Posts tagged with: ethanol

Blog author: lglinzak
Wednesday, March 9, 2011

A big report is due out tomorrow which may have a positive or negative impact on economies across the globe. These numbers are not coming from the New York Stock Exchange, NASDAQ, the Tokyo Stock Exchange, the London Stock Exchange, or any other stock exchange; they are actually coming from a report being released by the U.S. Agriculture Department (USDA). It will talk about the role the U.S. will play in preventing or reducing the effects of a global food shortage.

There have been many pundits warning about a global food crisis resulting in a substantial increase in food prices. Shoppers are already experiencing the effects of higher food prices, with wheat prices up 80 percent from a year ago and U.S. retail food prices expecting to climb about 4 percent this year.

And prices are not expected to come down any time in the near future. The Ogallala Aquifer in the U.S. is depleting, and without a way to replenish itself, experts are wondering if the U.S. is on the verge of seeing another dust bowl. Texas’ wheat crop is also predicted to not meet harvesting expectations as 56 percent of its crop is rated in poor to very poor conditions by the USDA with dry weather persisting. Furthermore, an article published in Foreign Policy articulates many variables contributing to the increase in food prices and the potential food crisis which include population increase, arable lands depleting, the increasing demand for water for numerous uses, and urban sprawl. The industry is left with a lot of factors to compete with while trying to keep prices as low as possible.

It is important to note that the developed world is not immune from the adverse effects of a potential food crisis. Karen Ward, senior global economist at the worldwide bank HSBC, explains slow wage growth and use of food crops in alternative fuels are going to result in problems for those living in developed countries. While speaking on Jeff Randall Live, Ward also warned the UK may be subject to the food riots similar to those that occurred in other countries:

“Even in the developed world I think we have very, very low wage growth, so people aren’t getting more in their pay packet to compensate them for food and energy, and I think we could see social unrest certainly in parts of the developed world and the UK as well.”

She went on to highlight the link between high food prices and the escalating cost of crude oil.

“More and more we are seeing that some of these foodstuffs are actually substitutes for energy itself, particularly biofuels. So I think the energy markets are a significant contributor to these food price gains.”

While farmers are continuing to produce bigger crops, the U.S. is expected to see a 4 percent increase in the area planted along with a harvest record for corn of 13.73 billion bushels, it still may not be enough. However, corn is on such high demand due to the increase of the ethanol industry in the U.S., and current rising oil prices are even further contributing to the demand for ethanol. As a result, the 10 percent increase that is projected in the corn harvest will only add to reserves in the U.S. by five days, and by the time the fall harvest begins, the USDA predicts the U.S to only have enough corn left to satisfy the country’s appetite for 18 days.

Whether there is a food crisis of 2011 or not does not avoid the much needed ethical debate involving the use of crops. As I discussed in an earlier post, the U.S. is mandated to continue to increase its ethanol production, and with biofuels increasing the demand on crops and ever increasing population that demands food, priorities need to be evaluated and questions need to be raised. Shall more emphasis be placed on crops being harvested for food consumption or fuel usage?

With the surge in oil prices, there’s renewed interest in alternative energy options. Numerous countries have gradually taken steps to promoting renewable or clean energy technologies, and it seems the United States is drifting more towards favoring alternative energy options as the Obama Administration is looking at banning off shore drilling along the continental shelf until 2012 and beyond. However, before we move farther down this road, a critical analysis of the pros and cons is a must.

A more serious assessment is now being applied to ethanol and its effect on food production. There’s now more caution on the use of ethanol, based on both economical and moral arguments, and the same approach also needs to be taken when analyzing clean technologies such as the use of wind turbines.

As a recent article in the Mail Online demonstrates, many countries in Europe are currently seeing the unintended consequences of their policies favoring the use of wind power.

The article notes that the wind turbines are proving to be very inefficient:

The most glaring dishonesty peddled by the wind industry — and echoed by gullible politicians — is vastly to exaggerate the output of turbines by deliberately talking about them only in terms of their ‘capacity’, as if this was what they actually produce. Rather, it is the total amount of power they have the capability of producing.

The point about wind, of course, is that it is constantly varying in speed, so that the output of turbines averages out at barely a quarter of their capacity.

This means that the 1,000 megawatts all those 3,500 turbines sited around the country feed on average into the grid is derisory: no more than the output of a single, medium-sized conventional power station.

The wind turbine’s production of energy not only fluctuates based on the varying speeds of the wind, but is also seasonal. For example, Britain’s wind turbines became largely inefficient in the winter when the weather was mostly freezing and windless, and to keep homes warm Britain was forced to import immense amounts of power from nuclear reactors in France.

