How Ethanol Fuels the Food Crisis

By C. Ford Runge and Benjamin Senauer

From foreignaffairs.org , May 28, 2008

Summary: Runge and Senauer's update to their May/June 2007 essay ''How Biofuels Could Starve the Poor.''

C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. Benjamin Senauer is Professor of Applied Economics at the University of Minnesota.

In the year since the publication of our article, "How Biofuels Could Starve the Poor" (May/June 2007), the average price of corn has increased by some 60 percent, soybeans by 76 percent, wheat by 54 percent, and rice by 104 percent. What at first seemed alarmist has turned out to be an underestimate of the effects of biofuels on both commodity prices and the natural environment. These price increases are substantial threats to the welfare of consumers, especially in poor developing countries facing food deficits. They are especially burdensome to the rural landless and the urban poor, who produce no food at all. Josette Sheeran, the Executive Director of the World Food Program, calls this a global "tsunami of hunger." Robert Zoellick, President of the World Bank, estimates that there are 100 million newly poor and hungry people as a result of rising food prices.

Although controversy remains over how much of the food price increase since 2006 can be attributed to biofuels, their effects cannot be overlooked. In 2008, 30 percent of the U.S. corn crop will be used for ethanol. Although economic growth in developing countries (especially India and China) and poor crop conditions in certain parts of the food-exporting world (such as Australia) are part of the explanation for rising commodity prices worldwide, neither offers constructive opportunities for policy redirection. By contrast, the panoply of subsidies, tariffs and mandates protecting the biofuels sector, especially in the United States and the European Union, is ripe for reform.

Last year, we predicted that upward pressure on petroleum prices would persist, allowing ethanol producers to pay higher and higher prices for corn. At the time, oil prices were approximately $70 per barrel and rising while corn prices were roughly $3.75 per bushel and rising. But few observers, ourselves included, imagined that within a year oil prices would reach $130 per barrel and corn futures would exceed $6 per bushel. Meanwhile, despite a near doubling of U.S. corn ethanol production (from 3.4 billion gallons in 2004 to 6.5 billion gallons in 2007), infrastructure and distribution problems created local gluts of ethanol while the ethanol price increased only moderately. As a result, profit margins in the ethanol industry plummeted from an average of $3.40 per gallon in June 2006--when corn was still relatively cheap--to 60 cents per gallon by May 2008. Many ethanol investors pulled back, some expansion plans were cancelled, and much of the bullishness over biofuels faded.

Moreover, the supposedly "green" virtues of biofuels are not quite what they seemed. In fact, biofuels pose major risks to the environment. In October 2007, the Nobel Prize winning chemist Paul Crutzen, who pioneered the atmospheric science of ozone depletion, co-authored an article demonstrating that the heavy application of nitrogen fertilizer on corn (for ethanol) and on European rapeseed (for vegetable-oil biodiesel) would produce such high levels of atmospheric nitrous oxide--which is 296 times more damaging as a greenhouse gas than carbon dioxide--that it would have a net negative effect on greenhouse gas emissions.

In early 2008, two articles in Science showed that forests or grasslands converted for the production of biofuels will immediately incur a "carbon debt," due to the release of carbon dioxide from biomass and soil. This long "payback" for biofuels is disappointing in light of the urgency of global warming. The second Science study demonstrated that biofuel production often displaces crops, moving them to new areas where further land-use conversions are required. In the Corn Belt of the Midwest, biofuels helped to convert nearly 20 million acres from soybean production to corn production in 2007, pushing soybean prices higher while encouraging extensive applications of nitrogen and phosphorus fertilizers that run off into lakes and streams, enter the Mississippi River, and eventually reach the Gulf of Mexico where they have created an oxygen-starved "dead zone." The authors found that such land-use changes nearly double greenhouse emissions over 30 years, and increase greenhouse gases for 167 years.

The current biofuels craze is neither clean nor green. Instead, it has disrupted food and commodities markets and inflicted heavy penalties on poor consumers. These developments have occurred despite record global grain harvests in 2007. Our analysis (and virtually everyone else's), assumes that normal trends in grain yields will continue or improve. But U.S. corn yields, despite dramatic increases over the last half-century, have also shown significant departures from trend, including decreases of roughly 30 percent in some years due to adverse weather. Planting delays this spring in the Corn Belt due to wetter, cooler conditions are beginning to raise concerns about this year's crop. And, as reported recently in the Wall Street Journal , many economists "believe that food inflation will rise faster than the USDA estimate and likely continue into 2009."

The policy response to these pressures, in both rich and poor countries, has not been encouraging. Rather than reducing the mandates, subsidies, and tariffs that buttress the ethanol industry, the U.S. government has larded new agricultural legislation in Congress with further subsidies and shifted blame to other countries (or to economists). The one token reduction came in the recent farm bill, which trimmed the ethanol subsidy from 51 to 45 cents per gallon--hardly a significant change.

Political protests and riots related to rising food prices have occurred in a number of developing countries including Egypt, Guinea, Haiti, Indonesia, Mauritania, Mexico, Morocco, the Philippines, Senegal, and Yemen. In response, several governments have increased food subsidies, imposed price controls, restricted exports, and cut duties on food imports. Russia has imposed a 40 percent tariff on wheat exports, essentially halting them. Argentina, normally a major wheat exporter, has slowed exports. Vietnam, usually the second largest rice exporter after Thailand, has banned rice exports at least until the new crop comes to market. These trade restrictions reduce the supply available on the world market and drive global prices of these grains even higher, aggravating global price instability.

Nearly a decade ago, we published an article in Foreign Affairs ("A Removable Feast," May/June 2000) calling attention to global food insecurity and warning that distractions from the role of trade and investment in poor developing countries could erase the positive impact that increased agricultural productivity has had when it comes to reducing global hunger. Biofuels have become just such a distraction, threatening both food security and the natural environment. It is now time for governments to respond, not with more trade distortions and subsidies, but by ending the failed policies that have created an artificial industry that is emptying the stomachs and purses of the world's poor.

Food for Fuel?

By Tom Daschle, C. Ford Runge, and Benjamin Senauer

From Foreign Affairs, September/October 2007

Summary: Former Senator Tom Daschle argues that corn-based ethanol offers many benefits -- and few downsides for food stocks. Runge and Senauer reply.

Myth Versus Reality

Tom Daschle

The article "How Biofuels Could Starve the Poor," by C. Ford Runge and Benjamin Senauer (May/June 2007), recycles the "food versus fuel" mythology that has been rebutted time and again. Despite the authors' allegations, the facts are clear: U.S. corn is used to feed mostly animals, not people; converting the starch from a portion of the U.S. corn crop into biofuels is an efficient way to reduce the United States' dangerous dependence on imported oil; and the recent firming of grain prices in the United States -- and therefore the world -- will help, not hurt, farmers in food-deficit nations. Most important, current production facilities for grain-based biofuels are a critical platform for launching the next generation of advanced cellulosic and waste-derived biofuel technologies.

