Zendeh 1 Energy Security and Ethanol Policy Alex Zendeh Abstract

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Zendeh
1


Energy Security and Ethanol Policy

Alex Zendeh


Abstract




Corn
-
based

ethanol has received government support from three policies: a tax credit,
a renewable fuel standard, and a tariff on ethanol imports. These policies are justified by the
claim that they promote American energy security. This justification is flawed. Prom
otion of
ethanol is not

only

in
sufficient to replace oil imports
; i
t increases several risks that
comp
romise American energy security

in two ways. First, the tariff prevents importation of
cheaper and safer foreign energy sources. Second, the
complex

inter
action of the tax credit
and
renewable fuel standard

policies increases gasoline consumption.


Introduction


A major policy goal of the United States government has been the promotion of
energy security
,

the capacity of the US economy to avoid or withstand

supply shocks to its
energy inputs. President Barak Obama, in a speech
at

Andrews Air Force Base, said that
energy security
is
, “an issue that’s been a priority for my administration … For decades
we’ve talked about how our dependence on foreign oil threa
tens our economy

yet our will
to act rises and falls with the price of a barrel of oil.”
1

This speech emphasized

the
need for

a

change

in policy

from reactive meas
ures to increases in energy prices

toward a proactive
approach. This sentiment has spread bey
ond Washington DC to the general public. In a
recent poll, 92% of interviewed Americans said that reducing US dependence on foreign
energy sources is an important goal for US energy policy.
2







1

Barak Obama,

“Remarks by the President on Energy Security,” Spe
ech at Andrews Air Force Base
,

March 31,
2010
,

accessed August 8, 2010,

http://www.whitehouse.gov/the
-
press
-
office/remarks
-
president
-
energy
-
security
-
andrews
-
air
-
force
-
base
-
3312010
.

2

Jason Dick, “Support For Addressing Climate Change Holds Firm,”
National Journal
, August 2, 2010,
a
ccessed August 8, 2010
,
http://congressionalco
nnection.nationaljournal.com/2010/08/support
-
for
-
addressing
-
climate.php
.

Zendeh
2


Three factors have increased the salience of energy security as a

major national
concern in political debates. The first is the spike in oil prices in 2007 and 2008
. The price of
a

barrel of crude oil

in nominal terms

increased

from $63 in December 2006 to $147 in July
2008. This was likely a result of high demand for o
il and significant supply disruptions.
Those high oil prices translated into high prices at the

gasoline

pump for American
consumers. While oil prices have more recently been depressed, policymakers are concerned
that they may rise again when the US exits
its current recession and

the demand for oil
increases
.
3

The second factor is the increasing recognition that growth in global oil supplies may
be incapable of keeping up with growth in energy demand.

Projections put the peak of oil
production at around 20
40. From that point, global oil supplies will either plateau or fall.
4

The declining rate of oil deposit discovery and accelerating demand for oil affirms this trend.
Many of the largest oil producing nations are scaling back their projec
tions of potential

oil
reserves
.
5


The final factor is the increased skepticism about the political stability and interests of
many oil exporting countries.

The US currently imports around 65% of its oil needs.
6

A
majority of
that oil comes from

countries

that

are located in geo
-
politically unstable regions






3

Simon Langlois
-
Bertrand, "The Politics of Ethanol: Getting Lost on the Road to Energy Security" Paper
presented at the annual meeting of the ISA's 50th Annual Convention “Exploring
the Past, Anticipating the
Future,” New York Marriott Marquis, New York City, NY, USA, February 15, 2009
,

Accessed August 8, 2010
,
http://www.allacademic.com/meta/p314219_index.html
, 2
.

4

D
avid Pimentel, “Biofuel Food Disasters and Cellulosic Ethanol Problems,”
Bulletin of Science Technology
Society
,

Vol. 29, No. 3,

(June 2009) 207.

5

Langlois
-
Bertrand, "The Politics of Ethanol,”
2
.

6

Pimentel, “Biofuel Food Disasters,” 207.

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3


like the Middle East or Africa. Many have authoritarian governments and are prone to both
coups and wars
, and

t
hat instability may halt oil exportation

to the US
. Additionally, some oil
exporting nations suc
h as Iran and Venezuela are hostile to the US.
American

strategic
planners fear that foreign nations may hold the US hostage by threatening to cut off their
supply

of oil to the West.
7


While there is political consensus that energy security is an importan
t goal for the US,
there is very little consensus on how to achieve it. The recent debates on offshore drilling,
expansion of drilling in Alaska, tax credits for American oil companies, and government
incentives for renewable energies have not produced a c
ritical mass of
C
ongressional support
for any particular policy option.

