Give Ethanol a Chance: The Case for Corn-Based Fuel

Working Assets is my long-distance phone company. I love it dearly for its combination of business efficiency, social responsibility and progressive politics.

Each month, my phone bill carries alerts that urge me to take action on a specific issue or two. Recent Citizen Actions suggest the gravity of the issues chosen: "Save Our Constitution," "Impeach Dick Cheney," "Close Guantanamo."

This month Working Assets urged me to "Say No to Ethanol."

How did the use of ethanol end up alongside tyranny and torture as an evil to be conquered?

A couple of years ago, I was waiting my turn to speak to a well-attended California conference on alternative fuels. For this gathering, alternative fuels included natural gas, clean diesel, fossil fueled derived hydrogen, coal-fired electricity, as well as wind energy and biofuels. The leadoff speaker, from the California Energy Commission, spoke warmly about all the alternative fuels under discussion. Except one. When it came to ethanol, he visualized his perspective with the metaphor of a giant hypodermic needle from Midwest corn farmers to California drivers. For him and, I suspect, most of California's state government, ethanol belongs in the same category as heroin.

In the late 1990s, the nation discovered that MTBE, a widely used gasoline additive made of natural gas and petroleum-derived isobutylene was polluting ground water. The environmental community largely defended its continued use and vigorously opposed substituting ethanol. One well-respected New England environmental coalition raised the possibility that ethanol blends could cause fetal alcohol syndrome. Fill up your gas tank with 10 percent ethanol and your baby could be alcoholic, their report warned.

In the last few years, the environmental position has shifted from an attack on ethanol from any source to an attack on corn and corn-derived ethanol. The assault on corn comes from so many directions that sometimes the arguments are wildly contradictory. In an article published in the New York Times Magazine earlier this year Michael Pollan, an excellent and insightful writer, argues that cheap corn is the key to the epidemic of obesity. The same month, Foreign Affairs published an article by two distinguished university professors who argued that the use of ethanol has led to a runup in corn prices that threatens to sentence millions more to starvation.

Ethanol is not a perfect fuel. Corn is far from a perfect fuel crop. We should debate their imperfections. But we should also keep in mind the first law of ecology. "There is no such thing as a free lunch." Tapping into any energy source involves tradeoffs.

Yet when it comes to ethanol, and corn, we accept no tradeoffs. In 30 years in the business of alternative energy, I've never encountered the level of animosity generated by ethanol, not even in the debate about nuclear power. When it comes to ethanol, we seem to apply a different standard than we do when we evaluate other fuels.

When California discovered MTBE in its groundwater, it petitioned the federal government to be allowed to phase out MTBE without using ethanol. It wanted to substitute a 100 percent petroleum-derived fuel. The environmental community was strongly supportive of that request.

I can't but think that the environmental community, as currently constituted, would have supported the use of lead over ethanol as its no-knock additive of choice for gasoline in the early 1920s.

When President George W. Bush first embraced the hydrogen economy, most environmentalists applauded, even though they conceded that for the first 10-20 years, hydrogen would be derived from fossil fuels. Indeed, so eager were they to jump-start hydrogen that Minnesota environmentalists helped enact a bill that defines hydrogen made from natural gas as a renewable fuel.

When it comes to ethanol, reporters appear obligated by some unwritten rule of the profession to talk about whether ethanol uses more energy in the cultivation and processing of the crop than it contains. In the hundreds of interviews I've had with journalists about ethanol over the years, I can count on the fingers of one hand the number of times the net energy issue did not come up.

Articles about hydrogen in the mainstream, or alternative press, on the other hand, rarely talk about net energy. This despite the fact that while the net energy of ethanol may be debated, there is no debate about the energetics of hydrogen. Made from fossil fuels, hydrogen is a net energy loser.

While we're on the net energy issue, a few words about the ubiquitous David Pimentel. No article about ethanol is complete without a negative comment from Pimentel. David is a distinguished professor who believes corn ethanol uses more fossil fuels in its production than it displaces. It's certainly fair to quote him. He is a highly credible source.