To their credit, Runge and Senauer recognize that ending the United States' suicidal dependence on fossil fuels will require a comprehensive energy policy. They are absolutely right: any solution to the world's twin energy and climate crises will need to be broad and multifaceted. Existing energy sources must be used more efficiently through increased fuel-efficiency requirements, better building codes and appliance standards, and market-driven demand-side management programs, such as ones that give utility companies profit incentives to increase energy efficiency and conservation. The playing field for renewable sources of energy -- such as wind, solar, and geothermal energy -- must be leveled with tax incentives that reduce the production costs for renewable-energy technologies. And the increasingly perilous costs of climate change (which is caused by the unbridled use of fossil fuels) must be stemmed with a binding international regulatory framework for greenhouse gases that includes the United States and China, the world's largest emitters of such gases today.

Unfortunately, Runge and Senauer distort the central role that biofuels will play in any such comprehensive solution, both in the United States and abroad. Far from starving the world's poor, as they claim, biofuels can help the world meet its energy needs without jeopardizing food security.

The current generation of biofuels has significant environmental benefits. The U.S. federal policy that requires minimum levels of oxygenates in U.S. gasoline has improved air quality in the United States while increasing the use of biofuels -- two of the primary benefits that Senator Bob Dole and I sought when we successfully pushed for that policy in 1991. The current generation of biofuels also helps reduce the emission of greenhouse gases. An interesting analysis released by the Natural Resources Defense Council last May showed that corn-based ethanol outperforms gasoline when the two fuels' full production and use cycles are compared. Innovation in the biofuel industry is leading to even greater greenhouse gas reductions, regardless of the feedstock.

Runge and Senauer themselves argue that the next generation of biofuels will dramatically lessen greenhouse gases. But not content to highlight these benefits, the authors stack the deck by focusing on the costs of developing these fuels. The problem is that their cost predictions take no account of the effects of innovation or of policy proposals that appear likely to be implemented over the next several years (and which they support).

One such proposal is for a U.S.-wide carbon cap-and-trade system, which would immediately provide an economic advantage to fuels with lower carbon content. Although such a system is unlikely to come into being under the current president, most analysts believe that it will by 2012. Another significant proposal is for new state and federal incentives for low-carbon fuels, such as the program now being implemented in California, which is set to take full effect by November 2008. By mandating that a growing percentage of the market for transportation fuel be set aside for low-carbon fuels, such programs would unleash a tidal wave of private-sector investment and technological innovation that would ultimately bring about something of a low-carbon-fuel Manhattan Project. In stark contrast to the head-in-the-sand policies of the Bush administration, the example of these policies could serve as a beacon to the rest of the world and encourage similar behavior elsewhere, including in China and India.

Under either of these policies, both the costs associated with carbon-intensive fossil fuels and the incentives for innovation in low-carbon fuels would dramatically increase. Thus, it is reasonable to expect cellulose-based ethanol to be competitive far sooner than in ten years, the time frame predicted by Runge and Senauer.

Having lived through three decades of debates about ethanol, I can attest that the critics of biofuels have often warned of a coming food crunch as a result of the competition for inputs needed to produce both food and fuel. One of the most memorable such predictions arose in 1980, during my second term in Congress, in the form of a Worldwatch Institute pamphlet entitled "Food or Fuel: New Competition for the World's Cropland." I was among those who rebutted the argument, which was authored by Lester Brown, and predicted that U.S. farmers and technology would more than keep pace with demand not only for food and feed but also for fuel. Over the next several decades, the doomsayers were proved wrong: productivity gains for corn averaged nearly three percent per year, and the annual U.S. corn crop increased from approximately seven billion bushels in 1980 to nearly 12 billion bushels in 2006. During most of that time, corn prices were far below the actual costs of corn production, and taxpayers spent billions in direct payments to farmers in order to maintain the nation's "cheap food" policy. Last year, the Worldwatch Institute released a report warning of the potential effect of biofuels on food but highlighting, above all, their benefits for farmers and the climate.

In August 2005, President George W. Bush signed the Renewable Fuel Standard Program into law, and U.S. ethanol production is now expected to approach eight billion gallons by next year. As the public's attention has begun to focus on the need for alternatives to oil, the major oil companies have become concerned. Unsurprisingly, warnings of a looming food-fuel tradeoff have crept back into the national debate.

Yet I am convinced that just as the crunch never came during the past 25-plus years, it will not come now.

A recent analysis of the Bureau of Labor Statistics' food pricing data by the National Corn Growers Association showed that annual inflation for a basket of corn-intensive foodstuffs, such as dairy products, chicken, and pork, was less than general annual food inflation. And so even though the price of yellow corn in the United States has gone from $1.98 per bushel in January 2006 to $3.76 per bushel in March 2007, the increase has not been passed on to U.S. consumers of products such as milk, cheese, chicken, and pork.

There are a number of possible reasons for this (none of which Runge and Senauer cite). One of them is that only about five percent of the U.S. corn crop is used directly for human food; much of the remaining 95 percent is used to feed livestock. Another reason is that ruminant animals, such as beef and dairy cattle, get more nutritional value out of feed made from ethanol coproducts than out of other feed. The benefits are less great for monogastric animals, such as swine and poultry, but the market can still get the most bang for the bushel by converting the starch in corn into ethanol and then using the protein coproducts from ethanol plants for ruminants' feed rations.

To be sure, short-term market gyrations will require adjustments, as was the case in response to the recent hikes in prices for tortilla flour in Mexico cited by the authors. But this will be a short-lived challenge because the market will rapidly respond to the increased demand for corn by encouraging farmers to plant more of it. The U.S. Department of Agriculture estimates that there will be as many as 90 million acres of corn planted this year in the United States and tens of millions of acres more planted in South America and elsewhere. If history is any indication, productivity per acre will increase year after year as technology improves the characteristics of seeds, including their starch content and ability to ferment. And in the medium term, of course, feedstocks other than corn, including nonfood cellulose, will become increasingly important as inputs for biofuels.

The legislation promoting a low-carbon fuel standard now being considered by Congress will attract investment for next-generation facilities that convert animal waste and other waste (replacing fossil fuel inputs) into biogas and biofertilizers. As energy costs rise, farmers will increasingly rely on low- and no-till cultivation techniques. And as their incomes improve, they will have more capital available to employ other environmentally friendly techniques. An acre of corn, one of the rare plant species to use a carbon-dioxide-efficient photosynthesis system, removes more carbon dioxide from the atmosphere than does an acre of mature Amazonian rain forest, and next-generation biofuel technologies -- including those using nonfood cellulosic feedstocks -- will increasingly contribute to the critically important goal of reducing, as the author Michael Pollan has put it, humans' "carbon footprint."