Corn
-
based

ethanol
is o
ne
exception to

the typical story of Washington gridlock over
energy issues.
This industry
has historically received backing from members of both political
parti
es. The US has been supporting usage and production of ethanol for automobile fuel
since 1978. There are two reasons for
the industry’s

political clout. First,
M
idwest states that
contain the vast majority of ethanol blenders and corn used to produce ethan
ol have a large
amount of sway in the Congress. While they lack the same number of votes in the House of
Representatives as

the

more populous states on the East and West coasts, they have a
relatively large amount of representation in the Senate. Midwester
n farm senators are unified
and tend to fight on behalf of one anothe
r for their collective benefit. P
otential threat
s to
government support generate

rapid and fierce opposition from
the coalition
.
The






7

Langlois
-
Bertr
and, "The Politics of Ethanol,”
2
.

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4


congresspersons

have a major interest in maintaining w
hat they perceive to be a large part of
their states’ economies.
8

Their numbers may be small, but they are committed; in contrast,
the vast majority of congresspersons and private Americans have a significantly smaller stake
in the debate over ethanol poli
cy.
9

Second, public support for biofuels is widespread. A 2008
poll by the Renewable Fuels Association found that 78
%

of the public believes that
increasing domestic ethanol production cr
eates new jobs and

58%

percent believe that the
use of domestic etha
nol will reduce the reliance of the US on imported oil.
10

While the
Renewable Fuels Association
has

an incentive to produce polling results that portray ethanol
in a favorable light, the sheer magnitude of support for ethanol found in their results seems to

indicate widespread support, even if the exact percentage given by their polling may be
overstated.

Despite this apparent consensus,
corn
-
based

ethanol has some opponents. The meat,
dairy, and other food producer lobbies all oppose support for the corn et
hanol industry. They
perceive

that the diversion of large amounts of corn into production of ethanol has increased
the price of
a primary input

cutting into their profits.
11

Other opponents include
environmental groups and fiscal conservatives. Environmenta
l groups claim that biofuels
production contributes to multiple environmental externalities such as over
-
use of pesticide
s







8

Dan Morgan, “Powerful Interest Ally to Restructure Agriculture Subsidies,”
Washington Post
, December 12,
2006,

a
ccessed August 8, 2010
,

http://www.washingtonpost.com/wp
-
dyn/content/article/2006/12/21/AR2006122101634_pf.html
.

9

Michael Grunwald, “Why Our Farm Policy Is Failing,”
Time Magazine
, November 2, 2007,
a
ccessed August
8, 2010
,
http://www.time.com/time/magazine/article/0,9171,1680139,00.html
.

10

Ron Steenblik, “New surveys suggest changing views on biofuels,”
Grist
, June 11, 2008, Accessed
August 8
,
2010
,
http://www.grist.org/article/corn
-
polls
.

11

Christopher Leonard, “Ethanol boom divides farm lobby,”
Boston Globe
, September 13, 2007, Accessed
August
8
, 2010
,
http://www.boston.com/business/articles/2007/09/13/ethanol_boom_divides_farm_lobby/
.

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5


and

fertilizer.
12

Fiscal conservatives dislike government programs which spend huge

amounts
of taxpayer

dollars.
13

While these opponent
s have made
much
noise, their criticisms have
failed to resonate with a majority of policy makers.
F
uture debates over
corn
-
based

ethanol
are likely to be
more fierce. However,

it does not appear there will be
significant

changes in
the direction of government support.
Corn
-
based

ethanol is here to stay.

In order to increase consumption of domestically produced
corn
-
based

ethanol, the
US government has established three policies:

a)

a blenders’ tax credit,

b)

a tariff on
i
mported ethanol
, and c)
a Renewable Fuel Standard

(RFS)

setti
ng a biofuel consumption
target
. The blenders’ tax credit,
or

Volumetric Ethanol Excise Tax Credit (VEETC), provid
es
registered ethanol blenders
$
0
.45 for every gallon of ethanol blended into gas
oline.
14

The
$0.54 per gallon tariff is meant to protect domestic producers of ethanol from competition by
foreign firms.

