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The Ethanol Effect refers to the unintended consequences of United States' reliance on the biofuel ethanol as a substitute for fossil fuels and as a quick-fix solution for America’s reliance on foreign oil in a post 9/11 world. The term was first coined, according to American Public Media’s Marketplace Radio, by a University of Iowa study in 2007.
Ethanol champions declare corn as the “new oil” and that it will forever end our dependence on the unstable OPEC nations. Sustainability advocates say that new and advanced methods of growing crops, that weren’t present 20 years ago, will more than cover the world’s food and fuel needs.
Environmental experts point to the fact that filling a 25-US-gallon (95 L) tank on an SUV with pure ethanol requires more than 450 pounds of corn, enough to feed one person for an entire year, and that in order to produce 1 billion US gallons (3.8×109 L) of corn ethanol requires, at a minimum, 1,600 billion US gallons (6.1×1012 L) of water, enough to meet the needs of the all 8 million people of the city of Chicago for three years.
Ethanol production and the surge in food prices
According to the US Consumer Price Index (CPI), flour, milk and egg prices are up at least 24% so far this year while whole wheat bread and cheddar cheese are each up 15%. While there are a number of factors that contribute to higher food prices such as global demand and crude oil costs, ethanol production is the biggest factor fueling corn demand and thereby food inflation. Several studies and experts have demonstrated the folly of using food for fuel.
The Earth Policy Institute in January 2008 released an analysis showing that the quantity of grain that will be needed for ethanol distilleries has been vastly understated. The addition of new facilities this year means ethanol distilleries would require 139 million tons of corn, according to EPI, which is more than double the USDA’s official 2008 projection of 60 million tons. If EPI’s projections are accurate, it would mean that half of the 2008 corn harvest would be diverted to ethanol, which “will affect food prices everywhere.”
Bruce Babcock of Iowa State University’s Center for Agricultural Research and Development found in a 2007 study that ethanol production has increased retail prices by $14 billion annually. That number increases to $20 billion when oil is at $65 to $70 per barrel and corn is at $4.42 per bushel. Currently, the price of oil is at $99 per barrel and corn sells for around $5 per bushel.
Economists at Purdue University conclude in a 2007 study titled “The Biofuels Boom: Implications for World Food Markets” that US and EU biofuel mandates will have significant impacts on agricultural production globally and could lead to a doubling of U.S. corn prices from 2006 levels in the next four years.
According to the Government Accountability Office, expanding U.S. ethanol production to the Energy Department’s projected 11.2 billion US gallons (42,000,000 m3) by 2012, will consume about 30% of the U.S. corn supply. "Using more corn for energy production will likely exert additional upward pressure on corn prices, potentially influencing livestock feed markets and meat prices," the GAO said in a report to Congress.
More than 120 operating biorefineries exist today and dozens more are under construction. The federally subsidized ethanol production creates an artificial market that is impacting not just the price of corn but of other commodities including beef and milk.
Notes and references
- "The biofuel ethanol seems like a great idea, right? Because it's made from good, old fashioned American corn. But guess what happens when you start making more ethanol? The cost of corn goes up, and everything that's made with corn, from corn-fed beef to grandma's corncob pipe. That's the ethanol effect. A recent University of Iowa study says the ethanol effect pushed up food prices by $14 billion last year. It could soon swell to $20 billion. See, it's not easy being green." - American Public Media’s Marketplace Money, May 25, 2007
- The Ethanol Effect: When Alternative Fuels Go Bad, by Cameron Scott, November/December 2007, Mother Jones magazine.
- Rolling Stone: The Ethanol Scam: One of America's Biggest Political Boondoggles
- Business Week: Ethanol: Too Much Hype – and Corn