Despite Its Huge Flaws, Ethanol Is Political Holy Water in DC

Ethanol is a magic elixir. It allows politicians and political operatives to promise voters that America can achieve "energy independence." In this new energy Valhalla, American farmers will be rich, fat and happy, thanks to all the money they will be making from "energy crops." Better yet, U.S. soldiers will never again need to visit the Persian Gulf--except, perhaps, on vacation. With enough ethanol-blended motor fuel, America can finally dictate terms to those rascally Arab sheikhs with their rag-covered heads, multiple wives and supertankers loaded with sulfurous crude.

George W. Bush believes. In January, he declared that the U.S. should be producing 35 billion gallons of ethanol and other alternative fuels by 2017. During a March trip to Latin America, where he signed an agreement to expand ethanol-related trade between the U.S. and Brazil, Bush said that he was "very upbeat about the potential of biofuel and ethanol."

Not to be outdone, former North Carolina senator John Edwards declared that the U.S. should be producing 65 billion gallons of ethanol per year by 2025. He claims that his proposed New Economy Energy Fund will "develop new methods of producing and using ethanol, including cellulosic ethanol, and offer loan guarantees to new refineries."

Even longtime ethanol foe Senator John McCain--who in the past has called ethanol "highway robbery" and a "giveaway to special interests"--has become an ethanol evangelist. Last August, during a visit to Iowa, the Republican presidential hopeful called ethanol "a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse-gas reduction effects."

Every major presidential candidate has come out in favor of ethanol. So have the Democrats on Capitol Hill. Speaker of the House Nancy Pelosi wants automakers to build more ethanol-fueled vehicles and wants to see "America's farmers fueling America's energy independence."

It all sounds wonderful. But there are a bushelful of problems with ethanol, none of which fit neatly into a politician's soundbite. Of those many problems, four stand out: the massive subsidies; ethanol's inability to displace significant amounts of imported oil; its deleterious effect on air quality; and its effect on food prices.

Inconvenient Facts

First, the subsidies. Making ethanol from corn borders on fiscal insanity. It uses taxpayer money to make subsidized motor fuel from the single most subsidized crop in America. Between 1995 and 2005, federal corn subsidies totaled $51.2 billion. In 2005 alone, according to data compiled by the Environmental Working Group, corn subsidies totaled $9.4 billion. That $9.4 billion is approximately equal to the budget for the U.S. Department of Commerce, a federal agency that has 39,000 employees.

Need another comparison? That $9.4 billion is nearly twice as much as the federal government spends on WIC, short for the Special Supplemental Nutrition Program for Women, Infants and Children, a program that provides health care and nutrition assistance for low-income mothers and children under the age of five.

Corn subsidies dwarf all other agricultural subsidy programs. The $51.2 billion that American taxpayers spent on corn subsidies between 1995 and 2005 was twice as much as the amount spent on wheat subsidies, more than twice as much as the amount spent on cotton, four times as much as the amount spent on soybeans and 96 times as much as the total subsidies for tobacco during that period.

But the ethanol lobby isn't satisfied with the subsidies paid out to grow the grain. They are also getting huge subsidies to turn that grain into fuel. According the Global Subsidies Initiative, meeting Bush's goal of producing 35 billion gallons of renewable and alternative fuels per year by 2017 will require total subsidies of $118 billion. The group claims that the $118 billion price tag "would be the minimum subsidy" over the eleven-year period. In a report released on February 9, the group said that adding in tax breaks that the corn distillers are getting from state and local governments and federal tariffs imposed on foreign ethanol (mostly from Brazil) "would likely add tens of billions of dollars of subsidies" to the $118 billion estimate.

Despite the subsidies, ethanol has always been more expensive than gasoline. Between 1982 and 2006, the price of ethanol never dropped below that of gasoline--even though ethanol contains just two-thirds of the heat energy of gasoline. That lower energy content means a car using ethanol gets worse gas mileage than one that uses gasoline.

The second problem: no matter how you slice it, ethanol production is just too small to have a significant effect on the overall energy market in the U.S.

Ethanol advocates talk about how domestically produced alcohol will reduce the amount of oil America imports. But by any measure, the total energy produced by America's ethanol plants borders on the insignificant. In 2006, the U.S. produced about 5 billion gallons of ethanol. That's the equivalent of just 215,264 barrels of oil per day. For comparison, the U.S. now consumes over 21 million barrels of oil per day. Thus, ethanol provides just one percent of total U.S. oil consumption.

