The Middle Ground on Corn Ethanol

When the summer driving season slips behind the wheel on Memorial Day, the subject of corn ethanol will again slip in beside it. Once more we’ll see defenders of corn ethanol describe it as a lynch pin in the country’s quest for energy independence. And once more we’ll see its critics paint it as a political boondoggle, a government subsidy to Big Ag and a sop to the farm vote.

But both of these groups are advancing extreme positions which may not consider all the facts. Corn ethanol represents neither the policy disaster its critics claim nor the engine of energy independence that its backers describe.

I’ll get to my reasoning in a moment. First, some background.

Ten percent ethanol is included in gasoline blends today because two additives tried earlier proved unacceptable. For decades, the transportation industry relied on tetraethyl lead for an octane boost, but in the 1970s the United States Environmental Protection Agency (EPA) began phasing out “leaded” gasoline due to environmental and health hazards. Methyl tertiary butyl ether (MTBE) came next, but then the EPA concluded that it was contaminating groundwater. So, the industry began a gradual shift to ethanol.

Two federal laws, the Energy Policy Act of 2005 and the Energy Independence and Security Act of 2007, then accelerated that shift. They established the Renewable Fuel Standard (RFS) program, which required renewable fuel to be blended into transportation fuel in increasing amounts each year.

In short, corn ethanol is in our gasoline in large part because it improves performance and reduces tailpipe emissions more safely than previous technologies. Any consideration given to reducing its role would therefore also require consideration of whether there is a more economical and environmentally acceptable replacement.

With that as context, let’s examine the two most important arguments critics make against corn ethanol:

1) By creating a major new market for corn, they allege, it drives up food prices;

2) By requiring the conversion of more acreage to farmland, it degrades the environment and increases greenhouse gas emissions.

The food prices issue first blossomed when corn spiked in 2008, a year after the market for corn ethanol began a major, RFS-driven expansion. It re-emerged again in 2011–12, when it briefly surpassed $8 a bushel. “Food Versus Fuel,” the headlines blared, suggesting that the reason for the price increases could be found in the new, incremental market for corn ethanol. Many voices called for repeal of the RFS.

But there was at least one big problem with this critique. While corn prices spiked, food prices actually rose at a slower-than-usual pace. Why? Partly because less than 1 percent of corn farmed in the United States is consumed as food; most of it is used to feed livestock. As a result, the USDA noted in a report earlier this year, “the most direct effect of increased ethanol production should be on field corn prices and on the price of food products containing field corn.”

But “even for those products heavily based on field corn,” the report said, “the effect of rising corn prices is dampened by other market factors. … Overall retail food prices would rise less than 1 percentage point per year above the normal rate of food price inflation when corn prices increase by 50 percent.

“Biofuel-induced food price increases,” the report concluded, “are limited.”

The reason is simple. In the price of the food we American consumers eat, the part played by the cost of the agricultural products is greatly overshadowed by the roles of labor, transportation, processing, packaging, marketing, and so on, as this study by researchers at the Bank of Canada and University of Michigan explain. As a result, this analysis found the cost of the corn in an 18-ounce box of corn flakes was only 14 cents — when corn was $7 a bushel. It’s now less than $4. Related food prices have fallen, but not nearly proportionately.

As for land use:

In 2016, the 15.3 billion gallons of ethanol produced by U.S. distillers required about 5.3 billion bushels of corn, or about 35 percent of the total corn crop. Growing that 35 percent required about 31 million acres.

These figures are somewhat exaggerated, however, because while the starch in the corn kernel is being used to produce ethanol, the protein and oil in the kernel are used to make Distillers’ Grains (DDGs), corn gluten feed and corn gluten meal, which in turn are used as animal feed around the world. (See page 13 of this 2016 Renewable Fuels Association report). When that co-production is included in the calculations, it turns out that the true share of U.S corn that is used directly for ethanol production is roughly 25 percent, and the actual U.S. acreage devoted to corn ethanol is 22 million acres — an area almost the exact size as the state of Indiana.

Now consider this…by 2030, we expect farmers to produce 12 percent more corn — 185 bushels per acre — and therefore to require 3 million fewer acres, thanks to improved technology and advanced agricultural practices. If those 3 million acres were to continue to be allocated to corn, they would produce 555 million bushels, or about 1.6 billion gallons of ethanol. A January 2017 USDA report found that greenhouse gas (GHG) emissions of corn-based ethanol are 43% lower than gasoline when measured on an energy equivalent basis. This would represent a reduction of over 8.5 million metric tons of GHG emissions per year — equivalent to removing 1.8 million passenger cars from the road or 1.3 million homes going without electricity for a year!

All that said, the notion that corn ethanol reduces American reliance on foreign oil has become much harder to make in recent years. The growing role of other fuels — shale oil and natural gas extraction and, increasingly, solar and wind — has moved the United States toward energy independence without it.

Still, it’s intriguing to think about the increasing environmental benefit that corn ethanol will present as yields continue to grow and as ethanol production plants continue to become more efficient.

As we get behind the wheel of our cars in the days ahead, perhaps we can see ethanol in a more rational light. No, we don’t need it any more for energy independence. But with only a minimal impact on food prices, it improves the air we breathe, renewably.