The Ethanol Saga – A Tale of Politics, Interest Groups, and Scientific Head-Butting

A couple of years ago, the world thought it had found a solution toward more sustainable transportation patterns – instead of pumping fuel out of the ground, why not grow it? The subsequent ethanol craze is one of the best examples of how policy decisions can have very real – one could even say, dramatic – consequences on  anything even vaguely related to its original aim. In this case, not only fuel markets were affected, but farming patterns, conservation practices and even water quality. And sadly, this ‘green’ policy, as we now know, has had mainly harmful environmental consequences. Stories like these are the reason I am studying what I study – to prevent decisions like that from happening. AP tells the tale but since it’s quite a long story I thought I’d summarize bits of it – sit tight!

As AP reports, everything started in 2007 with (then-) Senator Barack Obama from Illinois, which was in a tight race to become the official Democratic candidate for the presidential election the following year. He needed to win the Iowa caususes to make that race, and so while in the state of corn he strongly supported the bill that Congress was considering at the time that mandated the mixing of ethanol into gasoline. “”Any time we could talk about support for ethanol, we did,” said Mitch Stewart, the battleground states director for Obama’s 2008 campaign. “It’s how we would lead a lot of discussions.”” As the year drew to a close, President Bush signed the bill into law, initiating the bureaucratic process that would turn legislation into reality. And here is where the real odyssee begins.

You see, there is a term in political science called ‘turf war’. It’s when different administrative units – say, departments within a government – fight over certain issues that fall within each one’s prerogative to a certain extent, and instead of collaborating, they compete for the portfolio and actually work against each other. The ethanol law touched on the Environmental Protection Agency (EPA), the Department for Agriculture (DA), and the Department of Energy, and each of these had its own opinions on the issue. According to AP,

President Obama’s team at the EPA was sour on the ethanol mandate from the start. As a way to reduce global warming, they knew corn ethanol was a dubious proposition. Corn demands fertilizer, which is made using natural gas. What’s worse, ethanol factories typically burn coal or gas, both of which release carbon dioxide. Then there was the land conversion, the most controversial and difficult-to-predict outcome. Digging up grassland releases greenhouse gases, so environmentalists are skeptical of any program that encourages planting more corn. “I don’t remember anybody having great passion for this,” said Bob Sussman, who served on Obama’s transition team and recently retired as EPA’s senior policy counsel. “I don’t have a lot of personal enthusiasm for the program.”

Wait, did you catch that? One of the most heralded environmental policies of the new administration’s initial portfolio had little to no support from the experts on environmental issues within the government. Hmm.

On the other hand, senior figures within the White House and the DA (importantly, the Agriculture Secretary Tom Vilsack, former governor of Iowa) were full of support for the program – of course, especially those within the administration who saw that it could provide a major demand boost to farmers in their particular state.

When asked to do an ex-ante impact evaluation (pretty close to what I have been learning to do in my program, by the way!), the EPA policy analysts concluded that with all effects considered, there was at maximum a 16% improvement in CO2 emissions when comparing ethanol to fossil fuels. However, the entire policy had been based on the claim that biofuels were at least 20% more effective than gasoline, and so lobbyists from the ethanol lobby raised hell in refuting the EPA’s analysis.

The EPA’s conclusion was based on a model. Plug in some assumed figures – the price of corn, the number of acres planted, how much corn would grow per acre – and the model would spit out a number. To get past 20 percent, the EPA needed to change its assumptions.

I think this is what irks me the most. As an aspiring policy analyst, I understand how sensitive models can be to changes in future predictions, but we are taught as economists to do the best we can since we cannot see into the future. However, what you do not do, is to change your assumptions ex post in order to fit your model to your expectations. And if you believe the Associated Press, this is exactly what the EPA was pressured into doing. Their assumptions on a lower-end beneficial impact were based on the fact that more new farmland would need to be plowed (and therefore, either repurposed from growing other crops, taken out of conservation land, or converted into farmland entirely) which would have negative impacts because this land would no longer be able to absorb CO2 as well (acting as a ‘carbon sink’). However, if corn yields per acre were higher, then of course you would need less land to grow the same amount of corn – and in the end, the EPA yielded to suggestions by ag companies such as Monsanto Co. and Dupont Pioneer to add a ‘high-yield’ scenario, based on these companies’ assurances of the quality of their GM seeds, which tipped the scale in favor of ethanol again. Add to that that the scenario only included small price increases for corn, and ethanol became 21% more CO2 efficient than gasoline. The policy was in business again.

However, you can’t fudge reality, and reality soon proved the governmental predictions wrong. The policy finally entered into force in 2010, and corn prices soared from $3.22 all the way up to $7 per bushel today. This brings most farmers in the Corn Belt into serious predicaments, as it seriously changes the opportunity cost of leaving their land in the government’s Conservation Reserve Program. This program had paid farmers previously to not farm environmentally sensitive land – mainly grasslands – that would be prone to erosion and degradation if farmed intensively. This made not only environmental, but financial sense as well. Lately though, the high corn prices as well as a funding cut of the Conservation Reserve Program have changed that equation, and as individual farmers are making individual sensible choices, the impacts in terms of land use change are drastic. Last year, farmers planted 15 million acres more corn than before the policy change, and much of this is on converted conservation land or even virgin land (AP estimates that around 1.5 million acres of previously untouched land in Nebraska and the Dakotas alone have been converted to corn and soybean fields after the policy was passed). This completely changes the dynamics of the intended policy, as research has shown that “plowing over conservation land releases so much greenhouse gas that it takes 48 years before new plants can break even and start reducing carbon dioxide.”

In the meanwhile, water quality in the region is affected as fertilizer runoffs have made nitrate levels in streams used for drinking water dangerously high. The Des Moines water works, supplying 500,000 people with drinking water, had to implement new water-cleaning routines this summer for the first time as nitrate levels in both streams it normally draws water from were too high for safe consumption. Those nitrates also travel all the way down to the Gulf of Mexico, creating increasingly large dead zones caused by algal bloom. And yet, the pressure to grow more and more crops is relentless, causing farmers to weigh short-term gains versus long-term environmental destruction:

Those who still own land often rent it to farming companies offering $300 or more per acre. Perkins could make perhaps $27,000 a year if he let somebody plant corn on his land. That’s nothing to dismiss in a county where typical household income is $36,000. But he knows what that means. He sees the black streaks in his neighbor’s cornfields, knowing the topsoil washes away with every rain. He doesn’t want that for his family’s land. “You have to decide, do you want to be the one to…” He doesn’t finish his sentence. “We all have to look at our pocketbooks.”

Of course, not all of this is solely due to the policy change, but it does get you thinking – what types of impacts can governmental decisions have, and what is the best way to ensure there are no huge adverse effects like in this example? How do you prevent science from being used by interest groups that have vested interests in particular conclusions? And how do we revert this corn craze that is seeming to ravage the American Mid-West, especially after knowing about the benefits of preserving (and cultivating) grasslands?

For even more background and examples, check out the AP article (“The secret environmental cost of US ethanol policy“)!