The Transportation Nexus: Ethanol Is a ‘Food vs. Fuel’ Issue

Every year, the U.S. "grows" 13 billion gallons of an American-made fuel — ethanol — and consumes some 40% of the nation's corn crop in the process (as well as about three gallons of water for every gallon of fuel produced), according to the Food Agriculture Policy Research Institute.

Together, those facts are a key example of what has become known as the nexus of energy, food and water, and a growing awareness of the relationships among them threatens to derail the green reputation of American ethanol production. According to a study by the Swiss Federal Laboratories, "Although biofuels can allow the reduction of fossil fuel use and of greenhouse gas emissions, they often shift environmental burdens towards land use-related impacts."

Corn ethanol is a polarizing resource. Despite some emissions benefits when burned, it has inspired angry campaigns by green nonprofit organizations. "Corn ethanol has not just been a disaster for consumers, most farmers and taxpayers; it's also been a disaster for the environment," the Environmental Working Group noted.

The Energy Balance

Corn is a popular crop. It has many uses besides directly feeding people and making ethanol. A third of the crop becomes livestock fodder, and 13% of U.S. production gets exported. But is corn ethanol, on a well-to-wheels basis, sustainable? Does it not only result in a net energy loss but also drive up the cost of one of the world's most important food staples? The debate has grown more intense with rising corn prices, which critics say are caused by the diversion of almost half the crop into fuel production.

Supporters claim a major carbon benefit for ethanol. According to the Renewable Fuels Association trade group, "In 2012, the 13.2 billion gallons of ethanol produced reduced greenhouse gas emissions from on-road vehicles by 33.4 million tons. That's equivalent to removing 5.2 million cars and pickups from the road for one year."  And a study published in the Yale Journal of Industrial Ecology claimed that the greenhouse gas benefit of corn ethanol compared to gasoline was 48% to 59%. The Argonne National Laboratory, in a 2007 study, found a lifecycle greenhouse reduction of 19% to 52%.

Ethanol boosters tout a 30% reduction in tailpipe carbon monoxide emissions, and a 50% cut in cancer-causing particulate matter, compared to gasoline. It's also an oxygenator and emissions neutralizer in gasoline. And they claim a positive energy balance, yielding almost twice as much energy as goes into production. Sharply contesting that are scientists David Pimentel of Cornell University and Tad Patzek of the University of California at Berkeley, who said in a 2005 study that overall, corn ethanol uses 29% more fossil-fuel energy in production than the fuel produced.

Ethanol does have some positive benefits, but the drawbacks are big, too, according to Kent Smetters, a professor of business economics and public policy at Wharton. "Even with an expanded supply of corn, it is likely that corn prices are quite a bit higher and people are being harmed, especially in developing countries," Smetters said.

Beyond higher prices for food, it's also not likely the planet is able to accommodate increasing demands for food, fuel and water. According to the "Understanding the Nexus" paper prepared for a UN Bonn 2011 Conference: The Water, Energy and Food Security Nexus, "Unless there are significant changes to the way that we produce and consume, agricultural production will have to increase by about 70% by 2050 and about 50% more primary energy has to be made available by 2035. Such increases would have far-reaching implications for water and land resources."

Looking at Land

Steve Hamburg, chief scientist at the Environmental Defense Fund, said the challenge is not simply whether there is "enough land to scale up both agriculture and ethanol production without impacting natural ecosystems." There is also the long-term context — will there be "enough food for the increased population we will have in 2050." Future challenges include meeting increased dietary goals as people move out of poverty, given the existing water stress facing the planet. "The key is how efficiently we use the land. There's no simple good or bad answer, but if we end up clearing large amounts of land to make more ethanol, it's categorically bad."

Jerry Melillo, senior scientist at the Marine Biological Laboratories and chairman of the federal National Climate Assessment, agreed that scaling up a global biofuels program would be daunting. "We have 148 million square kilometers of land on the planet, with 16 million of them in crops," he said. "Building a worldwide ethanol network would involve at least doubling that."

In looking at ethanol the conversation at some point usually turns to its effect on food prices. Why did the price of food basics jump between 2006 and 2008? A World Bank report, "Placing the 2006/08 Commodity Price Boom into Perspective," finds a variety of causes, diversion of food crops into biofuel production among them. But it also cites adverse weather conditions and government policies (including export bans and high taxes) as factors in reducing food stocks to levels not seen since the early 1970s.