The Renewable Fuel Standard (RFS)
established by C
ongress under the 2007
Energy Independence and Security Act (EISA) and implemented by

the Environmental
Protection Agency (EPA), mandates that ethanol and other renewable fuels must account for
13 billion gallons of total ga
soline and diesel sales in 2010
15

and

this will gradually increase
to

36 billion gallons of ethanol

that

must be blend
ed into gasoline by 2022.
16

VEETC and the
tariff on imported ethanol are due to expire at the end of 2010. Congress is currently debating






12

Carolyn Lochhead, “Farm bill’s foes see Senate as next battle ground,”
San Francisco Gate
, July 28, 2007,

a
cces
sed August 8, 2010
,

http://www.sfgate.com/cgi
-
bin/article.cgi?file=/c/a/2007/07/28/MNGMAR8KLK1.DTL&type=printable
.

13

Ibid.

14

Yuki Yano, David Bla
ndford and Yves R Surry, “Do Current U.S. Ethanol Policies Make Sense?”
Policy
Issues
,

10, (August 2010)
, 1.

15

Ayesha Rascoe and Tom Doggett, “Factbox: EPA sets 2010 U.S. renewable fuel standard,”
Reuters
, February
4, 2010,

a
ccessed August 8, 2010
,

http://www.reuters.com/article/idUSTRE6133HT20100204?pageNumber=2
.

16

Melissa Powers, “King Corn: Will the Renewable Fuel Standard Eventually End Corn Ethanol’s Reign?”
Vermont Journ
al of Environmental Law
,

Vol. 11, (June 2010),

699.

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6


the extension of these two policies under the
Renewable Fuels Reinvestment Act.
17

These
policies are combined together t
o ensure that only domestic producers of ethanol can gain
access to the tax credit.
18

This paper argues that these corn
-
based ethanol policies are detrimental to American
energy security. Part
O
ne
argues

that increased corn
-
based ethanol production from these
policies has

too

little effect on gasoline consumption and oil imports to justify the massive
expenditure of taxpayer dollars. Part
T
wo contends that the second level economic effects of
the tax cred
it
combined with the

RFS mandate actually increase overall consumption of
gasoline. Part
T
hree argues that increased reliance on corn
-
based ethanol poses many more
risks to the future of US energy security than the status quo levels of oil dependence. Part

F
our
claims

that the US tariff on imported ethanol prevents the importation of cheaper and
more efficient sugarcane ethanol from Brazil. By preventing the importation of foreign
ethanol, the US may make itself more energy independent but less energy secur
e.

Part One: Limits of Corn
-
Based Ethanol

in the US Fuel Sector

Of the total of 139.5 billion gallons of fuel burned in 2009, 10.6 billion was ethanol.
Since ethanol only yields about 66
%

as much

energy as an
equivalent volume of gasoline t
he
10.6
billion gallons of ethanol offset about 7.2 billion gallons of gasoline.
19

To achieve this
reduction,

taxpayers will have to pay a total of $54 billion by 2015 from VEETC.
20

In






17

Yano, Blandford and Surry, “Do Current U.
S. Ethanol Policies Make Sense?”

1.

18

Harry de Gorter, David Just, and Qinwen Tan, “The Socially Optimal Import Tariff and Tax Credit for
Ethanol with Farm Subsidies,”
Agricultural and Resource Economics Review
, Vol. 38 no. 1, (April 2009) 66.

19

Craig Cox and Andrew Hug, “Driving Under the In
fluence: Corn Ethanol & Energy Security,”
Environmental
Working Group
, June 2010, 1.

20

Ibid., 2.

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7


comparison, a

similar reduction could be achieved by imposing a $0.25 per gallon
tax on
gasoline consumption. However, the total cost to taxpayers of that tax would only be $6
billion.
21

A gasoline tax combined with automobile fleet
-
wide energy efficiency
improvements that would cost society the same amount as current ethanol policies w
ould
reduce oil consumption by around 35%
.
22

Wise

public policy
requires an evaluation of

the
opportun
ity cost of government spending weigh t
he effect of each dollar spent
for a policy

against the bes
t alternate use for that dollar. C
orn
-
based ethanol

polic
es do not pass this cost
effectiveness test
.

Part of the problem is a set of policies that limit the degree to which corn
-
based ethanol can reduce gasoline and fuel consumption in a cost effective way

An Environmental Working Group report by Craig Cox and
Andrew Hug

explains the
inefficiency created by government policies with a concrete example.

They conclude that

similar amount
s

of gasoline

and oil

could be offset by increasing

fuel efficiency of

every car
in the US by 1.1 miles per gallon. This reduced l
evel of consumption could be achieved by
having a substantial number of drivers replace their clogged air filters, more strictly
enfo
rcing speed limits, and drivers

education programs that more effectively encourage safer
driving techniques.
These measures

would come at a significantly smaller cost to
taxpayers

23

and any cost would also be overwhelmed by the safety benefits for society.