Furthermore, the article also notes, each country in Europe is required to produce more wind turbines each year which will result in a higher increase of CO2 emissions because of the need to build more gas-fired power stations to function as a back-up energy source when the wind drops. Due to the unreliability of the wind, these gas-fired power stations must run for twenty-four hours a day to be prepared for any moment when the wind may diminish.

The article is also quick to point out how the production and installation of the wind turbines also brings forth an increase in CO2 emissions:

Then, of course, the construction of the turbines generates enormous CO2 emissions as a result of the mining and smelting of the metals used, the carbon-intensive cement needed for their huge concrete foundations, the building of miles of road often needed to move them to the site, and the releasing of immense quantities of CO2 locked up in the peat bogs where many turbines are built.

It is such unintended consequences of wind turbines that possibly make them counterproductive to their stated goal of reducing greenhouse gas emissions.

Like the production of ethanol in the United States, the production of wind turbines in Europe is a market that relies on the government. Wind turbines are very expensive to build, and often require a government subsidy in order to get them built.

Many countries in Europe are seeing the disastrous effects of relying on wind turbines, and some are even beginning to shift away from their reliance on them. Germany, for example, which has produced more turbines than any other country in the world, is now building new coal-fired stations.

Yes, wind turbines were supported with good intentions: to provide clean sustainable energy while also supporting environmental stewardship. However, wind turbines may be actually counter-intuitive to their original goals. While the rising oil prices are having adverse effects on everyone, when searching for alternative fuels, we need to be critical of the potential of unintended consequences they may bring upon us.

Posts on ethanol production and the ethanol subsidy can be found here and here.

After taking a look yesterday at economic consequences of rising food prices along with the affects ethanol may have on the rising food prices, a moral perspective must also be taken into account.

As I stated in my previous blog post, the World Bank says rising food prices have pushed 44 million more people into extreme poverty in developing countries since June of 2010, and are having an adverse effect on people around the globe.  The increase in demand and expanded use of crops have caused global stockpiles to erode.  Stockpiles are important to help ensure a steady flow of food, especially during traumatic times such as large food shortages.  Even the corn stocks of United States, the world’s largest corn producer, amount to 5 percent of annual use which is far below the 13.6 percent average that they have been kept at over the last 15 years.

We are also called to be stewards of the Earth and this not only means not abusing the one planet we are given, but also ensuring that we leave a planet in good condition for future generations.  However, recent studies have called into question whether ethanol is actually better for the environment.  A study conducted by the University of Minnesota demonstrates that corn ethanol is actually more harmful than gasoline to the environment.  Furthermore, a recent article from Forbes also articulates that ethanol gasoline lets out more harmful toxins than regular gasoline.  There are even suggestions that ethanol uses more energy per gallon to produce it than the energy contained the actual gallon of ethanol.

In 2007, Ray Nothstine’s commentary Big Corn’ and Unitended Consequences pointed out some of the effects of rising food prices and the environmental implications of ethanol production.

Ethanol is expensive to produce, has contributed to a rise in gasoline prices, and has its own pollution problems. It requires a lot of fertilizer, fresh water, and productive farm land. And, because of corrosive properties that make pipeline transportation problematic, it takes a lot of trucks to haul it.

While the policies behind increased ethanol production may have been intended to promote good environmental stewardship, the actual results may show a higher negative environmental impact than other fuel sources.

If ethanol is causing the problems recent studies have indicated, then is the ethanol subsidy and the government mandate to continue the increase use of ethanol sound policy?  Continued funding for the ethanol subsidy and a mandate to increase the use of ethanol, when it may not be accomplishing its originally intended goals, might be cause to reevaluate ethanol’s future.  With food prices on the rise, and the demand for wider uses for crops across the globe also rising, the United States continues to fund the current ethanol policy, which may become counter intuitive to its original goals. The United States currently dedicates 40 percent of the amount of corn it produces each year to ethanol, and so you wonder if we are actually working at cross purposes to sound stewardship, and if so, it may be time to look towards a more morally sound solution.

Economies across the globe are struggling, and rising food prices are not going to make life any easier.  The Acton Institute raised concern for rising food prices, especially corn, in 2007, when Ray Nothstine wrote a commentary on, and at the time, record prices for corn, resulting in revolts in Mexico due to rapidly rising prices for tortillas.  The commentary brought to light unintended consequences of ethanol and its subsidy, including rising food prices.