Next-generation feedstocks in other countries will also be important. Runge and Senauer sound the alarm about the potential use of cassava -- an important foodstuff -- for biodiesel, but cassava is far from being the most promising feedstock for biodiesel in developing countries. In fact, oil from jatropha, a nonfood plant that grows in wastelands, is widely used in India, where it is the main ingredient in the 15-20 percent biodiesel fuel that powers the trains running from New Delhi to Mumbai. According to the Energy and Resources Institute in New Delhi, a hectare of jatropha can produce four times as much fuel as a hectare of soybeans. Other countries, such as the Dominican Republic, Haiti, and several African states, have begun to sow jatropha for future use in biodiesel.

Like at no other time in history, the planet faces energy and climate crises. Resolving them will require a comprehensive and well-reasoned set of policies. Those choices must be based on sound analysis -- not hyperbole and the hollow recitation of discredited doomsday prophecies.

TOM DASCHLE, Special Policy Adviser at the law firm Alston & Bird and Distinguished Senior Fellow at the Center for American Progress, is a former Democratic Senator from South Dakota and former Senate Majority Leader.

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Runge And Senauer Reply

Senator Tom Daschle's comments reflect his longtime commitment to promoting corn-based ethanol as a member of Congress and now as a lobbyist for the ethanol industry. Whatever our differences with him over biofuels, they are not about politics; we supported his last race for senator from South Dakota. Nor are our differences due to a lack of familiarity with agriculture. We have spent careers in Minnesota analyzing agricultural trade and its impact on the environment and on markets for food. Finally, we agree with Daschle that corn-based ethanol will be at best a partial solution to our current energy needs.

But we disagree with Daschle on four of his points: that U.S. corn is fed mostly to animals with few implications for people, that the conversion of corn into biofuel is an efficient way to reduce the United States' dependence on foreign oil, that higher grain prices will help farmers in food-deficit nations, and that the current corn-based ethanol industry will be a platform for the next generation of biofuels, which will be made from cellulose and waste materials.

First, we, too, know that meat-producing animals eat more than half of the U.S. corn crop. But people do eat chicken, eggs, pork, steak; drink milk; and consume foods containing cornmeal, corn oil, and corn sweeteners. U.S. consumers spend over 20 percent of their food budgets on meat, eggs, and dairy. And the share of the corn crop used to produce ethanol will rise from less than ten percent in 2004 to an expected 20-25 percent of the crop next year. As more acres are devoted to corn, fewer acres are available for other types of dairy feed, such as alfalfa, or for table vegetables, such as green beans. As a result, milk and vegetable prices are rising. And as acres are bid away from soybeans and turned over to corn, the price of soybean-based feed is also increasing, adding to the pressure on meat prices. In March 2007, the U.S. Department of Agriculture forecast that demand for ethanol would push the prices of poultry, pork, and beef higher. The Wells Fargo economist Michael Swanson noted in June 2007 that the rising costs of corn and soybean feed also "have a direct and significant impact" on "oils, cereals and bakery products." Corn-based ethanol, Swanson concluded, "is indeed responsible for the increased rate of food inflation" (even though it is not its sole cause).

Second, even if every single one of the roughly 90 million acres in the United States devoted to growing corn goes into ethanol -- leaving none for feed, exports, or other uses -- corn-based ethanol would meet only 12-15 percent of the country's transportation fuel needs. Hence, ethanol's contribution to reducing U.S. dependence on foreign petroleum today is marginal at best.

Third, higher grain prices are translating into an increase in the prices of staple foods around the world. For some, this effect could be another way beside trade liberalization to raise the incomes of poor farmers. But the ethanol boom's distorting effects on commodity prices are hardly a substitute for expanded market opportunities for farmers in food-deficit nations. By definition, a food-deficit nation buys more food than it sells and hence is negatively affected by price increases. Most of the three billion people living on less than $2 a day are subsistence farmers with little or no surplus to sell or urban slum dwellers who consume but do not produce food. As consumers, they lose. Higher prices may induce more grain production abroad, but unless wealthy nations agree to import this grain by granting expanded market access to poor producer nations, it will be of no help to them. Finally, as the need for corn for ethanol production cuts more and more into U.S. corn exports, the United States is increasingly trading an export in which it has a tremendous comparative advantage (corn) for a product in which it has a comparative disadvantage (ethanol), especially vis-à-vis Brazil. This disadvantage is precisely the reason the United States has a 54-cent-a-gallon ethanol import tariff.

Fourth, Daschle's argument that corn-based ethanol will be a platform for cellulose- and waste-based fuels is undercut by three observations. For one thing, although cellulose from switchgrass holds promise, who will plant it while the price of corn is above $3.50 or more a bushel, as it is now? U.S. corn growers and the ethanol industry did not spend 30 years paying the campaign bills of members of Congress such as Senators Daschle and Bob Dole (both of whom now lobby for ethanol at the same firm) in order to give away the store to grass producers. If, moreover, the rapid technological development of cellulosic alternatives is to be promoted without "me too" subsidies matching those given to the corn-based ethanol industry, then the incentives currently favoring corn-based ethanol (such as tax credits, import tariffs, and production mandates) should be lowered. Giving huge grants to noncompetitive biomass production, rather than investing in basic research and development for conservation and renewable sources of energy, only pays down the cost of the inefficiency of that biomass.

On August 9, 2006, Senator Daschle noted in a speech before the American Coalition for Ethanol that advocates of corn-based ethanol "have always been acting more in the national interest than in self-interest." In truth, the ethanol industry is a textbook example of how agriculture and industry combine to influence Congress into transferring taxpayer and consumer dollars to wealthy and influential special interests.

Biofuels

Washington Post

Sunday, August 26, 2007

Federal regulations requiring growing use of ethanol by gasoline refiners have boosted the fortunes of countless ethanol producers. Ethanol production in January averaged 375,000 barrels a day, up 30 percent from the year before. Legislation approved by the Senate would require that use to rise to 2.3 million barrels a day over the next 15 years, half of it corn-based and half using other plants, such as wood chips or switchgrass, as feedstocks.

Corn-based ethanol saves little energy when compared with petroleum because of the energy that goes into growing and distilling corn. Cellulosic ethanol, or sugar-based ethanol, has a better balance between energy and carbon and would fare better than corn-based rivals under legislation that placed a value and price on carbon emissions.

So far, however, all the major U.S. ethanol producers, led by Archer Daniels Midland, Poet (formerly known as the Broin Cos.) and Verasun Energy, use corn. Profits at those firms have been squeezed by high corn prices.

