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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. Promotion of
ethanol is not only insufficient to replace oil imports; it increases several risks that
compromise American energy security in two ways. First, the tariff prevents importation of
cheaper and safer foreign energy sources. Second, the complex interaction 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 threatens 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 measures to increases in energy prices toward a proactive
approach. This sentiment has spread beyond 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
Barak Obama, “Remarks by the President on Energy Security,” Speech at Andrews Air Force Base, March 31,
2010, accessed August 8, 2010, http://www.whitehouse.gov/the-press-office/remarks-president-energy-securityandrews-air-force-base-3312010.
2
Jason Dick, “Support For Addressing Climate Change Holds Firm,” National Journal, August 2, 2010,
accessed August 8, 2010, http://congressionalconnection.nationaljournal.com/2010/08/support-for-addressingclimate.php.
1
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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 oil 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 2040. 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 projections 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
David 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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like the Middle East or Africa. Many have authoritarian governments and are prone to both
coups and wars, and that instability may halt oil exportation to the US. Additionally, some oil
exporting nations such 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 important 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 critical mass of Congressional support
for any particular policy option.
Corn-based ethanol is one exception to the typical story of Washington gridlock over
energy issues. This industry has historically received backing from members of both political
parties. 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, Midwest states that
contain the vast majority of ethanol blenders and corn used to produce ethanol 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. Midwestern farm senators are unified
and tend to fight on behalf of one another for their collective benefit. Potential threats to
government support generate rapid and fierce opposition from the coalition. The
7
Langlois-Bertrand, "The Politics of Ethanol,” 2.
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congresspersons have a major interest in maintaining what 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 policy.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 creates new jobs and 58% percent believe that the
use of domestic ethanol 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 ethanol 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. Environmental groups claim that biofuels
production contributes to multiple environmental externalities such as over-use of pesticides
Dan Morgan, “Powerful Interest Ally to Restructure Agriculture Subsidies,” Washington Post, December 12,
2006, accessed August 8, 2010, http://www.washingtonpost.com/wpdyn/content/article/2006/12/21/AR2006122101634_pf.html.
9
Michael Grunwald, “Why Our Farm Policy Is Failing,” Time Magazine, November 2, 2007, accessed 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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and fertilizer.12 Fiscal conservatives dislike government programs which spend huge amounts
of taxpayer dollars.13 While these opponents have made much noise, their criticisms have
failed to resonate with a majority of policy makers. Future 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
imported ethanol, and c) a Renewable Fuel Standard (RFS) setting a biofuel consumption
target. The blenders’ tax credit, or Volumetric Ethanol Excise Tax Credit (VEETC), provides
registered ethanol blenders $0.45 for every gallon of ethanol blended into gasoline.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 Congress 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 gasoline and diesel sales in 201015 and this will gradually increase
to 36 billion gallons of ethanol that must be blended 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
Carolyn Lochhead, “Farm bill’s foes see Senate as next battle ground,” San Francisco Gate, July 28, 2007,
accessed August 8, 2010, http://www.sfgate.com/cgibin/article.cgi?file=/c/a/2007/07/28/MNGMAR8KLK1.DTL&type=printable.
13
Ibid.
14
Yuki Yano, David Blandford 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, accessed 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 Journal of Environmental Law, Vol. 11, (June 2010), 699.
12
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the extension of these two policies under the Renewable Fuels Reinvestment Act.17 These
policies are combined together to 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 One 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 Two contends that the second level economic effects of
the tax credit combined with the RFS mandate actually increase overall consumption of
gasoline. Part Three 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
Four 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 secure.
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 the
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
Yano, Blandford and Surry, “Do Current U.S. Ethanol Policies Make Sense?” 1.
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 Influence: Corn Ethanol & Energy Security,” Environmental
Working Group, June 2010, 1.
20
Ibid., 2.
17
18
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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 would
reduce oil consumption by around 35%.22 Wise public policy requires an evaluation of the
opportunity cost of government spending weigh the effect of each dollar spent for a policy
against the best alternate use for that dollar. Corn-based ethanol polices do not pass this cost
effectiveness test. Part of the problem is a set of policies that limit the degree to which cornbased 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 amounts 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 level of consumption could be achieved by
having a substantial number of drivers replace their clogged air filters, more strictly
enforcing 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
William K Jaeger and Thorsten M Egelkraut, “Biofuel Economics: Multiple Objectives & Unintended
Consequences,” Department of Economics, Oregon State University, August 6, 2010, 29.
22
Ibid., 23.
23
Cox and Hug, “Driving Under the Influence,” 1.
21
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optimal allocation of resources of different options and government policy is not flexible
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
intervene 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 problems, the first of the which is the “blend wall.” Federal law prohibits
blends of fuel that contain more than 10% ethanol for standard automobiles. Higher
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 that “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
Doug Koplow, “Biofuels – At What Cost?” Global Subsidies Initiative of the International Institute for
Sustainable Development, October 2007, 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.
24
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Even if the blend wall is loosened as engines that can safely use fuel with 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 produce 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 oil 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 production 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 indicate that the percentage of gasoline consumption that is offset
does not outweigh the cost of forsaking all domestic production of corn.