It is
tenuous to
assume

that the government can pick

alternative energy technologies
that will be most socially beneficial
;

a
government agency

will have problems identifying

the







21

William K Jaeger and Thorsten M Egelkraut, “Biofuel Economics: Multiple Objectives & Unintended
Consequences,”
Department of Economics,

Oregon State Universi
ty, August 6, 2010, 29.

22

Ibid., 23.

23

Cox and Hug, “Driving Under the Influence,” 1.


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8


optimal allocation of resources

of different options and government

policy is not flexibl
e
enough to quickly adapt to changing market conditions
. While the free market may not

currently

provide very much
production of

alternative energy, the government should only
inter
vene to ensure that alternative energy sources

can compete

fairly

against each other and

against

traditional energy sources. The purpose of government policy is to provide

a level
playing field where all emerging technologies have equal access. Current energy policy
crowds out non
-
ethanol alternative energy

sources

by
allocating

funds
in a lopsided way that

artificially
inflates

the market share of
corn
-
based
ethanol.
24


The

hope that ethanol will be capable of offsetting a large amount of oil consumption

runs

into
several

problem
s, the first

of the

which is the

“blend wall.” Federal law prohibits
blends of fuel that contain more than 10% ethanol for standard automobiles. Hig
her
concentrations have been reported to permanently damage automobile engines by eroding
components. The total amount of fuel consumed places a ceiling on the potential amount of
ethanol that can be consumed. Blenders are currently very close to hitting t
hat “blend wall”
as more blenders enter the market searching for profits from federal tax credits. Once all fuel
on the market contains 10% ethanol, consumption of ethanol cannot increase without an
overall increase in fuel consumption.
25

The combination of

the blend wall and the smaller
energy yield from ethanol relative to gasoline implies that that,
structurally
, only 6.6%

of the
miles driven in the US will be powered by ethanol
.
26








24

Doug
Koplow
, “Biofuels


At What Cost?”
Global Subsidies Initiative of the International Institute for
Sustainable Development
, October 200
7
,
1.

25

Gorter, Just, and
Tan, “The Socially Optimal Import Tariff,” 66.

26

Yano, Blandford and Surry, “Do Current U.S. Ethanol Policies Make Sense?” 1.

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9


Even if the blend wall is loosened as engines that can safely use fuel wit
h higher
ethanol concentration become more prevalent,
there are

other

physical limits on the amount
of gasoline consumption that can be offset by ethanol.

If policymakers wished to offset 10%
of US gasoline with ethanol, the total crop
-
land required to pro
duce the corn would be 22
million hectares.
27

To put this in perspective the US has about 165 million hectares of
cropland.
28

Even if all of the cropland in the US was diverted to producing corn for the
purpose of creating ethanol, only 75% of US needs for o
il would be met.
29

A diversion of all
US crop land to ethanol production would cause a food price spike and make the US
completely dependent on food exporting nations. A slightly less catastrophic scenario would
be the diversion of all corn crops to the pro
duction of ethanol. The exact results for a scenario
like this are mixed; Eaves and Eaves conclude that only 3.5% of gasoline consumption would
be offset,
30

while Hill et al., argue that gasoline consumption would be reduced by 12%.
31

However, both studies i
ndicate that the percentage of gasoline consumption that is offset
does not outweigh the cost of forsaking all domestic production of corn.

Finally, e
thanol
blender
s


production uses large amounts of gasoline to make the
ethanol production cycle self
-
cont
ained (utilizing ethanol as the energy input for turning corn
into more ethanol
)
, and once self
-
containment is achieved the cycle yields only minimal






27

David Pimentel, “Ethanol Fuels: Energy Balance, Economics, and Environmental Impacts are Negative,”
Natural Resources Research,

Vol. 12, No. 2, (June 2003), 129.

28

United States
,

Department of Agriculture,
Farm Characteristics: 1997, 2002, 2007 Census of Agriculture
,
September 10, 2010,

a
ccessed
September

30
, 2010
,
http://ww
w.ers.usda.gov/statefacts/us.htm
.

29

165million hectares/22 million hectares*10%=75%

30

James Eaves and Stephen Eaves, “Renewable corn
-
ethanol and energy security,”
Energy Politics
, (Spring
2008), Issue IV, 15.

31

Nelson Hill, D. Tilman, S. Polasky, D. Tiffany, “Environmental, economic, and energetic costs and benefits
of biodiesel and ethanol biofuels,” Proceedings of the National Academy of Sciences 103, 2006, 11206.

