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Let Wasteful, Redundant Ethanol Tax Credits Expire July 22, 2010

Posted by Jamie Friedland in Climate Change, Congress, Politics.
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3 comments

Background information about corn ethanol, including a discussion of its pros and cons, is contained in this separate post.

Oil has rightly dominated recent energy-related news coverage, but if you’ve been watching closely, you may have noticed that corn ethanol has crept back into the news hole.

Early last week, Sen. Amy Klobuchar (D-MN) introduced a bill (S. 3576) that is essentially a wish list from the corn ethanol industry; it is no surprise that the bill’s legislative text was available on the industry’s website before anywhere else.

Why is this bill being introduced now?  Because federal subsidies for corn ethanol – to the tune of $6 billion annually – are set to expire at the end of the year.

The main component of these subsidies is the “Volumetric Ethanol Excise Tax Credit” or VEETC: a $0.45 tax credit for marketers and fuel benders paid for each gallon blended with any ethanol.  “Small producers” get an additional $0.10 for their first 15 million gallons, and there is also a tariff on imported, foreign-produced ethanol.  This program began in 2005 as part of the Bush administration’s American Job’s Creation Act of 2004.

While propping up demand for corn ethanol helps the ethanol industry, this tax break largely benefits Big Oil: BP is one of the largest recipients of the VEETC, and is slated to claim about $600 million in corn ethanol credits this year.  It is estimated that over the program’s lifetime, $21 billion in credits have been funneled to Big Oil.

The Renewable Fuel Standard is doing a good enough job propping up corn ethanol demand. We don't need to throw more money at this unnecessary policy objective. Especially if that money is just going to BP.

Not only does this tax credit give even more money to oil companies, it is largely redundant.  The Renewable Fuel Standard (RFS) created in 2005 and expanded in 2007 mandates that American gasoline must include 15 billion gallons of ethanol by 2015 and 36 billion gallons by 2022.

The Center for Agricultural and Rural Development at Iowa State released a study about corn ethanol this week. According to that report:

The Renewable Fuel Standard is the primary driver of ethanol demand. The tax credit prompts blenders to use about 900 million gallons of ethanol each year above mandated levels. This costs taxpayers some $6 billion annually (or almost $7 per gallon). Ending the subsidy would save that amount.

We already have a government system propping up ethanol demand.  Why do we need two?  Heck, we shouldn’t even really need one; corn ethanol causes a whole host of environmental and social problems!

The corn ethanol industry has been around for decades.  It is mature and does not need a second layer of support.  This is an easy $6 billion/year of taxpayer money to save.

The corn ethanol industry claims that allowing the subsidy to expire could wipe out nearly 40% of the U.S. ethanol industry. Those not in the ethanol industry find that assertion dubious.

The Iowa State study refutes that claim.  NRDC’s Sasha Lyutse has a great post explaining the study.  These are her major summary points:

  • Allowing the VEETC and import tariff to expire would have almost no impact on U.S. corn ethanol markets in 2011.
  • If the purpose of the VEETC is to push ethanol consumption beyond mandated levels, the magnitude of the costs greatly outweighs any benefits.
  • Eliminating the VEETC would not have major implications for U.S. employment and any jobs created by the VEETC come with at unacceptably high price tag.

In regard to the third point, the ethanol industry has issued alarmist claims that without this annual $6 billion in taxpayer money, 160,000 jobs will be lost.  Sasha finds that hard to believe when, according to the industry, the average corn ethanol plant employs only 45 people.  I tend to agree with her:

“Babcock [the lead researcher] finds that the decrease in U.S. ethanol production in 2011 caused by allowing the VEETC to expire would result in the loss of only 407 direct jobs. At a cost of nearly $6 billion, this is nearly $15 million per direct job.”

This report is the second major dose of reality to hit the corn ethanol industry in two week.  Lawmakers wanted to know what benefits American taxpayers really derive from the VEETC program, so Sen. Jeff Bingaman (D-NM) instructed the Congressional Budget Office (CBO) to conduct an analysis.

That report was released last week, and it was not good news for the industry.  The CBO report found that the VEETC rewards the corn ethanol industry for producing roughly the same amount of ethanol that they would produce without the subsidy because of the Renewable Fuel Standard.  According to the CBO, we’ve wasted $6 billion each year since 2005 and have no reason to waste another $31 billion the same way.

The argument against corn ethanol is strong.  In fact, the only argument for corn ethanol is a political one: corn producers have a lot of clout in the sparsely populated Midwestern states, which gives them outsized influence in the Senate.  Additionally, Iowa is a major corn producer, and because Iowa is the permanent location for the first presidential primary, opposing such a major demand of corn producers is political suicide for a presidential candidate.

