The bio energy sector of the renewable energy market is under a good bit of fire these days. Seems like everyone, including Congress, is blaming bio fuels for the sudden increase in food prices. Not surprisingly the ethanol manufacturers have gone on the offensive (or is that defensive) in trying to counter this criticism. What's the truth of the situation?
There is no question that ethanol is one of the factors in the rise in demand for corn. According to the Department of Agriculture this year 22% of the U.S. corn crop will go towards producing ethanol rather than fuel. That's up 17% over last year. However, ethanol is not the only factor in the increased demand for corn. The biggest culprit is actually the increased demand for corn from China. Most of this demand is not for feeding the people of China directly, but instead for feeding their cows and pigs. Why, because the people of China and Asia have begun adding meat to their diets, something that used to be a rarity. Weather is also a factor in the current wave of demand. A drought this year in Asia reduced the supply of corn, wheat and soybeans. Imports increased to make up the difference. Finally there is the dollar itself. As the value of the dollar continues to fall on the currency market prices get higher.
As a result of the higher food prices Congress has begun to question the many incentives being provided to the ethanol industry. While this might be a good idea we suspect it is coming about four years too late and for the wrong reason. In our last two presidential election the Red states, most of which are large grain producers, managed to win themselves big government incentives for ethanol. Lost in the rush to win votes was the question as to whether or not ethanol is a particularly good approach for creating fuel in the first place. There continues to be much legitimate debate over the efficiency of corn-based ethanol. At best, according to industry spokesman, the fuel is only 1.25 efficient, meaning it only produces 25% more energy than it takes to make the fuel in the first place. However, recent studies that look at the full production cycle, including the cost of oil-based fertilizers to grow the corn in the first place, suggest that this number is optimistic and that ethanol could be a net negative (see our section on Food vs Fuel for more on this).
Yes, ethanol may be contributing to higher food prices but it is certainly not the only factor. The real problem is that at best corn-based ethanol is only a marginally efficient fuel. There are other renewable energy alternatives that have proven themselves in the marketplace to be far more efficient and effective, particularly wind energy and solar energy, which right now lack government incentives. Congress has still not renewed the renewable energy tax credits for wind and solar despite the fact that they represent probably the greatest energy resource that the U.S. has. Nor has the government invested in supporting the development of electric vehicles which would then make it easy for us to leverage electricity for transportation. If we are going to wean ourselves off of oil and coal and protect the planet the country is going to have to move much more forcefully to support renewable energy solutions. Therefore we support government incentives for renewable energy. But let's provide the most effective incentive for the most efficient renewable energy sources.
We are now in another election year. Let's not make the same mistake this time around. Let's have a real debate on where to put our government's energy dollars. Let's think wisely about how the taxpayer's dollars are used so that it has the greatest impact. Support the candidate that has the best energy policy and encourage your members of Congress to support energy policies that are wise, not just politically expedient.
There is no question that ethanol is one of the factors in the rise in demand for corn. According to the Department of Agriculture this year 22% of the U.S. corn crop will go towards producing ethanol rather than fuel. That's up 17% over last year. However, ethanol is not the only factor in the increased demand for corn. The biggest culprit is actually the increased demand for corn from China. Most of this demand is not for feeding the people of China directly, but instead for feeding their cows and pigs. Why, because the people of China and Asia have begun adding meat to their diets, something that used to be a rarity. Weather is also a factor in the current wave of demand. A drought this year in Asia reduced the supply of corn, wheat and soybeans. Imports increased to make up the difference. Finally there is the dollar itself. As the value of the dollar continues to fall on the currency market prices get higher.
As a result of the higher food prices Congress has begun to question the many incentives being provided to the ethanol industry. While this might be a good idea we suspect it is coming about four years too late and for the wrong reason. In our last two presidential election the Red states, most of which are large grain producers, managed to win themselves big government incentives for ethanol. Lost in the rush to win votes was the question as to whether or not ethanol is a particularly good approach for creating fuel in the first place. There continues to be much legitimate debate over the efficiency of corn-based ethanol. At best, according to industry spokesman, the fuel is only 1.25 efficient, meaning it only produces 25% more energy than it takes to make the fuel in the first place. However, recent studies that look at the full production cycle, including the cost of oil-based fertilizers to grow the corn in the first place, suggest that this number is optimistic and that ethanol could be a net negative (see our section on Food vs Fuel for more on this).
Yes, ethanol may be contributing to higher food prices but it is certainly not the only factor. The real problem is that at best corn-based ethanol is only a marginally efficient fuel. There are other renewable energy alternatives that have proven themselves in the marketplace to be far more efficient and effective, particularly wind energy and solar energy, which right now lack government incentives. Congress has still not renewed the renewable energy tax credits for wind and solar despite the fact that they represent probably the greatest energy resource that the U.S. has. Nor has the government invested in supporting the development of electric vehicles which would then make it easy for us to leverage electricity for transportation. If we are going to wean ourselves off of oil and coal and protect the planet the country is going to have to move much more forcefully to support renewable energy solutions. Therefore we support government incentives for renewable energy. But let's provide the most effective incentive for the most efficient renewable energy sources.
We are now in another election year. Let's not make the same mistake this time around. Let's have a real debate on where to put our government's energy dollars. Let's think wisely about how the taxpayer's dollars are used so that it has the greatest impact. Support the candidate that has the best energy policy and encourage your members of Congress to support energy policies that are wise, not just politically expedient.
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