But in 2005, a scientific journal published a new study by Pimentel and his collaborator, Tad Patzek. The study concluded that while corn-derived ethanol was a slight net energy loser, the energetics of biodiesel and ethanol made from cellulose were far worse.

The conversation about net energy went on as if nothing new had been added. The enemy was still corn. Pimentel and Patzek's conclusion that other crops were much worse than corn as sources of transportation fuels, was filtered out. My old psychology professor called this process cognitive dissonance. We screen out what doesn't gibe with preconceived notions. We hate corn. We don't hate soybeans or grasses. Therefore the negative things Pimentel and Patzek said about corn we consider authoritative. Their negative comments about soybeans and grasses we ignore.

I hope in the future we might engage in a more productive conversation and balanced discussion about the role of plants in a future industrial economy. To that end, I offer six propositions. I look forward to a debate on all or any one of these.

1. Sustainability requires molecules. Wind and sunlight are excellent energy sources, but they cannot provide the molecular building blocks that make physical products. For that we must choose minerals or vegetables (I'm lumping animals with vegetables for obvious reasons).

Minerals will always be an important source of molecules, in part because hundreds of billions of tons are already in existing products and these products have a very high recycleability potential. But ultimately we must increasingly rely on biological resources for our industrial needs if we are to achieve sustainability.

2. Wind and sunlight can only be harnessed for some form of energy (thermal, mechanical, electrical). Plants, on the other hand, can be used for many purposes: human nutrition, animal feed, pharmaceuticals, chemicals, clothing, building materials, fuels. The challenge for public policy is to design rules that encourage the highest and best use of our finite land area (and sea and lake areas).

Few would argue that human nutrition is the highest use of plants, followed by medicinal uses and possibly clothing. After that we might differ. My organization has argued that we should first use biomass to substitute for industrial products that use fossil fuels rather than for the fuels themselves. We make this argument in part because while there is insufficient biomass to displace a majority of fuels, there is a sufficient quantity to displace up to 100 percent of our petroleum and natural gas-derived chemicals and products. And these are much higher value products.

Thus vegetable oils should be used to make nonmineral motor oils and lubricants as a higher priority than being used to displace diesel. Plant sugars should be used to make plastics and other biochemicals as a higher priority than being used to displace gasoline. If we offered the $1 per gallon biodiesel incentive to biolubricants, would it significantly expand that market? If we offered the 51-cents-per-gallon ethanol incentive to bioplastics, would it significantly expand that market?

3. Corn is a transitional energy feedstock, but it has played a crucial role in creating the infrastructure for a carbohydrate economy. We are moving beyond corn, to more abundant feedstocks like cellulose. But a carbohydrate economy, where plants have an industrial role, would have been delayed by 20-30 years if not for corn.

As the nation's largest agricultural industry, with politically powerful corporate players like ADM, the corn industry had the clout to play with the big boys(e.g. coal, oil, natural gas) when federal incentives were liberally distributed in 1978 and 1980.

Federal incentives made ethanol blends competitive with gasoline at the gas pump. That was a necessary but wildly insufficient step toward getting biofuels into the gas pump. To accomplish that the embryonic biofuels industry had to persuade its competitor, the oil industry, to use ethanol instead of its own product. As the same time the ethanol industry had to convince car companies, which had designed their engines hand in glove with the oil companies for 60 years, to allow ethanol into their gas tanks.

For the first decade after the federal ethanol incentive was passed, a majority of ethanol was distribution through cooperatively owned and independently owned gas stations in the Midwest. Only in the late 1980s did car company manuals stop advising owners not to use ethanol blends.

Today a national biofuel distribution network exists. Some 30 percent of all cars use ethanol blends. The corn-derived ethanol industry has lowered per-gallon in-plant energy use by 75 percent since the early 1980s. And enzymatic research has been the foundation for new developments in bioplastics and other bioproducts.

We are nearing the end of the corn-to-ethanol era. Ethanol production has doubled since 2005 and promises to double again by 2010. It is unlikely any new corn to ethanol plants will be built beyond those currently in the construction pipeline. Even the National Corn Growers Association expects ethanol demand to exceed the capacity of the corn crop when all the new ethanol plants come online. All congressional bills that would increase the biofuels mandate also cap the amount of corn-derived ethanol at 15 billion gallons. After 2012, all additional ethanol capacity must be based on noncorn crops.

