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Ethanol and other biofuels become a global political issue

by Eric Jackson

The one noteworthy thing that George W. Bush had to show from his recent trip to several Latin American countries was a rather vague joint statement with Brazilian President Lula da Silva promising cooperation in the development of ethanol and other biofuel technologies. "Biofuels" are those that are grown, which are thus unlike non-renewable petroleum in that the supply is not nearly so finite as that of fossil-based fuels.

The issue takes on added significance in Panama because this country now has an agreement with Brazil by which the latter will aid the establishment of a Panamanian biofuels industry.

The Brazilians have long made large-scale use of ethanol, an alcohol that can be made from corn, sugar cane, wood chips or many other plant materials. Ethanols made from different plant substances will have varying fuel value properties, much like gasolines with different octane contents do. Generally, sugar cane based ethanols burn hotter and cleaner than those made from corn.

Although it can be burned pure for fuel, in North America ethanol is generally mixed with gasoline to add oxygen rather that used alone. Its growing importance was highlighted when it began to be traded on the Chicago Board of Trade commodities exchange in 2005.

On the US market ethanol prices have been highly affected by fluctuations in the prices of competing gasoline additives and of gasoline itself. Thus it has not been unusual for American farmers to see the price for corn as a foodstuff drop even as the price of ethanol rises, or vice versa. One great boon to the US price of ethanol has been a ban by about half of the states on a competing gasoline additive, methyl tertiary butyl ether (MBTE), which seeps into groundwater and becomes a long-term contaminant that is known to foul the taste of water and is a suspected carcinogen. Like gasoline, US ethanol prices are affected by seasonal evaporation rates --- you get more evaporation during the hot summer than the cold winter, and these naturally occurring losses get passed on to consumers in the prices they pay.

Ethanol has the advantage that it produces substantially less carbon dioxide than gasoline. Although there are some politicians and some scientists in their pay who deny it, Earth's temperature is going up and at least part of the reason is that an accumulation of human-generated carbon dioxide in the atmosphere is creating a "greenhouse effect" that holds heat that would otherwise escape into space.

Among the other biofuels is biodiesel, which is diesel oil made from plant materials such as rapeseed or by the recycling of used cooking oil. Typically an engine running on biodiesel gives off more particles of some sorts of pollutants and less of others than one running on fossil fuel diesel. (Most fossil fuel diesel is made from petroleum, but it can also be made out of coal.) The big advantage is that unlike petroleum-based diesel, biodiesel has no sulfur, and thus doesn't spew sulfur dioxide into the air, which precipitates out of the atmosphere as the sulfuric acid component of acid rain.

In the United States the oil companies have for more than a century played a highly influential role in politics, to the point now that two former oil company execs, George W. Bush and Richard Cheney, now occupy the government's two top executive posts. However, the US oil industry has not received everything that it wanted. Yes, prices are through the roof, but on the other hand it looks as if one part of history's verdict on an unpopular war will be that the world's biggest known but relatively unexploited oil reserves --- those under Iraq --- will not end up under the control of US-based oil companies. High tide may have come and gone for the oil industry's influence over American politics.

Meanwhile, the oil industry faces competition from within and from some other large-scale business interests on the biofuels issue. Shell and British Petroleum (BP) now advertise their interest in biofuels and other alternative energy sources, and the US leader of the ethanol industry is not a hippie cooperative but the giant Archer Daniels Midland (ADM). Among the captains of industry there is a growing sense that an exclusive concentration on petroleum is something akin to having been a specialist in buggy whip production 100 years ago.

In Brazil the military dictatorship of the 70s decided, in the wake of OPEC's first flexing of its economic muscles, to convert its automobiles to ethanol. Since then a state-subsidized ethanol production industry has arisen and Brazil has demonstrated that petroleum is not so essential to an industrializing and increasingly urban society as it was once believed.

Now the expansion of Brazil's ethanol industry, no longer so heavily subsidized by the government, faces two great obstacles: a prohibitive import duty imposed by the United States and similar tariffs in some of the other industrialized countries, plus the force of habit that has a world auto industry and its support infrastructure accustomed to petroleum-based fuels. The Bush-Lula joint declaration doesn't have the legal effect of a treaty, but it does carry the implicit promise that the American tariff on Brazilian ethanol will come down and that change in policy will ripple through the economy and popular culture.

