Ethanol Boom Helps Indiana, But at What Price?

April 3, 2007

Indiana Writers Group column for April 4 and thereafter
730 words

By Andrea Neal

    When it comes to corn-based ethanol, what’s good for Indiana corn farmers may not be so good for the rest of the world.
    Demand for ethanol – the alternative fuel made by fermenting and distilling crops and their residues – is being blamed for everything from higher feed prices facing livestock farmers in the Midwest to higher tortilla prices fueling protests in Mexico. The U.S. Department of Agriculture predicts ethanol demand will continue to rise, pushing food prices up through 2007.
    A dire prediction comes from Lester Brown, president of the Earth Policy Institute in Washington D.C. Generally supportive of alternative fuels and government policies to stimulate their development, Brown is worried that the price of corn is starting to act like the price of oil. That might benefit corn growers, but not people who eat corn or use it to feed their chickens and livestock.
    There are 114 ethanol plants in the United States, 12 in Indiana. Last year, 16 percent of the U.S. grain harvest was sold to those plants to produce ethanol. With 80 more distilleries now being built, nearly a third of the 2008 grain harvest will be going to ethanol.
     “As we build more and more distilleries, the dividing line between the food economy and the energy economy is beginning to disappear,” Brown warns. “It would be bad for Indiana farmers if this soaring price of grain leads to food riots and political instability and more and more failed states.”
    If Brown’s prediction sounds alarmist, his bottom line is not that different from what Ben Lieberman of the conservative Heritage Foundation has said. Lieberman opposes government policies that distort the market. He blames rising food and energy costs on pro-ethanol laws like the 51-cent per gallon federal tax credit and congressional mandates to add billions of gallons of renewable fuel to the gasoline supply.
    “Ethanol use at current levels has also led to skyrocketing corn prices as the available supply is split between food and fuel uses,” he said, echoing Brown’s comments. “This has led to higher prices for corn products and things such as corn-fed meat,” Lieberman wrote in a March 28 article opposing President Bush’s plan to expand the ethanol mandate.
    On another issue, Lieberman and Brown agree: Corn is not an efficient source of ethanol. According to Brown, each unit of energy put into ethanol production produces only 1.3 units in return. Ethanol proponents say that number is wrong; that corn ethanol generates about two units of energy for every one expended. Either way, it’s low compared to sugar cane, which produces eight units of energy for every one expended.
    So what do we do now? Indiana and other corn-producing states have invested too much in corn-based ethanol to change course.
    Step One is for politicians to eliminate the market distortions that make corn ethanol production more cost effective for farmers than it really is. At the moment, its success is artificial. If corn ethanol can survive on its own merits, then it legitimately deserves a place in our alternative energy portfolio. Step Two is to jump ahead to the next generation of farm-based alternative fuels, which futurists like Brown consider more economically and environmentally viable. Specifically, they are referring to cellulosic ethanol, which uses corn stalks and other waste from the harvesting process, straw, wood chips and biomass. Brown says every unit of energy used to produce cellulosic ethanol will produce four to six units of energy in return, making it a much better deal.
    That thinking is behind SB 525 now pending in the Indiana House, which would provide up to $20 million in tax credits for producers of cellulosic ethanol. The bill passed the Senate 48-0 and is sponsored by Sen. Brandt Hershman, R-Monticello, a farmer; and Sen. Beverly Gard, R-Greenfield, a biochemist.
    Gard and Hershman say that Indiana has the potential to be a pioneer in this area with Purdue University leading research efforts to make the technology workable and economically viable.
    Andy Miller, state agriculture director, says corn-based and cellulosic ethanol both should play a role as alternative energy use grows. While he admits to some “irrational exuberance” in the corn ethanol market of late, he dismisses concerns that corn prices will threaten food supply. “The bio-fuels movement is here to stay,” he says. “Indiana is ideally suited not only to be a participant, but a leader.”

Andrea Neal is a teacher at St. Richard’s School in Indianapolis and adjunct scholar and columnist with the Indiana Policy Review Foundation. Contact her at aneal@inpolicy.org.



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