The Real Cost Of Ethanol
The public opinion trend toward alternative energy and fuel conservation in the United States has been realized over the last five years in a number of ways. Dozens of electric and hybrid fuel car lines have become commercially available to the general public at an affordable price. Wind farms in the Northeast and the Pacific Coast have utilized fallow land to generate power for local communities. However, these solutions are still limited to exceptions rather than rules. As well, there is still a persistent belief that individual commercial decisions like purchasing sports utility vehicles and single servings of food do not have a major impact on the economy or the environment.
The one area of the alternative energy movement that has grown exponentially over the last three decades is ethanol and other bio-fuels. Western nations like the United States, Brazil, and Japan have been promoting the usage of corn, soybeans, and other crops to create alternatives to petroleum. The European Union and nations in Latin America and Asia are looking to ethanol as a solution to the growing problem of fuel consumption. The arguments for ethanol have been laid out by lobbyists and politicians since the 1970s, including an alternative to reliance on oil from the Middle East and an option for the day when oil reserves are tapped out.
Everyone who has hopped on the ethanol train should ask themselves the real cost of ethanol. If ethanol is the salve to our energy dependence and economic issues, why is it not the dominant fuel option around the world? As outlined by economics professor C. Ford Rung in Foreign Affairs magazine, there are many hidden costs for the American taxpayer in the development of ethanol as a primary fuel source. Before more converts join the ethanol and biofuel movement, they should understand the limitations and dangers of ethanol’s preeminence in the 21st century.
Perhaps the biggest cost of ethanol is the rapidly rising cost in food prices associated with the use of corn in its production. Corn and soybean crops are produced not only to feed people all over the world but for the new purpose of producing ethanol. The problem is that there is not an increase in land available for corn, soybean, and other agricultural growth. As oil prices increase and associated interest in ethanol increases, so will the demand for a greater share of corn. This interest will lead to a greater price per bushel of corn as farmers and agribusinesses are looking to stay competitive on the world market.
This increased food price has a number of effects. Corn and soybean prices will be directly affected, with a massive increase per bushel influencing domestic and foreign markets. International aid organizations will not be able to distribute as much corn for their dollar, which means that targeted areas in the developing world will sink into further squalor. As well, foreign markets in the developing world will be forced to increase their prices for corn in order to stay competitive. In addition to the rising cost of the directly applied crops, the decreased amount of acreage used for crops like rice and wheat leads to a lower supply and a higher price. Ethanol’s cost in the world of food is great especially for the nearly 3 billion people who live on less than $2 per day.
Food costs are perhaps the most direct cost of ethanol development in the United States. However, the greater financial significance of ethanol’s expansion comes in income taxes applied to this effort. Since the fuel crises of the 1970s, the United States government has been providing large subsidies to agribusinesses and ethanol developments to create a new type of energy. Three decades of tax money in the form of subsidies has yielded hundreds of ethanol refineries and the promise of hundreds more in the next decade. The Bush Administration has pushed a rapid increase in ethanol production over the next decade. Their ethanol policy hopes to create nearly 11.5 billion gallons a year of ethanol by 2017, which would require the usage of nearly 50% of the nation’s corn crops. However, presidents from Carter through George W. Bush have not developed these policies solely out of a concern for future energy woes. Companies like Archer Davis Midland Company and the agricultural lobby present within the House and the Senate have been active in demanding more subsidies for their constituents. Billions of dollars in taxes have been spent on farm subsidies for the purpose of ethanol production, not to mention the tax cuts, grants, and business loans agricultural companies have received over the same time period. Ethanol producers, for example, receive a 54 cent per gallon tax break when creating ethanol, a massive boon to these businesses. Along with the food costs that take cash out of your pocket daily, ethanol is exacting a toll on your biweekly paycheck and your property taxes.
There are legitimate questions about the amount of influence that ethanol development will have on greenhouse gases and air pollution. All fuel methods produce waste in some form and biofuels like ethanol are no exception. Petroleum may produce harmful carbon dioxide emissions that compound to create harmful air conditions but ethanol release nitrogen oxide when used in a traditional automobile. The real environment cost of ethanol, however, comes from its production. The industrial processes that are needed to produce enough ethanol to replace gasoline would require a mobilization of resources unseen at any time in history. At present, using the entire crop in the United States would only replace about an eighth of the gasoline usage in this country. Increasing the corn and soybean crops in the United States and around the world would cause major soil damage, as these plants are exceptionally rough on rich soils. While the prospect of producing ethanol may seem more appealing than petroleum production based on the resources used, the realities of the process demonstrate that the environmental benefit would be minimal.
The fuel efficiency of ethanol as a primary fuel has also been questioned. There have been a number of studies that suggest that corn-based ethanol is only marginally more efficient due to the capabilities of modern automobiles to adjust to different fuel test types. Marginal savings in efficiency means that drivers will be paying roughly the same at the pump for ethanol as they do for gasoline. The real cost of ethanol, therefore, is perhaps a slightly lower version of current gasoline prices in addition to the aforementioned tax and consumptive costs. The problem of ethanol inefficiency may be resolved, however, by the use of alternative plant products like switch grass, cellulose, and sunflower seeds. The European Union, for example, produces 80% of the world’s biofuels and is devoting their resources to the use of a more diverse grouping of crops to create new fuels. However, the promise of such a conversion in the United States has largely been unrealized due to the strength of agribusiness in Congress.
Stock brokers, financial houses, and other players on Wall Street have also been quick to drink the ethanol elixir. Brokers and financiers are always looking for the next new horizon in the global market, especially in an area as lucrative as fuel consumption. The number of funds, portfolios, and other financial packages including ethanol businesses has grown rapidly over the last decade. The cost of ethanol on Wall Street, however, will be similar to the consequences of similar gambles on technology in the 1990s. The amount of money invested in ethanol over the last three decades and particularly since the turn of the 20th century ensures that fluctuations in the market will be reflected disproportionately in the agricultural industry. In essence, from the corridors of power to the garage of the average American family, there will be very real consequences toward the current trend in ethanol development.
All of the aforementioned costs of ethanol are overshadowed by the issue of perception within the American public. Since the end of World War II, Americans have been sold on the idea that their prosperity and social standing depends on the products that they buy. Companies like Ford and Chevrolet have not felt the pressure by the consuming public for change in fuel efficiency, despite the growth of a significant environmental movement in the 1970s. The Hummer, the Cadillac and the gas-guzzling full size automobile symbolize America’s perception of prosperity. This culture of consumption will not be changed by any one alternative fuel option, particularly one as questionable environmentally and economically as ethanol. Indeed, the high levels of consumption that have helped contribute to rising gas prices over the last few years may become exacerbated by the false hope of an endless supply of ethanol. The fortification of this attitude toward fuel consumption as a sign of American prosperity is perhaps the greatest cost of ethanol development in the 21st century. Remember, we are no longer citizens; we are now referred to as consumers.
Tuesday, May 8, 2007
