Remember ethanol? Once America’s magic elixir for energy independence, the biofuel has spent a few years out of the national limelight. Now, the corn ethanol industry is back in the headlines over a growing movement to strip the ethanol industry of federal subsidies and blend quotas, which guarantees sales to corn growers, and is decried as an unnecessary handout by critics.
At the same time, the corn ethanol industry continues to respond to criticisms that biofuels present little environmental benefit, and that the growing of staple crops like corn for use as fuel represents a threat to global food production.
The key to America’s corn ethanol industry’s future is the 2014 Renewable Fuel Standard, which for reasons that could make sense only to bureaucrats and their industry appendages, has yet to be determined, and will set ethanol production mandates and determine ethanol blend limits last set in 2005.
At the same time, the US shale gas boom has led to a slump in oil prices, and profit margins have been wiped out for many corn ethanol producers, some of which have already scaled back operations.
The next few months could well prove to be the moment of truth for the industry as a whole, as the one-two punch might bring the whole enterprise to a screeching halt. All of this is a far cry from what the situation was about a decade ago, so where did things go off the rails?
Historically, it was buoyed by Jimmy Carter’s move in 1980 to enact the Energy Security Act in the wake of the OPEC oil embargo, and given another bump upwards by amendments to the Clean Air Act by 1990 that required “oxygenates” in fuel to decrease smog. Blends of ethanol available in the Midwest’s corn belt met that requirement. Coincidentally, the other popular oxygenate used in the US is MTBE, a petroleum product.
Biofuels again became fashionable during the end of the Bush administration, when high oil prices and environmental concerns pushed the US government to redraw energy policy to address both high dependency on foreign oil producers, as well as emissions standards.
You might recall that flex-fuel vehicles were hyped by American automakers in the late 2000s, which were then pushing for the sale of FFVs with drivetrains equipped to deal with E85 ethanol-based gas, a fuel blend containing 51 percent to 83 percent ethanol.
Rather than be excited about the prospect of alternative fuels and helping the environment, carmakers had to respond to federal regulations which mandated large fleet purchases meet alternative fuel guidelines. In fact, the Alliance of Automobile Manufacturers and Global Automakers, together with the Grocery Manufacturers Association, came together in 2012 to appeal the EPA’s approval of E15 that year.
Despite protests by both automakers and corporate food interests, E15 began to appear at filling stations in 2012. Today, there are currently no less than 213 ethanol plants in the country, according to the Renewable Fuels Association, along with some 15 million flex-fuel vehicles on US roads.
A key moment for the biofuel industry again came during the 2008 presidential elections, when it so happened that Republicans and Democrats differed significantly on their stance on corn ethanol.
Back then, candidate Barack Obama, the Illinois senator representing the country’s second-largest corn producing state, embraced corn ethanol, whereas the Republican candidate, Senator John McCain, supported the elimination of billions in corn subsidies, along with an end to exorbitant tariffs on imports of sugarcane ethanol imported from Brazil, an early pioneer in developing the production and infrastructure for the biofuel—which, along with switchgrass,happens to be more energy efficient than its corn counterpart but not as cheap to process, or at least not yet.
A large sum of taxpayer funded subsidies and production mandates continue to underwrite the corn ethanol industry.
To be sure, since then the ethanol industry has spent a considerable amount of money to get itself to where it is today. Publicly available campaign donation figures for lobbying organizations like Growth Energy supporting the corn ethanol industry totaled over $158 million through 2007-2013, while political contributions to federal candidates during the 2008-2014 election cycle are estimated at over $6 million.
According to Taxpayers for Common Sense (TCC), although the massive $6 billion Volumetric Ethanol Excise Tax Credit (VEETC) was allowed to expire in 2011, a large sum of taxpayer funded subsidies and production mandates continue to underwrite the corn ethanol industry, including funds from the USDA towards the installation of ethanol blender pumps.
“The corn ethanol industry has received more than its fair share of subsidies over the past 30 years," says TCC. "Through federal tax credits, loan guarantees, grants and other subsidies, billions of taxpayer dollars have been squandered on an industry that relentlessly seeks additional special interest carve-outs.”
Meanwhile, growing political clout to eliminate the federal mandates on ethanol could signal the long-term decline in an industry that had been the darling of energy independence advocates for the better part of a decade.
Only a few weeks ago, a bipartisan team made up of Senators Pat Toomey (R-PA) and Dianne Feinstein (D-CA) introduced legislation to eliminate the part of the country’s renewable fuel standards that sets the quantity of ethanol that must be blended into the fuel supply.
“A significant amount of US corn is currently used for fuel. If the mandate continues to expand toward full implementation, the price of corn will increase," said Feinstein.
