Coalition Calls for Phase Out of Ethanol Subsidies
19 November 2008
A coalition of groups organized by the Food before Fuel campaign called on the incoming Obama Administration to repeal subsidies for ethanol.
Members of the Food for Fuel campaign include major food processing trade associations, the Competitive Enterprise Institute, restaurant associations, the Grocery Manufacturers Association and several environmental groups, including the World Wildlife Fund.
The Food Before Fuel campaign commissioned Ipsos to poll consumers in support of the call to eliminate the ethanol subsidies. According to the Ipsos poll of 1,000 Americans, nearly nine in 10 (89%) are concerned about the rising cost of food, including 57% who say that they are very concerned.
When provided with information about USDA data showing corn ethanol production is the cause of 10% of food price inflation, nearly half (49%) become less likely to support policies aimed at promoting the use of corn to produce ethanol. Moreover, when asked if they would support keeping or changing the existing Congressional policies, a majority (56%) of respondents call for Congress to change these policies by reducing or eliminating subsidies and mandates for the use of corn ethanol.
After 30 years of subsidies, ethanol is displacing only 3 percent of the gasoline we use each year, is likely increasing rather than decreasing greenhouse gas emissions, and is threatening our soil, water and wildlife. Yet ethanol gets $3 out of every $4 of tax credits the federal government gives to all renewable alternatives including wind, solar and geothermal. It is time we direct our tax dollars to renewable alternatives, including biofuels, based on how well they protect our climate, our environment and our energy security.
—Craig Cox, Midwest vice president of the Environmental Working Group
In the ongoing policy tussle over corn ethanol, the Illinois Corn Growers Association (ICGA) recently published two new studies—one a case study of an existing corn ethanol plant, the other a forecast through 2030—that show that the production of corn ethanol results in a smaller lifecycle carbon footprint than that of gasoline—significantly so in some cases. The reports also conclude that ongoing improvements in crop yield and more efficient production technologies will continue to improve the carbon profile of the biofuel, while also allowing room for expansion without impact on food or feed supplies. (Earlier post.)
Louisiana Enacts the Most Comprehensive Advanced Biofuel Legislation in the Nation
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Advanced Biofuel Industry Development Initiative Benefits Consumers, Farmers and Gas Station Owners with Localized “Field-to-Pump” Strategy
Baton Rouge, LA (November 19, 2008) – Governor Bobby Jindal has signed into law the Advanced Biofuel Industry Development Initiative, the most comprehensive and far-reaching state legislation in the nation enacted to develop a statewide advanced biofuel industry. Louisiana is the first state to enact alternative transportation fuel legislation that includes a variable blending pump pilot program and a hydrous ethanol pilot program.
Field-to-Pump Strategy
The legislature found that the proper development of an advanced biofuel industry in Louisiana requires implementation of the following comprehensive “field-to-pump” strategy developed by Renergie, Inc.:
(1) Feedstock Other Than Corn
(a) derived solely from Louisiana harvested crops;
(b) capable of an annual yield of at least 600 gallons of ethanol per acre;
(c) requiring no more than one-half of the water required to grow corn;
(d) tolerant to high temperature and waterlogging;
(e) resistant to drought and saline-alkaline soils;
(f) capable of being grown in marginal soils, ranging from heavy clay to light sand;
(g) requiring no more than one-third of the nitrogen required to grow corn, thereby reducing the risk of contamination of the waters of the state; and
(h) requiring no more than one-half of the energy necessary to convert corn into ethanol.
(2) Decentralized Network of Small Advanced Biofuel Manufacturing Facilities
Smaller is better. The distributed nature of a small advanced biofuel manufacturing facility network reduces feedstock supply risk, does not burden local water supplies and provides for broader based economic development. Each advanced biofuel manufacturing facility operating in Louisiana will produce no less than 5 million gallons of advanced biofuel per year and no more than 15 million gallons of advanced biofuel per year.
(3) Market Expansion
Advanced biofuel supply and demand shall be expanded beyond the 10% blend market by blending fuel-grade anhydrous ethanol with gasoline at the gas station pump. Variable blending pumps, directly installed and operated at local gas stations by a qualified small advanced biofuel manufacturing facility, shall offer the consumer a less expensive substitute for unleaded gasoline in the form of E10, E20, E30 and E85.
Pilot Programs
(1) Advanced Biofuel Variable Blending Pumps - The blending of fuels with advanced biofuel percentages between 10 percent and 85 percent will be permitted on a trial basis until January 1, 2012. During this period the Louisiana Department of Agriculture and Forestry Division of Weights & Measures will monitor the equipment used to dispense the ethanol blends to ascertain that the equipment is suitable and capable of producing an accurate measurement.
