With current fuel price hikes, instability in Africa due to food shortages, and record prices of food in foreign markets, the ethanol industry has understandably been thrust into the public spotlight. Criticisms of this source of alternative fuel are many and cover the spectrum from its supposed inefficiency compared to fossil fuels to the argument that it takes food out of the mouths of a hungry world population.
The government’s role in the support of the Ethanol market is a vital and necessary one. Many believe that all forms of government involvement in the markets are bad for business and free market principals. However, Ethanol is, first and foremost, a national security issue. Most would be in agreement with me that the protection of our shores is the Federal government’s first and most important priority. The involvement by the government in this market is not meant to appease the demands of activist groups or the Environmental Protection Agency. The necessity for the preservation and development of this type of fuel is strongly encouraged by the Department of Defense; the world’s largest consumer of renewable fuels. The Defense Department uses 300,000 barrels of oil per day and has stated that it desperately needs to reduce its reliance on foreign oil due to inherent instability in pricing and supply. In other words, an attack on the oil pipeline infrastructure in the Middle East could leave the U.S. Military immobile due to lack of fuel and therefore unable to repel an attack on our shores or our assets overseas. The Defense Department is adopting a rigorous plan to achieve an independent renewable fuel supply with the Navy and Marine Corps settings goals to receive 50% of its energy from renewable sources by 2020.
The argument that most fiscal conservatives in the U.S. like to point out is the fact that Ethanol is subsidized with taxpayer dollars at the rate of 45 cents a gallon which adds almost $5 billion dollars to the deficit annually. Indeed, both sides of the political spectrum would agree that Ethanol subsidies should be the first thing to go when making budget cuts. Senator Barbara Boxer (D-CA) and Senator Jim DeMint (R-SC), both political opposites, are two very staunch advocates for removing all Ethanol incentives. One would think that if both sides oppose it than it is obviously a poor idea, right? However, on closer examination, both of these Senators are from the East and West coasts which are not known for Ethanol or corn production. California produces the least amount of corn of all of the states which have land suitable for grain farming, with only 25 million bushels. Similarly, South Carolina only harvest between 30-35 million bushels of corn yearly. Compared to a 13.4 billion bushel corn crop in the United States in 2009, it is seemingly evident that the corn industry from which 90% of ethanol is produced from, is not an important demographic in Senator Boxer’s and DeMint’s states. Understandably, they would like to see taxpayer’s dollars diverted from this industry and channeled into programs that are more advantageous for their respective constituents.
An often times overlooked incongruity with the subsidies for Ethanol argument is the uncommon knowledge that foreign oil is also subsidized and at much higher rates. When the subsidy for foreign oil is removed, gas would cost approximately $6.10 at the pump if the cost of gas is regularly around three dollar mark. If the subsidy for Ethanol is removed, we could expect the cost per gallon to be less than $3.50 at the pump. While an added $5 billion to the deficit because of Ethanol subsidies is nothing to turn a blind eye to, the $50 billion spent every year for oil subsides is a far greater budget issue. When it comes to the free market and removing incentives, Ethanol would not need an incentive if the U.S. government wasn’t already providing one for foreign oil. As we saw during the recession of 2007, the economic downturn was sparked by the rising cost of oil. Lack of intervention in the fuel markets by the U.S. government would understandably only slow down our recovering economy. The high price of non-subsidized fuel would make the consumer cut back in many areas in his or her consumption of goods and would cause transportation costs to skyrocket. This would in turn dramatically affect the prices of transportable goods leading to, among other things, much higher food prices.
Is the government promoting a source of fuel that is inefficient and requires more energy to produce than it provides? That is an argument than many would espouse, and is one of the most contentious issues surrounding this debate. However, the contrary is true. Three questions must be addressed to estimate the energy inputs and outputs involved in making ethanol.1. How much energy is used to grow the raw material? 2. How much energy is used to manufacture the ethanol? 3. How do we allocate the energy used in steps one and two between ethanol and the other co-products produced from the raw material? A study conducted by the National Research Council and the Institute for Local Self-Reliance in Washington D.C. addressed these issues finding that the Corn Ethanol Industries’ national average for energy used in growing corn was about 38% . This means a net energy ratio of 1.38:1 more energy is contained in the ethanol and other products produced in the corn processing facility than is used to grow the corn and make the products. The industry average was the low end of the spectrum. The study found that when corn farmers and ethanol facilities use state-of-the-art facilities and all the best technologies and practices, the net energy ratio would be 2.51:1 or 151%. Ethanol itself contains 84,100 BTUs (British Thermal Units) per gallon. This study concluded that the ethanol industry uses approximately 53,956 BTUs per gallon to manufacture ethanol. The best existing plants use 37,883 BTUs per gallon, and the next generation plants will require only 33,183 BTUs per gallon of ethanol produced.
