The Dirt on Clean Energy: What you won 't hear about ethanol in a 30-second campaign spot

Oct 1, 2006

If every acre of U.S. corn went from the farm field to the fuel pump, ethanol still would fall woefully short of quenching our nation's thirst for fossil fuels. That conclusion came this summer from University of Minnesota researchers, who had only slightly better news for backers of soybean-based biodiesel.

Together, the study asserts, this pair of politically enchanted biofuels has the potential to meet only 18 percent of the nation 's transportation fuel needs. Like any source of energy, biofuels — especially corn ethanol — have their inherent drawbacks. But, spurred by subsidies and quotas in the latest federal energy bill, biofuels are booming. The costs and benefits are questionable. The momentum is not.

Try finding a politician, even outside the Midwest, who doesn't see ethanol as an energy elixir capable of running cars and creating jobs. The reality is that it will take much more than corn to wean America from the addiction that President George W. Bush — a former Texas oil man himself — admitted to in this year's State of the Union address.

Like a heroin addict moving to methadone, the country is replacing its oil habit with a chemical that arguably is only marginally better for us. Like hard drugs, foreign oil brings the prospect of death, in this case through military involvement in unstable oil-rich regions. Corn-based ethanol instead fosters a costly system of dependence in return for what could be considered paltry public benefits.

Ethanol is not new. In fact, much like the flex-fuel vehicles American automakers have been rolling out the past decade, the first commercial automobile — Henry Ford's Model T — was a hybrid capable of running on either ethanol or gasoline.

In composition, ethanol is no different from moonshine, and a Tennessee company even markets modified stills for those who would like to homebrew their way to cheaper gas.

For less intrepid folks, the cost of ethanol is a more complex concoction. The fuel was widely used as a lamp oil prior to the Civil War, but in the absence of government subsidies and favorable regulatory policies, ethanol has never held a candle to crude.

But in terms of political buzz, biofuels may have cornered today 's market, even though ethanol and biodiesel account for only 3 percent of U.S. transportation fuel consumption. The industry got its first major government handout in 1978, with Congress granting a 4-cent fuel tax exemption on gasoline blended with at least 10 percent ethanol. The subsidy — worth 40 cents per gallon of pure ethanol — came amid a national energy crisis and shortly after the U.S. Environmental Protection Agency began to phase out leaded gasoline. A decade later, ethanol gained ground as a fuel additive capable of reducing tailpipe emissions. Ethanol's use as an oxygenate ramped up further in recent years as its main competitor, methyl tertiary butyl ether, or MTBE, has been linked to groundwater contamination and banned by more than a dozen states, including Illinois.

As the federal gas tax has increased, so too has ethanol's subsidy. The tax break, which peaked at 60 cents per gallon in the 1980s, sapped at least $7.5 billion in federal highway funds the first 21 years it was on the books, the U.S. Government Accounting Office estimated in 2000. Refiners and blenders currently receive a tax exemption equal to 51 cents per gallon of pure ethanol. And the product has been protected since 1980 by a 54-cent tariff on ethanol imports.

The Midwest marks the epicenter of the biofuels boom, and Archer Daniels Midland is perhaps the greatest beneficiary. The Decatur-based agricultural behemoth, which did not respond to interview requests, is the nation 's largest ethanol producer. And while ADM 's market share will decrease as a new crop of production plants comes online, the company currently controls more than a fifth of the country's ethanol production capacity.

Most of the new plants under construction will be dry mill operations built specifically to process ethanol. ADM and other top producers employ much larger biorefineries that, through wet milling, can churn out either ethanol or high-fructose corn syrup, a sugar substitute found in soft drinks. Both methods generate byproducts known as distillers grains, high-protein feedstocks sold to cattle, hog and poultry operations.

More than 40 new ethanol plants are being built. Once operational, they will increase domestic production capacity by nearly 3 million gallons a year. 

Meanwhile, U.S. producers have sought to block efforts to boost foreign ethanol imports.

