Analysis: Reps. revisit ethanol policy
Washington DC (SPX) May 08, 2008
Five months after passing a new alternative fuel mandate, U.S. policymakers are questioning the legislation's wisdom in the face of skyrocketing food prices.
The food versus fuel debate erupted Tuesday at a House hearing on the 2007 Energy Independence and Security Act, which established a progressive renewable fuels standard. The RFS requires that U.S. biofuels production increase almost eight-fold in the next 14 years, from 4.7 billion gallons in 2007 to 36 billion in 2022. While this provision could decrease carbon emissions and U.S. dependence on foreign oil, its impact on food prices is less certain. And with food prices reaching near-record highs, many lawmakers are having second thoughts about the new RFS or amplifying their original doubts, like Rep. Joe Barton, R-Texas, ranking member of the Energy and Commerce Committee.
"The renewable fuel mandate enacted just last December diverts vast acreage from food production to fuel production," Barton said at Tuesday's hearing in the Energy and Air Quality Subcommittee. "It also explains the spike in corn prices from $2 a bushel just a couple years ago to the record price of over $6 a bushel last month."
The problems inherent in the new RFS are so detrimental that Barton said he hopes to get rid of it entirely.
"I'm going to be introducing a piece of legislation here in the next week to repeal section 202 (which establishes the RFS) of last year's energy act and go back to the previous 2005 biofuels mandate," Barton said.
The RFS established in the Energy Policy Act of 2005 only extends to 2012, when it tops off at a 7.5 billion gallon requirement, far below the newly enacted mandate for 14.6 billion in the same year.
Opponents of the new RFS, such as Barton, have pointed to its impact on food prices as a reason to repeal or seriously alter the law. However, the connection between fuel and food is not simple, and a number of recent reports examining the issue produced conflicting opinions.
Those who see ethanol, which is primarily produced from corn in the United States, as the culprit behind food prices point to the number of farm acres being diverted to fuel production, among other things.
Government subsidies have encouraged U.S. farmers to convert more and more land to produce feedstocks for ethanol, according to the International Food Policy Research Institute, an organization that works to fight world hunger. In 2008 about 30 percent of U.S. corn production will go into ethanol production, IFPRI estimates.
This converts to higher costs in food, said Gawain Kripke, director of policy and research at Oxfam America, an international relief and development organization.
"We believe that the diversion of corn for ethanol is having a big impact on food prices," Kripke said.
And Americans aren't the ones suffering the most. In the United States, the average household spends 10 percent of total income on food, Kripke said, but in developing countries most families spend between 50 percent and 80 percent of their income to feed themselves.
"So even modest price increases can have devastating effects," Kripke said.
If the new RFS truly is contributing to global price increases, then it's actually decreasing energy security, instead of increasing it as planned, said Rep. Jane Harman, D-Calif.
"If our policies promote starvation in poor places in the world, we may cause more people to become terrorists żż (decreasing energy security) no matter how much fuel we grow at home," Harman said.
However, others argue that corn prices only play a small role in overall food prices. A weak U.S. dollar, bad weather conditions, growing global demand for food and high oil prices, among other things, have also affected today's high grocery bills, said David Anderson, author of a recent report, "The Effects of Ethanol on Texas Food and Feed."
"There are different reasons for high commodity prices, depending on what commodity it is," Anderson told United Press International. "For instance, wheat prices are high largely because of weather conditions, like a drought in Australia (a major wheat producer). So that led to tight supplies and high prices."
While Anderson said he thinks high corn prices will affect some food prices in the future, he said there hasn't been enough time to see those increases passed along yet, meaning the pressure is coming from somewhere else.
"We're not through the time lag yet żż for high corn prices to impact, say, beef, poultry or milk," said Anderson, an associate professor at Texas A&M University.
Some proponents of corn ethanol say increasing production of the fuel will actually help the economy by creating jobs and lowering prices at the pump, including Bob Dinneen, president of the Renewable Fuels Association, a trade organization for the ethanol industry.
"Ethanol is revitalizing rural towns across America," Dinneen said. "Consumers save money on gas because of ethanol żż because it's cheaper than gasoline."
Ethanol costs about $2.50 per gallon, compared with $3.61 for gasoline. But the savings at the pump are a government-supported illusion, said Charles Drevna, president of the National Petrochemical and Refiners Association, a trade organization.
"It may be cheaper at the pump, but the American taxpayer pays for it again every April 15," Drevna said, referring to the 51 cent subsidy the government provides for every gallon of ethanol sold. It also takes more ethanol than gasoline to drive the same distance, requiring consumers to buy more of it.
Whether or not corn ethanol raises food prices, the new RFS is an essential stepping block to more sustainable fuels, proponents say.
Researchers in both the public and private sector are working furiously to develop non-food-based fuels, and they'll be commercially available in about three years -- but only with the government's help, said Randy Kramer, president of KL Process Design Group, a biofuels company.
"There still needs to be the same support (for non-food biofuels) that helped jump-start the corn ethanol and oil industries," Kramer said.
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