Friday, May 01, 2009

Ethanols impact on food and greenhouse gases

A report from the Congressional Budget Office was released in April, 2009 with the title "The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions" (PDF, 26 pages). Here are a few exerpts:
Rising demand for corn also increased the demand for cropland and the price of animal feed.

Those effects in turn raised the price of many farm commodities (such as soybeans, meat, poultry, and dairy products) and, consequently, the retail price of food. Pushed up in part by those effects and by surges in the price of energy, food prices rose by almost 2½ percent in 2006, by 4 percent in 2007, and by more than 5 percent in 2008. That those increases coincided with higher prices for corn raises questions about the link between ethanol production, the demand for corn, and food prices.
Changes in food prices affect spending for federal food assistance. The federal government administers several assistance programs that are operated at the local level by state agencies and other providers. The largest of those programs are SNAP and the National School Lunch and School Breakfast Programs. Federal reimbursements and benefits for those programs are adjusted automatically each year according to the change in various food price indexes. The change in food prices from 2007 to 2008, the period covered by this analysis, determines the benefits for those programs for fiscal year 2009. As a result, the rise in food prices attributable to increased production of ethanol will lead to higher federal spending for those programs: specifically, an estimated $600 million to $900 million of the more than $5 billion increase in spending projected for fiscal year 2009 as a result of the rising price of food.
... and ...
Although WIC assistance is funded through a different mechanism than are SNAP and the school programs (WIC is not an entitlement program but instead receives an annual appropriation), ethanol’s effects on the cost of the basket of goods available through WIC could be similar to the impact that its production has had on food prices in the other federal nutrition assistance programs.
So not only did we see an increase in food prices, something I've been arguing for awhile now, but it's also impacting government programs. That increase in prices (totally up to a billion dollars) will do one of two things: either more money will need to be diverted into those programs (at the tax payers expense, in a time of already bloated budgets), or people who benefit from these programs will see a cut in services as there will not be enough money to go around. To me, neither option seems particularly appealing, but I see no other options.

So, despite the bad news, is there anything good coming from this?
Research conducted by the Argonne National Laboratory (ANL) and used by federal agencies suggests that in the short run, the production, distribution, and consumption of ethanol will create about 20 percent fewer greenhouse-gas emissions than the equivalent processes for gasoline. For 2008, such a finding translates into a reduction of about 14 million metric tons of carbon dioxide and equivalent gases (a standard measure of greenhouse-gas emissions), or CO2.
But, don't celebrate just yet ...
In the long run, the result is less clear. If increases in the production of ethanol led to a large amount of forests or grasslands being converted into new cropland, those changes in land use could more than offset any reduction in greenhouse-gas emissions— because forests and grasslands naturally absorb more carbon from the atmosphere than cropland absorbs.
So, in the short run we're benefiting from the use of corn-based EtOH from a climate change aspect, but that could easily be erased. They do go on to discuss the potential for cellulosic ethanol, which is the preferred route to go (it could replace corn-based EtOH) and uses waste which would otherwise rot and be converted to carbon dioxide and methane by biological processes.

The report then goes on to discuss the viability of the EtOH-as-Fuel market.
The Congressional Budget Office’s (CBO’s) analysis of current technologies and prices suggests that, without subsidies for producing ethanol, the “break-even ratio” of the price per gallon of retail gasoline to the price per bushel of corn is currently about 0.9. In other words, when the price of a gallon of gasoline is more than 90 percent of the price of a bushel of corn, it is profitable to produce ethanol. At that point, revenues from the sale of ethanol would be sufficient to cover the fixed and variable costs of producing it.
It is unlikely that, on average, ethanol producers over the past several decades would have turned a profit if they had not received production subsidies. The average ratio of a gallon of gasoline to the price of a bushel of corn fluctuates substantially from year to year and has exceeded 0.9 only once, in 2005
Click on the attached figure below.So currently, EtOH is only viable thanks to government subsidy.
At the current subsidy of 45 cents per gallon of ethanol produced, the break-even ratio that would allow producers to cover their fixed and variable costs falls to 0.7.
So, what do we have? We have a fuel which increases demands on our food supply which increases prices on food and government programs. It is also currently only profitable given government subsidies. Lastly, it has so far shown benefits in terms of climate change, but those could easily be wiped out with massive land clearing for more corn production.

I'll leave it to you, reader, to judge for yourself whether or not EtOH is the fuel of the future.


laurel said...

I saw this article
the other day and thought you may have another corn based EtOH post looming in the works :)

My dad's a biodiesel guy and I've known the negatives of corn EtOH for a while. I was pretty scared when it got so popular, but it looks like people are starting to see it for what it is. Cellulosic ethanol from native grasses sound a little too good to be true, but I think there is still some hope for in cellulosic EtOH from lumber and paper waste.

Thomas Joseph said...

Thanks for the link Laurel. I'll be sure to check it out. If cellulosic ethanol from grasses does prove profitable, I think we'll still see an increase in food prices. Why? Because it may be more profitable for a farmer to convert his cropland to switchgrass (which needs to be planted once, and can be harvested a couple of times per year) instead of vegetables.