ethanol

Post image for Study Links Ethanol Policy to Food Price Increases, Mideast Turmoil

A report published in October 2012 by the New England Complex Systems Institute (NECSI) links soaring corn and agricultural commodity prices to food riots and turmoil in North Africa and the Middle East.

Although several factors may contribute to political unrest, acknowledge Dr. Yaneer Bar-Yam and two co-authors, “the timing of violent protests in North Africa and the Middle East in 2011 as well as earlier riots in 2008 coincides with large peaks in global food prices.” In poor countries with little or no local agriculture to “buffer” swings in global supply conditions, the central government “may be perceived to have a critical role in food security. Failure to provide security undermines the very reason for existence of the political system.”

In short:

When the ability of the political system to provide security for the population breaks down, popular support disappears. Conditions of widespread threat to security are particularly present when food is inaccessible to the population at large.

Soaring food prices triggered food riots in both 2008 and 2011.

Figure explanation (references omitted): Time dependence of FAO Food Price Index from January 2004 to May 2011. Red dashed vertical lines correspond to beginning dates of “food riots” and protests associated with the major recent unrest in North Africa and the Middle East. The overall death toll is reported in parentheses. Blue vertical line indicates the date, December 13, 2010, on which Dr. Bar-Yam and colleagues submitted a report to the U.S. government, warning of the link between food prices, social unrest and political instability. Inset shows FAO Food Price Index from 1990 to 2011. [click to continue…]

Post image for Ethanol: Bad Deal for Consumers Gets Worse

Responding to the anti-Renewable Fuel Standard Hill briefing discussed on this blog yesterday, Tom Buis, CEO of ethanol trade group Growth Energy, asserted that “homegrown American renewable energy provides consumers with a choice and savings” (Greenwire, subscription required). Rubbish. Under the Renewable Fuel Standard (RFS), ethanol consumption is a mandate, not a choice. 

Buis’s claim that ethanol relieves pain at the pump sounds plausible because a gallon of ethanol is cheaper than a gallon of gasoline. However, ethanol has about one-third less energy than gasoline and does not make up the difference in price. Consequently, the higher the ethanol blend, the worse mileage your car gets, and the more money you spend to drive a given distance.

FuelEconomy.Gov, a Web site jointly administered by the U.S. Environmental Protection Agency (EPA) and the Department of Energy (DOE) calculates how much a typical motorist would spend in a year to fill up a flex-fuel vehicle with either E85 (motor fuel made with 85% ethanol) or regular gasoline. The exact bottom line changes as gasoline and ethanol prices change. The big picture, though, is always the same: Ethanol is a net money loser for the consumer.

For example, at prices prevailing in late November 2012, it cost $500 more per year to drive on E85. When I checked FuelEconomy.Gov last week, E85 cost the average motorist an additional $600 per year.

A bad deal just got worse. At today’s prices, it would cost an extra $700-$900 a year to switch from regular gasoline to E85. Some savings! Small wonder that our ‘choice’ to buy ethanol must be mandated.

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Post image for Hill Briefing Shreds Renewable Fuel Standard

This morning I attended a briefing on “The Renewable Fuel Standard: Pitfalls, Challenges, and the Need for Congressional Action in 2013.” Steve Ellis of Taxpayers for Common Sense moderated a panel of six experts. Although each expert spotlighted a different set of harms arising from the RFS, reflecting the core concern of his or her organization, this was a team effort, with panelists frequently affirming each other’s key points. Collectively, they made a strong case that the RFS is a “costly failure.” The briefing’s purpose was to demonstrate the need for reform rather than outline a specific reform agenda. Panelists nonetheless agreed that, at a minimum, Congress should scale back the RFS blending targets for corn ethanol.

Kristin Sundell of ActionAid explained how the RFS exacerbates world hunger, undermining U.S. foreign aid and international security objectives. The RFS diverts 15% of the world corn supply from food to fuel, putting upward pressure on food prices. A recent Tufts University study estimates that U.S. ethanol expansion during the past 6 years cost developing countries more than $5.5 billion in higher prices for corn imports. In Guatemala, the additional expense ($28 million) in 2011 effectively cancelled out all U.S. food aid and agricultural assistance for that year. Food price spikes, partly due to the RFS, were a factor in the recent turmoil in the Middle East. ”Congress can’t control the weather, but they can control misguided energy policies that could cause a global food crisis,” Sundell said.

