Moving Past Corn-Based Ethanol

In his State of the Union Address, President Bush called for a reduction of 20 percent in the use of gasoline in ten years, hoping to increase the supply of alternative fuels in 2017 to 35 billion gallons. Though the initial goal was to reduce oil dependence from unstable regions of the world, the use of corn-based ethanol invariably created a detrimental economic side effect, as it increased food prices at home. The same happened in China and Mexico, leading many to believe that corn-based ethanol is not the answer to a nation's energy needs.

In the U.S., here’s how it happened. In order to meet such goals, the government offered a 51-cent-per-gallon excise tax credit to refiners, thus stimulating domestic production of ethanol. This increased production, in turn, lead to higher demand for corn, the main feedstock for ethanol in the United States. Increased corn demand incentivized U.S. farmers to divert their crops to the production of ethanol, rather than for human and cattle consumption. A higher demand for corn thereby lead to higher corn prices, as farmers looked into cashing in on this increased demand. As corn prices increased so did food prices in general, with corn being used not only to feed cattle, but also as an ingredient in several food products.

A more viable option to corn-based ethanol is sugar-based ethanol from Brazil and the Caribbean. As sugar-based ethanol is not produced from a staple feedstock, it does not cause the invariable effect of raising food prices. Moreover, sugar-based ethanol is more energy and cost- efficient than corn-based ethanol. U.S. ethanol from corn costs $1.05 per gallon to produce, while Brazilian ethanol from sugar cane costs 81 cents per gallon to produce. U.S. ethanol production from corn, per acre, yields about 400 gallons, while Brazilian ethanol production from sugarcane, per acre, yields approximately 590 gallons.

Even though Brazilian sugar-based ethanol is more energy and cost-efficient than U.S. corn ethanol, the U.S. government continues to impose a 54-cent tariff on Brazilian ethanol imports, thus providing protection to the inefficient domestic production of corn-based ethanol. Brazil, however, is able to circumvent the tariff by exporting ethanol through the Caribbean, which is able to export products (including ethanol) duty free to the United States under the Caribbean Basin Initiative (CBI). Yet, only up to 7 percent of the U.S. market (or 60 million gallons a year, whichever is greater) may be supplied with duty-free ethanol imports. Ethanol imports from the Caribbean Basin Initiative have so far been below the 7 percent cap, despite the 900 percent increase in Brazilian ethanol exports to the United States in 2006.

If the United States is to achieve the goals set forth by president Bush, it must at least diversify its sources of ethanol. Protecting an inefficient corn-based ethanol production will not lead this nation to greater fossil fuel independence, as such policies inevitably serve to protect the interests of corn farmers rather than national security. Investing in the Caribbean’s capacity to produce ethanol will generate greater benefits, as it will increase jobs in the region, as well as imports of cost- and energy-efficient ethanol.

Fossil fuel independence will only be reached through the use of sustainable sources of energy. Currently, corn-based ethanol does not provide the answer to our fuel needs. Tax payer dollars should be diverted to further research of alternative sources of ethanol, such as cellulosic ethanol, which is more energy efficient, but still requires greater investment in technology to become viable. Meanwhile, the tariffs and limits on ethanol from imported ethanol should be lifted, allowing for greater imports of high-efficient sugar-based ethanol. Energy security requires this choice – it’s not politics, it's common sense.