Every year we can plant the same amount of corn and through the use of better seed and farming techniques get more and more bushels off of the same acre of land. As we focus more science into better yields and bring idle farm land from around the world back into farm production there is no telling what the future holds for Biofuels. The growth of the Biofuel industry is not without pain, but neither is the production loss and limitations of oil.

Ethanomics, the Economics behind Ethanol

Today we read how ethanol is going to cure our energy needs; tomorrow we read that ethanol takes more energy to create than it contains. We hear that ethanol is clean, renewable, and will save the farmers; the next article touts that it will inflate food prices and could never make a substantial impact on the United States’ energy needs. Ethanol can compete with gas, others counter with ethanol’s need for a government subsidy. People often ask me about all of these issues and I think it is time we use statistics, facts, and common sense to better understand ethanol. It’s time we apply ethanomics.

Many opponents of ethanol point out that the increase in corn demand from the ethanol industry will drive up the cost of corn and therefore corn based food prices will increase. If everything remains the same and demand for corn increases because of the ethanol industry’s newly created corn demand than basic economics will tell you that corn prices will increase. But everything is not the same. Chief economist Keith Collins of the USDA states that planted and harvested corn acreage will increase in 2007 by 9%.[1] Corn prices over the past several years have been historically low at under $2.00 per bushel. At $2.00 per bushel there is no economic reason for farmers to plant more corn acres because it is tough to make a profit at all. The current price per bushel of corn is $4.00.[2] This higher price has sent farmers a signal to plant and harvest more acreages that for the past several years was not profitable. This is why we are seeing an increase in corn production that will meet the needs of the ethanol industry’s newly formed demand. In the short run, corn prices will increase but the American farmers will answer the call with increased production.

Some dissenters of ethanol claim that it takes more units of energy to create ethanol than the amount of energy it contains. They point to a study by David Pimental of Cornell University; Pimentel states, "about 70 percent more energy is required to produce ethanol than the energy that actually is in ethanol.”[3] Others point to studies by the USDA and Missouri State University which claim that ethanol has a positive net energy balance. So which is correct? Is there a net energy loss or gain when ethanol is refined? The answer, it doesn’t matter. If we are able to take an abundant, inexpensive source of energy (corn, biomass, etc.) and create a highly demanded and useful energy product (fuel) then why should we care if there is a net gain or loss of energy? Put another way, 22 pinecones contain approximately the same energy value that a gallon of gasoline contains. Using Pimental’s argument, one would conclude that processing or spending of 23 pinecones to make one gallon of fuel is wasteful and unnecessary because you spend more energy than the finished product contains. But it fails to take into account the fact that some energy is more useful and therefore more valuable than other forms of energy. Common sense tells you that turning 100 pinecones into a gallon of fuel is a good idea because pinecones won’t combust in a car.

Other challengers claim that ethanol is a “pie in the sky” idea and can never make any impact on our petroleum imports. Facts say otherwise. Let’s focus on Iowa and see what Iowa’s potential for ethanol production has for our fuel needs. Iowa has 31.6 million acres of current farm land (this does not include idle land).[4] The current Corn yield per acre is 163 bushels, this equates to a maximum current capacity of 5.15 billion bushels of corn per year in Iowa (assuming only corn is planted). Current ethanol plants yield 2.8 gallons of ethanol per bushel of corn.[5] The math comes to a maximum current ethanol production of 14.4 billion gallons in Iowa alone. This is more fuel than Iraq, and more fuel than Saudi Arabia export to the United States combined (and over 40% of OPEC imports).[6] These facts do not claim that ethanol can replace our petroleum fuel needs, but it can displace a significant portion. The “pie in the sky” idea may prove to be a great opportunity and a step in the right direction to end our addiction to Middle East imports.

The most popular argument used against ethanol always ends with the fact that ethanol could not make it if the federal government did not subsidize its production. This is true, but nether could oil. Is protection of oil interest by the U.S. military free? Iran’s oil exports account for 40-50% of the government budget.[7] Should we subsidize U.S. farmers or Iran’s nuclear program?

Ethanol can not fulfill all of our petroleum needs with current production technology. But the ethanol industry is young, gallons per bushel are steadily climbing, corn yields per acre are on the rise, and we have just begun to scratch the surface of ethanol from cellulose. We can’t put all of our eggs in the ethanol basket, but we certainly cannot continue to put all of our eggs in the Middle East’s basket. It’s time we trade subsidizing Middle East terrorism for Midwest freedom, and it starts with taking the first step in supporting ethanol.