Zendeh
10


energy returns. First, fossil fuels are consumed to transport the corn from the field to the
refinery and
to deliver the ethanol from the refinery to the consumer. Second the refining
process involves intense heat to distill the impure ethanol.
32

Thus, the process of producing
corn
-
based ethanol may increase US reliance on imported oil during the short run tran
sition
to self
-
containment and may not alleviate much of US reliance on oil in the long run.

Part
Two: Effects of the RFS and VEETC


The VEETC and RFS policies individually each act to reduce the consumption of
gasoline, though in different ways and degrees of effectiveness. However the combination of
the VEETC and RFS policies together increases gasoline consumption undermining the goa
ls
of the ethanol policies. This section explains this problem.


Standard models of the blender’s tax credit shows that the decreased market price for
corn
-
based ethanol causes a decrease in gasoline consumption. Blenders and hence
consumers purchase more

ethanol and less gasoline in their fuels. This so
-
called “first level
effect” is likely small in light of the problems outlined in the previous section. In addition,
the reduced

price

of

ethanol
for blenders

lowers the price for blended fuels as blenders
have
lower costs. This

lower fuel

price

encourages

an increase in consumption of
gasoline as a
second order effect, mitigating

the first order
decrease in gasoline consumption

of the tax
credit.
33

While generally the first order effects of a policy interven
tion tend to outweigh the






32

Pimentel, “Ethanol Fuels: Energy Balance, Ec
onomics, and Environmental Impacts are Negative,” 128
-
129.

33

Dmitry
Vedenova

and

Michael
Wetzstein
, “Toward and Optimal U.S. Ethanol Fuel Subsidy,”
Energy
Economics,

Vol. 30, No. 5, (September 2008), 2074.

Zendeh
11


second order effects,
it may be possible that

the entirety of the

gasoline reducing

benefits of
subsidizing ethanol may be wiped out by this unintended consequence.
34

In contrast, the RFS unambiguously reduces gasoline consumption
by a greater
amount for an equivalent amount of ethanol. Under this policy, a higher production of
ethanol required to meet a binding mandate increases the price of ethanol. That reduces
gasoline consumption in two ways: first, it increases percentage of e
thanol consumed, and
decreases the quantity of gasoline in a unit of fuel. Second, the higher market price of ethanol
increases blenders costs, increasing the market price of fuel, further reducing overall gasoline
consumption.

Policymakers

usually attempt

to promote production and consumption of particular
goods by utilizing as many interventions as possible under the belief that
each form of
government intervention works in concert. This logic has le
d policymakers to
provide

both

tax credits and

RFS

manda
te
s

for

corn
-
based

ethanol.
35

E
valuation of

the combination

these
two policies reveals that with mandates in place, gasoline
consumption is increased

by the
provision of tax credits.
36

A slight digression is required to explain this seemingly
counterintuitiv
e statement.

Recall that a blender’s tax credit alone will reduce the amount of gasoline
consumption, although to lesser degree than it would if only a mandate were in place. This is






34

Ibid.

35

Harry de Gorter and David Just, “The Soc
ial Costs and Benefits of Biofuels: The Intersection of
Environmental, Energy and Agricultural Policy”
Applied Economic Perspectives and Policy,

vol. 32. no. 1,
(
2010
),
13
-
15.

36

Gorter and Just, “The Economics of a Blend Mandate for Biofuels,”
American Jo
urnal of Agricultural
Economics
,

Vol. 91 No. 3 (August 2009), 738

Zendeh
12


the substitution of ethanol for gasoline is partially offset by the incr
ease in fuel production.
Although gasoline consumption is reduced to some degree by either a tax credit of the RFS
mandate the use of both a blender’s tax credit and a blending mandate actually increases
gasoline consumption. Adding a tax credit to a fuel
mandate already in place encourages
blenders to produce additional fuel (lowering fuel prices) in order to take advantage of the
tax credits and this increased production will substantially increase gasoline use because the
majority of fuel is made up of g
asoline.
37

Currently, t
he majority of ethanol is consumed in what are called E10 fuels. These
fuels contain 10% ethanol and 90% gasoline.
38

Some argue that the eventual shift to E85 fuel
(85% ethanol, 15% gasoline) will significantly reduce the magnitude of
the second order
effects.

A situation where E85 automobiles make up a sizeable proportion of the US fleet is
very far off. It would require large scale productio
n and replacement of automobile engines
with new types

that
,

up to this point,
are

not particul
arly widespread. It would also require a
large
-
scale reconfiguration of the US fueling infrastructure.

