Ethanol boondoggle

Wednesday, September 20, 2006

By Michael Devaney

On a recent campaign visit to Cape Girardeau, U.S. Sen. Jim Talent highlighted his sponsorship of the Renewable Fuels Standard in 2005. The bill requires oil companies to purchase 7.5 billion gallons of ethanol and biodiesel by 2012. Talent stated that we're heading quickly toward a renewable age that will wean profits away from big oil and redirect them to Missouri farmers.

Despite improvements, creditable studies indicate that ethanol requires more energy to produce than energy created. By using yield data from the most fertile acreage, ignoring operation and repair of farm machinery, the cost of fossil fuel-based fertilizers and herbicides, transportation and externalities, the U.S. Department of Agriculture was able to report that ethanol from corn is marginally efficient. Like many government agencies, the USDA has been captured by producers rather than serving the interests of consumers.

Similar to other research, a 2005 paper by David Pimentel and Tad Patzek of Cornell University and University of California-Berkeley found that ethanol production using corn required 29 percent more fossil energy than ethanol fuel produced, switchgrass required 50 percent more and wood biomass required 57 percent more. If corn is being irrigated, the net energy loss from ethanol production is even higher. Their findings do not include the impact on the environment and food prices.

Because corn requires greater application of herbicides, pesticides and chemical fertilizers than many other row crops, run-off from increased corn production poses a threat to livestock, wildlife and water quality. Soil erosion in corn is estimated to be 12 times the rate at which soil is being reformed. The fermentation/distillation process for ethanol results in 12 gallons of sewage-like effluent for each gallon of ethanol. It is estimated that diverting corn from livestock feed to ethanol will increase the price consumers pay for meat by $1 billion a year. The increase could be higher if there is a drought in the Corn Belt.

The National Academy of Sciences found that modern blends of gasoline without ethanol burn more cleanly than the reformulated gasoline now required in non-attainment areas covered by the 1990 Clean Air Act. Gasoline reformulated with ethanol may release slightly less carbon monoxide, but it releases more hydrocarbons, volatile organic compounds and nitrogen oxides.

"Adding ethanol to our fuel supply causes air pollution," says Peter Iwanowicz, director of the American Lung Association in New York. "You have more vapor emissions when you're refueling and when your car is sitting in a parking lot on a hot summer day. Ethanol can degrade systems in cars, so you'll get more leaks."

Contrary to assertions by politicians, pork-barrel spending on ethanol does not always increase jobs for American workers. The Sept. 18 Wall Street Journal features a story on a team of Mexican concrete finishers who shuttled between seven states to work on eight ethanol-related construction projects including one in Marshall, Mo. Mexican guest workers on ethanol projects earn about half as much as union concrete workers.

The ethanol bill allows politicians to claim they are responding to higher oil prices while currying favor with powerful special interests. When oil prices decline, the relative cost of the ethanol program increases.

James Bovard of the Cato Institute argues that Archer Daniels Midland Corp. is perhaps the best example of how corporate welfare works. Thanks to federal protection of the domestic sugar industry, ethanol subsidies, subsidized grain exports and other programs, ADM generated at least 43 percent of annual profits during the 1990s from products heavily subsidized or protected by the American government. Every $1 of profits earned by ADM's corn sweetener operation costs consumers $10, and every $1 of profits earned by its ethanol operation costs taxpayers $30. Taxpayers would be better off to pay ADM their profits directly to forgo ethanol production.

The 2005 ethanol bill was an old-fashioned, bipartisan boondoggle. Where was legislative gridlock when we needed it?

Michael Devaney is a professor of finance at Southeast Missouri State University.

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