Citigroup identified Yara International, a Norwegian company that is the world's largest maker of nitrogen fertilizer, as a firm riding the biofuel trend. Yara, which trades on the Oslo Stock Exchange, also makes ammonia, another fertilizer, and could benefit from increased corn plantings to satisfy the U.S. thirst for corn-based ethanol. Yara, listed on the Oslo Stock Exchange, is up more than 60 percent in the past 12 months, though it has tumbled 12 percent in the past three months.

How Biofuels Could Starve the Poor

By C. Ford Runge and Benjamin Senauer

From Foreign Affairs, May/June 2007

Summary: Thanks to high oil prices and hefty subsidies, corn-based ethanol is now all the rage in the United States. But it takes so much supply to keep ethanol production going that the price of corn -- and those of other food staples -- is shooting up around the world. To stop this trend, and prevent even more people from going hungry, Washington must conserve more and diversify ethanol's production inputs.

C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law and Director of the Center for International Food and Agricultural Policy at the University of Minnesota.

Benjamin Senauer is Professor of Applied Economics and Co-director of the Food Industry Center at the University of Minnesota.

The Ethanol Bubble

In 1974, as the United States was reeling from the oil embargo imposed by the Organization of Petroleum Exporting Countries, Congress took the first of many legislative steps to promote ethanol made from corn as an alternative fuel. On April 18, 1977, amid mounting calls for energy independence, President Jimmy Carter donned his cardigan sweater and appeared on television to tell Americans that balancing energy demands with available domestic resources would be an effort the "moral equivalent of war." The gradual phaseout of lead in the 1970s and 1980s provided an additional boost to the fledgling ethanol industry. (Lead, a toxic substance, is a performance enhancer when added to gasoline, and it was partly replaced by ethanol.) A series of tax breaks and subsidies also helped. In spite of these measures, with each passing year the United States became more dependent on imported petroleum, and ethanol remained marginal at best.

Now, thanks to a combination of high oil prices and even more generous government subsidies, corn-based ethanol has become the rage. There were 110 ethanol refineries in operation in the United States at the end of 2006, according to the Renewable Fuels Association. Many were being expanded, and another 73 were under construction. When these projects are completed, by the end of 2008, the United States' ethanol production capacity will reach an estimated 11.4 billion gallons per year. In his latest State of the Union address, President George W. Bush called on the country to produce 35 billion gallons of renewable fuel a year by 2017, nearly five times the level currently mandated.

The push for ethanol and other biofuels has spawned an industry that depends on billions of dollars of taxpayer subsidies, and not only in the United States. In 2005, global ethanol production was 9.66 billion gallons, of which Brazil produced 45.2 percent (from sugar cane) and the United States 44.5 percent (from corn). Global production of biodiesel (most of it in Europe), made from oilseeds, was almost one billion gallons.

The industry's growth has meant that a larger and larger share of corn production is being used to feed the huge mills that produce ethanol. According to some estimates, ethanol plants will burn up to half of U.S. domestic corn supplies within a few years. Ethanol demand will bring 2007 inventories of corn to their lowest levels since 1995 (a drought year), even though 2006 yielded the third-largest corn crop on record. Iowa may soon become a net corn importer.

The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world's total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.

This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn -- which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.

The Oil And Biofuel Economy

In the United States and other large economies, the ethanol industry is artificially buoyed by government subsidies, minimum production levels, and tax credits. High oil prices over the past few years have made ethanol naturally competitive, but the U.S. government continues to heavily subsidize corn farmers and ethanol producers. Direct corn subsidies equaled $8.9 billion in 2005. Although these payments will fall in 2006 and 2007 because of high corn prices, they may soon be dwarfed by the panoply of tax credits, grants, and government loans included in energy legislation passed in 2005 and in a pending farm bill designed to support ethanol producers. The federal government already grants ethanol blenders a tax allowance of 51 cents per gallon of ethanol they make, and many states pay out additional subsidies.

Consumption of ethanol in the United States was expected to reach over 6 billion gallons in 2006. (Consumption of biodiesel was expected to be about 250 million gallons.) In 2005, the U.S. government mandated the use of 7.5 billion gallons of biofuels per year by 2012; in early 2007, 37 governors proposed raising that figure to 12 billion gallons by 2010; and last January, President Bush raised it further, to 35 billion gallons by 2017. Six billion gallons of ethanol are needed every year to replace the fuel additive known as MTBE, which is being phased out due to its polluting effects on ground water.

The European Commission is using legislative measures and directives to promote biodiesel, produced mainly in Europe, made from rapeseeds and sunflower seeds. In 2005, the European Union produced 890 million gallons of biodiesel, over 80 percent of the world's total. The EU's Common Agricultural Policy also promotes the production of ethanol from a combination of sugar beets and wheat with direct and indirect subsidies. Brussels aims to have 5.75 percent of motor fuel consumed in the European Union come from biofuels by 2010 and 10 percent by 2020.

Brazil, which currently produces approximately the same amount of ethanol as the United States, derives almost all of it from sugar cane. Like the United States, Brazil began its quest for alternative energy in the mid-1970s. The government has offered incentives, set technical standards, and invested in supporting technologies and market promotion. It has mandated that all diesel contain two percent biodiesel by 2008 and five percent biodiesel by 2013. It has also required that the auto industry produce engines that can use biofuels and has developed wide-ranging industrial and land-use strategies to promote them. Other countries are also jumping on the biofuel bandwagon. In Southeast Asia, vast areas of tropical forest are being cleared and burned to plant oil palms destined for conversion to biodiesel.

This trend has strong momentum. Despite a recent decline, many experts expect the price of crude oil to remain high in the long term. Demand for petroleum continues to increase faster than supplies, and new sources of oil are often expensive to exploit or located in politically risky areas. According to the U.S. Energy Information Administration's latest projections, global energy consumption will rise by 71 percent between 2003 and 2030, with demand from developing countries, notably China and India, surpassing that from members of the Organization for Economic Cooperation and Development by 2015. The result will be sustained upward pressure on oil prices, which will allow ethanol and biodiesel producers to pay much higher premiums for corn and oilseeds than was conceivable just a few years ago. The higher oil prices go, the higher ethanol prices can go while remaining competitive -- and the more ethanol producers can pay for corn. If oil reaches $80 per barrel, ethanol producers could afford to pay well over $5 per bushel for corn.

With the price of raw materials at such highs, the biofuel craze would place significant stress on other parts of the agricultural sector. In fact, it already does. In the United States, the growth of the biofuel industry has triggered increases not only in the prices of corn, oilseeds, and other grains but also in the prices of seemingly unrelated crops and products. The use of land to grow corn to feed the ethanol maw is reducing the acreage devoted to other crops. Food processors who use crops such as peas and sweet corn have been forced to pay higher prices to keep their supplies secure -- costs that will eventually be passed on to consumers. Rising feed prices are also hitting the livestock and poultry industries. According to Vernon Eidman, a professor emeritus of agribusiness management at the University of Minnesota, higher feed costs have caused returns to fall sharply, especially in the poultry and swine sectors. If returns continue to drop, production will decline, and the prices for chicken, turkey, pork, milk, and eggs will rise. A number of Iowa's pork producers could go out of business in the next few years as they are forced to compete with ethanol plants for corn supplies.

