It's Time to End Ethanol Subsidies

Well-Meaning Program Has Outlived Its Usefulness

Natural Tallgrass Praire Ecosystem

Stepping into a patch of the Northern Tallgrass Prairie National Wildlife Refuge (NWR) in northwestern Iowa is like going back in time. This 5,000-acre (20 sq km) archipelago of ecosystems past is ruled by tall, native grasses, some several meters high, and endemic plant and animal species. Each is a tiny, delicate vitrine of a long-gone world, floating in a sea of industrial starch machines.

Prior to European settlement, this sort of tallgrass prairie was the dominant biome in Iowa, making up 85% of its land area. It now accounts for only 0.1%. Today, two-thirds of the Midwestern American state is taken up by corn (Zea mays), native to Mexico, and soybeans (Glycine max), native to Asia’s Amur Basin.

Paving over the native landscape to feed humanity would be one thing. But nearly half of the US corn crop isn’t used to produce food. It’s used to fuel automobiles powered by highly polluting, inefficient internal combustion engines.

Last year, 16.49 billion gallons of corn ethanol (an alcohol chemically identical to the intoxicating agent in beer, wine, and spirits) were produced in the United States. This ethanol is then blended at a 10% ratio into gasoline (petrol). The practice is de facto mandated by the federal government, which requires oil producers to blend into their products a fixed amount of biofuels each year. The US also spends $3 billion annually in direct subsidies to support the ethanol industry.

The problem with corn ethanol is not the financial cost. $3 billion a year is a minuscule portion of US government spending and less than 1/10th of the amount spent subsidizing fossil fuels. The issue, rather, is ethanol’s pitiful ratio of environmental benefits to environmental harms.

To provide only 10% of the US’s annual gasoline needs, the ethanol industry uses 145,000 square km (56,000 square mi) of land—about the size of New York State or the entire nation of Greece. The ecological damage is massive, as these vast tracts are either converted from wildlands or, more commonly, prevented from returning to a wild state. They are also drenched with pesticides, which run off into rivers and streams. In certain places, corn ethanol also draws water from unsustainable underground aquifers. Not to mention that diverting around half the corn crop to feed vehicles means less supply for food production—raising food prices for everybody.

If the costs are enormous, the advantages are too small to see without squinting. The ethanol industry and its supporters in government claim ethanol produces 45% fewer emissions than gasoline. But several academic studies dispute that figure, arguing the land-use change effects alone overwhelm any reductions. One influential study suggests the carbon intensity of US corn ethanol is actually 24% higher than that of gasoline.

Even using the most generous industry-favorable assumptions, reducing a 10% share of gasoline’s carbon footprint by 45% doesn’t add up to a meaningful reduction in the road transport sector’s overall emissions. Displacing gasoline with corn ethanol degrades natural ecosystems without providing much climate effect whatsoever.

The Electrofuel Shock

The environmental problems of corn ethanol have been understood for decades. The environmentalist rationale for continuing its subsidy has thus been heavily dependent on the development of a second generation of biofuels purported to be much greener.

Second-generation biofuels use non-food feedstocks (agricultural residues, biomass waste, or dedicated fuel crops that grow on degraded land) and as such have a much more favorable land-use efficiency than first-generation fuels like corn ethanol. Plug these second-generation fuels into the supply chain built for the first generation and—voilà—the world is bestowed with a sustainable source of eco-friendly liquid fuels, so the argument went.

Several developments in the past few years, however, have called this rosy road map into serious doubt.

First, electric vehicles have dramatically shrunk the expected future size of the liquid fuels market. It was once thought that biofuels would be used to decarbonize road transport, international shipping, and aviation. With road transport quickly going electric and shipping converging on a hybrid electric/methanol solution—only the aviation sector remains a potential biofuel customer.

Second, efforts to produce the “second generation” of biofuels have not been successful. The enzymes and specialized refineries needed to produce biofuels from second-generation feedstocks are very expensive. This process may never be as cost-effective at producing biofuels as food crops—which, after all, benefit from thousands of years of human-directed evolution designed to make them more productive and easier to digest.