Kristin Wilcox of the American Frozen Food Institute discussed the RFS’s impact on food consumers. Corn is both the chief animal feed and an ingredient in about 75% of all frozen foods. Consequently, RFS-induced increases in corn prices drive up “the cost of producing a wide range of foods and leads to higher food bills for consumers.” In addition, when corn prices go up, so do the prices of other commodities that compete with corn such as wheat and soybeans. ”Our position is very simple,” Wilcox said: “food should be used to fuel bodies, not vehicle engines.” She concluded: “Trying to change the price at the pump should not burden consumers with increased prices in the grocery check out aisle.” [click to continue…]

Post image for EIA: Not Bullish on Biofuel

The U.S. Energy Information Administration (EIA) is not bullish on biofuel. That’s what I infer from “Biofuels in the United States: Context and Outlook,” a Power Point presentation given by the agency at a biofuels workshop in Washington, D.C. last week. I suspect many in attendance were not pleased. 

Three slides in particular are noteworthy.

Slide no. 19 projects that even in 2040, the quantity of biofuel in the U.S. motor fuel market will be about 10 billion gallons lower than the 36 billion gallons per year required by the Renewable Fuel Standard (RFS) by 2022.

Slides 8 and 9 may explain why. Simply put, although a gallon of ethanol is cheaper than a gallon of petroleum-based fuel, gasoline and diesel deliver more bang for buck than their ‘renewable’ counterparts. It is cheaper to drive one mile on gasoline or diesel than on ethanol or biodiesel fuel.

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Post image for U.S. Biofuel Expansion Cost Developing Countries $6.6 Billion: Tufts

U.S. biofuel expansion has cost developing countries $6.6 billion in higher food costs, estimates Tufts University economist Timothy A. Wise in Fueling the Food Crisis, a report published by ActionAid. A 10-minute video interview with Wise about his research is available here.

The 2007 Renewable Fuel Standard (RFS), established by the Energy Independence and Security Act (EISA), exerts long-term upward pressure on grain prices by diverting an ever-growing quantity of corn from food and feed to auto fuel. This is great for corn farmers but not good for U.S. consumers and harmful to millions of people in developing countries, many of whom live in extreme poverty.

“Commodity prices are a small percentage of the retail price of food in the US” because “we heavily process our food,” notes Wise. In contrast, in developing countries, ”commodity prices are a bigger percentage of the retail price, in part because people buy whole foods more often than processed foods.” Even small commodity price increases ”can have a big impact on local market prices in developing countries.”

As it happens, during the same period that U.S. ethanol production and corn prices increased, many developing countries became more dependent on grain imports to feed their people and livestock. The recent drought-induced spike in U.S. corn prices is “just the latest episode in a devastating, protracted global food crisis that has pushed millions into poverty and hunger around the globe over the past 6 years,” argues the ActionAid report.

To assess the impact of biofuel expansion on developing countries, Wise used a conservative estimate of ethanol’s contribution to corn prices and multiplied that by the quantity of U.S. corn imported by those countries. A summary of key findings follows:

  • Net Food Importing Developing Countries, among the most vulnerable to food price increases, incurred ethanol-related costs of $2.1 billion.
  • Thirteen developing countries incurred per-capita impacts greater than Mexico’s (where tortilla prices have risen 69% since 2005), and they include a wide spectrum of large and small countries from all regions of the developing world – Colombia, Malaysia, Botswana, Syria.
  • North African countries saw large impacts, with $1.4 billion in ethanol-related import costs, led by Egypt ($679 million). Other countries experiencing social unrest – Tunisia, Libya, Syria, Iran, Yemen – also suffered high impacts, highlighting the link between rising food prices and political instability.
  • Central American countries felt impacts nearly those of Mexico, scaled to population. The region has seen its dependence on food imports rise over the last 20 years, and corn imports cost an extra $368 million from 2006-11 due to U.S. ethanol expansion. Guatemala saw the largest impacts, with $91 million in related costs. In 2010-11 alone, U.S. biofuel expansion cost Guatemalans $28 million – an amount nearly equivalent to U.S. food aid to Guatemala over the same period.
  • Latin American partners to trade agreements with the United States saw high costs, as import-dependence grows. The six-year ethanol-related cost of corn imports was $2.4 billion for Latin American nations involved in NAFTA, CAFTA-DR, and the bilateral agreements with Panama, Colombia, Peru, and Chile.
Post image for Another Study Debunks RFA/Vilsack Claim Ethanol Reduced Gas Prices by $1.09/Gal

A new study by the Energy Research Policy Foundation, Inc. (EPRINC) further debunks the popular talking point of USDA Secretary Tom Vilsack and the Renewable Fuel Association (RFA) that ethanol reduced gasoline prices by $0.89/gal in 2010 and $1.09/gal in 2011.

