. Corn oil is another byproduct of ethanol refineries.

    Some corn ethanol critics make the false assumption that people are starving, because starch is being extracted to make ethanol from 1 out of 4 bushels of corn. When in reality, the corn ethanol industry makes a superior feed product that produces more meat, dairy, poultry, fish, and pork, in addition to corn oil, and a renewable domestic fuel.

  5. Brian J. Donovan

    Food Prices
    Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.

    Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.

    Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers’ expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.

    Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.

    Please feel free to visit the Renergie weblog ( for more information.