Cellulosic materials will be the prime feedstock. Some, like Vinod Khosla, a major proponent and investor in cellulosic ethanol plants, argues that his first plants, to be online by 2010, will produce ethanol competitively with $4 a bushel corn.

4. Electricity, not biofuels, will be the primary energy source for an oil-free and sustainable transportation system. But biofuels can play an important role in this future as energy sources for backup engines that can significantly reduce battery costs and extend driving range.

Even when we move from corn to cellulose, we likely lack sufficient arable land to cultivate enough biomass to displace more than about 25 percent of our transportation fuels (diesel plus gasoline). This is not an unimportant amount, but we need to accept that biofuels will not play the primary role in eliminating our dependence on oil. That role, as I've discussed in my 2003 report, A Better Way to Get From Here to There, will be played by electricity.

Miles traveled on electricity are oil-free miles because we use very little oil to generate electricity. Traveling on electricity means getting over 100 miles per gallon equivalent, triple the increased fuel efficiency standard under debate in the U.S. Senate. Traveling on electricity generates no tailpipe pollution and costs 1-2 cents per mile compared to 10-15 cents per mile for traveling on gasoline or biofuels. The electricity would initially come from a grid system almost 50 percent powered by coal, but given the renewable portfolio standards in place, an increasing percentage of our electricity would come from renewable resources like wind or sunlight.

The Achilles' heel of all-electric cars is the cost and weight of batteries and the need for recharging every 100 miles or so. A backup engine overcomes that shortcoming.

If the backup engine powers the car 25 percent of the time, we will have enough biomass to displace 100 percent of the petroleum used in the engine. Coupled with oil-free electricity, this can lead us to reduce by 80-100 percent our reliance on oil for transportation.

5. Approach biofuels as an agricultural issue with energy security implications, not as an energy security issue with agricultural implications. Design policies to maximize the benefit to rural areas of using plant matter for industrial and energy uses. The key is local ownership of biorefineries.

A 25 percent displacement of transportation fuels by biofuels will have an important, but not a determining or primary impact on energy security. But it could have a determining impact on the future of agriculture and rural communities. That's where we should focus our attention.

A 25 percent displacement of diesel and gasoline would require the cultivation and harvesting of more, perhaps far more, additional plant matter than is currently harvested for all purposes -- food, feed, chemicals, textiles, energy, paper, construction. That prospect affords us the opportunity to devise farm policies that dramatically restructure agriculture both here, and perhaps even more importantly, globally, where agriculture and rural villages still account for anywhere from 25 percent to 50 percent of the population.

The two key problems with agriculture are: (1) millions of farmers compete to sell their raw material into increasingly concentrated markets and (2) farmers sell raw materials and buy back finished goods, falling further and further behind. For almost two centuries, governments have devised programs to deal with this. The United States has two core farm strategies.

One is called supply management. Quotas keep domestic prices high. This is the way the sugar program works. The other more prevalent strategy involves farm payments when prices fall below a target level. The farmer sells his or her crop at prices below the cost of production. The government, via the general taxpayer makes up the difference. The price of food is lower.

It is unclear, if and when we shift to cellulosic biofuels, that farmers will avoid the core problems currently confronting grain farmers. This year's farm bill likely will offer money to farmers to cultivate cellulosic crops like grasses. Quite likely this initial payment program will evolve into a target price program similar to that now used for commodity crops.

In 2015, cellulosic farmers may be selling their crops to biorefineries at prices below the cost of production and receive government payments to make up the difference. Fuel costs will be modestly lower, just as food costs today are modestly lower because of government programs.

However, we can devise policies that enable a different future, one in which farmers, and other rural residents, own the value added biorefinery. Agricultural materials, by their nature, are bulky and costly to transport long distances. Thus processing tends to be local and regional. Biorefineries, unlike petroleum refineries, can be small in scale and thus enable local ownership.

