It's election year in the United States and once again the government mandate to put ethanol in gasoline is a hot issue. And it's this summer's heat that has made it hot. The drought in parts of Canada and the United States has cut seriously into corn yields and corn is the stuff of which virtually all fuel ethanol is made.
Less yield, more demand and the price takes off. Corn was about two bucks a bushel in 2005 when about 13 per cent of North American corn production was distilled into ethanol. Today, nearly 40 per cent gets turned into ethanol and, with the drought, corn is hitting 8 bucks a bushel now. That's great news for grain farmers, but bad news for cattle and poultry producers who buy most of the corn produced as feed.
Ethanol has less punch than pure gasoline but it is a much cleaner fuel to burn. That's good and I'm happy for farmers, too. But the politics of "food for fuel" is a loser. It's a complicated issue, but when reduced to its simplest, as most political issues are, there are a lot of people who think that "food" should go to the hungry and not into our gas tanks.
I've written before showing there is still lots of corn to go around and that a good portion of the "ethanol" corn gets fed to livestock and poultry anyway. Ethanol producers want the starch in corn to turn into sugar to turn into alcohol (ethanol not methanol). What's left after the starch is taken out is protein, fat and minerals, which is sold as animal feed.
But that doesn't matter. "Food for fuel" simply offends too many people. Plus when food prices go up like now, it's easy to blame the corn ethanol industry, which has been built on subsidies (now gone) and ethanol mandates.
In the United States, the ethanol mandate is the Renewable Fuel Standard (RFS). Canada follows the American lead on this. The RFS requires that gasoline today carry about 10 per cent ethanol. That creates a huge demand for the stuff and the corn farmers have done well. "It's a scam," cry the critics and now even people in the U.N. Food and Agriculture Organization are weighing in.
An official there last week demanded "an immediate, temporary suspension" of the RFS so that more corn would go to "food and feed uses." Anti-poverty and free-enterprise, limited-government groups have also climbed on board along with the cattle, pork and poultry producers. Campaigning in corn-producing Iowa, a battleground state, President Barack Obama avoided the RFS issue and instead announced the government would purchase more beef and pork.
Here's the problem. There should be a place for ethanol in a renewable fuels future – the problem is the corn. It's a high input crop that people identify as food. But, at least in the laboratory, farm waste, forest waste and urban garbage and sewage can be used to make "cellulosic" ethanol. Who would oppose that?
In fact, in the United States, as the ethanol mandate increases, regulators are expecting a huge amount of the stuff to be of the "cellulosic" variety. The problem is it barely exists.
I have read press releases galore from companies (including several in Canada) that have announced "commercial scale" cellulosic ethanol plants about to be built to process farm waste, forest waste and garbage into ethanol. None have succeeded.
It's more difficult than investors have been led to believe. But someone, somewhere will succeed. I visited a big sewage plant recently, where nasty sewage sludge was being processed to create a hydrogen-rich synthesis gas that can be turned into bio-diesel. This was a table-top demonstration and far from commercialization, but experimentation like this is taking place all over.
As the effects of the drought become more evident, and as the U.S. election gets closer, you are going to hear more and more about the "horrors" of ethanol. Remember, it's corn ethanol they're talking about. Corn ethanol is a necessary step along the way. If and when they get cellulosic ethanol right, the politics of this issue are going to change completely.
mvaughan@globeandmail.com