As gas prices began to climb this spring, the oil industry attributed some of the spike to refiners shifting from MTBE to ethanol. President Bush roiled Midwest ag interests by suggesting Congress lift the U.S. ethanol tariff, a move that would clear the way for sugar-based Brazilian imports. Key Democrats, including U.S. Sens. Barack Obama and Richard Durbin of Illinois, rebuked the proposal in a stern letter to the president.

"We should learn from Brazil," Durbin says of his stance. "When they made a national decision several decades ago to reduce their dependence on foreign oil, they created their own alcohol fuels industry and established a tariff so that they could encourage Brazilian producers to make capital investments. 

It worked. They ended up with a viable alcohol fuels industry, which now fuels their economy. President Bush 's suggestion would have created real uncertainty among the investors in new American ethanol plants. I think it was a very short-sighted response."

Until recently, biofuels were indeed risky business here in the United States. The 1970s energy crisis and the policies of President Jimmy Carter sparked the first ethanol building boom, to a peak of 163 plants by the early 1980s. But oil prices plummeted a few years later, drying up the ethanol market and shuttering more than half of all U.S. production sites.

The fuel began to rebound in the 1990s, spurred by federal policies calling for greater use of emissions-reducing gasoline blends. Today, as observers of the Illinois governor's race can attest, politicians across the Midwest are practically tripping over one another to promote biofuels.

State Treasurer Judy Baar Topinka, the Republican candidate for governor, released an energy plan in August that would mandate renewable energy use by utilities, require that all Illinois gasoline contain at least 10 percent ethanol and create a $500 million loan program for biofuel facilities, wind farms and biomass electric plants.

Not to be outdone, Gov. Rod Blagojevich, a first-term Democrat running for re-election against Topinka, unveiled his own plan a week later. It would have the state spend $1.2 billion over 10 years to promote investment in energy efficiency efforts, clean-coal technology and bio-fuels, including 20 new ethanol plants.

"Before the governor was elected [in 2002], there was no regular agency program to support the development of new production facilities in Illinois," says Hans Detweiler, deputy director of energy and recycling for the state Department of Commerce and Economic Opportunity. "There was no program where if you wanted to build an ethanol plant or a biodiesel plant you could get a grant to do that."

Over the past three years, Illinois has doled out $30 million in grants and tax credits to help build two biodiesel plants, four ethanol production sites and one major ethanol facility expansion. Another $500,000 in state money has helped increase the number of Illinois retailers that sell E85 — a blend of 85 percent ethanol and 15 percent gasoline — from just 14 stations in 2004 to about 130 today. Illinois also waives the state sales tax for E85 and for diesel blends containing more than 10 percent soy.

Indiana, meanwhile, was home to just one ethanol plant when Republican Gov. Mitch Daniels took office last year. The state has allocated $50 million over the past 18 months to attract a dozen new ethanol production sites and three biodiesel facilities.

These state handouts come on top of the federal tax exemption and mandates in the 2005 energy bill, which requires oil refiners to use at least 4 billion gallons of renewable fuels this year and 7.5 billion gallons by 2012. This confluence of favorable policies makes renewable energy a green endeavor in more ways than one.

Wallace Tyner, an agricultural economics professor at Purdue University, says the 51-cent federal tax break adds "a little more gravy" to what currently is a very lucrative endeavor.

"Today, the price of ethanol is about $2.60 a gallon. It's very, very economic without the subsidy," Tyner says. "Even if you take that $2.60 and convert it to $2.10, ethanol is still very profitable. It costs about $1.25 [to produce] at today 's corn prices … so you're making a lot of money on ethanol. The payback period on an ethanol plant today, if prices were to hold through the first year of production, is less than a year."

Prices eventually will come down, says Tyner, who suggests Congress consider a sliding-scale subsidy that would trigger the federal tax break only when ethanol becomes unprofitable. Under Tyner 's model, the subsidy would have been off the books in the first half of 2006, but producers still would see their investments protected during lean years brought on by high corn prices or a weak oil market.