In the short
-
r
un, the

second order
effects

of heightened gasoline consumption

will remain
strong
.
39

Part Three: Corn
-
Ethanol Risks

An empirical analysis
of c
orn yields

show that they

fluctuate by extreme amounts on
a yearly basis. Reliance on corn ethanol is more likely to produce devastating supply shocks
than reliance on imported gasoline.
A sudden collapse in corn yields could cause ethanol
prices to sk
yrocket. As the US becomes more reliant on corn
-
based ethanol because of






37

Ibid., 738
-
750.

38

Vedenova

and

Wetzstein
, “Toward and Optimal U.S. Ethanol Fuel Subsidy,” 2074.

39

Ibid.

Zendeh
13


government policies, those price shocks to ethanol could cause significant fuel price
increases.

A model by Eaves and Eaves compares the relative risks of reliance on ethanol versus
imported oil and concludes that ethanol dependence is far riskier.
Using data from the
National Agricultural Statistics Service they

compare the historical yield variations of corn
supply to oil supply from 1960

to 2005. Oil supply

during this period susta
ined
many

large
shocks
due to

the Six
-
Day War, the Arab oil embargo, the Iranian revolution, and the Iran
-
Iraq War. Eaves and Eaves find that even during these periods, the magnitude of shocks to oil
supply were smaller than shocks to corn supply.
In a yea
r where oil supplies were disrupted,
the average decline would be 6.8%. In comparison, on an average bad year for corn, US corn
yields drop 11.9%.
40

They also
estimate

that in one out of every twenty years, corn yields
should decline by 31.8
%

as opposed to
oil supply which would decline only by 14.9
%
.
They
predict future fluctuations in supply

based on the assumption that past trends in corn yields
hold and they find that

the risks associated with increased reliance on corn ethanol would be
twice as high as
reliance on imported oil.
41

Several authors believe that the variation in corn
yield may be increasing overtime, making future shocks even more devastating. Three new
risks are
weather problems, crop diseases, and increases in food demand.

A historical anal
ysis of crop yields and weather conditions shows that a major
disruption of corn production occurs on average every five years.
42

The two major climatic






40

Eaves and Eaves, “Renewable corn
-
ethanol and energy security,” 9.

41

Ibid.

42

David

Pimentel, “Ethanol Fuels: Energy Security, Economics and the Environment,”
Journal of Agricultural
and Environmental Ethics
, Vol. 4, no. 1, (1991),

5.

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14


events that can negatively effect corn yields are storms and droughts.

M
assive storms

have
become more p
revalent in recent years.
A recent example is the summer of 2008 in which a
large portion of the
US corn crop was wiped out by a series of intense thunderstorms. That
caused a
major
increase in the price of corn

which blenders passed
to consumers in the fo
rm
of higher fuel prices.

43

At the time, ethanol consumption in the US was not very high, and
consumers did not notice a large increase in the
price

of blended fuel. However, as ethanol
becomes a higher percentage of US fuel supply, those higher ethanol pr
ices could translate
into

noticeably

higher fuel price
s.
44

Crop disease remains a major problem for modern farmers. While the
incidence

of
disease outbreaks have decreased through the use of modern agricultural techniques
(monoculture and pesticide use), th
eir severity has increased. Monoc
ulture planting
techniques make

farms vulnerable as the lack of diversity means a single disease can wipe
out a farmer

s entire crop. Overuse of pesticides can cause
the evolution

of pesticide resistant
pests, another contr
ibuting factor that can cause sudden drops in corn yields
.
45


Demand for food is the final factor that could detrimentally affect corn yields. The
year
-
to
-
year percentage gain in corn yields has steadily declined. The yearly gain peaked
around 4% in 1960
and is at around 1.5% currently. As food demand increases from the
growing world population

at a rate faster than the average increase in corn yields
, there is the






43

Jad Mouawad, “Weather Risks Cloud Promise of Biofuel,”

The New York Times
, July 1, 2008,
http://www.nytimes.com/2008/07/01/business/01weather.html, Accessed August 8
, 2010.

44

Ibid.

45

Mark Murphy Henry, Nathan Price Chaney and Adam L. Hopkins, “A Call to Farms: Diversify the Fuel
Supply,”
South Dakota Law Review,

Vol. 53, (Fall 2008),
515
.