(2) Hydrous Ethanol - The use of hydrous ethanol blends of E10, E20, E30 and E85 in motor vehicles specifically selected for test purposes will be permitted on a trial basis until January 1, 2012. During this period the Louisiana Department of Agriculture and Forestry Division of Weights & Measures will monitor the performance of the motor vehicles. The hydrous blends will be tested for blend optimization with respect to fuel consumption and engine emissions. Preliminary tests conducted in Europe have proven that the use of hydrous ethanol, which eliminates the need for the hydrous-to-anhydrous dehydration processing step, results in an energy savings of between ten percent and forty-five percent during processing, a four percent product volume increase, higher mileage per gallon, a cleaner engine interior, and a reduction in greenhouse gas emissions.
Act No. 382, entitled “The Advanced Biofuel Industry Development Initiative,” was co-authored by 27 members of the Legislature. The original bill was drafted by Renergie, Inc. Representative Jonathan W. Perry (R - District 47), with the support of Senator Nick Gautreaux (D - District 26), was the primary author of the bill. Reflecting on the signing of Act No. 382 into law, Brian J. Donovan, CEO of Renergie, Inc. said, “I am pleased that the legislature and governor of the great State of Louisiana have chosen to lead the nation in moving ethanol beyond being just a blending component in gasoline to a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline. The two pilot programs, providing for an advanced biofuel variable blending pump trial and a hydrous ethanol trial, established by the State of Louisiana should be adopted by each and every state in our country.”
State Agencies Must Purchase or Lease Vehicles That Use Alternative Fuels
Louisiana’s Advanced Biofuel Industry Development Initiative further states, “The commissioner of administration shall not purchase or lease any motor vehicle for use by any state agency unless that vehicle is capable of and equipped for using an alternative fuel that results in lower emissions of oxides of nitrogen, volatile organic compounds, carbon monoxide, or particulates or any combination thereof that meet or exceed federal Clean Air Act standards.”
Advanced Biofuel Price Preference for State Agencies
Louisiana’s Advanced Biofuel Industry Development Initiative provides that a governmental body, state educational institution, or instrumentality of the state that performs essential governmental functions on a statewide or local basis is entitled to purchase E20, E30 or E85 advanced biofuel at a price equal to fifteen percent (15%) less per gallon than the price of unleaded gasoline for use in any motor vehicle.
Economic Benefits
The development of an advanced biofuel industry will help rebuild the local and regional economies devastated as a result of hurricanes Katrina and Rita by providing:
(1) increased value to the feedstock crops which will benefit local farmers and provide more revenue to the local community;
(2) increased investments in plants and equipment which will stimulate the local economy by providing construction jobs initially and the chance for full-time employment after the plant is completed;
(3) secondary employment as associated industries develop due to plant co-products becoming available at a competitive price; and
(4) increased local and state revenues collected from plant operations will stimulate local and state tax revenues and provide funds for improvements to the community and to the region.
“Representative Perry and Senator Gautreaux have worked tirelessly to craft comprehensive advanced biofuel legislation which will maximize rural development, benefit consumers, farmers and gas station owners while also protecting the environment and reducing the burden on local water supplies,” said Donovan. “Representative Perry, Senator Gautreaux, and Dr. Strain, Commissioner of the Louisiana Department of Agriculture and Forestry, should be praised for their leadership on this issue.”
About Renergie
Renergie was formed by Ms. Meaghan M. Donovan on March 22, 2006 for the purpose of raising capital to develop, construct, own and operate a network of ten ethanol plants in the parishes of the State of Louisiana which were devastated by hurricanes Katrina and Rita. Each ethanol plant will have a production capacity of five million gallons per year (5 MGY) of fuel-grade ethanol. Renergie’s “field-to-pump” strategy is to produce non-corn ethanol locally and directly market non-corn ethanol locally. On February 26, 2008, Renergie was one of 8 recipients, selected from 139 grant applicants, to share $12.5 million from the Florida Department of Environmental Protection’s Renewable Energy Technologies Grants Program. Renergie received $1,500,483 (partial funding) in grant money to design and build Florida’s first ethanol plant capable of producing fuel-grade ethanol solely from sweet sorghum juice. On April 2, 2008, Enterprise Florida, Inc., the state’s economic development organization, selected Renergie as one of Florida’s most innovative technology companies in the alternative energy sector. By blending fuel-grade ethanol with gasoline at the gas station pump, Renergie will offer the consumer a fuel that is more economical, cleaner, renewable, and more efficient than unleaded gasoline. Moreover, the Renergie project will mark the first time that Louisiana farmers will share in the profits realized from the sale of value-added products made from their crops.
