The Difference Engine: The beef about corn

From: The Economist

IN A surprise U-turn, members of the United States Senate voted 73-27 last week to abolish a 45-cents-a-gallon subsidy for ethanol from corn (ie, maize) that is used for blending with petrol. They also voted to kill the 54-cents-a-gallon import duty on ethanol from abroad. This is the first time in over three decades that the Senate has challenged the sacrosanct $6 billion-a-year tax break for American corn-growers and ethanol producers.

The federal government started subsidising corn-based ethanol back in the late 1970s—in a bid to wean the country off imported oil. As recently as last December, lawmakers voted to extend the ethanol subsidy for yet another year. Since then, two things have happened to make the politicians change their minds.

First, a broad consensus has now thrown its weight behind the environmentalists’ view that using home-grown ethanol—as a replacement for imported oil—squanders far too much energy and water in the process, and is not a particularly good way or reducing greenhouse gases anyway. Indeed, given the intensive use of energy in agribusiness, it is debatable whether replacing petrol with ethanol breaks even in terms of the “wells-to-wheels” energy consumed, or even produces a net reduction in carbon emission.
Besides, even if America’s entire corn crop were to be devoted to ethanol production, it would still only supply 4% of the country’s oil consumption. So much for the argument that home-grown ethanol offers an answer to America’s dependence on foreign oil.

Second, the food industry has gone noisily public about the way the federal government’s corn subsidies—which have encouraged American farmers to devote more and more of their corn crops to ethanol production—have driven up food prices. Last year, 40% of the corn grown in the United States (some five billion bushels) was used for making ethanol. This summer, corn supplies for animal feed are heading for a 15-year low. As a consequence, corn futures have soared to almost $8 a bushel—twice their price a year ago. Consumers counting the cost at the supermarket checkout now know who to blame.

In America, two ethanol-blends of fuel have been approved for use. The most common by far is E10, a blend of petrol containing up to 10% ethanol. In this case, the ethanol is used simply as an oxygenate (ie, an oxygen-rich additive) to reduce the carbon monoxide produced during combustion and to raise the octane rating of the fuel enough to protect the engine from “knocking” under load—a condition caused by the air-fuel mixture in the cylinders exploding prematurely instead of burning smoothly. Previously, MTBE (methyl tertiary-butyl ether) was the oxygenate of choice, but fell out of favour in 2004 when it was found to contaminate ground water.

A less-common blend, a fuel containing 85% ethanol and 15% petrol, is known as E85. This exists thanks to a political ploy designed to help motor manufacturers achieve the Corporate Average Fuel Economy (CAFE) requirement for the fleet of vehicles they sell each year. In 2011, the motor industry has to achieve a fleet-wide average of 30.2mpg (7.8 litres/100km) for all the new cars and 24.1mpg for all the light trucks they sell in America. Under the ethanol fudge, so-called “flex-fuel” vehicles that can run (even if they never do) on E85 as well as petrol are granted a 54% bonus towards their CAFE target. Judging from the limited availability of the blend outside the corn belt, few owners of flex-fuel vehicles ever fill up with E85.
There are good reasons why not. A gallon of pure ethanol contains two-thirds the energy of a gallon of petrol. If a flex-fuel vehicle achieves 30mpg on petrol, switching to ethanol would give it 20mpg. In other words, 50% more fuel is needed to travel the same distance. In having some petrol blended in it, the consumption penalty falls to 25% to 30% when a car is fuelled with E85. On a cost-per-mile basis, ethanol fuels like E85—even with their hefty subsidies—are typically 20% more expensive than petrol. Something similar goes for E10, though the penalty is much less.
Of course, engines designed specifically to run on ethanol can be as efficient as petrol versions. Ethanol’s higher octane rating (around 96 compared with 91 for premium grade petrol) allows them to have a higher compression ratio—and thereby deliver more power as a result. Unfortunately, without some special means for altering the compression ratio, such engines would quickly disintegrate if fuelled with petrol. By and large, flex-fuel vehicles sacrifice ethanol’s higher octane rating—and accept its poorer fuel economy—so they can also use widely available petrol.

Apart from cost, there are other reasons why motorists might want to avoid ethanol. A looming one concerns E15, a proposed blend containing 15% ethanol that producers would like to see replace E10. The Environmental Protection Agency (EPA) has given approval for E15 to be used in vehicles built since 2001. The reason for excluding older models is the fear that the stronger ethanol blend could finish off the vehicles' ageing fuel pumps, fuel lines, rubber seals and other parts, causing leaks and possibly fires.

Being hydrophilic, ethanol absorbs far more rust-causing water vapour from the atmosphere than petrol. It may take years, but steel components that come in continuous contact with ethanol will eventually corrode. In tests carried out by the Underwriters Laboratories, a safety-testing facility used widely by industry, to show that E15 was perfectly safe to use at petrol stations, only three of the eight main components in the fuel-dispensing equipment survived the evaluation unscathed.

Even E10 can cause corrosion. Laboratory tests of 70 police cars in Baltimore, taken out of service because of misfiring and lack of power, confirmed that ethanol in the fuel had caused their filters and injectors to become clogged with corrosion debris from the fuel system. Presumably, this is happening all the time to private motorists using E10 in older vehicles, but has so far gone unreported because of the sporadic nature of the incidents.

No surprise, then, that motor manufacturers have been urging the EPA not to allow E15 on the forecourt. The last thing they want is to be hit by a string of warranty claims for corroded fuel systems. And even on cars out of warranty, all it would take would be a handful of leaky fuel lines causing disasters to whip up a fire-storm of product-liability suits. Consumer groups say that if ethanol distillers like Archer Daniels Midland and Cargill are so confident about the safety of E15, they should assume the legal responsibility for any damage it may cause. Naturally enough, such calls have fallen on deaf ears.

The problem is that the Energy Independence and Security Act, passed by Congress in 2007, requires some 36 billion gallons of renewable fuels (the bulk being ethanol made from corn) to be used in vehicles by 2022—nearly three times more than this year’s requirement of 14 billion gallons. Because motorists across America have started buying far more efficient motor cars, less fuel overall is being consumed. As a result, ethanol blenders are beginning to produce more than the domestic market can absorb. Hence all the lobbying to get a pipeline built to take surplus ethanol from the Midwest to ports on the East Coast—so the subsidised fuel can then be exported to Europe at American taxpayers’ expense.

The EPA’s answer is to expand the domestic market for ethanol. With the stroke of a pen, E15 would magically increase demand by 50%. The House of Representatives has sought to block such moves, citing “important safety issues” concerning E15 that the EPA has failed to address. The House has also voted to stop public money being used to pay for the special blender pumps and tanks needed for E15—something the ethanol lobby has been counting on.

But the victory for energy, environment, food supply and fiscal commonsense remains incomplete. Last week’s vote in the Senate to scrap ethanol subsidies is unlikely to become law. The underlying tax bill to which the amendment was attached does not have a hope of being passed. But the broad bipartisan action by Congress generally to put a stop to wasteful ethanol subsidies suggests they are most unlikely to be extended when they come up for renewal in December.