September 29, 2012
Editorial: Five Myths about Ethanol
Published in The Journal Gazette
High corn prices driven by drought across the Corn Belt have prompted some to call for a waiver of the Renewable Fuel Standard, which sets annual targets for increasing the amount of biofuels blended into the U.S. fuel supply. Some groups contend that a waiver would lower corn prices and provide relief for other industries that use corn. Others contend a waiver would have little effect on corn prices but long-term effects on farmers and the agriculture industry as well as advanced forms of renewable fuel production.
During this debate, a number of myths about the ethanol industry have been cited and widely circulated.
1. Ethanol takes 40 percent of the corn crop away from feed use.
Ethanol plants also make animal feed. Ethanol production uses only the starch portion of the corn kernel. The protein, fiber, fat and other valuable nutrients remain intact and are re-sold into animal feed markets as dried distillers grains. Distillers grains are nutrient-concentrated feed that replace corn and soybean meal. After corn, distillers grains are the largest feed ingredient in the United States. Once you factor in distillers grains, the net corn use for ethanol is only 16 percent.
2. Ethanol drives up food prices.
There are two parts to this myth:
•How much influence does ethanol have on corn prices? It’s important to remember that corn prices are high today because of the drought. Also, ethanol does not use as much corn as most people think because plants are also producing animal feed. It does improve the price farmers get for their corn, but we’re talking about cents, not dollars, and it’s most strongly felt in areas directly surrounding an ethanol plant.
•How much influence do corn prices have on food prices? We often hear corn prices quoted in dollars per bushel. Most people outside of agriculture don’t really know what a bushel is. One bushel is 56 pounds of corn. So at $8 a bushel, you can get a pound of corn for 14 cents.
To look at it another way, you’re paying less than a dime for the corn in a box of corn flakes. More broadly, commodities only make up 14 percent of retail food prices. Factors such as processing, labor, packaging, making commercials with colorful cartoon spokesanimals, energy and profits make up the majority of those costs.
3. Because of the Renewable Fuel Standard, ethanol isn’t affected by high corn prices.
Ethanol producers are subject to the market just like every other corn user. The best evidence of that is the fact that this year a number of ethanol producers have slowed down or temporarily shut down due to high corn prices.
The standard calls for 13.2 billion gallons of ethanol to be blended into fuel this year. However, it has mechanisms built in to adjust in times of drought or other disruptions in the corn supply. Many refiners used more ethanol than was required in previous years, so they have about 2.5 billion gallons of credits available. Others purchased ethanol earlier this year when it was lower priced, so there are reserves. Additionally, a blender can carry over a portion of its requirement into the next year. Those factors all provide flexibility during challenging times.
4. It takes more energy to make ethanol than you get from it.
This is one of the longest-running myths about ethanol. Two researchers came up with this claim, and their methods and conclusions have been debunked by dozens of academics and institutions. The latest estimate of the energy balance of corn-based ethanol shows that ethanol returns about twice the energy it takes to produce it.
5. Ethanol relies on government subsidies.
The federal ethanol tax credit, which was 45 cents per gallon, expired at the end of 2011, as did the tariff on imported ethanol. On the flip side, ethanol has helped farming become more profitable, which has lowered the need for billions of dollars in farm subsidies. Ethanol is saving taxpayers money and helping improve the economy. In fact, from 2005-10, states and metro areas that relied on agriculture and energy were noted as the most “recession-proof.” The standard was put in place in 2005, and ethanol has been a large part of both these industries ever since.
Jeff Lautt is the CEO of POET, which has four plants in Indiana: Alexandria, Cloverdale, North Manchester and Portland. He wrote this for The Journal Gazette.