June saw a flurry of activity that may have been the beginning of the end for corn-based ethanol subsidies. And it's about time. But I also worry that lawmakers may let this long-overdue correction die in the face of slightly tempered corn prices and persistently high fuel costs.
Ethanol has been a viable alternative fuel for more than a century – Henry Ford's first car was designed to run on it. That was 1896, 12 years before the Model T, which could run on gasoline or ethanol.
Although some ethanol subsidies have been around since the 1960s, huge increases in subsidies came in the mid-1990s and kicked off the food vs. fuel debate. A convergence of recent events makes it clear the experiment should be ended and ethanol should be left to fend for its own, to find its natural place in the pantheon of alternative fuels.
At best, ethanol should compete on equal footing with food and animal feed for this country's supply of corn. If you believe we should continue subsidizing some kind of agricultural solution to the oil dependency, switch those subsidies to cellulosic ethanol research. Not only would that use non-food crops, but U.S. Dept. of Energy research indicates cellulosic ethanol would reduce greenhouse gas emissions by 85 percent over reformulated gasoline – most of the reduction coming in the processing, not the combustion of the fuel.
In what I'm told was a largely symbolic – but surprisingly bipartisan – vote, the U.S. Senate in June voted 73-27 to end subsidies. That vote came a week after the World Bank called on governments around the globe to stop their ethanol subsidies because of concerns they were driving up food prices – and pushing millions of people worldwide into poverty.
Early June also saw the corn price come within a penny of its June 2008 record of $7.61 a bushel. But, as I said, the price has since retreated a bit by the time we went to press.
Some experts estimate 40 percent of this year's corn crop will be used for ethanol. That prediction comes from a June report from Kansas State University, which also notes "the greater emphasis on corn has caused decreases in wheat acreage." So the price of both grain commodities have been driven upward, even while worldwide demand increases and worldwide supply decreases. And in a Catch-22, those recent $4 a gallon prices for gas are just creating more demand for the ethanol alternative, keeping the vicious circle going.
Research also from June but from a different university notes a growing irony caused by federal subsidies of ethanol. Wally Tyner, an agricultural economist and energy policy specialist at Purdue University, comments on how the inflexible goals of 2007 Energy Independence and Security Act are thwarting the natural supply-and-demand forces within the commodity markets. "The renewable fuels standard requires 15 billion gallons of ethanol be consumed per year by 2015, regardless of what the price of corn is and regardless of what the price of crude oil is," Tyner said. "Corn could be $2 a bushel or $10 a bushel, crude could be $50 a barrel or $100 a barrel [but] that 15 billion gallons has to be there. That means ethanol production is totally unresponsive to price. There's no flexibility."
Corn ethanol subsidies also are siphoning off funding, attention and consumer affinity for electric cars and even solar-powered ones. Admittedly, they're getting some support, too, but imagine how much further along those vehicles would be if they had the additional funding being diverted to ethanol (the feds subsidize ethanol production at 45 cents per gallon).
There are many factors from around the world that are coming together this summer to drive up the price of corn. By the end of the month of June, corn prices were retreating. But that's no reason to back off from the solid reasoning that corn ethanol subsidies should be diverted to numerous better solutions for our energy dependency.