Proponents of corn-based ethanol argue that acreage and yields can be increased to satisfy the rising demand for ethanol. But U.S. corn yields have been rising by a little less than two percent annually over the last ten years, and even a doubling of those gains could not meet current demand. As more acres are planted with corn, land will have to be pulled from other crops or environmentally fragile areas, such as those protected by the Department of Agriculture's Conservation Reserve Program.

In addition to these fundamental forces, speculative pressures have created what might be called a "biofuel mania": prices are rising because many buyers think they will. Hedge funds are making huge bets on corn and the bull market unleashed by ethanol. The biofuel mania is commandeering grain stocks with a disregard for the obvious consequences. It seems to unite powerful forces, including motorists' enthusiasm for large, fuel-inefficient vehicles and guilt over the ecological consequences of petroleum-based fuels. But even as ethanol has created opportunities for huge profits for agribusiness, speculators, and some farmers, it has upset the traditional flows of commodities and the patterns of trade and consumption both inside and outside of the agricultural sector.

This craze will create a different problem if oil prices decline because of, say, a slowdown in the global economy. With oil at $30 a barrel, producing ethanol would no longer be profitable unless corn sold for less than $2 a bushel, and that would spell a return to the bad old days of low prices for U.S. farmers. Undercapitalized ethanol plants would be at risk, and farmer-owned cooperatives would be especially vulnerable. Calls for subsidies, mandates, and tax breaks would become even more shrill than they are now: there would be clamoring for a massive bailout of an overinvested industry. At that point, the major investments that have been made in biofuels would start to look like a failed gamble. On the other hand, if oil prices hover around $55-$60, ethanol producers could pay from $3.65 to $4.54 for a bushel of corn and manage to make a normal 12 percent profit.

Whatever happens in the oil market, the drive for energy independence, which has been the basic justification for huge investments in and subsidies for ethanol production, has already made the industry dependent on high oil prices.

Cornucopia

One root of the problem is that the biofuel industry has long been dominated not by market forces but by politics and the interests of a few large companies. Corn has become the prime raw material even though biofuels could be made efficiently from a variety of other sources, such as grasses and wood chips, if the government funded the necessary research and development. But in the United States, at least, corn and soybeans have been used as primary inputs for many years thanks in large part to the lobbying efforts of corn and soybean growers and Archer Daniels Midland Company (ADM), the biggest ethanol producer in the U.S. market.

Since the late 1960s, ADM positioned itself as the "supermarket to the world" and aimed to create value from bulk commodities by transforming them into processed products that command heftier prices. In the 1970s, ADM started making ethanol and other products resulting from the wet-milling of corn, such as high fructose corn syrup. It quickly grew from a minor player in the feed market to a global powerhouse. By 1980, ADM's ethanol production had reached 175 million gallons per year, and high fructose corn syrup had become a ubiquitous sweetening agent in processed foods. In 2006, ADM was the largest producer of ethanol in the United States: it made more than 1.07 billion gallons, over four times more than its nearest rival, VeraSun Energy. In early 2006, it announced plans to increase its capital investment in ethanol from $700 million to $1.2 billion in 2008 and increase production by 47 percent, or close to 500 million gallons, by 2009.

ADM owes much of its growth to political connections, especially to key legislators who can earmark special subsidies for its products. Vice President Hubert Humphrey advanced many such measures when he served as a senator from Minnesota. Senator Bob Dole (R-Kans.) advocated tirelessly for the company during his long career. As the conservative critic James Bovard noted over a decade ago, nearly half of ADM's profits have come from products that the U.S. government has either subsidized or protected.

Partly as a result of such government support, ethanol (and to a lesser extent biodiesel) is now a major fixture of the United States' agricultural and energy sectors. In addition to the federal government's 51-cents-per-gallon tax credit for ethanol, smaller producers get a 10-cents-per-gallon tax reduction on the first 15 million gallons they produce. There is also the "renewable fuel standard," a mandatory level of nonfossil fuel to be used in motor vehicles, which has set off a political bidding war. Despite already high government subsidies, Congress is considering lavishing more money on biofuels. Legislation related to the 2007 farm bill introduced by Representative Ron Kind (D-Wis.) calls for raising loan guarantees for ethanol producers from $200 million to $2 billion. Advocates of corn-based ethanol have rationalized subsidies by pointing out that greater ethanol demand pushes up corn prices and brings down subsidies to corn growers.

The ethanol industry has also become a theater of protectionism in U.S. trade policy. Unlike oil imports, which come into the country duty-free, most ethanol currently imported into the United States carries a 54-cents-per-gallon tariff, partly because cheaper ethanol from countries such as Brazil threatens U.S. producers. (Brazilian sugar cane can be converted to ethanol more efficiently than can U.S. corn.) The Caribbean Basin Initiative could undermine this protection: Brazilian ethanol can already be shipped duty-free to CBI countries, such as Costa Rica, El Salvador, or Jamaica, and the agreement allows it to go duty-free from there to the United States. But ethanol supporters in Congress are pushing for additional legislation to limit those imports. Such government measures shield the industry from competition despite the damaging repercussions for consumers.

Starving The Hungry

Biofuels may have even more devastating effects in the rest of the world, especially on the prices of basic foods. If oil prices remain high -- which is likely -- the people most vulnerable to the price hikes brought on by the biofuel boom will be those in countries that both suffer food deficits and import petroleum. The risk extends to a large part of the developing world: in 2005, according to the UN Food and Agriculture Organization, most of the 82 low-income countries with food deficits were also net oil importers.

Even major oil exporters that use their petrodollars to purchase food imports, such as Mexico, cannot escape the consequences of the hikes in food prices. In late 2006, the price of tortilla flour in Mexico, which gets 80 percent of its corn imports from the United States, doubled thanks partly to a rise in U.S. corn prices from $2.80 to $4.20 a bushel over the previous several months. (Prices rose even though tortillas are made mainly from Mexican-grown white corn because industrial users of the imported yellow corn, which is used for animal feed and processed foods, started buying the cheaper white variety.) The price surge was exacerbated by speculation and hoarding. With about half of Mexico's 107 million people living in poverty and relying on tortillas as a main source of calories, the public outcry was fierce. In January 2007, Mexico's new president, Felipe Calderón, was forced to cap the prices of corn products.