Another paper, from the University of California's Giannini Foundation of Agricultural Economics, concluded that ethanol sometimes doesn't get credit for its positive contribution. While biofuels have raised food prices, the net market impact "is unsettled," the report noted. "High food prices have been accompanied by record high oil prices, and while biofuels have been blamed for exacerbating the former, they have not been credited with mitigating the latter." As the paper pointed out, high fuel prices push up the cost of running tractors, using petroleum-based fertilizers and transporting agricultural products. For growing, harvesting and delivering cotton, corn, soybeans and wheat, fuel made up from 10% to almost 35% of operating costs in 2009, the California study said (about 14% for corn.) If biofuels helped reduce operating cost by making gasoline and diesel cheaper, that should be factored into food vs. fuel equations.

Still, the California researchers concluded that, using 2007 data, "ethanol raised corn prices at least 18% and perhaps as much as 39%, depending on elasticity assumptions." Obviously there were other factors, but biofuels were responsible for 25% to 60% of recent corn price increases, they said.

Sustainable or not, increased ethanol output is enshrined in the relatively unpopular approval of higher ethanol content in gasoline and in the federal Renewable Fuel Standard (RFS), which sets a 36 billion-gallon target for biofuel production by 2022.

The Cellulosic Challenge

Dave Juday, an economist specializing in agriculture and conservation issues, thinks it's time to rethink the RFS. He pointed out that the U.S. corn supply is down 1.3 billion bushels from 2007 projections, and demand for motor fuels has declined. But a different kind of ethanol — cellulosic ethanol, made from the inedible parts of plants — offers a way out of the "food vs. fuel" dilemma. It is generally thought to have a much more positive energy balance than the corn form, and because it can be produced from grasses and other plants there's no "food vs. fuel" conflict.

John Paul MacDuffie, a professor of management at Wharton, said the best way to make ethanol is "from non-food sources, such as switchgrass, where there have been promising developments on developing enzymes to break down plants into sugars that can be converted to fuel."

Cellulosic ethanol, which can be made from plants grown on abandoned or degraded lands, has few obvious drawbacks. But Juday pointed out that the technology needed to commercialize the fuel (made from the fibrous parts of plants) has not materialized as predicted.

The RFS mandates the production of 16 billion gallons by 2022, but so far only a trickle of that fuel is being produced. The result, reported The New York Times, is that the Environmental Protection Agency "has had little choice but to repeatedly waive nearly all of the cellulosic requirements, but this has led to bitter complaints from the refiners, who say they are still required to use small quantities of a fuel that does not exist or face fines." The cellulosic requirement for 2013 was reduced to just 14 million gallons early in the year.

The potential of cellulosic ethanol remains impressive. A 2013 study, led by Ilya Gelfand of Michigan State University and published in Nature, concluded that a mix of perennial grasses and herbs would make the most sustainable cellulosic biofuel, but not without challenges. The key: growing a native crop (poplar trees and alfalfa were two under study) with minimal care needs on "marginal" land not currently used for producing crops. Under that scenario, the CO2 reduction could be twice that of corn ethanol, the study said.

Other research showed that 5.5 billion gallons of cellulosic ethanol could be produced from 27 million acres of unproductive land in just 10 Midwestern states. Offsetting gasoline or diesel with that ethanol would cut greenhouse emissions by 44 million metric tons annually.

But for now, Juday noted, "There's no infrastructure for cellulosic." Even with a technology breakthrough for switchgrass — a fast-growing plant seen as a favorite for producing the fuel — big questions remain about providing the needed seed, planters, pesticides, harvesters, bailers and railcars. "If we add 50 million acres of switchgrass, where will it come from?" asked Juday. "Crop land? Grazing land? Forested land?" He added that a moderate amount of starch-based ethanol will "always have a place in the fuel market as an oxygenate/octane enhancer [15% blends are now permitted in gasoline by the Environmental Protection Agency (EPA)], but the RFS is highly distortive and cellulosic ethanol technology is years off."

The Union of Concerned Scientists pointed out that the vacuum in available cellulosic ethanol has led federal officials to modify the RFS to allow increasing amounts of both biodiesel from soybeans and ethanol from sugarcane, both of which the group sees as "food vs. fuel" issues. "If the EPA keeps substituting food-based fuels for the delayed cellulosic biofuel, we will see a huge expansion of biodiesel and sugarcane ethanol production that will lead to increased deforestation in the tropics and continued pressure on global food supplies."

The Palm Oil Dilemma

A prime example of how that can happen is the unsustainable palm oil biofuel production in Indonesia and other countries, which is rapidly clearing virgin forests in Southeast Asia (see "Deforestation in Southeast Asia: The Future is Being Decided in Indonesia," from Knowledge@Wharton, which is part of a special report: The Pathways to Sustainability in Emerging Markets). The food vs. fuel debate is "sometimes more like a 'rainforest vs. fuel' debate: deforestation due to palm oil in Indonesia is really troubling, said Arthur van Benthem, professor of business economics and public policy at Wharton.