Local ownership benefits farmers in a number of ways. It allows them to hedge against crop price declines. If their crop price goes down, the input costs of the biorefinery also decline and all things being equal, profits will be higher and they will receive a higher dividend check at the end of the year. Studies by the Institute for Local Self-Reliance and other organizations have found that farmers can earn up to five times more per bushel by co-owning a biorefinery rather than simply selling to it.

Local ownership benefits rural areas, as many studies have documented, because a much greater portion of the dollar generated by the biorefinery stays within the community. Local ownership benefits state economies because it generates more taxable income.

Local ownership and the scale of biorefineries have never been a consideration of the environmental movement. That may be changing. Until recently, the organic agriculture movement, for example, focused on the biological health of the soil, not the economic health and security of the farmers and rural communities. Now in several states, organic certification takes into account ownership and place. A new slogan is "Local is the new organic."

A priority on rootedness and local ownership should be included in initiatives proposed by the environmental community regarding biofuels. They should not only lobby for sustainable crops but also sustainable rural communities and a sustainable income for cultivators.

In the late 1980s and early 1990s, Minnesota led to the way in devising policies to encourage modest scaled biorefineries and farmer and local ownership. The movement caught on. Whereas in 1988 ADM accounted for 75 percent of ethanol output, in 2002 it accounted for about 35 percent. In that year, farmer owned biorefineries produced almost as much ethanol, collectively as did ADM's giant plants. Eighty percent of all new ethanol plants built or proposed that year were majority farmer or locally owned.

The current ethanol boom has changed the structure of the industry. Today, over 90 percent of all new ethanol plants are absentee-owned. The typical new plant has a capacity of 100 million gallons or more, almost triple the average size plant built in 2002 and making it very difficult to have majority local ownership.

In the 2005 Energy Act, Congress did direct the Department of Energy to give a priority to farmer ownership and rural development when it disbursed funds to accelerate cellulosic ethanol. DOE ignored the congressional directive. Congress made no fuss. All the attention is on getting more cellulosic ethanol, not getting better cellulosic ethanol, at least in its impact on farmers and rural communities.

Nothing in the current farm bill or current energy bills under consideration addresses the ownership and scale issue.

6. Support performance, not prescriptive standards.

Performance standards specify outcomes. They specify an end result, but not how that result is achieved. They focus on ends and leave the design of means to entrepreneurs. Performance standards foster competition and innovation. Renewable electricity portfolio standards, now in place in two dozen states, are performance standards. A variety of renewable fuels qualify -- wind, solar, biomass, hydro, geothermal, landfill gas, ocean or tidal power.

Prescriptive standards are like a recipe. They prescribe exactly how to achieve a specific result. The 2005 federal renewable fuel standard for transportation fuels and the new standard under debate in the U.S. Senate are prescriptive standards. They mandate the use of a single renewable fuel: ethanol.

Congress should transform the renewable transportation fuel standard into a performance standard, not only for internal consistency, but also because of the coming convergence of electricity and transportation.

California is developing a performance standard. Theirs is based on carbon emissions. Under that standard, natural gas derived hydrogen would probably not qualify as better than gasoline. Nor would corn ethanol produced in coal fired biorefineries. Cellulosic ethanol would rate higher than corn ethanol. Wind electricity likely would rate higher than cellulosic ethanol but perhaps lower than sugar cane derived ethanol where the cane cellulosic byproduct is used to power the processing plant.

For the next 5-15 years, the difference in the on-the-ground impact of a renewable transportation fuels standard rather than a biofuels mandate would be small in the same way as the on-the-ground impact of a renewable electricity standard versus a wind energy mandate has been small.

Wind energy accounts for 80 percent to 95 percent of the renewable electricity generated under the renewable portfolio standards. Because of their head start, national delivery systems and drop in capability to existing engines, ethanol and biodiesel would comprise at least as high a proportion of a renewable transportation fuel performance standard in the near future.

But in the longer term, a performance standard is superior public policy. It mandates ends, not means. It encourages diversity and flexibility and innovation, and provides a level playing field for entrepreneurs.