As noted previously on this site (here and here), Vilsack and the RFA tout a study by Iowa State University’s Center for Agricultural Research and Development (CARD), which concluded that if ethanol production had remained at year 2000 levels, the U.S. motor fuel supply would have been billions of gallons smaller and, thus, significantly pricier in 2010 and 2011. Subsequent studies by FarmEcon, LLC and MIT/UC Davis spotlighted CARD’s unrealistic assumption that the refining industry would not have increased gasoline production to meet consumer demand in the absence of policies mandating and subsidizing the blending and sale of increasing quantities of ethanol as motor fuel.

The EPRINC study (Ethanol’s Lost Promise: An Assessment of the Economic Consequences of the Renewable Fuel Mandate) shows, in addition, that if ethanol output had remained constant at the year 2000 level, refiners could have made up for the shortfall without importing or even refining “a single additional barrel of crude oil.” The Renewable Fuel Standard (RFS) has increased ethanol production by about 400,000 barrels per day (bbl/d) since 2000. A “remarkably small operational adjustment” in refineries’ product mix – a 1.8% increase in gasoline production — could have covered an ethanol shortfall of 400,000 bbl/d in 2011.

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Yesterday The Hill‘s Energy Blog reported on a brief filed by the EPA in the U.S. Court of Appeals for the District of Columbia:

The documents filed Monday with the U.S. Court of Appeals for the District of Columbia reveal the reasoning behind EPA’s move to shoot down the American Petroleum Institute’s (API) challenge of the renewable fuel standard (RFS). EPA determined that enough advanced biofuels — generally understood to be made from non-food products — existed to meet that portion of the RFS for 2012.

“EPA reasonably considered the production capacity likely to be developed throughout the year, while API would have EPA rely narrowly and solely on proven past cellulosic biofuel production,” EPA said in its brief. “EPA reasoned that lowering the advanced biofuel volume in these circumstances would be inconsistent with EISA’s [the Energy Independence and Security Act of 2007] energy security and greenhouse gas reduction goals, and decided to leave the statutory advanced biofuel volume unchanged.”

The (main) question here is what the 2012 cellulosic biofuel requirements should be set at. The EPA is arguing that they took a reasonable look at capacity production and put out what they thought could be developed, while the American Petroleum Institute is only looking at historic cellulosic biofuel production. So who is being reasonable? [click to continue…]

Post image for Pressure Grows on EPA to Suspend Ethanol Mandate

The worst drought in 50 years has destroyed one-sixth of the U.S. corn crop. The USDA’s World Agricultural Supply and Demand Estimates (WSDE) report, released Friday, projects the smallest corn crop in six years and the lowest corn yields per acre since 1995.

As acreage, production, and yields declined, corn prices spiked. Last week, corn futures hit a record high of $8.29-3/4 per bushel.

If corn prices remain  high through 2013, livestock producers who use corn as a feedstock will incur billions of dollars in added costs. “These additional costs will either be passed on to consumers through increased food prices, or poultry farmers will be forced out of business,” warn the National Chicken Council and National Turkey Federation.

Even before the drought hit, corn prices were high. Prices increased from $2.00 a bushel in 2005/2006 to $6.00 a bushel in 2011/2012, notes FarmEcon LLC. A key inflationary factor is the Renewable Fuel Standard (RFS), commonly known as the ethanol mandate. Since 2005, the RFS has required more and more billions of bushels to be used to fuel cars rather than feed livestock and people.

Suspension of the mandate would allow meat, poultry, and dairy producers to compete on a level playing field with ethanol producers for what remains of the drought-ravaged crop. That would reduce corn prices, benefiting livestock producers and consumers alike.

