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Fill’er up with ethanol

Marketplace Staff May 4, 2006

TESS VIGELAND: Exxon Mobil and other oil companies have until tomorrow to stop using a fuel additive that pollutes groundwater. Instead, they’re blending gasoline with ethanol. The fuel is, in this country, mostly made from corn. Ethanol seems to be the new darling of Washington’s energy planning. But tough questions remain about its overall economic value. From South Dakota — home of the world’s only Corn Palace — Curt Nickisch looks at how ethanol has stalked its way into the nation’s energy mix.

CURT NIKISCH: Back in the 1980s, American farmers were going bankrupt right and left. Remember those Farm Aid concerts?

To survive, American farmers knew they needed more than benefit concerts. Ergo ethanol. Corn growers created another market for their crop by fermenting corn sugar into a fuel additive. Crop prices rebounded to the point where ethanol has became gospel in farm country. When politicians like President Bush talk about it here, it’s as good as kissing babies.

BUSH: It’s good public policy for America — it’s good for our air. It’s good for our economy, and it’s good for our national security.

Now with today’s high gas prices, ethanol is suddenly front and center coast to coast. Brian Jennings is vice-president of the American Coalition for Ethanol.

BRIAN JENNINGS: I never thought I’d see the day when you’d see someone pull an ear of corn out of a field and stick it in a gas tank in a television ad.

To come this far, ethanol needed a little help. Agribusiness interests got Congress to subsidize it at 51 cents per gallon. Some states do even more. And last year’s energy bill mandates doubling ethanol use in six years. Jennings says ethanol is good for the air and the country’s addiction to foreign oil.

JENNINGS: It’s a justifiable expense. It’s an expense that provides a significant return on investment.

Well, as Tess just said, Let’s do the numbers. Dennis Johnson has. He’s an economist at the University of South Dakota.

DENNIS JOHNSON: If we subsidized petunias to the extent of a hundred dollars per ounce for petunia nectar, we’d have farmers growing petunias. We would have petunia processing plants. We would get all kinds of economic activity with respect to that, too.

Sounds ridiculous, right? Well, Johnson says ethanol is hardly different. He says there is some environmental benefit and economic value in reducing demand for oil. But by Johnson’s calculations, ethanol deserves no more than 20 cents.

JOHNSON: Every gallon, you’ve got between 30 and 70 cents too much subsidy. What that means is, that the country is a little poorer.

Another persistent question is ethanol’s energy return on investment. Earlier this year, Cal-Berkeley professor Alex Farrell published an analysis in the journal Science. He concluded corn-based ethanol yields only 10% to 20% more energy than it takes to make.

ALEX FARRELL: While there’s only a small gain in terms of total energy, the energy that’s used to make ethanol is mostly coming from natural gas and coal.

So corn-based ethanol replaces oil with a little less domestic coal and natural gas. But Farrell says there could be far more efficient ways to make ethanol.

Right now, when farmers harvest cornfields, only the kernels end up being used for ethanol. But researchers like Farrell hope to one day find ways to convert the entire plant, or even use native prairie grasses like switchgrass.

FARRELL: Going to a sustainable energy system, and using biofuels as part of that sustainable energy system, will almost certainly require a transition away from corn ethanol towards other crops.

Those technologies are years, if not decades, away. Some countries like Brazil make ethanol more efficiently right now from sugar cane. But American farmers say what’s the point in replacing foreign oil with foreign ethanol. So for now, American corn, although far from perfect, is king. Brian Jennings of the American Coalition for Ethanol makes no apologies.

JENNINGS: The cynics can say what they want. But we’ve earned the support in Congress and in the state legislatures. As the president would say: We’ve earned some political capital and we intend to use it. We need to use it!

And the industry is gearing up for that. Last week the giant corn processing company Archer Daniels Midland Company hired a former oil executive as CEO. One more sign that American farmers are staking a claim to your gas tank.

In Sioux Falls, South Dakota, I’m Curt Nickisch for Marketplace.

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