Please feel free to visit Renergie’s weblog (www.renergie.wordpress.com) for more information.
Posted by: Brian J. Donovan | 19 November 2008 at 06:43 AM
Maybe these Food before Fuel groups should read the United Nations' most recent report on the effect of corn ethanol on food pricing. It has little or nothing to do with food prices. It is primarily the price of oil that drives food cost. And in the case of corn the higher costs are due in large part to speculation on the commodities market.
http://blog.wired.com/wiredscience/2008/10/un-report-paint.html
Maybe the editors here should consider the plausibility of the claims before posting such off the wall notices.
Posted by: sulleny | 19 November 2008 at 11:32 AM
So, what's the Vegas line on this group being funded with oil money?
Better than even odds, no?
Posted by: rob | 19 November 2008 at 04:40 PM
This year, the cost of a bushel of corn doubled, rising along with numerous other commodities being bought and sold by speculators, including wheat, sugar and soybeans. Rice, which has no impact on ethanol production, TRIPLED in price. Some speculators withheld sizable blocks of commodities in order to create artificial shortages, and then they sold at a much higher price. Commodities traders were manipulating supply and driving prices, while critics erroneously blamed corn ethanol for escalating food prices.
When crude oil spiked, the cost of transportation fuels doubled. The cost to ship corn, and foods in general, was a much bigger factor in food prices than the 5 cents per pound that was added to the cost of the corn itself. Ship a ton of corn from Iowa to China and see what happens to the price. The claim that corn ethanol is the main cause for the high price of foods can NOT be substantiated.
Now the price of corn is back down to where it was a year ago, but are food prices dropping? No, because the raw materials in processed foods represent only a small fraction of the huge overhead cost of foods sold in supermarkets.
There is no shortage of corn and no shortage of land to grow it on. We’re using roughly the same amount of land to grow corn that we used 30 years ago, and since then, the yield per acre has more than doubled. After being flat for decades, exports of whole corn increased by 20% this year. Corn farmers would export more if the demand was there. Almost all the corn we export is Not for human consumption. It is Feed Corn. Shipped to foreign countries gaining affluence, like China and India, to produce meat, dairy, and animal products.
Ethanol refineries produce high protein distillers grains. This is animal feed that produces food. Ten to fifteen percent distillers grains added to the feed of dairy cows increases their milk production by 10 lbs per cow per week. It also puts 10% more meat on livestock and enhances the production of many other foods. This year, foreign demand and exports of distillers grains doubled, and its value increased dramatically. Corn ethanol is not just about fuel. It’s also a system for producing food. And when the energy balance is calculated, that must also be taken into account.
Over 80% of the corn crop is Feed Corn. We grow all the corn suitable for human consumption that the world can stand, and we could produce much more. There’s plenty of corn and distillers grains available for sale, if you can afford the shipping cost. The cost of the grain itself is minimal.
The ethanol industry removes the starch from Feed Corn to make fuel. That’s no great loss in the realm of feeding livestock, because cows don’t digest the starch very well anyway. So the industry is taking low value corn starch and converting it into a high value fuel product. And what we have leftover is the more digestible portion of the corn kernel, as animal feed, in the form of high protein distillers grains. Corn oil is another byproduct of ethanol refineries.
Some corn ethanol critics make the false assumption that people are starving, because starch is being extracted to make ethanol from 1 out of 4 bushels of corn. When in reality, the corn ethanol industry makes a superior feed product that produces more meat, dairy, poultry, fish, and pork, in addition to corn oil, and a renewable domestic fuel.
Posted by: Jeff Baker | 19 November 2008 at 09:40 PM
Food Prices
Corn is used as the feedstock for approximately 98% of the ethanol produced in the United States. Brazil uses sugarcane as a feedstock, while China is focusing on using cassava and sweet potatoes as feedstocks for ethanol production. USDA estimates that 3.2 billion bushels of corn (or 24% of the 2007 corn crop) will be used to produce ethanol during the September 2007 to August 2008 corn marketing year. In January, 2002, the price for a bushel of corn was $1.98. In July, 2008, the price for a bushel of corn was $5.61.