President Bush roiled Midwest ag interests by suggesting Congress lift the U.S. ethanol tariff, a move that would clear the way for sugar-based Brazilian imports.

Lawmakers, in general, seem loath to criticize the government green available to renewable fuels. "There's not a single source of energy in this country that is not subsidized," Sen. Durbin says. "We continue to subsidize the oil industry when the companies are reporting record profits, so to provide a federal tax incentive to alcohol fuels and biofuels is consistent with creating a stable, dependable, affordable source of energy for America."

In contrast, Sen. John McCain, an Arizona Republican, lashed out three years ago against an early version of the federal energy bill, calling ethanol "the worst subsidy-laden energy use ever perpetrated on the American public." Add farm supports for corn to the equation, McCain said, and the government underwrites ethanol to the tune of more than $3 a gallon. Corn receives greater subsidies than any U.S. crop, a total of $41.9 billion from 1995 to 2004, according to the Environmental Working Group, a nonprofit Washington, D.C.-based research organization. 

Soybeans rank fifth in subsidies, receiving $13 billion over the same period.

"The simple truth is that the whole energy industry is incredibly heavily subsidized — the oil industry is subsidized, coal is subsidized, ethanol is subsidized. Everything is subsidized," says Detweiler, Illinois ' renewable energy expert. "The only thing, to be fair, would be to propose eliminating all energy subsidies, and I haven 't seen anybody proposing that."

The benefits of ethanol are no less controversial than the costs. Over the past 25 years, David Pimentel, a researcher and environmental policy professor at Cornell University, has authored several studies showing that ethanol simply isn't worth the trouble. His most recent work, published in July 2005, concludes that every gallon of ethanol contains 29 percent less energy than it takes to farm the corn, process it into fuel and ship it to market. At the other end of the spectrum, a 2001 U.S. Department of Agriculture report boasts a 67 percent net energy gain for corn ethanol.

The reality lies somewhere in the middle, says Michael Wang, an analyst for the Center for Transportation Research at Argonne National Laboratory. Wang and two other researchers collaborated on a 2002 report to the federal agriculture department, which pegs the net energy gain for ethanol at 34 percent, including some energy credited to the feedstocks produced as a byproduct. Others' studies, meanwhile, estimate a roughly 25 percent energy benefit for ethanol. Compared to gasoline, Wang says, the biofuel also achieves an 18 percent reduction in greenhouse gas emissions.

Pimentel's work, derided by the National Corn Growers Association, among others, incorporates energy estimates for the manufacture of farm machinery needed to plant and harvest ethanol crops, and for the caloric energy expended by the farmer. Pimentel's study draws criticism for potentially understating today 's average crop yields and for overstating contemporary fertilizer applications. "In terms of the energy balance itself," Wang says, "most people and most studies come to the conclusion that ethanol does have a positive energy balance."

Skeptics of the varying scientific conclusions might take solace in a study published in January by researchers at the University of California, Berkeley. The group deconstructed six high-profile ethanol studies, including the above referenced works by Pimentel and Wang. The Berkeley study concludes that only 5 percent to 26 percent of the energy produced by ethanol can be termed renewable." "The fuel reduces greenhouse gas emissions "only moderately, by about 13 percent," the study says, and negative environmental impacts, including soil erosion and pollution tied to fertilizers, herbicides and pesticides"have yet to be fully evaluated.

Ethanol's shortcomings also mean more frequent fill-ups for owners of flex-fuel automobiles, specifically those that run on E85. A gallon of ethanol contains less energy than a gallon of gasoline, and experts agree that E85 reduces fuel efficiency by up to 20 percent, depending on the vehicle. A recent road test by Consumer Reports is even more pessimistic. The magazine reports that E85 lowered a Chevy Tahoe 's already poor mile-per-gallon rating by 27 percent. The full-size SUV traveled just 300 miles on a tank of E85, a drop of 140 miles compared to gasoline. With E85 averaging a $2.91 pump price in August, the magazine reports, motorists would have paid about $3.99 for the energy equivalent of a gallon of gas.

