In the announcement of their "100 Hour" agenda, Democrats targeted expanding research and investment in alternative energy as a key priority. This development is long overdue, and should be celebrated as a major step towards embracing a diversified 21st century energy economy.
The plan, however, has a major pitfall: an over-reliance on corn based ethanol. We need to make sure that in trying to solve one problem--our dependence on imported oil--we do not create a far more serious one: soaring grain prices and potential chaos in the world food economy.
Ethanol from corn has long been hailed as a solution to our nation's reliance on oil. As a result of soaring oil prices, investors have rushed to expand ethanol production - most clearly seen in the explosion of ethanol distilleries in the last year. Unfortunately this rush to invest in crop-based ethanol is pitting the world's poorest against the world's wealthy motorists.
Furthermore, a report released by me and my colleagues at the Earth Policy Institute (EPI) earlier this month revealed that this surge in ethanol plant construction has been vastly underestimated by both industry papers and ultimately the USDA, which has understated the amount of corn that will be required for ethanol in 2008 by more than half.
The USDA projects that distilleries will require only 60 million tons of corn from the 2008 harvest. But here at the Earth Policy Institute, we estimate that distilleries will need 139 million ton. If the EPI estimate is at all close to the mark, the emerging competition between cars and people for grain will likely drive world grain prices to levels never seen before. The key questions are: How high will grain prices rise? When will the crunch come? And what will be the worldwide effect of rising food prices?
This unprecedented diversion of the world's leading grain crop to the production of fuel will affect food prices everywhere. As the world corn price rises, so too do those of wheat and rice, both because of consumer substitution among grains and because the crops compete for land. Both corn and wheat futures were already trading at 10-year highs in late 2006.
With corn supplies tightening fast, rising prices will affect not only products made directly from corn, such as breakfast cereals, but also those produced using corn, including milk, eggs, cheese, butter, poultry, pork, beef, yogurt, and ice cream. The risk is that soaring food prices could generate a consumer backlash against the fuel ethanol industry.
Fuel ethanol proponents point out, and rightly so, that the use of corn to produce ethanol is not a total loss to the food economy because 30 percent of the corn is recovered in distillers dried grains that can be fed to beef and dairy cattle, pigs, and chickens, though only in limited amounts. They also argue that the U.S. distillery demand for corn can be met by expanding land in corn, mostly at the expense of soybeans, and by raising yields. While it is true that the corn crop can be expanded, there is no precedent for growth on the scale needed. And this soaring demand for corn comes when world grain production has fallen below consumption in six of the last seven years, dropping grain stocks to their lowest level in 34 years.
From an agricultural vantage point, the automotive demand for fuel is insatiable. The grain it takes to fill a 25-gallon tank with ethanol just once will feed one person for a whole year. Converting the entire U.S. grain harvest to ethanol would satisfy only 16 percent of U.S. auto fuel needs.
The competition for grain between the world's 800 million motorists who want to maintain their mobility and its 2 billion poorest people who are simply trying to survive is emerging as an epic issue. Soaring food prices could lead to urban food riots in scores of lower-income countries that rely on grain imports, such as Indonesia, Egypt, Algeria, Nigeria, and Mexico. The resulting political instability could in turn disrupt global economic progress, directly affecting all countries. It is not only food prices that are at stake, but trends in the Nikkei Index and the Dow Jones Industrials as well.
There are alternatives to creating a crop-based automotive fuel economy. The equivalent of the 2 percent of U.S. automotive fuel supplies now coming from ethanol could be achieved several times over, and at a fraction of the cost, by raising auto fuel efficiency standards by 20 percent.
If we shift to gas-electric hybrid plug-in cars over the next decade, we could be doing short-distance driving, such as the daily commute or grocery shopping, with electricity. If we then invested in thousands of wind farms to feed cheap electricity into the grid, U.S. cars could run primarily on wind energy--and at the gasoline equivalent of less than $1 a gallon. The stage is set for a crash program to help Detroit switch to gas-electric hybrid plug-in cars.
It is time for a moratorium on the licensing of new distilleries, a time-out, while we catch our breath and decide how much corn can be used for ethanol without dramatically raising food prices. The policy goal should be to use just enough fuel ethanol to support corn prices and farm incomes but not so much that it disrupts the world food economy. Meanwhile, a much greater effort is needed to produce ethanol from cellulosic sources such as switchgrass, a feedstock that is not used for food.
The world desperately needs a strategy to deal with the emerging food-fuel battle. As the leading grain producer, grain exporter, and ethanol producer, the United States is in the driver's seat.