The drought parching the Midwest is raising serious questions about our agriculture and energy policies. Stocks of corn in storage were already low, and the intense dryness and heat means this year’s crop will be much smaller than was expected even a few months back. The share of the corn crop going to make ethanol has been rising, and was 40 percent last year, heightening tensions over how this year’s suddenly diminished harvest will be divvied up (the principal uses are ethanol, animal feed, and exports).
Federal biofuels policy, called the Renewable Fuels Standard (RFS), mandates the consumption of 13.2 billion gallons of conventional biofuel this year and 13.8 billion gallons next year. Since corn ethanol fills the vast majority of this demand, the RFS could keep ethanol production high despite record high corn prices. If it does, it will place an even bigger burden on other users of corn. It won’t have much impact on your corn flakes, but you can expect an increase in prices for eggs, milk, and meat.
But for consumers of corn in the developing world, for whom food prices are a big part of their budget, the price impacts can be a lot more severe, potentially causing another global food crisis.
We don’t yet know the final reckoning of the losses from the drought, and it is possible that extra credits from 2011 will cushion the blow, but it is not too soon for the government to commit to being flexible in the implementation of biofuels mandates. The government has the authority to reduce the mandate in the event of economic harm or inadequate supply, but so far has not indicated a willingness to use this authority, instead pursuing a strategy of prayers and rain dances.
Biofuels policies must accommodate both food and fuel
Ultimately, to build a biofuels industry that reduces oil use and global warming pollution, conflicts between food and fuel must be minimized. Short-term adjustment of the mandates can help, but in the longer term we need to transition from depending on corn to more diverse sources of biofuel that look beyond food-based fuels. A more diverse agricultural system would also be better at producing healthy food.
But back to fuels, the RFS already points us in the right direction, requiring that most of the growth in biofuels beyond 2012 come from advanced biofuels, which have lower lifecycle emissions. Only a quarter of these advanced biofuels can be made from food, and the rest, 16 billion of 21 billion gallons, must be cellulosic biofuels made from agricultural waste, fast-growing grasses, and other sources of waste biomass. This transition away from food-based fuels is essential to managing the conflict between food and fuel, and it is why the success of the RFS is so critically tied to the commercialization of cellulosic non-food biofuels.
Fortunately, the first commercial cellulosic biofuel facilities are coming on line this year, with larger ones following in 2013 and 2014. But this is a slower scale-up than Congress called for — even if everything goes well it is likely the industry will produce less than 4 billion gallons in 2022, rather than the 16 billion gallons Congress envisioned when enacting the RFS in 2007. While this is disappointing, we are still looking at the beginning of something big. Don’t listen to the self-interested whining from the oil industry, the cellulosic ethanol industry is moving fast. It took the corn ethanol industry decades to move from zero to four billion gallons, and the delayed growth of the cellulosic industry is still consistent with the UCS plan to cut our projected oil use in half in 20 years.
But the delayed scale-up of cellulosic biofuel does raise an important question about how the EPA will administer the RFS. The EPA has broad discretion to either reduce mandates for advanced biofuels in line with the delayed commercialization of cellulosic biofuels, or make up for the missing cellulosic biofuel by increasing mandates for biodiesel and other food-based advanced biofuels.
Corn ethanol is not the only food based fuel that impacts global markets, vegetable oil-based biodiesel is also a major concern. If the EPA replaces cellulosic biofuel with mandates for food-based fuels, the demand would grow faster in the next ten years than it has in the last ten. We have learned the hard way over the last four years that U.S. biofuels policy impacts U.S. and global food markets and leads to deforestation from Brazil to Indonesia.
Building to weather the storm
Small buildings can be built to resist storms by just over engineering them, with shutters over the windows and extra thick walls. But if you want to make a really big building in a region known for typhoons and earthquakes, like this skyscraper in Taiwan, you need to anticipate the risks and be flexible in the face of a storm (a tuned mass damper also helps).
Similarly, given the scale of the RFS corn mandate relative to the size of the corn market, and world agriculture in general, it is no longer realistic to think that everyone else can adjust while the RFS mandate levels are held firm.
To protect the policy and realize the long-term goals of reducing oil use, reducing global warming pollution, and protecting the food supply, the EPA, the USDA, and the President need to be flexible as we weather this storm, and build flexibility into the future of our biofuels markets.
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