But Bob Dinneen, president of the Renewable Fuels Association, knows the truth about why we environmentalists oppose this senseless subsidy: “a lot of the problem with the environmentalists is that they just don’t like corn…” Hey, I love corn.  It’s yummy. “…and don’t want it used for fuel.”  …There’s the ticket.  Using food for fuel is not a solution to any problem.

I hope that Congress can side with the American people on this issue and overcome the administration’s stated support for corn ethanol.

A Guide to Corn Ethanol July 22, 2010

Posted by Jamie Friedland in Climate Change, Politics.
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2 comments

A follow-up post explains the current political attempt to extend $6 billion a year in senseless tax credits for corn ethanol.

What is Corn Ethanol?

Corn ethanol is a biofuel: a fuel made from agricultural crops.  We use it primarily to power cars.  As its name implies, corn ethanol is a grain alcohol produced by the fermentation and distillation of corn.  And yes, that is the same “ethanol” that is responsible for the inebriating effects of liquor.

Corn ethanol is actually very similar to Everclear, if you’ve ever had the misfortune of crossing paths with the 190 proof “beverage” that is, regrettably, illegal in only 14 states.  In fact, the only difference between grain alcohols like Everclear and the corn ethanol used as a fuel is a “denaturing agent,” such as gasoline, that is added after production to render the fuel alcohol [officially] undrinkable – in order to exempt it from heavy alcohol taxes.

This is how corn ethanol is made.

Benefits of Corn Ethanol

Corn ethanol is a renewable fuel source because it is grown from corn.  Although, like gasoline, it releases carbon dioxide in the atmosphere, growing more corn removes carbon dioxide from the air, so it forms a cycle with no direct net increase in atmospheric carbon dioxide.  This is, in and of itself, preferable to the one-way transfer of carbon from fossil fuels into the atmosphere as in gasoline.

As a fuel, ethanol undergoes combustion much like gasoline.  It actually burns more cleanly than gasoline and other fossil fuels, because unlike coal, corn doesn’t contain large amounts of sulfur and other pollutants to be released when burned.   This industry website touts many of the environmental benefits of burning corn ethanol as a fuel source compared to gasoline.  One of them is decreased direct carbon dioxide emissions*.  I haven’t checked into all of the listed benefits, but they are likely at least based on fact**.

*“Direct” emissions measure the greenhouse gases released simply from burning corn ethanol or gas.  However, if you include “indirect emissions” – the greenhouse gases released in the agricultural production and transportation of corn as well as the production of the ethanol – those emissions likely more than negate the direct benefits.

**Similarly, a 2009 University of Minnesota study found that if you include the entire lifecycle of corn-based ethanol, the other air quality benefits are at least negated as well.

Since 1985, new fuel-injected engines have been designed to withstand the corrosive effects of ethanol at a concentration of 10%.  Per the Renewable Fuel Standards in the 2005 energy bill, ethanol is currently blended into about 50% of our nation’s gasoline. In the U.S., it is most commonly found in 10% mixtures with gasoline or the less used 85% mixture (E10 and E85 respectively).  “Flex Fuel” engines detect the ethanol concentration in the gas tank and optimize performance.

So if ethanol provides all these benefits over gasoline, why aren’t we just using pure ethanol in our cars?

Problems with Corn Ethanol

Ethanol cannot be mixed with water and corrodes many metals, even when mixed with gasoline.  As a result, ethanol cannot be transported through nation’s existing gasoline infrastructure of metal pipelines.  In fact, there are no ethanol pipelines anywhere in the world.  Instead, ethanol must be transported via retrofitted truck, rail, or boat, and that is costly.   That being said, the Department of Energy says that an ethanol pipeline could be feasible in the future under the right circumstances.

There are plenty of other complications.

Depending on local irrigation requirements, it can take over 550 gallons of water to produce a single gallon of corn ethanol.  Another study expressed this a different way: it takes approximately 36 gallons of water to produce enough corn ethanol to drive a standard car one mile.  Think about that.  36 gallons per mile, NOT miles per gallon.

This image shows how much water each state uses to produce ethanol.  States in that darkest red use more than 600 billion liters of water

(158 billion gallons).

At that rate, it would take over 1000 gallons of water to produce enough ethanol to fill the gas tank of a single Ford Explorer.  America’s water resources are already stressed; ethanol production does not provide nearly enough benefit to justify squandering our vital water resources.