Motor vehicles manufactured in the United States can be developed to become more efficient users of this fuel as well. While at the Midwestern Governors Convention in Washington D.C. this February, Tom Vilsack, the U.S. Secretary of Agriculture, stated that for an added cost of $150 per vehicle, car manufactures could make engines run as efficiently on E85 bio-fuel as on gasoline. This is a small price to pay considering doing so would enable our country to less painfully wean ourselves off of a foreign oil supply that we are subsidizing half of the cost of.
Besides catching negative attention from lawmakers wanting to trim federal spending, Ethanol is being blamed on food shortages and riots around the world including the recent uprising in Egypt. Recently, an editorial writer for Forbes’ magazine, made a correlation between the Egyptian crisis and ethanol production in the United States. He claims that the U.S. government is making the production of corn more profitable for farmers because of the growing market for government backed ethanol. Because Egypt is the world’s largest importer of wheat, and U.S. wheat acres have been scaled back to produce more corn, this editor claims this has caused the shortage of food that sparked the unrest in Egypt.
The government’s role in the support of the Ethanol market is a vital and necessary one. Many believe that all forms of government involvement in the markets are bad for business and free market principals. However, Ethanol is, first and foremost, a national security issue. Most would be in agreement with me that the protection of our shores is the Federal government’s first and most important priority. The involvement by the government in this market is not meant to appease the demands of activist groups or the Environmental Protection Agency. The necessity for the preservation and development of this type of fuel is strongly encouraged by the Department of Defense; the world’s largest consumer of renewable fuels. The Defense Department uses 300,000 barrels of oil per day and has stated that it desperately needs to reduce its reliance on foreign oil due to inherent instability in pricing and supply. In other words, an attack on the oil pipeline infrastructure in the Middle East could leave the U.S. Military immobile due to lack of fuel and therefore unable to repel an attack on our shores or our assets overseas. The Defense Department is adopting a rigorous plan to achieve an independent renewable fuel supply with the Navy and Marine Corps settings goals to receive 50% of its energy from renewable sources by 2020.
The argument that most fiscal conservatives in the U.S. like to point out is the fact that Ethanol is subsidized with taxpayer dollars at the rate of 45 cents a gallon which adds almost $5 billion dollars to the deficit annually. Indeed, both sides of the political spectrum would agree that Ethanol subsidies should be the first thing to go when making budget cuts. Senator Barbara Boxer (D-CA) and Senator Jim DeMint (R-SC), both political opposites, are two very staunch advocates for removing all Ethanol incentives. One would think that if both sides oppose it than it is obviously a poor idea, right? However, on closer examination, both of these Senators are from the East and West coasts which are not known for Ethanol or corn production. California produces the least amount of corn of all of the states which have land suitable for grain farming, with only 25 million bushels. Similarly, South Carolina only harvest between 30-35 million bushels of corn yearly. Compared to a 13.4 billion bushel corn crop in the United States in 2009, it is seemingly evident that the corn industry from which 90% of ethanol is produced from, is not an important demographic in Senator Boxer’s and DeMint’s states. Understandably, they would like to see taxpayer’s dollars diverted from this industry and channeled into programs that are more advantageous for their respective constituents.
An often times overlooked incongruity with the subsidies for Ethanol argument is the uncommon knowledge that foreign oil is also subsidized and at much higher rates. When the subsidy for foreign oil is removed, gas would cost approximately $6.10 at the pump if the cost of gas is regularly around three dollar mark. If the subsidy for Ethanol is removed, we could expect the cost per gallon to be less than $3.50 at the pump. While an added $5 billion to the deficit because of Ethanol subsidies is nothing to turn a blind eye to, the $50 billion spent every year for oil subsides is a far greater budget issue. When it comes to the free market and removing incentives, Ethanol would not need an incentive if the U.S. government wasn’t already providing one for foreign oil. As we saw during the recession of 2007, the economic downturn was sparked by the rising cost of oil. Lack of intervention in the fuel markets by the U.S. government would understandably only slow down our recovering economy. The high price of non-subsidized fuel would make the consumer cut back in many areas in his or her consumption of goods and would cause transportation costs to skyrocket. This would in turn dramatically affect the prices of transportable goods leading to, among other things, much higher food prices.
