Corn? Corn Is Always Good!

Corn Ethanol Plant Craig MO

It is 2021, not 1973 with its Arab oil embargo and lines of cars dancing the slow samba towards the still-working pumps. Nowadays, no one can claim with a straight face of the necessity to grow corn to produce ethanol, thereby increasing domestic energy supply, and loosening the noose of foreign oil producers on the neck of the United States. Yet the mandate to use ethanol in gasoline has become a sacred shibboleth, and its importance gets reinforced each presidential election cycle, where Iowa is the first state to hold a presidential preference event Thus no serious candidate can propose elimination of the ethanol requirement in gasoline. Why? Because the corn industry, and its lobbyists, will whip up the furor of its Iowa farmers to decry any change in policy as being anti-American.

So we are shackled to a policy which doesn’t save energy, causes demand for corn to be well above the market for nutritional usage, increases soil erosion and loss of nutrients to our waterways, and tricks Americans into believing the mantra of energy self-sufficiency. What’s the upside? We no longer have to worry about gas line freeze-up in winter.

There were two chemicals proposed to increase the oxygen concentration in gasoline. One was ethanol, and one was methyl tert-butyl ether (MTBE). Increasing the oxygen concentration in gasoline reduces tailpipe emissions, while reducing engine knock. Thus MTBE was favored initially by gasoline refiners since it was simple to produce in scale, and was inexpensive. It does have one very bad characteristic, though. If it is released into groundwater, it migrates into the water, rather than stay with the organic phase. MTBE soon found its way into ground water, and into drinking water. It is a compound that can cause significant harm to humans over prolonged exposure, so MTBE was phased out of gasoline in the early 2000’s. Ethanol soon took over as the preferred oxygen additive to gasoline, and it had the unexpected benefit of raising the cost of corn for farmers in the Midwest who needed a price boost in order to stay solvent.

Once legislative mandates were in place requiring use of corn ethanol, the investment soon followed. When I graduated college in chemical engineering in Nebraska in the 1970’s, there was essentially zero chemical industry in the region. I had to move to where they made chemicals in order to get a job. Now, there are ethanol refineries dotting the farm landscape throughout the corn belt. You can see the steam plumes from miles away. Corn ethanol is favored legislatively. During the formative years of the corn ethanol industry, there was a $0.50 / gallon tax benefit given to gasoline refiners in order to use the mandated amounts of corn-derived ethanol. Thus US tax policy drove gasoline refiners to select corn-derived ethanol, imposing in essence a tax of 5 cents per gallon on the consumer to enable ethanol to thrive. In fact, the true price to the consumer is even higher, since the demand for corn for ethanol has put a floor on the overall corn price. If you look at food prices, much of that comes from corn, through its value in feeds for meats, or use as sweeteners. So by making the price of corn higher than it would be, the price of all derivatives of corn is higher as well.

One of the most pernicious effects of the legislative mandates for increased use of ethanol in gasoline is increasing corn acreage. Using USDA statistics, the 3-year average of corn acres in 2019-2021 was 91 million, while the 3-year average from 1997-1999 was 79 million. The key difference between the two periods was the increased demand for ethanol from corn. The 15% increase in acreage means that corn has increased its fertilizer demands, and it is no surprise that an ancillary effect of a dead zone in the Gulf of Mexico due to excess nutrients, that dead zone has also increased in size during the two-decade period in question. Not only that, when all inputs are factored in, ethanol from corn may barely create more energy than it takes to produce. If methanol were allowed as an oxygenate, it could be generated from natural gas and reduce the impact on the land.

So why do we have this policy which seems in opposition to many goals we aspire to as a country?  We say we want to reduce the impact of humanity on the environment, yet we persist with a counter-productive policy mandating the use of corn ethanol in our gasoline supply. Square that requirement for an absolute volume to be blended with the now stated policy of converting half of new vehicles to electric by 2030. Sooner or later, the demand for gasoline will fall to the point that you cannot blend the mandated quantity of ethanol and still stay at a 10% ethanol concentration. When we get to that point, it will be interesting to see how the politicians deal with the physical limitations of the gasoline market. Of course, we could always export more gasoline and fulfill the legislative requirement that way, but I don’t think that will be looked upon favorably.

It is time now to look at the mandated use of corn ethanol and begin to wean the farm sector away from the incremental corn demand brought about by this legislation. Phasing out the requirement over a 10-year period would reduce the effect on any individual farmer, and then only the companies who have invested in corn ethanol production facilities will end up on the short end of the stick.

Do I expect our politicians to have this degree of foresight and begin to reduce the mandated volume? Amazingly, there is a bill stirring in the Senate that would repeal the mandate to use corn ethanol to produce gasoline. Tellingly, none of the Senators mentioned in conjunction with the bill are from major corn-producing states. Given the entrenched opposition towards ending any government quota program, my expectation is that the bill will suffer an ignominious death. But maybe, just maybe, it may be revived in the future, and face a better fate. I’ll believe it has a chance when I see some courageous presidential candidate have the guts to tell Iowa voters that corn ethanol is bad for the climate, and economy, and must go.