In Congress, Corn Ethanol Subsidies Lose More Ground Amid Debt Turmoil

The challenge of finding $1.3 trillion in budget cuts has forced Congress to re-examine 30 years of federal subsidies for corn ethanol

A cornfield in Illinois
A cornfield in Illinois/Credit: tlindenbaum

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There were times when Arlyn Schipper could almost feel heroic on his family farm in the heart of America’s corn belt.

His 4,000 acres, planted almost entirely with corn, were helping to feed a nation — or at least help put fuel in its gas tanks, as his crop was processed into corn ethanol.

Schipper still sees it that way. It’s just that he feels the country has moved on, or as he put it: “The country has turned on us.”

America’s debt crisis, and the challenge of finding $1.3 trillion in budget cuts, has forced Congress to re-examine 30 years of government subsidies for corn ethanol.

Meanwhile, drought and famine in the Horn of Africa have exposed a new negative consequence of biofuel production: the global food crisis. By competing with food crops for land, large-scale biofuel production has constricted supply and so boosted food prices globally. This has led to a backlash against biofuels such as corn ethanol from environmentalists and development charities.

“Ten years ago this was the greatest thing since apple pie – ethanol. A lot of farmers invested in this, and a lot of farmers invested in ethanol plants. Everybody wanted it. Our country wanted it. It was a renewable resource,” said Schipper. “And now that we have got all of this money tied up in this, it’s kind of turned on us.”

Many will feel that corn farmers have had it pretty good. And the ethanol industry still has a mighty hold on America’s corn belt. The country is projected to produce 14 billion U.S. gallons of corn ethanol this year at 200 refineries spread across the Midwest.

Iowa, which leads the country in corn production, will use 58 percent of its crop for ethanol this year. Some individual farmers, such as Schipper, may sell up to 70 percent of their crop to produce ethanol. There are five ethanol plants just within a 50-mile radius of his home in central Iowa.

But a five-year boom in corn ethanol production may be coming to an end — or at least that is the hope of some campaigners. “I think we are at a turning point. We are full to the gills with corn ethanol,” said Jeremy Martin, who studies biofuels for the Union of Concerned Scientists.

As a start, the industry is due to lose some of its government support — 30 years after Jimmy Carter first began subsidizing corn ethanol to encourage the development of a homegrown plant-based fuel.

Congress is expected to end $6 billion in subsidies during the debt deal negotiations. The subsidy had been directed to the oil companies which incorporate ethanol into their products. Fuel sold at most US petrol stations contains 10 percent ethanol.

The industry had hoped to re-direct some of those funds to refitting petrol stations to take more ethanol, under a deal reached in the Senate last July.

But the subsequent debt ceiling deal, with its demands for deep cuts, now makes that unlikely. “Washington is out of money,” said Sheila Karpf, an analyst at the Environmental Working Group, a non-profit organization.

For farmers like Schipper, and ethanol refiners, there will be little reason to mourn the end of the subsidy. They argue the money went directly to the oil industry.

But campaign groups estimate that end of subsidies could lead to a slight drop in corn prices. “It won’t make a big difference for American farmers but it could make a huge difference for impoverished countries,” said Marie Brill, an analyst at ActionAid.

This year’s famine in the Horn of Africa has a complex set of causes, not least a dire political situation that has made problems much worse, but it has served to refocus attention on global food prices — and the impact of harvesting biofuels such as corn ethanol.

America is the world’s largest producer of corn, and its major exporter, giving it the power to dictate global market responses.

America’s domestic consumption of corn, as ethanol, has driven up the price of corn worldwide, according to studies from the World Bank and other institutions.

The high prices for corn — while driving hunger in Africa — have encouraged other farmers to turn their wheat, soybean and even pastures into corn.

High prices for corn, meanwhile, encourage other farmers to turn over land from wheat, soybeans, or even pasture to corn production. US farmers planted 92m acres of corn this year, up from 4m acres last year, according to the US Department of Agriculture.

“Farmers are tearing up any little bit of land they had and going to corn,” said Brill.

The concern over the global food situation added new urgency to existing campaigns against the use of corn ethanol. Environmental organizations had argued that its use offered no meaningful reduction in greenhouse gas emissions — in part because of the vast use of energy and water in the ethanol conversion process.

As a food crop, corn is also far more damaging to the environment than other crops, such as soybeans, because it uses far more pesticides and fertilizer.

“The research is very clear by now. Turning corn into ethanol is not environmentally sound,” said Bill Freese of the Center for Food Safety. “It’s really an environmental disaster.”

That wasn’t what was intended when Carter promoted the use of ethanol as a way to get America off imported oil, offering subsidies to industries to mix the fuel. The industry never really took off — even with the subsidies. By 2001, barely 6 percent of the corn crop was being used to produce ethanol.

But new energy policies brought in by George W Bush which set production quota to encourage the use of biofuels allowed the industry to take off. By last year, nearly 40 percent of U.S. corn was going to produce ethanol.

It’s far less clear, however, whether corn ethanol is having a major effect in helping America reduce its use of fossil fuels. Corn ethanol will displace just 7 percent of the energy supplied by petrol by 2020, according to an analysis by Freese.

Campaigners argue that the entrenched government support for corn ethanol have blocked the development of next generations of greener biofuels made from wood or the non-edible parts of plants, known as cellulosic biofuels.

“Corn ethanol continues to eat up the market and even eat up grant money that could be used to spur the development of cellulosic and advanced biofuels,” said Sheila Karpf, an analyst at the Environmental Working Group.

Getting rid of corn ethanol though is another matter. For farmers like Schipper, ethanol has brought stability and new sources of income. Over the years, the refineries have spun off another industry in animal feed lots, which buy up the unused parts of the corn kernel to feed to hogs, cattle and turkey. Harris Haywood, who runs a nearby cattle finishing operation estimates he has cut back on the use of corn by 40 percent, by re-using the product from the ethanol refinery.

“The by-product is very, very cheap compared to corn,” he said. “And we can vary our rations to the price of corn. If corn gets cheap we can use more corn.” It’s going to be hard to persuade farmers away from ethanol.

As for Schipper, he is clearly unhappy with an increasingly negative public opinion on ethanol. He’s just not ready to give up on it yet.

“Everything has turned on us, but ethanol is still a great thing,” he said. “It’s been good for us.”