Corn is a significant ingredient for meat, dairy, and egg production. However, while increased ethanol production is partially responsible for the increase in corn prices, the real factors driving up retail food prices are: rising demand for processed foods and meat in emerging markets such as China and India; droughts and adverse weather around the world; commodity market speculation; export restrictions by many exporting countries to reduce domestic food price inflation; the declining value of the dollar; and skyrocketing oil prices.
Record high prices for diesel fuel, gasoline, natural gas, and other forms of energy affect costs throughout the food production and marketing chain. Higher energy prices increase producers' expenditures for fertilizer and fuel, driving up farm production costs and reducing the incentive for farmers to expand production in the face of record high prices. Higher energy prices also increase food processing, marketing, and retailing costs. In 2005, the most recent year for which data are available, direct energy costs and transportation costs accounted for roughly 8 percent of retail food costs. These higher costs, especially if maintained over a long period, tend to be passed on to consumers in the form of higher retail prices.
Historically, food prices have surged during times of higher crude oil prices. Moreover, research shows that energy prices are quickly passed through to higher retail food prices, with retail prices rising 0.52 percent in the short-term for every 1 percent rise in energy prices. As a result, a 10 percent gain in energy prices could contribute 5.2 percent to retail food prices.
Please feel free to visit the Renergie weblog (www.renergie.wordpress.com) for more information.
Posted by: Brian J. Donovan | 20 November 2008 at 04:10 AM
Subsidies for domestic corn ethanol and import taxes on foreign fuel ethanol are welfare programs for big agribusiness. They are a waste of tax money and so are bad policies even if they don't increase the price of food. The use of ethanol as a pollution-reducing oxygenate for gasoline is sensible, but we already have all we need for that purpose without subsidies and protectionism.
Posted by: richard schumacher | 20 November 2008 at 07:13 AM
Did you know that we’re paying the oil industry 6 TIMES higher subsidies than the biofuels industry? This is while Big Oil has been posting record breaking multibillion dollar profits.
Studies show that ethanol lowers the price of gasoline by 15%. This saves us billions of dollars every year. Take note of the thousands of jobs and billions of dollars in county, state, and federal tax revenue that ethanol is generating. Every dollar in ethanol subsidies spins-off ten dollars worth of economic stimulus.
People who live in states with blender pumps, like S. Dakota, Minnesota, and Iowa, save more on fuel. Because locally produced ethanol goes straight to the retail pump, instead of being shipped far away to a gasoline blending terminal and then shipped back to gas stations. Thus, local ethanol blender pumps have an advantage over the centralized oil industry. Blender pumps are being supplied by locally produced ethanol, so long distance shipping costs are eliminated. Part of the blending subsidy may also be passed-on to consumers. That translates into higher efficiency and cheaper fuel at the pump. You can also try different ethanol blends like E-20, E-30, E-40, to find out which one gets your vehicle the best mileage for the money. One man documented 20% better mileage on E20 than he got on regular gasoline. That’s why blender pumps are sweeping the Corn Belt and will also be installed in emerging ethanol states, such as Texas, California, Arizona, Tennessee, Louisiana, Florida, New York, Pennsylvania and others.
Louisiana now has the most advanced ethanol development program in the country, expected to get a 5 to 1 return. Renergie Inc. is building 10 sweet sorghum based modular ethanol plants around the state, which will supply local ethanol directly to local blender pumps. Another approach in Texas and Arizona is to integrate ethanol refineries with cattle feeding operations and dairy farms. The adjacent manure is converted into biogas CHP for plant production power, and the distillers grains byproduct is fed to the adjacent cows to produce milk or meat. This is better than a 3 to 1 return.
You can also credit the corn ethanol industry for laying the groundwork for the emerging cellulosic ethanol industry. Poet Ethanol is equipping their corn ethanol plants with cellulose capability, which will also make them energy self-sufficient. Same with Chippowee Valley Ethanol and others. Ethanol efficiency is improving dramatically. What may have been true 5 years ago is not true today. You can take outdated ethanol studies and throw them in the trash.
Companies like Vera Sun and Pacific Ethanol are having problems, because they mismanaged their business. They agreed to buy high priced future supplies of corn, just before the price of wholesale ethanol took a nosedive along with crude oil. That caused sudden imbalances for ethanol producers that they will have to adjust to. Ethanol producers are on a rollercoaster ride with the prices of crude oil, feed corn, and the prices they get for their products. The stronger companies are still stable and the industry is viable.