The International Food Policy Research Institute, in Washington, D.C., has produced sobering estimates of the potential global impact of the rising demand for biofuels. Mark Rosegrant, an IFPRI division director, and his colleagues project that given continued high oil prices, the rapid increase in global biofuel production will push global corn prices up by 20 percent by 2010 and 41 percent by 2020. The prices of oilseeds, including soybeans, rapeseeds, and sunflower seeds, are projected to rise by 26 percent by 2010 and 76 percent by 2020, and wheat prices by 11 percent by 2010 and 30 percent by 2020. In the poorest parts of sub-Saharan Africa, Asia, and Latin America, where cassava is a staple, its price is expected to increase by 33 percent by 2010 and 135 percent by 2020. The projected price increases may be mitigated if crop yields increase substantially or ethanol production based on other raw materials (such as trees and grasses) becomes commercially viable. But unless biofuel policies change significantly, neither development is likely.

The production of cassava-based ethanol may pose an especially grave threat to the food security of the world's poor. Cassava, a tropical potato-like tuber also known as manioc, provides one-third of the caloric needs of the population in sub-Saharan Africa and is the primary staple for over 200 million of Africa's poorest people. In many tropical countries, it is the food people turn to when they cannot afford anything else. It also serves as an important reserve when other crops fail because it can grow in poor soils and dry conditions and can be left in the ground to be harvested as needed.

Thanks to its high-starch content, cassava is also an excellent source of ethanol. As the technology for converting it to fuel improves, many countries -- including China, Nigeria, and Thailand -- are considering using more of the crop to that end. If peasant farmers in developing countries could become suppliers for the emerging industry, they would benefit from the increased income. But the history of industrial demand for agricultural crops in these countries suggests that large producers will be the main beneficiaries. The likely result of a boom in cassava-based ethanol production is that an increasing number of poor people will struggle even more to feed themselves.

Participants in the 1996 World Food Summit set out to cut the number of chronically hungry people in the world -- people who do not eat enough calories regularly to be healthy and active -- from 823 million in 1990 to about 400 million by 2015. The Millennium Development Goals established by the United Nations in 2000 vowed to halve the proportion of the world's chronically underfed population from 16 percent in 1990 to eight percent in 2015. Realistically, however, resorting to biofuels is likely to exacerbate world hunger. Several studies by economists at the World Bank and elsewhere suggest that caloric consumption among the world's poor declines by about half of one percent whenever the average prices of all major food staples increase by one percent. When one staple becomes more expensive, people try to replace it with a cheaper one, but if the prices of nearly all staples go up, they are left with no alternative.

In a study of global food security we conducted in 2003, we projected that given the rates of economic and population growth, the number of hungry people throughout the world would decline by 23 percent, to about 625 million, by 2025, so long as agricultural productivity improved enough to keep the relative price of food constant. But if, all other things being equal, the prices of staple foods increased because of demand for biofuels, as the IFPRI projections suggest they will, the number of food-insecure people in the world would rise by over 16 million for every percentage increase in the real prices of staple foods. That means that 1.2 billion people could be chronically hungry by 2025 -- 600 million more than previously predicted.

The world's poorest people already spend 50 to 80 percent of their total household income on food. For the many among them who are landless laborers or rural subsistence farmers, large increases in the prices of staple foods will mean malnutrition and hunger. Some of them will tumble over the edge of subsistence into outright starvation, and many more will die from a multitude of hunger-related diseases.

The Grass Is Greener

And for what? Limited environmental benefits at best. Although it is important to think of ways to develop renewable energy, one should also carefully examine the eager claims that biofuels are "green." Ethanol and biodiesel are often viewed as environmentally friendly because they are plant-based rather than petroleum-based. In fact, even if the entire corn crop in the United States were used to make ethanol, that fuel would replace only 12 percent of current U.S. gasoline use. Thinking of ethanol as a green alternative to fossil fuels reinforces the chimera of energy independence and of decoupling the interests of the United States from an increasingly troubled Middle East.

Should corn and soybeans be used as fuel crops at all? Soybeans and especially corn are row crops that contribute to soil erosion and water pollution and require large amounts of fertilizer, pesticides, and fuel to grow, harvest, and dry. They are the major cause of nitrogen runoff -- the harmful leakage of nitrogen from fields when it rains -- of the type that has created the so-called dead zone in the Gulf of Mexico, an ocean area the size of New Jersey that has so little oxygen it can barely support life. In the United States, corn and soybeans are typically planted in rotation, because soybeans add nitrogen to the soil, which corn needs to grow. But as corn increasingly displaces soybeans as a main source of ethanol, it will be cropped continuously, which will require major increases in nitrogen fertilizer and aggravate the nitrogen runoff problem.

Nor is corn-based ethanol very fuel efficient. Debates over the "net energy balance" of biofuels and gasoline -- the ratio between the energy they produce and the energy needed to produce them -- have raged for decades. For now, corn-based ethanol appears to be favored over gasoline, and biodiesel over petroleum diesel -- but not by much. Scientists at the Argonne National Laboratory and the National Renewable Energy Laboratory have calculated that the net energy ratio of gasoline is 0.81, a result that implies an input larger than the output. Corn-based ethanol has a ratio that ranges between 1.25 and 1.35, which is better than breaking even. Petroleum diesel has an energy ratio of 0.83, compared with that of biodiesel made from soybean oil, which ranges from 1.93 to 3.21. (Biodiesel produced from other fats and oils, such as restaurant grease, may be more energy efficient.)

Similar results emerge when biofuels are compared with gasoline using other indices of environmental impact, such as greenhouse gas emissions. The full cycle of the production and use of corn-based ethanol releases less greenhouse gases than does that of gasoline, but only by 12 to 26 percent. The production and use of biodiesel emits 41 to 78 percent less such gases than do the production and use of petroleum-based diesel fuels.

Another point of comparison is greenhouse gas emissions per mile driven, which takes account of relative fuel efficiency. Using gasoline blends with 10 percent corn-based ethanol instead of pure gasoline lowers emissions by 2 percent. If the blend is 85 percent ethanol (which only flexible-fuel vehicles can run on), greenhouse gas emissions fall further: by 23 percent if the ethanol is corn-based and by 64 percent if it is cellulose-based. Likewise, diesel containing 2 percent biodiesel emits 1.6 percent less greenhouse gases than does petroleum diesel, whereas blends with 20 percent biodiesel emit 16 percent less, and pure biodiesel (also for use only in special vehicles) emits 78 percent less. On the other hand, biodiesel can increase emissions of nitrogen oxide, which contributes to air pollution. In short, the "green" virtues of ethanol and biodiesel are modest when these fuels are made from corn and soybeans, which are energy-intensive, highly polluting row crops.

