The case against biofuels: probing ethanol’s hidden costs

In light of the strong evidence that growing corn, soybeans, and other food crops to produce ethanol takes a heavy toll on the environment and is hurting the world’s poor through higher food prices, consider this astonishing fact: This year, more than a third of the US’s record corn harvest of 335 million metric tons will be used to produce corn ethanol. What’s more, within five years fully 50 per cent of the US corn crop is expected to wind up as biofuels.

Here’s another sobering fact. Despite the record deficits facing the US, and notwithstanding President Obama’s embrace of some truly sustainable renewable energy policies, the president and his administration have wholeheartedly embraced corn ethanol and the tangle of government subsidies, price supports, and tariffs that underpin the entire dubious enterprise of using corn to power our cars. In early February, the president threw his weight behind new and existing initiatives to boost ethanol production from both food and nonfood sources, including supporting Congressional mandates that would triple biofuel production to 36 billion gallons by 2022.

Congress and the Obama administration are paying billions of dollars to producers of biofuels, with expenditures scheduled to increase steadily through 2022 and possibly 2030. The fuels are touted by these producers as a “green” solution to reliance on imported petroleum, and a boost for farmers seeking higher prices.

Yet a close look at their impact on food security and the environment - with profound effects on water, the eutrophication of our coastal zones from fertilisers, land use, and greenhouse gas emissions - suggests that the biofuel bandwagon is anything but green. Congress and the administration need to reconsider whether they are throwing good money after bad. If the biofuel saga illustrates anything, it is that thinking ecologically will require thinking more logically, as well.

Investments in biofuels have grown rapidly in the last decade, accelerating especially in developed countries and Brazil after 2003, when oil prices began to climb above US$25 per barrel, reaching a peak of US$120 per barrel in 2008. Between 2001 and 2008, world production of ethanol tripled from 4.9 billion gallons to 17 billion gallons, while biodiesel output rose from 264 million gallons to 2.9 billion gallons. Together, the US and Brazil account for most of the world’s ethanol production. Biodiesel, the other major biofuel, is produced mainly in the European Union, which makes roughly five times more than the US. In the EU, ethanol and biodiesel are projected to increase oilseed, wheat, and corn usage from negligible levels in 2004 to roughly 21, 17, and 5 million tons, respectively, in 2016, according to the Organization for Economic Cooperation and Development.

In the US, once a reliable supplier of exported grain and oilseeds for food, biofuel production is soaring even as food crop export demand remains strong, driving prices further upward. Government support undergirding the biofuels industry has also grown rapidly and now forms a massive federal program that may be good for farm states, but is very bad for US taxpayers.

These subsidy supports are a testament to the power of the farm lobby and its sway over the US Congress. In addition to longstanding crop price supports that encourage production of corn and soybeans as feedstocks, biofuels are propped up by several other forms of government largesse. The first of these are mandates, known as “renewable fuels standards”: in the US in 2007, energy legislation raised mandated production of biofuels to 36 billion gallons by 2022. These mandates shelter biofuels investments by guaranteeing that the demand will be there, thus encouraging oversupply.

Then there are direct biofuel production subsidies, which raise feedstock prices for farmers by increasing the price of corn. In the US, blenders are paid a 45 cent-per-gallon “blender’s tax credit” for ethanol - the equivalent of more than US$200 per acre to divert scarce corn from the food supply into fuel tanks. The federal government also pays a US$1 credit for plant-based biodiesel and “cellulosic” ethanol.

Finally, there is a 54 cent-per-gallon tariff on imported biofuel to protect domestic production from competition, especially to prevent Brazilian sugarcane-based ethanol (which can be produced at less than half the cost of US ethanol from corn) from entering US markets. These subsidies allow ethanol producers to pay higher and higher prices for feedstocks, illustrated by the record 2008 levels of corn, soybean, and wheat prices. Projections suggest they will remain higher, assuming normal weather and yields.

The rapid increase in grain and oilseed prices due to biofuels expansion has been a shock to consumers worldwide, especially during 2008 and early 2009. From 2005 to January 2008, the global price of wheat increased 143 per cent, corn by 105 per cent, rice by 154 per cent, sugar by 118 per cent, and oilseeds by 197 per cent. In 2006-2007, this rate of increase accelerated, according to the US Department of Agriculture, “due to continued demand for biofuels and drought in major producing countries”. The price increases have since moderated, but many believe only temporarily, given tight stocks-to-use ratios.

It is in poor countries that these price increases pose direct threats to disposable income and food security. There, the run-up in food prices has been ominous for the more than one billion of the world’s poor who are chronically food-insecure. Poor farmers in countries such as Bangladesh can barely support a household on a subsistence basis, and have little if any surplus production to sell, which means they do not benefit from higher prices for corn or wheat. And poor slum-dwellers in Lagos, Calcutta, Manila, or Mexico City produce no food at all, and spend as much as 90 per cent of their meagre household incomes just to eat.

But the most worrisome of recent criticisms of biofuels relate to their impacts on the natural environment. In the US, water shortages due to the huge volumes necessary to process grains or sugar into ethanol are not uncommon, and are amplified if these crops are irrigated. Growing corn to produce ethanol, according to a 2007 study by the US National Academy of Sciences, consumes 200 times more water than the water used to process corn into ethanol.