EPA Administrator Lisa Jackson has authority under the 2007 Energy Independence and Security Act (EISA) to waive the RFS blending targets, in whole or in part, if she determines that those requirements “would severely harm the economy or environment of a State, a region, or the United States.” The pressure on her to do so is mounting. [click to continue…]

Post image for When Drought Strikes, Should U.S. Policy Endanger Hungry People?

The question answers itself. Of course not. But that is the effect of the Renewable Fuel Standard (RFS), more commonly known as the ethanol mandate.

Under the RFS (Energy Independence and Security Act, p. 31), refiners must sell specified amounts of biofuel each year. The “volumetric targets” increase from 4.0 billion gallons in 2006 to 36 billion gallons in 2022. The amount of corn ethanol qualifying as “renewable” maxes out at 15 billion gallons in 2015. Already, ethanol production consumes about 40% of the annual U.S. corn crop.

By 2022, 21 billion gallons are to be “advanced” (low-carbon) biofuels, of which 16 billion gallons are to be made from plant cellulose. But with cellulosic ethanol proving to be a complete dud, corn growners and ethanol producers are lobbying to redefine corn ethanol as ”advanced.” If they succeed, mandatory sales of corn ethanol could significantly exceed 15 billion gallons annually.

In any event, the RFS sets aside a large and increasing quantity of the U.S. corn crop each year for ethanol production regardless of market demand for competing uses — and heedless of the potential impacts on food prices and world hunger. No matter how much of the U.S. corn crop is ruined by drought, no matter how high corn prices get, no matter how many people in developing countries are imperiled, the RFS requires that billions of bushels of corn be used to fuel cars rather than feed livestock and people. This is crazy. [click to continue…]

Post image for Ethanol Added $14.5 Billion to Consumer Motor Fuel Costs in 2011, Study Finds

Today, FarmEcon LLC released RFS, Fuel and Food Prices, and the Need for Statutory Flexibility, a study of ethanol’s impact on food and fuel prices. FarmEcon prepared the study for the American Meat Institute, California Dairies Inc., Milk Producers Council, National Cattlemen’s Beef Association, National Chicken Council, National Pork Producers Council, and National Turkey Federation.

The study argues that the Renewable Fuel Standard (RFS), commonly known as the ethanol mandate, is detrimental to both non-ethanol industry corn users and food and fuel consumers. The program should therefore be reformed. The RFS has “destabilized corn and ethanol prices by offering an almost risk-free demand volume guaranty to the corn-based ethanol industry.” Consequently, food producers who use corn as a feedstock “have been forced to bear a disproportionate share of market and price risk” when corn yields fall and prices rise. This has become painfully obvious in recent weeks as drought conditions in the Midwest depress yields and push corn prices to record highs.

Appropriate reform* would assure food producers ”automatic market access” to corn stocks “in the event of a natural disaster and a sharp reduction in corn production.” Ethanol producers should “bear the burden of market adjustments, along with domestic food producers and corn export customers.” The study also recommends that the RFS schedule ”be revised to reflect the ethanol industry’s inability to produce commercially viable cellulosic fuels.”

Pretty tame stuff. An argument for flexibility to avoid the RFS’s worst market distortions and the cellulosic farce rather than an abolitionist manifesto. Nonetheless, the study paints a fairly damning picture of the RFS as a whole:

  • Increases in ethanol production since 2007 have made little, or no, contribution to U.S. energy supplies, or dependence on foreign crude oil. Rather, those increases have pushed gasoline suplies into the export market.
  • Current ethanol policy has increased and destabilized corn and related commodity prices to the detriment of both food and fuel producers. Corn price volatility has more than doubled since 2007.
  • Following the late 2007 increase in the RFS, food price inflation relative to all other goods and services accelerated sharply to twice its 2005-2007 rate.
  • Post-2007 higher rates of food price inflation are associated with sharp increases in corn, soybean and wheat prices.
  • On an energy basis, ethanol has never been priced competitively with gasoline.
  • Ethanol production costs and prices have ruled out U.S. ethanol use at levels higher than E10. As a result, we exported 1.2 billion gallons of ethanol in 2011.
  • Due to its higher energy cost and negative effect on fuel mileage, ethanol adds to the overall cost of motor fuels. In 2011 the higher cost of ethanol energy compared to gasoline added approximately $14.5 billion, or about 10 cents per gallon, to the cost of U.S. gasoline consumption. Ethanol tax credits (since discontinued) added another 4 cents per gallon. [click to continue…]