There's no mileage in ethanol from corn
PALO ALTO, Calif. Policymakers and legislators often fail to consider the law of unintended consequences. The latest example is their attempt to reduce America's dependence on imported oil by shifting a big share of the nation's largest crop, cor...
PALO ALTO, Calif. Policymakers and legislators often fail to consider the law of unintended consequences. The latest example is their attempt to reduce America's dependence on imported oil by shifting a big share of the nation's largest crop, corn, to the production of ethanol for fueling automobiles.
Good goal, bad policy. In fact, ethanol will do little to reduce the large percentage of the fuel that is imported (more than 60 percent), and the ethanol policy will have widespread and profound ripple effects on other markets. Corn farmers and ethanol refiners are ecstatic about the ethanol boom and are enjoying the windfall of artificially enhanced demand. But it will be an expensive and dangerous experiment for the rest of us.
President Bush has set a target of replacing 15 percent of domestic gasoline use with biofuels (ethanol and biodiesel) during the next 10 years, which would require almost a fivefold increase in mandatory biofuel use to about 35 billion gallons. With current technology, almost all of this biofuel would have to come from corn because there is no feasible alternative.
But achieving the 15 percent goal would require the entire current U.S. corn crop, which represents a whopping 40 percent of the world's corn supply. This would do more than create mere market distortions; the irresistible pressure to divert corn from food to fuel would create unprecedented turmoil.
Thus, it is no surprise that the price of corn has doubled in the last year from $2 to $4 a bushel. We already are seeing upward pressure on food prices as the demand for ethanol boosts the demand for corn. And any sort of shock to corn yields, such as drought, unseasonably hot weather, pests or disease could send food prices into the stratosphere.
Politicians like to say that ethanol is environmentally friendly, but these claims must be put into perspective. Although corn is a renewable resource, it has a far lower yield relative to the energy used to produce it than either biodiesel (such as soybean oil) or ethanol from other plants. Moreover, ethanol yields about 30 percent less energy per gallon than gasoline, so mileage drops significantly. Finally, adding ethanol raises the price of blended fuel because it is more expensive to transport and handle.
Lower-cost biomass ethanol for example, from rice straw (a byproduct of harvesting rice) or switchgrass would make far more economic sense, but large volumes of ethanol from biomass will not be commercially viable for many years.
Efficient productionBrazil and other major sugar cane-
producing nations enjoy significant advantages over the U.S. in producing ethanol, including ample agricultural land, warm climates amenable to vast plantations and on-site distilleries that can process cane immediately after harvest.
Thus, in the absence of cost-effective, domestically available sources for producing ethanol, rather than using corn, it would make far more sense to import ethanol from Brazil and other countries that can produce it efficiently and also to remove the 54-cents-per-gallon tariff on Brazilian ethanol imports.
Politicians may be drunk with the prospect of corn-derived ethanol, but if we don't adopt policies based on science and sound economics, it is consumers around the world who will suffer the hang-
Editor's Note: Carter is a professor of agricultural and resource economics at the University of California, Davis. Miller is a physician and a fellow at the Hoover Institution.