The benefits of biofuels are greater when plants other than corn or oils from sources other than soybeans are used. Ethanol made entirely from cellulose (which is found in trees, grasses, and other plants) has an energy ratio between 5 and 6 and emits 82 to 85 percent less greenhouse gases than does gasoline. As corn grows scarcer and more expensive, many are betting that the ethanol industry will increasingly turn to grasses, trees, and residues from field crops, such as wheat and rice straw and cornstalks. Grasses and trees can be grown on land poorly suited to food crops or in climates hostile to corn and soybeans. Recent breakthroughs in enzyme and gasification technologies have made it easier to break down cellulose in woody plants and straw. Field experiments suggest that grassland perennials could become a promising source of biofuel in the future.

For now, however, the costs of harvesting, transporting, and converting such plant matters are high, which means that cellulose-based ethanol is not yet commercially viable when compared with the economies of scale of current corn-based production. One ethanol-plant manager in the Midwest has calculated that fueling an ethanol plant with switchgrass, a much-discussed alternative, would require delivering a semitrailer truckload of the grass every six minutes, 24 hours a day. The logistical difficulties and the costs of converting cellulose into fuel, combined with the subsidies and politics currently favoring the use of corn and soybeans, make it unrealistic to expect cellulose-based ethanol to become a solution within the next decade. Until it is, relying more on sugar cane to produce ethanol in tropical countries would be more efficient than using corn and would not involve using a staple food.

The future can be brighter if the right steps are taken now. Limiting U.S. dependence on fossil fuels requires a comprehensive energy-conservation program. Rather than promoting more mandates, tax breaks, and subsidies for biofuels, the U.S. government should make a major commitment to substantially increasing energy efficiency in vehicles, homes, and factories; promoting alternative sources of energy, such as solar and wind power; and investing in research to improve agricultural productivity and raise the efficiency of fuels derived from cellulose. Washington's fixation on corn-based ethanol has distorted the national agenda and diverted its attention from developing a broad and balanced strategy. In March, the U.S. Energy Department announced that it would invest up to $385 million in six biorefineries designed to convert cellulose into ethanol. That is a promising step in the right direction.

Alternative Fuels

Fueling Up With Ethanol

Are flexible fuel vehicles the answer to our oil addiction?

By Tara Baukus Mello

07-05-2007

America is addicted to oil — at least that's what our president said in his 2006 State of the Union address. With the U.S. ranked as the top consumer of oil worldwide, consuming more than three times the second largest oil-consuming country (China), calling it an addiction isn't an exaggeration. During his speech, the president called for the U.S. to reduce its oil imports from the Middle East 75 percent by the year 2025. The commander in chief's so-called Advanced Energy Initiative calls for, among other efforts, increasing ethanol production and putting more flexible fuel vehicles — which can run on either gasoline or ethanol — on the market.

Ethanol, a renewable fuel produced from corn and other crops, is already in over 15 percent of the gasoline sold in the United States. Most often it is blended with gasoline to produce a fuel that is 5-10-percent ethanol. A small percentage of the 4 million gallons of ethanol currently produced is E85, a blend of 85-percent ethanol and 15-percent gasoline. E85 is the highest ethanol blend that can be run in U.S. market flexible fuel vehicles, also known as E85 vehicles.

Although Henry Ford planned to fuel his early cars with ethanol, we didn't see the first flex fuel vehicles until the mid-1990s. Today, there are over 5 million flexible fuel vehicles that can run on either E85 or gasoline. That number will grow dramatically very soon, thanks to a big push by General Motors and other automakers.

Flexible fuel vehicles grow

Flexible fuel vehicle sales began after Congress passed the Alternative Motor Fuels Act of 1988, which offered automakers credits toward the Corporate Average Fuel Economy (CAFE) standards that all automakers are required to meet. Adding E85 vehicles to an automaker's vehicle lineup helped balance out larger, less fuel-efficient vehicles, so the average fuel economy for the vehicle fleet could be kept within federal standards. Unfortunately, while these vehicles could be powered by E85, customers usually fueled up with gasoline, chiefly because E85 was not readily available.

"While the [Alternative Motor Fuels] Act provided an incentive for automakers to build the cars, it did not address the development of an infrastructure for the fuel," explains Phil Lampert, executive director of the National Ethanol Vehicle Coalition. It wasn't until the 2005 Renewable Fuels Standard that an incentive was placed on ethanol itself, allowing the well-established, but heretofore stagnant, ethanol production industry to grow by leaps and bounds.

Today, there are about 600 E85 fuel stations where the 5 million flex fuel vehicles sold over the past decade can fill up. While this is a small number compared to the approximately 170,000 gasoline stations in the U.S., it's a huge step forward. By contrast, in 2000 there were only about a dozen E85 stations.

The future of E85 looks even brighter. The 2005 Act mandated that ethanol production double by 2012 to 7.5 billion gallons, which is estimated to reduce the U.S.'s oil consumption by 80,000 barrels per day. However, considering that our average daily oil consumption in 2004 was 20,731,000 barrels a day, of which 9.1 million barrels were refined into gasoline, it's clear that ethanol is but a part of a larger solution. Lampert says plans are underway to add 2,000 more E85 fuel stations within the next year.

Along with this infrastructure comes even more flexible fuel vehicles. Automakers will produce about 700,000 E85 vehicles in 20 different makes and models for the 2006 model year. While some of those vehicles will be sold only to fleet buyers, 13 of the 20 will be available to the individuals. General Motors, which began selling E85-capable vehicles in 1999, is leading the effort to make flexible fuel vehicles available to the public with its "Live Green. Go Yellow" campaign and a commitment to manufacture 400,000 vehicles for 2006. That commitment is nearly double the number of flex fuel vehicles the company sold in 2005.

Automakers get on board

While General Motors believes that the ultimate solution to reducing the U.S.'s dependence on oil is hydrogen-powered fuel-cell vehicles, it sees ethanol and hybrids as viable ways to reduce oil consumption right now. "E85 provides us with a tremendous opportunity to save gasoline because ethanol is renewable, domestically produced and produces fewer greenhouse gas emissions," said Elizabeth Lowery, GM vice president of environment and energy.

GM's campaign to increase ethanol use goes well beyond simply producing flex fuel vehicles. The company has numerous TV, print and radio spots promoting "Live Green. Go Yellow," including an ad that aired during Super Bowl XL. Other efforts include the creation of a Live Green, Go Yellow Web site, the use of distinctive yellow gas caps on E85 vehicles, and partnerships with several ethanol producers to increase the number of E85 fuel stations. "We recognize it's more than just putting the vehicles out there," said GM spokesman Dave Barthmuss. "That's why we are helping to get people to work together to fuel the vehicles."