Is the government promoting a source of fuel that is inefficient and requires more energy to produce than it provides? That is an argument than many would espouse, and is one of the most contentious issues surrounding this debate. However, the contrary is true. Three questions must be addressed to estimate the energy inputs and outputs involved in making ethanol.1. How much energy is used to grow the raw material? 2. How much energy is used to manufacture the ethanol? 3. How do we allocate the energy used in steps one and two between ethanol and the other co-products produced from the raw material? A study conducted by the National Research Council and the Institute for Local Self-Reliance in Washington D.C. addressed these issues finding that the Corn Ethanol Industries’ national average for energy used in growing corn was about 38% . This means a net energy ratio of 1.38:1 more energy is contained in the ethanol and other products produced in the corn processing facility than is used to grow the corn and make the products. The industry average was the low end of the spectrum. The study found that when corn farmers and ethanol facilities use state-of-the-art facilities and all the best technologies and practices, the net energy ratio would be 2.51:1 or 151%. Ethanol itself contains 84,100 BTUs (British Thermal Units) per gallon. This study concluded that the ethanol industry uses approximately 53,956 BTUs per gallon to manufacture ethanol. The best existing plants use 37,883 BTUs per gallon, and the next generation plants will require only 33,183 BTUs per gallon of ethanol produced.
Motor vehicles manufactured in the United States can be developed to become more efficient users of this fuel as well. While at the Midwestern Governors Convention in Washington D.C. this February, Tom Vilsack, the U.S. Secretary of Agriculture, stated that for an added cost of $150 per vehicle, car manufactures could make engines run as efficiently on E85 bio-fuel as on gasoline. This is a small price to pay considering doing so would enable our country to less painfully wean ourselves off of a foreign oil supply that we are subsidizing half of the cost of.
Besides catching negative attention from lawmakers wanting to trim federal spending, Ethanol is being blamed on food shortages and riots around the world including the recent uprising in Egypt. Recently, an editorial writer for Forbes’ magazine, made a correlation between the Egyptian crisis and ethanol production in the United States. He claims that the U.S. government is making the production of corn more profitable for farmers because of the growing market for government backed ethanol. Because Egypt is the world’s largest importer of wheat, and U.S. wheat acres have been scaled back to produce more corn, this editor claims this has caused the shortage of food that sparked the unrest in Egypt.
Yet, if U.S. farmers are producing more corn because it is more profitable, then a sudden, long term demand for U.S. wheat by foreign markets would cause the profitability of growing wheat to rise thus causing the demand to be met. Currently, these countries weren’t prior importers of U.S. grain. Countries like Egypt currently experiencing these food shortages, imported their grains from countries other than U.S. such as Australia and Brazil; countries that had their crops devastated due to record floods this year. The inelastic nature of crop commodities makes it impossible for the demand to be met immediately. Thus the real reason why there are currently food shortages and the main contributor to the ski-high food prices in these regions.
The claim that there is a higher percentage of corn being used for ethanol than there was in the past is correct, but that is not a case for saying that people are starving because of it. The yield per acre of corn has dramatically increased to the point where there is more than enough to satisfy the world demand for food. By the year 2030, dry land corn is estimated to produce 337 bushels per acre. It is currently at less than 200 bushels per acre. This figure nullifies any debate that corn cannot feed and fuel the world at the same time.
The fact that there is a consistent demand for corn due to Ethanol encourages the farmer to facilitate maximum productivity from his crop. This makes the increase in crop yields possible and the goal to feed the world’s 9 billion people by the year 2050 feasible. If corn wasn’t profitable for farmers, the yields and acreage devoted to corn would decrease, the bioscience breakthroughs would not be developed, and the U.S. would not be able to export millions of metric tons of this grain to foreign countries when the increasing world population demands it. The ethanol industry has revolutionized the corn market and has ensured that the world will never be wonting for this valuable grain in years to come when the earth has 2.3 billion more mouths to feed. The ethanol market keeps corn profitable in the bad years, is a long term solution to the world’s energy needs which ultimately drive the economies that feed the world, and streamlines advances in bio-science which allows the corn yields per acre to consistently increase. This increase in yield offsets the amount of corn that is used for fuel. The percentage of corn that is used for ethanol might be higher than it was five years ago, but the bushels used for food have increased due to such higher yields. This would not have been achieved without a consistent demand for this grain. The United States is now exporting millions of metric tons of corn to countries such as China. Because of the Ethanol industry, corn has become a trade product that the U.S. has a comparative advantage in producing which has enabled this country to maintain a lower trade deficit and a stronger dollar. Our economic strength in directly related to our ability to trade internationally; the Ethanol industry has been a monumental stride in the right direction in helping establish those strong trade relations with countries such as China, Japan, and Taiwan.
As we can see from these findings, Ethanol is a legitimate and very viable source for fuel and it is in the U.S. government’s best interests to perpetuate the development and consumption of this fuel in order to preserve long term economic stability and national security. The United States government realizes that the dependence on foreign oil will not be conducive to its ability thwart an attack on this country in the future if this supply were to be cut off or run dry. A stable infrastructure, military, and trade relations are all duties incumbent upon our federal government and thus it is absolutely necessary for the government to intervene in this particular market in order to ensure that it does not shirk these responsibilities.
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