Finally, ethanol blenders’ production uses large amounts of gasoline to make the
ethanol production cycle self-contained (utilizing ethanol as the energy input for turning corn
into more ethanol), and once self-containment is achieved the cycle yields only minimal
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, accessed September 30, 2010, http://www.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.
27
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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 transition
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 goals
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 intervention tend to outweigh the
Pimentel, “Ethanol Fuels: Energy Balance, Economics, and Environmental Impacts are Negative,” 128-129.
Dmitry Vedenova and Michael Wetzstein, “Toward and Optimal U.S. Ethanol Fuel Subsidy,” Energy
Economics, Vol. 30, No. 5, (September 2008), 2074.
32
33
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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 ethanol 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 led policymakers to provide both
tax credits and RFS mandates for corn-based ethanol.35 Evaluation 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
counterintuitive 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.
Harry de Gorter and David Just, “The Social 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 Journal of Agricultural
Economics, Vol. 91 No. 3 (August 2009), 738
35
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the substitution of ethanol for gasoline is partially offset by the increase 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 gasoline.37
Currently, the 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 production and replacement of automobile engines
with new types that, up to this point, are not particularly widespread. It would also require a
large-scale reconfiguration of the US fueling infrastructure. In the short-run, the second order
effects of heightened gasoline consumption will remain strong.39
Part Three: Corn-Ethanol Risks
An empirical analysis of corn 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 skyrocket. As the US becomes more reliant on corn-based ethanol because of
37
Ibid., 738-750.
Vedenova and Wetzstein, “Toward and Optimal U.S. Ethanol Fuel Subsidy,” 2074.
39
Ibid.
38
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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 sustained many large
shocks due to the Six-Day War, the Arab oil embargo, the Iranian revolution, and the IranIraq 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 year 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 analysis 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
Eaves and Eaves, “Renewable corn-ethanol and energy security,” 9.
Ibid.
42
David Pimentel, “Ethanol Fuels: Energy Security, Economics and the Environment,” Journal of Agricultural
and Environmental Ethics, Vol. 4, no. 1, (1991), 5.
40
41
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events that can negatively effect corn yields are storms and droughts. Massive storms have
become more prevalent 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 form
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 prices could translate
into noticeably higher fuel prices.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), their severity has increased. Monoculture 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 contributing 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
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.
43
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possibility that there will be a rapid decline in the amount of corn available for conversion
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, conclude 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 the 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
James Eaves and Stephen Eaves, “Is Ethanol the 'Energy Security' Solution?” The Washington Post, October
3, 2007, accessed 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.
46
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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.
Sugarcane ethanol is significantly more cost effective compared to corn-based ethanol
for several reasons. First, sugarcane’s input requirements 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 seasons.50 Third, byproducts from sugarcane can be used to
generate electricity, reducing costs to sugarcane 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 testing of energy yields and a comprehensive analysis of the two crops by
Andreoli and De Souza.53 In a truly free market setting, sugarcane ethanol would drive cornbased 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 sugarcane ethanol. Current projections of Brazil’s
sugarcane industry conclude that Brazil could export 52 billion gallons a year if demand and
Eric Reguly, “Its time to kill corn subsidies and go Brazilian,” Centre for International Governance
Innovation, May 12, 2008, accessed August 8, 2010, http://www.portalfornorthamerica.org/fr/node/1129.
51
Ibid.
52
The Economist, “Lean Green and Not Mean,” June 26, 2008, accessed August 8, 2010,
http://www.economist.com/world/americas/displaystory.cfm?STORY_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.
50
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investment increased.54 Already Brazil’s two primary sugarcane 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 popular criticisms of Brazilian sugarcane ethanol: expanding
production of sugarcane ethanol will harm the Amazon rainforest 56and reliance on imported
Brazilian sugarcane ethanol could potentially be as detrimental to US energy security as
dependence on other foreign sources of energy.57
Expansions of sugarcane ethanol are unlikely to harm the Amazon as a majority of
sugarcane planting occurs very far away from the Amazon. The area of the largest
concentration of sugarcane growers is in the north-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 sugarcane production tends to be on
farmland that was previously devoted to pasture. This means that farmers who decide to start
Jim Landers, “Brazil Seeing Sweet Profit from Sugarcane-Based Ethanol,” Dallas Morning News, May 6,
2008, accessed 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-couldeat-brazils_b_64466.html.
57
Chris Kraul, “Brazil Raises Cane Over U.S. Ethanol Tariff,” Los Angeles Times, November 4, 2009, accessed
August 8, 2010, http://articles.latimes.com/2009/nov/04/business/fi-biofuels4.
58
Wilson International Center, “The Global Dynamics of Biofuels,” April 2007, accessed August 8, 2010,
http://www.wilsoncenter.org/topics/pubs/Brazil_SR_e3.pdf.
54
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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 international trading partners as risky,
since 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 unstable. In
addition trade interdependence can foster trust between trading partners further promoting
security. 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 it 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 numerous final products from the US, the 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. Brazilian 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 boosts 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 market 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. It would avoid unintended
policy consequences that may overall increase consumption of gasoline. Finally, it 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
energy security goals.
George Philippidis, “Energy Security Achievable with Biofuels Made in Americas,” Ethanol Producer
Magazine, August 2008, accessed August 8, 2010, http://www.arc.fiu.edu/news_20080714.asp.
60
Zendeh 20
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