Supporters argue the costs of biofuels must be measured against the benefits of developing homegrown energy. The United States imports about 60 percent of its oil, incurring direct and indirect national security costs that have been estimated at $300 billion a year. That, says Tyner, the Purdue ag economist, adds at least $1.70 to every gallon of gasoline — a cost consumers don 't see at the pump.

The reality, as the University of Minnesota researchers concluded, is it will take much more than corn to foster any semblance of American energy independence. Soy-based biodiesel promises a 93 percent net energy gain, much greater than corn ethanol, and posts a better environmental impact — a 41 percent emissions reduction, versus 12 percent for ethanol — the study finds. But the entire U.S. soy crop could supplant only 6 percent of the nation 's diesel needs, the researchers said, adding that fuels "produced from low-input biomass grown on agriculturally marginal land or from waste biomass, could provide much greater supplies and environmental benefits than food-based biofuels." 

Switch grass, wood chips and plant waste, including corn stalks, represent the next generation of biofuels. These potential fuel crops don't need prime land or costly fertilizers and pesticides. Energy embedded in the fiber or cell walls of these cheap inputs holds the key to the nascent technology known as cellulosic ethanol.

"For cellulosic ethanol the net benefit becomes huge, says Wang, the Argonne researcher. The energy balance becomes 10 to 1. You put in one unit of fossil energy, you get 10 units of energy out. The return ratio is much greater than corn ethanol. And the greenhouse gas reduction — we talk about 18-20 percent for corn ethanol, but for cellulosic ethanol, it 's going to be about 85 percent."

In many ways, cellulosic ethanol expands the horizon. Unlike oil and gasoline, ethanol cannot be transported by pipeline, an encumbrance that constricted the current biofuel boom to the Corn Belt.

"Switch grass can be grown a lot of places and that 's the exciting aspect," says U.S. Rep. John Shimkus, a Collinsville Republican who serves on the House Energy and Commerce Committee. "It is what most members of Congress talk about more than anything else because the Midwest Corn Belt is only so big and only applies to so many members of Congress.

"A lot of people will say,"'You can 't grow enough corn,' and they 're right. So, if you can 't grow enough corn, how do we get to more energy security? And that 's through cellulosic."

Indiana, which is shifting state support to cellulosic efforts, no longer will hand out infrastructure grants to corn ethanol producers. The new technology is nowhere near corn ethanol, experts admit, but Purdue researchers are among those developing the enzymes needed to unlock cellulosic energy.

Illinois, meanwhile, would commit $100 million to build four cellulosic ethanol plants downstate under Gov. Blagojevich 's energy plan.

"The governor's proposal is the most significant gubernatorial cellulosic ethanol proposal in the nation," says Detweiler, the state 's renewable energy guru. "Nobody else has proposed $100 million in state assistance for cellulosic ethanol. It is the most aggressive cellulosic ethanol plan in the country."

It's not yet clear how soon cellulosic ethanol plants could be up and running, though the federal energy bill requires refiners to use a minimum of 250 million gallons of cellulosic fuel a year beginning in 2013. Experts also suggest that existing corn ethanol plants could be retrofitted for cellulosic production.

Who the players will be is another question, but signs point to the nation 's top ethanol producers. U.S. Energy Secretary Samuel Bodman traveled to Decatur in February to announce that $160 million in federal funds are available to assist in construction of up to three cellulosic biorefineries.

"He announced it at ADM," Detweiler says, "And I think a lot of people read between the lines and said,"'Gee, I think ADM is going to be applying for that money. '"

Perhaps in this new era of American energy we all can take a cue from Archer Daniels Midland. The self-proclaimed "supermarket to the world" has replaced that slogan with a very apt phrase: "resourceful by nature." 

Pat Guinane is Statehouse bureau chief for The Times of Northwest Indiana. Previously, he was Statehouse bureau chief for Illinois Issues.

Illinois Issues, October 2006