Van Benthem noted that some corporations, under pressure from activist groups and consumers, are also becoming troubled by palm oil. He pointed out that, in 2009, Unilever, then the world's largest user of palm oil, canceled contracts for edible oil from Indonesia's largest producer, Sinar Mas Agro Resources and Technology, because of ongoing rainforest destruction. The ban was in effect, Reuters reported, until Sinar Mas could "give proof that none of its plantations was contributing to the destruction of rainforests." In 2011, the Jakarta Post reported, Unilever (which has pledged to buy only sustainably produced oil by 2015) began buying palm oil from the company again, following promises that it would adopt green production methods. Both Nestlé and Burger King also canceled contracts with Sinar Mas.

This all makes forward progress on commercial-level cellulosic that much more important, proponents say. Despite the slow start, there is progress. INEOS' Indian River BioEnergy Center in Florida, for example, is slated to begin producing eight million gallons of cellulosic ethanol annually, as well as six megawatts of electricity, from agricultural waste and other sources. But the Christian Science Monitor estimated that cellulosic production in 2022 is still likely to be closer to three billion gallons than the 2022 RFS target of 16 billion.

A More Sustainable Biofuel

But not all current ethanol production has a bad energy balance, and more sustainable fuel sources will be badly needed. That was made clear at the "Nexus of Energy, Food and Water," workshop sponsored by the Initiative for Global Environmental Leadership (IGEL) at Wharton last March. J. Ashley Nixon, NGO and stakeholder relations manager at Shell Oil, noted that a rising world population that could reach some nine billion by 2050 is a major stressor. "We could see a doubling of energy demand while carbon dioxide emissions must be half of today's, and there is a need for three times more energy from renewable sources." Water demand could rise 30% by 2030 while food demand grows 50%.

In 2011, Shell and partner Cosan, launched a $2 billion venture, Raízen, to produce ethanol from sugarcane in Brazil. Biofuels are likely to be 30% or more of Brazil's transportation fuel mix by 2030, and Raízen alone can meet almost 9% of the country's ethanol demand. Such cane ethanol has been blended into Brazilian gasoline in 10% to 25% concentrations since 1976. "The most widespread use of ethanol is in Brazil, and close to 100% of the vehicles on the road are 'flex-fuel,' able to run on ethanol or gasoline," MacDuffie said. "Ethanol is widely available and affordable, and the fuel is an important sector for the Brazilian economy."

Brazilis the largest sugarcane producer in the world, and half of its crop goes to producing ethanol. According to Triple Pundit, "Brazil's energy policy is one cog in the machine that has turned Brazil into an economic darling over the past decade. The country of over 190 million has been relatively energy independent, it became a creditor nation for the first time last year; and has tamed inflation while maintaining a respectable growth rate."

Sugarcane ethanol is more efficient than corn ethanol because growing cane absorbs copious amounts of carbon dioxide, and waste parts of the cane plant can be used as an energy source to fuel the process. According to Shell, cane ethanol produces 70% less carbon dioxide than gasoline "when the cultivation and production processes are taken into account." Fast Company reported that for every fossil fuel unit expended to make cane ethanol, eight units of energy are produced. Sugarcane cultivation also has almost doubled the ethanol output per acre of corn.

Since 2003, Unica noted, the use of ethanol in Brazil has avoided over 103 million tons of carbon dioxide emissions vs. gasoline use. The favorable energy balance is one reason the EPA includes Brazilian sugarcane ethanol as one of the acceptable "advanced biofuels" (along with soybean biodiesel and cellulosic) that is part of a 2.75 billion-gallon quota that was retained for 2013.

There are some issues with Brazilian sugarcane, however, since it is grown in the cerrado, a savanna area between the coast and Amazon region that is home to many rare native plants. And is Brazilian sugarcane a "food vs. fuel" issue, as the Union of Concerned Scientists implied? Maybe not. "I've never heard of Brazil having shortages of sugar for use as a sweetener," MacDuffie said. And a World Bank article, "Note on Rising Food Prices," stated that "Brazilian ethanol production from sugarcane has not contributed appreciably to the recent increase in food commodities prices because Brazilian sugarcane production has increased rapidly and sugar exports have nearly tripled since 2000…. The increase in cane production has been large enough to allow sugar production to increase from 17.1 million tons in 2000 to 32.1 million tons in 2007 and exports to increase from 7.7 million tons to 20.6 million tons."

