Don’t perpetuate ethanol’s misconceptions
Geoff Cooper, Director of Ethanol and Business Development, National Corn Growers Association
Editor’s note: The following opinion was submitted by the author in response to “Ethanol production increases risk for dairy producers” which ran in Progressive Dairyman (Issue 1).
The article on ethanol production by W. Cris Lewis and Tyler Bowles in your January issue perpetuates a number of popular misconceptions and myths about ethanol that must be addressed. It is critical that livestock, poultry and milk producers have access to accurate information concerning the U.S. ethanol program so that these hackneyed misperceptions stop spreading across the countryside.
First, a secondary tariff on imported ethanol has not “essentially eliminated” ethanol imports, as Lewis and Bowles suggest. In fact, in 2006, the U.S. imported a record 718 million gallons of ethanol – equivalent to 15 percent of domestic production. More than 60 percent of the imported ethanol came from Brazil. Ethanol imports were also strong in 2007, though the final numbers are yet to be released.
As demonstrated by these import figures, the 54-cent per gallon tariff has not acted as a trade barrier. Instead, it is meant to offset the 51-cent per gallon tax credit paid to gasoline blenders (most of which are oil companies) who use ethanol. Why should U.S. citizens subsidize ethanol imported from other nations, especially when many of those exporting nations have their own incentive and subsidy programs for ethanol?
Lewis and Bowles also demonstrate a total lack of understanding of ethanol economics when they state that “(ethanol) simply cannot be produced and sold competitively without the subsidy and mandated use.” The cost of production for ethanol during the 2006/07 marketing year was estimated at $1.50 to $1.70 per gallon. This includes the cost of corn, natural gas and other operating costs, as well as interest and depreciation. This is very competitive with gasoline production costs and has allowed ethanol to be marketed at a price significantly lower than gasoline for much of the last year. In fact, wholesale ethanol prices have been running 30 to 50 cents per gallon lower than wholesale gasoline prices since the spring of 2007. That’s why E10 blends (10 percent ethanol and 90 percent gasoline) are currently being sold for as much as 8 to 12 cents less per gallon than conventional gasoline at the pump.
And the reason for mandating ethanol’s use is quite simple. Ethanol producers are completely dependent on their biggest competitor – the oil and gasoline industry – for entry into the marketplace. Why would oil companies use ethanol if they weren’t required to do so? Why would they voluntarily sacrifice market share? After all, ethanol isn’t their product. The surest way for American drivers to enjoy the benefits of homegrown renewable fuel is for the government to require its use.
The question of ethanol’s energy balance (i.e., the net energy content of ethanol after the energy required to produce and transport the fuel is taken into account) was put to bed years ago. Numerous studies have validated that ethanol contains more energy than is required to produce it. Most notably, a 2004 analysis by the USDA found that for every 1 unit of energy required to produce and transport ethanol, 1.67 units of energy are generated.
It is true that ethanol has lower energy content per gallon than gasoline, but this does not necessarily equate to lower mileage. Numerous tests have shown no noticeable difference in mileage between vehicles using E10 and conventional gasoline. Some recent tests, including one by the Department of Energy, have even found blends like E10 and E20 might increase gas mileage.
Lewis and Bowles also grossly overstate ethanol’s implications on water use. According to the Department of Energy’s National Renewable Energy Laboratory, 96 percent of the corn used for ethanol comes from areas that require no irrigation other than natural rainfall. In fact, less than 15 percent of the total U.S. corn crop is irrigated using groundwater sources – the rest of the crop is completely rain-fed. And ethanol plants recycle a good portion of the water they use; the rest is evaporated into the atmosphere where it returns to the hydrological cycle and later falls again as rain. In fact, an average-sized ethanol plant will use about the same amount of water in a year as an 18-hole golf course.
The authors’ statement that “the government ethanol subsidy and production program probably has had net negative consequences for the U.S. economy” is utterly ridiculous. Dozens of economic impact studies have been conducted demonstrating ethanol’s significant net positive impact on local, state and national economies. According to economist John Urbanchuk, the ethanol industry in 2006 generated more revenues for state and federal treasuries (through increased state and national tax bases) than was withdrawn for the blender’s tax credit and other incentives. And higher grain prices resulting from increased demand for exports and ethanol production have dramatically curtailed federal outlays for direct payments to grain producers. One estimate from the USDA shows payments to corn farmers were 76 percent less in 2007 than in 2006.
The professors also suggest ethanol has not significantly enhanced energy security. In 2006, the production and use of ethanol in the U.S. reduced oil imports by 170 million barrels and saved $11 billion from being sent to foreign countries. I’d say that is significant. What other renewable fuel technology can make such a claim?
Lewis and Bowles also missed an opportunity to discuss the growing availability of distillers dried grains with solubles (DDGS). As many Progressive Dairyman readers will know, DDGS is increasingly replacing corn and/or soybean meal in dairy rations and has proven to be a reliable, lower-cost source of energy and undegradable (bypass) protein. Most dairy nutritionists are recommending the inclusion of DDGS at levels of 20 percent of the diet dry matter. Production at this level of DDGS inclusion is the same as or greater than when soybean meal is the protein supplement, according to researchers at South Dakota State University.
It should also be noted that the requirement for 7.5 billion gallons of renewable fuels by 2012 referred to by Lewis and Bowles has been raised. The signing of the a new energy bill just before Christmas boosts the requirement to 36 billion gallons of renewable fuels by 2022, 15 billion gallons of which will come from corn-based ethanol by 2015.
While the issue of feed price risk certainly bears examination and discussion, it is unfortunate that Lewis and Bowles opted to pepper their article with so many blatant jabs and misinformation concerning the U.S. ethanol industry. PD