Other than water, increased fertilizer used to grow more corn for ethanol is causing even larger dead zones in the Gulf of Mexico (maybe that’s not a problem anymore).  Such dead zones form when excess fertilizer runs off farm fields into rivers.  Those rivers transport the fertilizer to larger bodies of water where, in the presence of massive artificial enrichment, microorganism populations explode and use all of the oxygen in the water, killing off all marine life contained therein.  Water without oxygen is known as hypoxic and cannot sustain life, hence “dead zone.”

Food for Fuel

Another major problem with corn ethanol is that we are using a food crop as gasoline.  If using food to fuel our SUVs while millions of children starve around the world rubs you the wrong way, you are not alone.

As the Economist pointed out in 2007:

“the demand of America’s ethanol program alone accounts for over half the world’s unmet need for cereals.

And they’re not talking about Wheaties, those “cereals” are grains that starving people need but cannot get.

Additionally, basic economic theory dictates that scarcity has effects on the existing supply as well: in the two years following the corn ethanol mandates that began in the 2005 energy bill, food prices jumped 75%.  Yet another reason why corn growers love ethanol.

Ethanol Releases More CO2 Than Gasoline

Numerous studies have demonstrated that the lifecycle production of corn ethanol may release as much as 50% MORE greenhouse gases than gasoline.  You have to drive all those tractors and fertilize the fields and harvest the corn and transport it to the ethanol plant which itself uses more power and then you have to transport the ethanol…all that uses fossil fuels.

As Tom Philpott at Grist put it: “corn-based ethanol is really just a clever way to convert natural gas and coal into car fuel.

There is still debate on this topic, but there is a reason why the industry has repeatedly lobbied the government and EPA to ignore lifecycle emissions and indirect land-use changes (discussed below) in their relevant calculations.  Regardless of the exact numbers, it is clear that corn ethanol does not provide large greenhouse gas benefits over gasoline.

Indirect Land-Use Change

From a climate change standpoint, corn ethanol poses an additional problem.  Shifting American cropland to produce fuel instead of food has consequences that cascade around the world.

First, the world population is always growing.  Second, increasingly more corn is being used to feed cattle as an upwardly mobile global population demands more meat.  This means that barring dramatic increases in crop yield/acre, we would need more cropland than we had before – even if we weren’t using some of our most fertile land to grow fuel.  So with 20% of U.S. corn (as of 2007) going into cars as ethanol instead of into bellies as food, there is a worldwide demand for more cropland.

As a result, landowners around the world are converting land to farmland.  What’s wrong with that?  Well, think about what types of land can be converted to farms.  Deserts can’t be converted to support agriculture.  What can?  Forests.  Rainforests.

High food prices and surging food demand are among the major causes of deforestation.  When forests are cleared, all the carbon that was stored in all that plant life is released – and all the carbon dioxide those plants were going to remove from the atmosphere will remain in the air.

Because we're using our food for fuel, people in other countries are burning down forests to make more farmland to grow food. The carbon emissions from this deforestation can fairly be attributed to corn ethanol.

To make matters worse, the easiest way to convert a dense forest to cropland or pasture is a technique known as slash and burn.  This creates viable farmland for a few years, but has tragic long-term consequences. The absence of roots causes soil erosion, and after a few years, slash and burn quickly leads to desertification; the land becomes unsuitable for either forests or agriculture.

This prompts farmers to simply move deeper into the forest to slash and burn another plot.  Obviously, this is not sustainable.

Ethanol is Politically Attractive

While the environmental benefits have been essentially dispelled, corn ethanol was an attractive fuel source for another reason as well: it is homegrown and can be used to displace [a very small fraction of] our reliance upon foreign oil.  This makes corn ethanol not really an effective energy security policy but rather an effective energy security talking point.

Ethanol is more politically attractive than sensible.  Corn producers have a lot of clout in the sparsely populated Midwestern states, which gives them outsized influence in the Senate.  Additionally, Iowa is a major corn producer, and because Iowa is the permanent location for the first presidential primary, opposing such a major demand of corn producers is political suicide for a presidential candidate.

Conclusion:

Corn ethanol should be used, if at all, as a transition fuel on the way to cellulosic ethanol, about which I hope to post soon.  The corn ethanol industry is mature, yet it has two different layers of federal financial support.  That doesn’t make any sense.

A Canadian oil company is marketing its E10 ethanol blend as “Mother Nature’s Fuel.”  That is terribly dishonest; Mother Nature definitely bikes to work.  Corn ethanol, while derived from a natural feedstock, is neither an energy solution nor an environmental boon.