Ethanol will never make a big dent in America's oil imports. And that's true even if all the corn grown in America were turned into ethanol. The U.S. Department of Agriculture estimates that distillers can get 2.7 gallons of ethanol out of one bushel of corn. In 2006, U.S. farmers produced about 10.5 billion bushels of corn. Converting all that corn into fuel would produce about 28.3 billion gallons of ethanol. However, ethanol's lower heat content means that the actual output would be equivalent to 18.7 billion gallons of gasoline, or about 1.2 million barrels per day. (The U.S. currently imports 10.1 million barrels per day.) Even if the U.S. turned all its corn crop into ethanol, it would supply less than 6 percent of America's total oil needs.

What about cellulosic ethanol, the fuel that can be made from grass, wood, and straw? Al Gore claims that cellulosic ethanol will be "a huge new source of energy, particularly for the transportation sector. You're going to see it all over the place." Bill Clinton says there's enough biomass to "make cellulosic ethanol all over America." Bush, in his 2006 State of the Union speech, said that he wanted to make cellulosic ethanol "practical and competitive within six years."

Alas, cellulosic ethanol is like the tooth fairy, an entity that many people believe in, but no one ever sees. Despite years of hype, there is no significant production of cellulosic ethanol, except in very small, non-commercial distilleries. Maybe that's a good thing, because the more ethanol that's burned in American automobiles, the worse the air quality gets--a fact that leads to the third problem.

The Environmental Protection Agency's website says the agency's mission is "to protect human health and the environment." And yet when it comes to ethanol, the EPA has stated in very clear language that increased use of ethanol in gasoline will mean worse air quality in America.

Of course, that's not the official story. In an April 10 press release announcing the Renewable Fuel Standard--the federal program mandated by Congress when it passed the Energy Policy Act of 2005--EPA Administrator Stephen L. Johnson declared that the use of more ethanol "offers the American people a hat trick--it protects the environment, strengthens our energy security, and supports America's farmers."

Yet on that very same day, Johnson's agency issued a fact sheet that said using more ethanol will result in major increases in the release of two of the worst air pollutants: volatile organic compounds and nitrogen oxides. The fact sheet said that "Nationwide, EPA estimates an increase in total emissions of volatile organic compounds and nitrogen oxides (VOC + NOx) [of] between 41,000 and 83,000 tons." It went on, saying, "areas that experience a substantial increase in ethanol may see an increase in VOC emissions between four and five percent and an increase in NOx emissions between 6 and 7 percent from gasoline powered vehicles and equipment."

VOCs Populi>

NOx is a precursor to fine particulate, which is known to cause thousands of premature deaths each year. VOCs lead to the creation of ground-level ozone, one of the most dangerous urban pollutants. According to the EPA's website, ozone "can trigger a variety of health problems including chest pain, coughing, throat irritation, and congestion. It can worsen bronchitis, emphysema, and asthma."

The negative health effects of ethanol-blended gasoline have placed the EPA in the odd position of enforcing rules that run directly counter to its stated goals. On its website, the agency says that "reducing emissions of NOx is a crucial component of EPA's strategy for cleaner air." Nevertheless, when asked about the higher emissions related to ethanol, EPA spokesperson Jennifer Wood insisted that they are "very minimal increases." She also told me that the agency has other "tools under the Clean Air Act to reduce NOx."

Wood's claim leaves clean air advocates like William Becker of the National Association of Clean Air Agencies gasping. He said the EPA is "scoffing at a 4 to 7 percent increase in air emissions at a time when agencies across the country would do anything to achieve that kind of a reduction in VOCs and NOx." Becker's Washington-based group represents the interests of air pollution control authorities from 49 of the 50 states and several territories, as well as local agencies from 165 metro areas around the U.S. He said the pollution increases admitted by EPA are "a significant amount of emissions in any location in this country. And we can't just willy nilly be giving it away, particularly when states are struggling to meet current ozone standards."

The EPA's ethanol fact sheet infuriates Debbie Cook, mayor pro tem of Huntington Beach, a city located west of Los Angeles that struggles with air-quality problems. "The EPA's air quality rules in Southern California are largely a joke," Cook told me shortly after the EPA announcement. And the agency's April 10 statement touting ethanol, she says, "makes the joke worse."