Corn ethanol was never meant to save the country. But it does supplement gasoline with a clean domestic fuel that replaces some foreign oil. Corn ethanol is capped at 15 billion gallons a year, which is too low. What we should do is take ALL of our feed corn, extract the starch for ethanol, and use mainly distillers grains for domestic feed and export. That would triple our domestic ethanol production to about 30 billion gallons a year. We should increase the blending wall to somewhere between 20 and 30%. And we should mandate that all new vehicles be ethanol compatible.
Ethanol refineries should not be converted to butanol. Instead, they could be adapted to produce algae, whereby corn sugars are fed to multiply algae in dark tanks, as in the Solazyme system. At corn ethanol refineries, the components for algae production are already in place: CO2, corn sugar, waste heat, nutrient rich effluent and waste water. That would give you biodiesel from the algae oils, ethanol from the algae starch, and additional high protein animal feed to sell alongside distillers grains. This would be more than a 10 to 1 return.
Ethanol has the potential to be transformed well beyond our expectations. The engines that are coming are smaller, lighter, and more efficient, with a much higher power to weight ratio, because they will be optimized for ethanol, not just gasoline.
Posted by: Jeff Baker | 20 November 2008 at 09:14 AM
Though I completely disagree with the premise used by this group to support removing the subsidies for corn ethanol, I do agree that the subsidies should be phased out over time. This premise is a bad joke. And yes, I would wager that there’s oil money in there. They should be phased out over time and poured into 2nd and 3rd generation biofuels along with teasers to get the infrastructure improvements to allow us to choose what fuel we use. Further, I believe the .$54 tariff on imported ethanol should be phased out too.
BUT before you pull the rug out on the only significant source of oil replacement available now-today, let's make sure the field is level:
1. Require all new gasoline-powered vehicles are flex-fuel capable when they come off the line. This gives the alternates at least a potential demand and is key to breaking the oil monopoly.
2. Put a floor on the price of oil. Pick a number, $70/barrel? Give investors in alternates a steady target to shoot at. At least reflect some of the billions used in defending the free flow of oil. If you don’t want the oil lobby to get all riled up with a new tax, modify the subsidy to be tied to the price of oil. When oil prices are higher less subsidy to grain-based ethanol and vice versa.
Yeah, I'm the guy that rants "brew baby brew!". The U.S. needs to get off the middle-east crack pipe. Ethanol is all we’ve got right this very minute that has any chance to make real and immediate difference at all. We need more not less. I didn’t see the question on the poll that said something like; “Would you rather spend 10% more for food or continue to be at the mercy of oil rich countries?”
Subsidies, tax breaks, tariffs, these are all useful levers the government can use to great advantage if used with care and with the overall public interest in mind. Corn ethanol has been subsidized for a long time and for completely different reasons than we face now. The American farmer is so efficient that food and farm commodity prices were collapsing. Farms were failing by the thousands. Anyone remember Farm-aid? “Rain on the Scarecrow”? The people said “We gotta DO something about this!” So the gommit did something. They expanded the program to pay farmers for fallow fields. They instituted a foreclosure prevention and low-cost loan program. They looked for ways to expand the market. They gave away cheese to the poor. They sold grain to poor countries for less than the cost to produce it. And one of the ways was to expand the market was to subsidize corn ethanol production. The bonus was that the cattlemen got low-cost, high-quality feed while the corn growers had another place to sell their crop. One problem with subsidies, it’s harder to remove them once they are law. Much easier to reduce a tax than reduce a subsidy. Much harder to get a tax passed though.
So ethanol producers have had little reason to become more efficient, they’ve become the 30 year old that still lives with mom. You’ve made sure he has a good education. Made sure he’s got a decent job. Dude just needs a little push, have him start paying some of the costs to live at home. Add some rules; no parties, keep the music down, girlfriend can’t stay over. Pretty soon he’s going to figure out that he can move out if he watches his expenses and rides the bus. Ease him into it. If you kick him to the curb he might not come back for Christmas dinner. He’ll be a better man for it.
Where do I come up with the analogies? I need a pint of whatever Hank is having…
Posted by: Paul | 20 November 2008 at 10:25 AM
Quoth Jeff Baker:
If you do that, you won't have many animals left. Here's an excerpt from this report:Non-ruminants such as pigs do even worse on DDG than ruminants.
We would be much better off using the grain for grain, harvesting the stover to make torrefied biomass and/or charcoal (with energy recovery), and planting perennial crops like Miscanthus giganteus in swales and along field boundaries to shift the mix from feed to energy production as required (and capture eroded soil and runoff fertilizer as well).
Posted by: Engineer-Poet | 21 November 2008 at 08:36 AM