Ethanol plant in West Burlington, Iowa. Image: Wiki
The Senate bill comes just as the corn ethanol industry had railed against the Renewable Fuel Standard Reform Act, which would limit corn ethanol blends to 10 percent. The bill was introduced by Rep. Bob Goodlatte, a Republican from Virginia, a state with a small stake in corn production.
“More than $30 billion has been invested in infrastructure and expanded production capacity, creating an industry that is responsible for nearly 400,000 jobs and contributes $44 billion to the GDP,” said Bob Dinneen, president of the Renewable Fuels Association.“This bill is a slap in the face to corn farmers across the country who responded to the RFS with increased production and yields.”
"Nearly identical legislation has been introduced in the past and has always failed to gain any traction since a majority of senators understand the importance of homegrown, American renewable fuels,” said Tom Buis, chief executive of Growth Energy.
While the short-term outlook for the ethanol industry may be bumpy due to slumping fuel prices, it belies the fact that 2013 represented the largest corn crop produced by US farmers in history. Growth Energy, one of the main ethanol lobbying groups in the country, believes that the majority of producers will remain in the black and continue to reinvest in new technology and infrastructure.
Groups like Growth Energy, which continue to support the 2012 E15 blend increase from E10, have often narrowed their focus on issues like Chicago’s pending city ordinance to offer E15 ethanol blend gasoline at the pumps.
But even smart lobbying by groups like Growth Energy has never managed to quell larger environmental concerns over the efficacy of a biofuel like ethanol, and a report published by the World Resources Institute in February reignited the debate.
According to the WRI report, even sugar cane “converts only around 0.5 percent of solar radiation into sugar, and only around 0.2 percent ultimately into ethanol.”
“Such low conversion efficiencies explain why it takes a large amount of productive land to yield a small amount of bioenergy, and why bioenergy can so greatly increase global competition for land,” the WRI report concludes. If you want clean energy, it says, go solar, which it says “can outperform biofuels per hectare by a factor of more than 100,” states the WRI.
The report is used as vindication by some environmental groups that have been hammering away at ethanol’s alleged environmental benefits, and who are now rallying behind political moves to eradicate the federal production mandate.
The corn ethanol mandate has spewed millions of tons of greenhouse gases into the air and polluted American waterways with chemical farm runoff.
“The corn ethanol mandate has failed to live up to its expectations, spewed millions of tons of greenhouse gases into the air and polluted American waterways with chemical farm runoff,” says Mike Lavender, a policy analyst with the Environmental Working Group, which also blames corn ethanol for an increase in food prices.
On top of broader concerns of how ethanol production may impact food production, which is really a pretty abstract debate for the average American, it has always been difficult to decisively make the point that blended fuels are, at the end of the day, better for the environment than standard fossil fuels with higher levels of emissions.
Critics of the environmental benefits provided by ethanol argue that any benefits in reduced vehicle pollutants are offset by the energy required to grown corn and refine it into a fuel.
In a March editorial, the Boston Globe came down like a bag of bricks on the ethanol industry: “They don’t even reduce atmospheric carbon dioxide, which was always ethanol’s main selling point. True, ethanol burns more cleanly than gasoline. But the growing, harvesting, and refining required for ethanol production causes large amounts of CO2 to be released, doubling greenhouse emissions over time.”
Another report, this one by the University of Michigan’s Energy Institute, determined that ethanol offers “no significant increase in the amount of carbon dioxide being removed from the atmosphere … therefore, there’s no climate benefit.”
Right on cue, however, comes a study from the University of Illinois at Chicago, which concludes that drivers in midwestern states could reduce carbon pollution by filling up at the pump with ethanol blended fuels. The study, which was presented by economist (and senior director at Genscape) Steffen Mueller and promoted by the Renewable Fuels Association, makes its case by citing substantial efficiency improvements in ethanol production plants, for example.
“Published surveys of the ethanol industry showed that 2008 ethanol plants use 30 percent less energy to convert corn to ethanol than 2001-era plants. A recent follow-up survey showed further energy reductions,” writes Mueller.
Facing both renewed attacks on its environmental merits, as well as a coalition of politicians looking to gut the ethanol mandates, the industry seems to be looking down the barrel of a gun. Without key subsidies in place, American ethanol producers may go the way of their fading Brazilian cousins.
With the 2014 Renewable Fuel Standard, the time for ethanol lobbyists to strike will now be the presidential Iowa Caucuses, where producers can focus on leveraging the importance of their industry within the state to win concessions from 2016 candidates.
“It’s probably going to be the most aggressive issue advocacy effort people have ever seen in the history of the Iowa caucuses,” says Monte Shaw, the director of the Iowa Renewable Fuels Association, which is just one part of a multi-million dollar lobbying push that is being planned by America’s Renewable Future.
It will be interesting to see how the presidential candidates handle the ethanol issue during the Iowa caucus, so be sure to keep your ears open.