Zendeh
15


possibility that there will be a rapid decline in the amount of corn available for conversio
n
into ethanol.
46


In addition to these ever present variables that may affect corn yields one year but not
another, global warming induced droughts will create a structural decrease in corn yields.
While droughts have always been a problem for corn farmers
, agricultural and climate
scientists predict global warming will dramatically reduce US corn yields. The corn plant
requires very specific temperature ranges to remain productive. Schlenker and Roberts, in a
report for the National Academy of Sciences, co
nclude that current temperature projections
will pass a critical temperature, causing corn yields to drop dramatically.
47

Over the course of
the next century, average corn yields are expected to decrease by 30
-
46%, with some worst
case projections putting t
he yield loss at 63
-
82%.
48


Part Four
:
The Destructive Tariff on Ethanol Imports


The US is not the only country with ethanol support policies.

Since the mid
-
1970s,
Brazil has been investing heavily in expanding its ethanol infrastructure.
Brazil, like the

US,

began its push towards ethanol as

a

way to expand its energy independence in response to the
1973 OPEC oil embargo. Brazil began to heavily subsidize the production of sugarcane
ethanol
and adopted

measures to encourage automobile companies to produce

cars that could
run on 100% ethanol.
49







46

James Eaves and Stephen Eaves, “Is Ethanol the 'Energy Security' Solution?”
The Washington Post
, October
3, 2007,

a
ccessed August 8, 2010
,

http://www.cato.org/pub_display.php?pub_id=8730
.

47

Wolfram Schlenker and Micahel J. Roberts, “Nonlinear temperature effects indicate severe damages
to U.S.
crop yields under climate change,”
PNAS
,

September 15,

vol. 106,
no. 37,

2009,
15594.

48

Ibid.

49

Jose Goldemberg, et al. “Ethanol for a Sustainable Energy Future,”
Science
,

Vol. 315,

(2007), 809.


Zendeh
16


To protect the development of its domestic ethanol sector, the US put in place a $0.54
tariff on imported ethanol.
Brazilian sugarcane ethanol has a significant competitive
advantage over American
corn
-
based

ethanol.
The US ethanol tariff remains the primary
impediment to a large scale increase in US consumption of
sugarcane

ethanol.


Sugar
cane ethanol is significantly more cost effective compared to
corn
-
based

ethanol
for several reasons. First, sugarcane’s input req
uirements are less than
those

for corn.
Sugarcane doesn’t require complex irrigation systems to thrive as corn does and it requires
significantly less fertilizer and pesticides than corn. Second, it is capable of growing during
Brazil’s summer and winter s
eason
s
.
50

Third
, byproducts from sugar
cane can be used to
generate electricity
,

reducing
costs to sugar
cane ethanol blenders.
51

Finally,

sugarcane
ethanol’s net energy advantage over corn ethanol is 8.2 to 1.
52

These findings are supported
by rigorous field t
esting of energy yields and a comprehensive analysis of the two crops by
Andreoli and De Souza.
53

In a t
ruly free market setting, sugar
cane ethanol would drive
corn
-
based

ethanol out of the market.


A large amount of US demand for imported oil could be
offset by removing the tariff
to allow

importation of Brazilian sugar
cane ethanol. Current projections of Brazil’s
sugarcane

industry conclude that Brazil could export 52 billion gallons a year if demand
and







50

Eric Reguly, “Its time to kill corn subsidies and go Brazilian,”
Centre for International Governance
Innovation
, May 12, 2008,

a
ccessed August 8, 2010
,

http://www.portalfornorthamerica.org/
fr/node/1129
.

51

Ibid.

52

The Economist
, “Lean Green and Not Mean,” June 26,
2008
,
a
ccessed August 8, 2010
,
http://www.economist.com/world/americas/displaystory.cfm?ST
ORY_ID=11632886
.

53

C Andreoli and S.P. De Souza, “Sugarcane: The Best Alternative for Converting Solar and Fossil Energy into
Ethanol,”
Economy & Energy
,

Vol. 59, (January 2006), 11
-
13.