It's not just the EPA that says ethanol is bad for air quality. Numerous studies have reached the same conclusion.

In 2004, the California Air Resources Board released a study saying that gasoline containing ethanol caused VOC emissions to increase by 45 percent when compared to pure gasoline. In 2006, the South Coast Air Quality Management District--the agency that oversees air quality issues for some 15 million people living in or near Los Angeles County--determined that gasoline containing 5.7 percent ethanol may add as much as 70 tons of VOCs per day to the state's air. This means that the Los Angeles area alone would account for about 25,500 tons of additional volatile organic compounds per year--or more than half of the minimum amount (41,000 tons) estimated by the EPA in its April 10 fact sheet.

In April, Mark Z. Jacobson, an engineering professor at Stanford University, published a study concluding that the widespread use of E85 (fuel that contains 85 percent ethanol and 15 percent gasoline) "may increase ozone-related mortality, hospitalization, and asthma by about 9 percent in Los Angeles and 4 percent in the United States as a whole" when compared to the use of regular gasoline. Jacobson also found that because of its ozone-related effects, E85 "may be a greater overall public health risk than gasoline."

The Grocery Tax

While Americans are breathing more polluted air due to ethanol, they are also paying more at the grocery store, a fact that leads to the fourth problem: ethanol is increasing food prices.

Last month, researchers from Iowa State University's Center for Agricultural and Rural Development released a report that looked at how ethanol production--which consumed 20 percent of America's corn crop in 2006--is affecting overall food prices. They found that increased ethanol production has resulted in higher prices on a panoply of foods, including: cheese, ice cream, eggs, poultry, pork, cereal, sugar, and beef. The researchers reported that between July 2006 and May 2007, the food bill for every American has increased by about $47 as a result of surging prices for corn and the associated price increases of other grains like soybeans and wheat. In aggregate, they concluded that American consumers will face a "total cost" for ethanol "of about $14 billion."

Let's put that $14 billion in perspective. Last year, the U.S. produced five billion gallons of ethanol. That means that Americans are effectively paying a new tax (in the form of higher food costs) of nearly $3 for each gallon of ethanol produced. And that doesn't count any of the subsidies for corn production mentioned above or the 51-cents-per-gallon federal tax credit given to companies that blend ethanol into gasoline. Worse yet, it's not just Americans who are being fleeced. The Iowa State researchers determined that, thanks to ethanol's voracious appetite for grain, "the rest of the world's consumers [will] also see higher food prices."

Iowa Rules

Given the many problems associated with ethanol (this story provides a partial list), why are members of Congress and presidential candidates eager to embrace it? Why has such an expensive, polluting, fuel become what one critic calls "the agricultural equivalent of holy water"? There are two plausible explanations: the value of empty--but appealing--political rhetoric; and the Iowa Imperative.

Ethanol boosters claim that ethanol is part of the prescription for energy independence--a concept that polls extremely well. The idea of energy independence appeals to a wide range of voters from the left and the right. The result: almost anything that promises to move America toward that goal--a goal that is neither achievable nor desirable because of the enormous costs it would entail--quickly garners wide support and massive subsidies.

Second, it's about Iowa, America's leading ethanol producer. Any candidate who wants to win the White House must have a good showing in the Iowa caucuses, which will be held January 14. The numbers explain the imperative: Since 2002, the amount of Iowa corn going into ethanol production has tripled. The state now has some 21 ethanol plants and another 23 either planned or under construction. About 2,500 jobs are directly related to ethanol production and another 14,000--according to IowaCorn.org--are "affected" by ethanol. Those jobs are supported by huge federal subsidies. In 2005 alone, according to the Environmental Working Group, Iowa got $1.8 billion in corn subsidies--about $608 for every Iowan.

Given those numbers, it's hardly surprising that a January 2007 poll found that 92 percent of Iowa voters believe ethanol is important to the state's economic future. That's explains why "when politicians come to Iowa, they have to say ethanol is great," says Iowa State University political science professor Steffen Schmidt. Alas, what makes the ethanol business great for 3 million Iowans is bad for 297 million other Americans: It's bad for taxpayers, bad for air quality, bad for people who like to eat, and it will have no real effect on America's overall energy mix.

Aside from those little quibbles, ethanol truly is a miracle potion. Expect to hear more about it as the presidential campaign continues.