A lot of farmers on the Midwestern plains of the United States are very pleased that this may open new possibilities for them --- according to the Renewable Fuels Association, a US lobbying group, ethanol currently adds $4.5 billion to the gross US farm income per year, and according to the US Department of Agriculture it adds about 30 cents to the price of a bushel of corn.

But is it an all-around winning situation? Doubts have been raised and one of the most noteworthy nay-sayers is Cuba's long-time dictator Fidel Castro, now sidelined by health problems but well enough to write an essay that appeared in the March 28 edition of the Cuban Communist Party paper Granma. Castro notes that to supply the 35 billion gallons of ethanol that the Bush-Lula declaration contemplates by the year 2017 would require the growing of 320 million tons of corn, if that is to be the source from which the alcohol is made. The problem is, the United States only produced 280 million tons of corn in 2005, Castro notes. Others have projected that to supply America's cars would require the equivalent of all US farmland now dedicated to the growing of food to be converted to biofuel production. But Castro argues that it would be cheaper in an economy globalized on US terms to export most of that production to less developed countries, which instead of pursuing agricultural policies aimed at feeding themselves would dedicate their resources to feeding US energy consumption needs. Three billion people would die premature deaths from hunger and thirst if the world converts from gasoline to ethanol but otherwise doesn't change its energy habits, Castro claims.

The National Corn Growers Association, a US farm lobby, disputes Castro's dichotomy between food and fuel production. "The production of ethanol does not translate into less grain available for food, since farmers do not grow more or less corn based on ethanol production," the association argues. "Ethanol production uses field corn—most of which is fed to livestock, not humans. In fact, only the starch portion of the corn kernel is used to produce ethanol. The vitamins, minerals, proteins and fiber are converted to other products including sweeteners, corn oil and high-value livestock feed—feed which helps livestock producers add to the overall food supply."

But University of California at Berkeley researcher Tad Patzek warns that a dramatic increase in US ethanol use would mean a shift of farm land now used to grow food to energy production use. In articles that appeared in US business publications he blamed current corn growing for ethanol for a spike in corn meal prices earlier this year, which in turn raised the prices of tortillas in Mexico.

A number of prominent environmentalists and environmental groups have echoed Castro's land use concerns and even China, which like Cuba has a rigidly controlled press and restricted public participation in policy debates, is now openly discussing the pros and cons of dedicating arable land to ethanol production.

In panning the Bush-Lula agreement, Greenpeace USA said that "an aggressive focus on ethanol, without a federally mandated cap on emissions, is simply a leap sideways."

But the World Wildlife Fund (WWF) thinks that plant-based fuels are a promising alternative to fossil fuels and that "given the growing commercial demand of these products, it's important to work hand in hand with the producers to analyze and reduce the environmental impacts due to agriculture expansion to produce biofuel."

Those taking a middle position between advocates and detractors have argued that while conversion to biofuels may be part of the solution to the world's energy and greenhouse gas problems, in the overall scheme of things it's not as important as the adoption of habits that require less overall fuel use. On that latter point the moderates find themselves in agreement with both Greenpeace and Fidel Castro, who for example advocate the replacement of the world's incandescent light bulbs with more energy efficient fluorescent ones.

For the United States --- and for countries like Panama that attempt to copy outdated American habits --- the big problem is a way of life designed around automobiles. The city/suburb paradigm is designed around people commuting to work in individual cars to the extent that in many areas a conversion to mass transit can't be easily done. There are major industries --- automobile production, highway construction, shopping malls and so on --- that have a stake in the continuation of an economy based on people getting around in individual cars.

And what of the world's emerging new economic powers China and India? Even if the billions of Chinese and Indians attain something like a North American or Western European standard of living, there just won't be the fuel or other resources to allow them to embrace a US-style car culture. The traffic gridlocks already afflicting many large Asian cities are ample warning of this.

Human beings are remarkably adaptable, so look to the transportation and energy crises as obstacle courses that will be muddled through. Look for biofuel industries to grow, cars and appliances to become more energy efficient, inefficient product to go the way of the dinosaur, US suburbs to either transform their economic relations with metro areas or become ghost towns, agriculture to adjust to climate changes, and substantial human migrations. There will be tales of economic ruin in all of this, but also opportunities for those who invest their money in the right places.

Bush - Lula declaration makes biofuels an international political issue
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Ad cartel backs an embattled friend
Business & Economy Briefs