And again, with food prices on the rise, and the subsidy for ethanol up for renewal, the debate has been given new life.

Corn prices are dramatically rising and are currently more than $6 per bushel.  Compare that to a few years ago in 2005, when corn was less than $2 per bushel.  Also, in November of 2010, corn prices reached a two year high.  However, corn is not the only food stock on the rise.  The past year wheat on Chicago Board of Trade was up 74 percent, and both soybean and cotton futures have already jumped.  Although, these rising food prices have had an adverse effect across the world, and according to the World Bank, since June of 2010, the rising food prices have pushed 44 million more people into extreme poverty in developing countries.

The debate over the cause of rising food prices, especially corn has centered around whether current adverse weather conditions are the culprit, or if it can actually be contributed to ethanol subsidies from the United States.

Weather conditions have recently been less than ideal for growing crops in many parts of the world.  Last year drought in Russia and Argentina, along with torrential rains in Australia and Canada caused numerous problems for farmers, and crop production was less than expected.  Furthermore, a cool wet summer in the United States resulted in a delayed harvest.  China’s current wheat crop is being threatened by a drought which may result in even higher food prices especially because China produces more wheat than any other country.  It is estimated approximately 42 percent of China’s winter wheat crop has been hurt by the drought.

While the unfavorable weather conditions have contributed to rising food prices, critics of the ethanol subsidy claim that the subsidy has played a major role in the rising food prices.  The ethanol subsidy, which is up for renewal, places a 54 cent tariff on imported ethanol and a 45 cent tax credit for every gallon of ethanol blended with gasoline.  Current federal law also mandates the use of ethanol.  Oil companies must use a designated amount of ethanol each year, 12.6 billion gallons in 2011, which will rise to 15 billion gallons by 2015.  The ethanol subsidy is paying oil companies to abide by a mandate required by federal law.

The use of corn in ethanol is continuing to rise.  The oil industry uses more ethanol each year because of the federal mandate, and as of November 2010, ethanol production consumed 40 percent of the corn crop produced in the United States.  If the United States decides not to renew the ethanol subsidy it will not only  save 40 percent of its corn crop, but will also save $25-$30 billion over the next five years.

The United States is a major exporter of food, supplying over half the global corn exports and over 40 percent of soybean exports.  However, with more and more corn produced in the United States being used for ethanol, less corn is used for food; thus, by the law of supply and demand, increasing the price of corn.  With the ethanol subsidy creating an increase demand for corn and raising the price, more and more farmers will gravitate to growing corn instead of other crops that are also needed for food supplies around the world.

With food prices on the rise, it is imperative to think long term when deciding if the ethanol subsidy should be renewed.

Not only are the economic arguments to the ethanol subsidy important, but so are the moral arguments.  Tomorrow I will evaluate the morality of rising food prices and the ethanol subsidy.

The Acton Institute was out in front on the warnings of all the problems associated with using corn ethanol as a fuel source. My article “The Unintended Consequences of the Ethanol Quick Fix“ was published in The Christian Science Monitor last July.

The United Methodist General Board of Church and Society has uncovered a new problem with corn ethanol. According to the GBCS corn is sacred to indigenous people, thus not appropriate for being used as an energy source. Could this be the famed corn goddess they are referring to?

A minister who attended a seminar forum expressed to me the feeling that the GBCS conference was far too left leaning, which is of course no surprise when one is talking about the United Methodist lobbying group. A few prominent themes of the forum were boycotting professional sports teams in Washington D.C. because new stadiums have displaced people who live in low income housing, environmentalism, and left leaning poverty initiatives. In a phone conversation today the minister expressed disappointment in the lack of attention that was given to more traditional Christian teachings, and called the political agenda “over the top.” This seminar program was designed for students in the 15 to 18 year old age group.

The GBCS is noted for all kinds of various left wing antics, such as their recent push for anti-Israeli divestment proposals. During this 4th of July holiday, I’m also reminded of when one of their staff members took cheap shots at the American flag in sanctuaries, going so far as to make a comparison with Nazis flags which once adorned German sanctuaries. Mark Tooley offered an excellent response to that controversy in FrontPage Magazine over a year ago.

Ray Nothstine’s Acton commentary on the the ethanol boom and its impact on the poor was published today in the Christian Science Monitor as, “The unintended consequences of the ethanol quick fix.” His timely article was also picked up by a slew of other newspapers and Web sites, including the Bakersfield Californian, the Fresno Bee and the Atlantic City Press.