Zendeh
17


investment
increased
.
54

Already Brazil’s two prim
ary sugar
cane blenders are ramping up
production. Brazil Renewable Energy Company or Brenco will be capable of exporting a
billion gallons of ethanol a year by 2015. TruEnergy Renewable Fuels will be capable of
exporting over
three

million gallons a year.
55

There are two popula
r criticisms of Brazilian sugar
cane ethanol
: expanding
production of sugar
cane ethanol will harm the Amazon rainforest
56
and relia
nce on imported
Brazilian sugar
cane ethanol could potentially be as detrimental to US energy security as
d
ependence on other foreign sources of energy.
57

Expansions of sugar
cane ethanol a
re unlikely to harm the Amazon as a majority of
sugar
cane planting occurs very far away from the Amazon. The area of

the

largest
concentration of
sugarcane

growers is in the no
rth
-
east, thousands of miles away from the
forests. This is mainly because the Amazon lacks both the climate and soil required for large
scale production of
sugarcane
.
58

Additionally
, new sugar
cane production tends to be on
farmland that was previously devo
ted to pasture. This means that farmers who decide to start






54

Jim Landers, “Brazil Seeing Sweet Profit from Sugarcane
-
Based Ethano
l,”
Dallas Morning News
, May 6,
2008,

a
ccessed August 8, 2010
,

http://www.dallasnews.com/sharedcontent/dws/bus/stories/050608dnbusethanol.39bab41.html
.

55

Ibid.

56

Chris McGowan, “Biofuel Could Eat Brazil’s Savannas & Deforest the Amazon,”
The Huffington Post
,
September 14, 2007,

accessed
August 8, 2010
,

http://www.huffingtonpost.com/chris
-
mcgowan/biofuel
-
could
-
eat
-
brazils_b_64466.html
.

57

Chris Kraul, “Brazil Raises Cane Over U.S. Ethanol Tariff,”
Los Angeles Times
, November 4, 2009,
a
ccessed
August 8, 2010
,
http://articles.latimes.com/2009/nov/04/business/fi
-
biofuels4
.

58

Wilson International Center, “The Global Dynamics of Biofuels,” April 2007,
a
ccessed August 8, 2010
,
http://www.wilsoncenter.org/topics/pubs/Brazil_SR_e3.pdf
.

Zendeh
18


producing
sugarcane

don’t move into the Amazon to clear land, but instead find land that has
lost its capacity to sustain cattle production and grow
sugarcane

on it.
59

To answer the second argument

it is important to point out that there is a difference
between promoting American energy independence and promoting energy security.
Proponents of energy independence see reliance on internat
ional trading partners as risky,

s
ince these countries may not
have the same geopolitical interests as the US or they may seek
to hold the US hostage knowing that our entire economy depends on their product.

Energy independence and energy security are sometimes conflated. However, it is
possible for a country to be
energy independent without being energy secure. Countries that
control all their energy sources can lose out if their

source of domestic energy is un
stable.
In
addition trade

inter
dependence can foste
r trust between trading partners further

promoting
secur
ity.
Diversification of energy sources

rather than independence is the best path to energy
security because it provides

resilience

to

supply

shocks and allows recovery without
permanent damage. Policymakers should avoid replacing one
primary energy source

with
another; they should instead adopt a strategy of

distributing risk
.

Usage of imported Brazilian sugarcane ethanol is not risky. Brazil’s sugarcane
ethanol industry is well established and less

prone to price shocks and i
t has been operating
steadily
for the past 40 years. Geopolitically, the Brazilian government is extremely stable
and
its interests are mostly aligned with the US
.

Since

Brazil
seeks

more markets for its
energy exports and also imports numero
us final products from the US, t
he idea that

Brazil






59

The Economist
, “Lean Green and not Mean.”

Zendeh
19


would decide to unilaterally stop its trade of biofuel with the US is implausible. Perhaps most
importantly, individuals or organizations that wish to disrupt the US supply
of

cheap energy
are unlikely to target the Brazilian ethanol industry. Braz
ilian
sugarcane

ethanol should be a
component of any strategy that attempts to increase energy
diversification

to guarantee
energy security.
60


Conclusion


Claims that
corn
-
based

ethanol boost
s

American energy security are used as the
primary justification by US policymakers for ethanol policy. Any national policy that seeks
to guarantee American energy security should reconsider its attachment to corn
-
based
ethanol and the

three main

ethanol ma
rket

policy interventions should be
eliminated
. This
would provide several benefits to US energy security. It would free up government resources
that could be utilized more effectively to reduce oil consumption.
I
t would avoid unintended
policy consequence
s that may overall increase consumption of gasoline.

Finally, i
t would
allow the importation of cheaper and less risky alternatives to
corn
-
based

ethanol
. These
three policies are both an unproductive use of tax
-
payer dollars and counterproductive to US
en
ergy security goals.







60

George Philippidis, “Energy Security Achievable with Biofuels Made in Americas,”
Ethanol Producer
Magazine
, August 2008,

a
ccessed August 8,

2010
,

http://www.arc.fiu.edu/news_20080714.asp
.

Zendeh
20



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