Ethanol, Food Prices and the Environment

ETHANOL MANDATES HAVE BECOME a defining issue of the presidential campaign. And that’s a problem for Barack Obama. For many years, John McCain was an ardent opponent of ethanol. During the early part of the current presidential campaign—or at least while he was campaigning in Iowa—he was an advocate. Now, McCain’s an opponent again. Obama, however, has consistently been a corn ethanol booster. And as the news on ethanol gallops from bad to worse, that position leaves him vulnerable to attacks by McCain.

The ethanol issue is unlikely to loom as large as the war or the economy. Nevertheless, the myriad problems with federal ethanol mandates have created a growing backlash. Livestock producers, grocery manufacturers and others who are feeling the effects of high grain prices are hoping to freeze or reduce the mandates, which require increased production of ethanol.

A backlash is already reverberating in Europe. Earlier this year, the European Environment Agency advised the European Commission to suspend its plan to meet 10 percent of its transportation fuel needs with biofuels by 2020.

All this could mean trouble for Obama. His national campaign co-chairman is Tom Daschle, the former Senate majority leader, who has long been a key ethanol booster. Daschle serves on the boards of three ethanol companies. He’s a co-chair (along with former Kansas senator Bob Dole) of the 21st Century Agriculture Policy Project, a group that lists “expansion of the biofuels market” as one of its top priorities. Daschle has also allied himself with the Set America Free coalition, formed by pro-Iraq War neoconservatives who are among America’s most boisterous ethanol cheerleaders.

Obama’s website touts ethanol as a pivotal element in his push for U.S. “energy independence.” Obama “will require 36 billion gallons of renewable fuels to be included in the fuel supply by 2022 and will increase that to at least 60 billion gallons of advanced biofuels like cellulosic ethanol by 2030.” The site also claims that less than 10 percent of new ethanol production is coming from farmer-owned distilleries. To address this, “Obama will create a number of incentives for local communities to invest in their biofuels refineries,” the website maintains.

In 2006, Obama, along with four other farm-state senators, sent a letter to President Bush urging him to ignore calls to reduce the 54-cents-per-gallon tariff on Brazilian sugarcane-based ethanol, which competes with domestically produced ethanol. And during his first year in office, Obama twice used corporate jets belonging to the Illinois-based agribusiness giant Archer Daniels Midland, America’s biggest ethanol producer.

In recent weeks, Obama has reportedly said that he favors “broadly revisiting” the ethanol mandates. But Obama’s campaign appears reluctant to discuss the subject. In mid-July, I submitted numerous e-mails to the campaign’s press office, seeking comment on the ethanol matter. I also left voice mail. No response.

Obama cannot ignore the bad news forever. The soaring price of grain and the myriad environmental costs of ethanol production will require him to act. While several factors are driving grain prices higher—including the falling value of the dollar, increasing energy prices, soaring global demand, and poor harvests in some countries—it is abundantly clear that ethanol mandates are a key, and easily avoidable, factor in the food inflation equation.

AGAINST THE GRAIN—The production of reports on the problems created by ethanol has lately become a cottage industry. In March, Thomas Elam, an Indianapolis-based agricultural economist, released a report commissioned by the Coalition for Balanced Food and Fuel Policy. The Coalition is a Washington, D.C.-based group that brings together eight associations representing meat, dairy, and egg producers. Elam’s report estimated that the biofuels mandates passed by Congress will cost the U.S. economy more than $100 billion between 2006 and 2009. The report declared that “the policy favoring ethanol and other biofuels over food uses of grains and other crops acts as a regressive tax on the poor.” It went on to estimate that the total cost of the biofuels mandates will total some $32.8 billion this year, or about $108 for every American citizen.

In May, the Congressional Research Service blamed the recent increases in global food prices on two factors: increased grain demand for meat production and the biofuels mandates. According to the report, the recent “rapid, ‘permanent’ increase in corn demand has directly sparked substantially higher corn prices to bid available supplies away from other uses—primarily livestock feed. Higher corn prices, in turn, have forced soybean, wheat, and other grain prices higher in a bidding war for available crop land.” This “bidding war,” according to the CRS, is happening as “traditional corn users search for alternative feed grain supplies.”