Other automakers — including Chrysler, Ford, Mercedes-Benz and Nissan — have also made commitments to flexible fuel vehicles and the ethanol infrastructure. The Chrysler Group, which sold its first E85 vehicles in 1998, will produce about 25,000 flex fuel vehicles this year for fleet sales only. By the 2008 model year, the company has committed to building about 500,000 flex fuel vehicles, about 25 percent of all the vehicles it produces annually.

Ford, which expects to produce about 250,000 E85 vehicles for 2006, recently partnered with VeraSun Energy Corporation, the nation's No. 2 ethanol producer, to increase the number of E85 fuel stations and boost public awareness of ethanol. Ford also unveiled a concept version of the Ford Escape Hybrid that can run on E85. Although there are challenges with bringing an E85 hybrid to production, this prototype vehicle represents one way to reduce oil consumption even further.

Not all automakers are ready to jump on the ethanol bandwagon. E85 is one of many alternative fuels that Toyota is considering, but currently the company has no plans to produce flexible fuel vehicles for sale in the U.S. Honda does not offer any E85 vehicles in the U.S. either, but it supports blends of E10 in gasoline. "We are concerned about reliance on significantly higher levels of ethanol until we develop a more efficient production process relying on a product other than corn," said Ed Cohen, American Honda's vice president of government and industry relations.

Why should you use ethanol?

You may already be using a blend of ethanol and gasoline in your vehicle and not even know it. Ethanol is used across the country in quantities of 5-10 percent to reduce smog-forming emissions and greenhouse gases. In 2004, the use of ethanol in the U.S. reduced greenhouse gas emissions by about 7 million tons, according to the Department of Energy's Argonne National Laboratory. That's the equivalent of removing the emissions from over 1 million vehicles on the road. In addition, ethanol is highly biodegradable, making it safer for the environment in the event of spills or leaks into the soil.

A 10-percent blend, called E10, is most common and is required in all gasoline sold in Hawaii, Minnesota and Montana, while a dozen other states are currently considering enacting similar mandates. Because all vehicles sold in the U.S. are made to run on ethanol blends up to E10, the only way to tell you are using a low-level ethanol blend is by checking the label on the pump when you refuel, although not all states require such labeling.

E85 is dispensed at pumps with the E85 logo and can only be used in flexible fuel vehicles. Currently, vehicles cannot be modified to run on E85 without violating federal standards. See the "Flex Fuel Vehicles Available" list below to see if you own a vehicle that is E85-compatible.

If you own one of the 5 million E85-capable vehicles, fueling with E85 is not only beneficial to the environment, you'll most likely see a small increase in performance, which will be accompanied by a small decrease in fuel economy. On average, when flexible fuel vehicles are powered by E85, the vehicles have about 5-percent more horsepower and a 10-percent drop in fuel-efficiency. The added power comes from ethanol's higher octane rating (ranging from 100-105). The fuel economy decrease comes from the fact that ethanol has a lower energy content than gasoline, which means you have to use more of it.

Flexible fuel vehicles are only minimally different from their gasoline-only counterparts. Typically, the vehicle's fuel delivery system is replaced with stainless steel or Teflon-coated components to ensure the E85 does not corrode them. In addition, there is a fuel sensor that detects the ratio of gasoline to ethanol. According to Lampert, early research indicates that because vehicles powered by E85 run so much cleaner than gasoline vehicles, some maintenance costs may actually be less than gasoline vehicles' in the long term.

Ethanol's future

The key to producing large quantities of ethanol lies in starting with materials that produce it more efficiently than corn does currently. While producing ethanol from corn uses only the starch portion of the kernel, leaving the protein, minerals and nutrients for use as food for humans or animals, most researchers agree that using non-food resources, like wood chips, willow trees, switch grass or corn stalks is a better long-term solution. The cellulose within these products would then be broken down and distilled into ethanol. Currently, however, this method of producing cellulosic ethanol is expensive. One of the goals of the president's Advanced Energy Initiative is to speed up the research in this area with the goal of making cellulosic ethanol competitively priced by 2012.

There's also the possibility of using E10 in more of the U.S.'s gasoline supply, or even fueling today's non-flex fuel vehicles with slightly higher blends. Several groups are currently studying the effects of blends up to E30 on non-modified vehicles. Early results from a study by the American Coalition for Ethanol show that the vehicles tested with E10, E20 and E30 did not show any signs of damage; however, more research needs to be done in this area, according to Brian Jennings, the group's executive president for public policy. Currently, automakers do not warranty the use of anything above E10 for non-flex fuel vehicles.

While it's hard to tell what the future holds for ethanol, it is definitely here to stay and will at least become more readily available. With federal mandates, research dollars and auto industry support, ethanol appears poised to be as viable an alternative as hybrids are today.

Flexible Fuel Vehicles Available

Flexible fuel vehicles, which can run on E85, gasoline or any combination of the two, are available on the following models. If you own one of the vehicles on this list, you can determine if it is E85 compatible if there is an E85 decal on the fuel door or by the VIN. For instructions on how to read your vehicle VIN to determine if it is a flex fuel vehicle, visit the E85Fuel.com Web site.

http://www.edmunds.com/advice/alternativefuels/articles/109194/article.html 

Buick Terraza (2007)

Chevrolet Avalanche (2005-2007)

Chevrolet Impala (2006-2008)

Chevrolet Monte Carlo (2006-2007)

Chevrolet S-10 (2000-2002)

Chevrolet Silverado (2002-2007)

Chevrolet Suburban (2002-2007)

Chevrolet Tahoe (2006-2007)

Chevrolet Uplander (2007)

Chrysler Aspen (2007)

Chrysler Sebring Sedan (2003-2008)

Chrysler Town & Country (1998-2003)

Chrysler/Plymouth Voyager (1998-2003)

Dodge Avenger (2008)

Dodge Caravan (1998-2000; 2004-2007)

Dodge Cargo (2003)

Dodge Dakota (2007)

Dodge Durango (2006-2007)

Dodge Grand Caravan (2004-2007)

Dodge Stratus (2003-2006)

Dodge Ram 1500 (2004-2007)

GMC Sierra (2002-2007)

GMC Sonoma (2000-2002)

GMC Yukon and Yukon XL (2002-2007)

Ford Crown Victoria (2006-2008)

Ford Explorer (2002-2005)

Ford Explorer Sport Trac (2004-2005)

Ford F-150 (2006-2007)

Ford Ranger (1999-2000)

Ford Ranger SuperCab (2001-2003)

Ford Taurus (1995-2006)

Isuzu Hombre (2000-2001)

Jeep Commander (2007)

Jeep Grand Cherokee (2007)

Lincoln Town Car (2006)

Mazda B3000 (1999, 2001-2003)

Mercedes-Benz C240 (2005)

Mercedes-Benz C320 (2003-2005)

Mercedes-Benz C300 (2007)

Mercury Grand Marquis (2006-2008)

Mercury Mountaineer (2002-2005)