Colin A. Carter, a professor of agricultural and resource economics at the University of California at Davis, takes a free-market position in arguing that Brazil's success is at least partly the result of its absence of any RFS-type quotas. Free market advocates praise "flexible policies that allow the market to determine whether sugar should be sold on the sugar market or be converted to fuel." And they recommend that at least some of the U.S. RFS be waived, "thereby directing corn back to the marketplace." 

But the U.S. quotas also have some flexibility options. And luckily so, because market realities have led to them being reduced or waived. Given these setbacks, it's difficult to see how production could be ramped up to meet the overall goal of 36 billion gallons of biofuels by 2022.

The Real Issue is Oil

As a domestic fuel, corn ethanol has its defenders. The Fuel Freedom Foundation, for instance, points to the $780 billion spent annually by the U.S. for oil products, and the $300 billion of that spent on foreign oil — representing more than 50% of the trade deficit.

According to Eyal Aronoff, the former software executive who is a co-founder of the Fuel Freedom Foundation, "The real issue isn't food vs. fuel, it's food vs. gasoline. As the price of gasoline goes down, everything goes down." He said that because ethanol is added to mainstream pump fuel (in 10% and 15% concentrations), its price is closely intertwined with that of gasoline. The value of the corn in a gallon of gas is only 40 cents. "There are many other costs beyond the commodity price," he noted.

Carl Pope, the longtime executive director of the Sierra Club and now an energy consultant, said that the "food vs. fuel" controversy is something of a diversion from the main issue, which is fossil fuels. What has driven up food prices in India (where corn is not widely consumed) is the cost of diesel fuel, he pointed out. "It costs just $400 to $600 to fill a container with corn in the Midwest, but $4,000 to $5,000 to ship that corn to California because of the transportation costs," Pope said. "When oil goes up, food goes up."

Higher gas and diesel prices routinely drive up food costs, Pope added, because of fuel's intensive use in today's highly mechanized farming. Petroleum is also a key component in pesticides and fertilizers. "We ought to label food with its energy content," he said.

Both Pope and Aronoff recommended increased use of domestically produced fuel, including natural gas, ethanol and methanol (as well the use of as electric cars), to push down petroleum use and therefore its price. "It's striking how rapidly fuel prices drop as consumption declines," Pope said. "If we use 90 million barrels of oil a day worldwide, the price is $100 a barrel. If it's 80 million, the price is just $30."

Cheaper oil, Pope noted, would make it uneconomical to produce unconventional oil, some of which is environmentally damaging — such as Canadian tar sands, Arctic oil and Venezuelan heavy crude. "Sixty percent of the world's oil carbon does not come to market under that scenario," he said. Pope added that it's unlikely that the availability of cheaper oil would push consumption dramatically higher.

The Renewable Fuels Association, a Washington-based trade group for ethanol producers, also suggested taking a holistic view. According to Bob Dinneen, the association's president and CEO, a fair assessment of the environmental impacts of renewable fuels must take into account "comparisons to the impacts associated with the use of petroleum fuels … it is inappropriate to examine the environmental effects of the RFS without simultaneously examining the effects of not having the RFS."

Dinneen accused ethanol's Congressional critics of "missing the significant environmental and public health consequences of increased petroleum production and use in the absence of ethanol and the RFS."

A 2012 paper by Paul Thompson of Michigan State in Agriculture, titled, "The Agricultural Ethics of Biofuels: The Food vs. Fuel Debate," concluded that the fuels "could be a positive force in addressing the circumstances that cause hunger among the roughly 80% of the world's poorest people whose food entitlement is closely tied to agricultural production." If next-generation biofuels could be developed with the farming systems of poor producers in mind, they could "have a beneficial impact on poor producers' economic return."

Ethanol has passionate advocates, and equally passionate detractors. In 2013, it's the latter that are being heard more clearly in Washington, signaling a change in political fortunes for this long-subsidized product. And the "food vs. fuel" controversy is one of the more potent weapons in the critics' arsenal.

Corn ethanol has clear emissions advantages when it's burned in a vehicle, observers noted, but the lifecycle analysis of overall performance is murkier. Cellulosic ethanol continues to show great promise as an efficient alternative that does not displace crops. But despite the high hopes of federal officials, it hasn't proceeded to the commercial stage as quickly as anticipated. Ethanol got a clear boost from the 15% blends now legal for newer cars, but that decision was heavily criticized as injurious to engines by automakers and others.

For ethanol in general, the road ahead is full of roadblocks and possible dead ends, but with so much technology still under development it's too early to write it off as an effective energy solution.

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