In mid-June, Kraft Foods Global released a report written by Keith Collins, the former chief economist for the U.S. Department of Agriculture. In a 34-page analysis of grain prices, Collins concluded that the ethanol scam “could account for 25 to 50 percent of the corn price increase expected from 2006/07 to 2008/09.”

Perhaps the most damning report came out on July 10, when London’s Guardian newspaper released the contents of an April 8 internal report produced by the World Bank. The report says that food prices increased by 140 percent between January 2002 and February 2008. “This increase was caused by a confluence of factors but the most important was the large increase in biofuels production in the U.S. and EU. Without the increase in biofuels, global wheat and maize [corn] stocks would not have declined appreciably and price increases due to other factors would have been moderate.”

The soaring price of grain means higher prices at the supermarket. Consumer Price Index data from mid-July showed that over the past three months food prices increased at an annualized rate of 8 percent. The price of cereals and bakery products has increased by 10.4 percent over the past year. And the U.S. Department of Agriculture recently estimated that the price of eggs could jump by 10 percent this year. All of this is fueling inflation, which is showing its biggest annual increase since 1991. And some economists believe that the worst is yet to come. They warn that some of the biggest food price increases won’t happen until next year, when the full effects of lower livestock production and higher fuel and grain prices will be felt.

GREEN CREDENTIALS?—Ethanol is also taking a toll on the environment. Recent studies have shown that ethanol may be worse for the environment than gasoline, and those findings could undermine Obama’s “green” credentials.

Last August, a study co-written by Paul Crutzen, a Nobel Prize-winning chemist, found that because of releases of nitrous oxide during the production process “commonly used biofuels such as biodiesel from grapeseed and bioethanol from corn (maize), can contribute as much or more to global warming” as fossil fuels. That study confirms the findings of a 1997 report by the Government Accountability Office; it determined that in regard to the creation of dangerous compounds, corn ethanol production results in “relatively more nitrous oxide and other potent greenhouse gases. In contrast, the greenhouse gases released during the conventional gasoline fuel cycle contain relatively more of the less potent type, namely, carbon dioxide.”

In January, researchers at the University of California, Berkeley published a paper concluding that producing corn ethanol on land that was formerly held in the Conservation Reserve Program resulted in greenhouse gas emissions that were 2.4 times greater than those from conventional gasoline. In February, Science magazine published a study concluding that when accounting for land-use changes, corn ethanol production nearly doubles greenhouse gas emissions over 30 years, and those emissions can last for 167 years. It also found that “biofuels from switchgrass, if grown on U.S. corn lands, increase emissions by 50 percent.”

Ethanol production also causes water pollution. In mid-July, researchers from the National Oceanic and Atmospheric Administration, Louisiana State University and the Louisiana Universities Marine Consortium, reported that the “dead zone” in the Gulf of Mexico, a patch of algae-filled water with oxygen levels low enough to kill marine life, will reach record proportions when it’s in full bloom this summer. This year, the zone will likely cover more than 8,800 square miles, an area about the size of New Jersey. Since 1990, the dead zone has covered an average of 4,800 square miles.

The key reasons for the huge expansion of the dead zone? Ethanol production and flooding in the Midwest. The increased planting of corn to meet the soaring demand from ethanol distilleries has resulted in larger applications of fertilizers like nitrogen and phosphorus on farmland. Those nutrients are being washed into the Gulf of Mexico and into the dead zone.

The growing case against ethanol—from increasing food prices to environmental impacts—looms as one of Obama’s toughest domestic policy challenges. Will he dare buck the powerful agricultural interests in his home state of Illinois, which trails only Iowa and Nebraska in ethanol production capacity?

The main marketing message used by the Obama campaign is the line “Change we can believe in.” It remains to be seen if Obama can deliver on that claim when it comes to what may be the single most destructive agricultural program in modern American history.