The dumb policy making groceries more expensive

Stop making people turn corn into gasoline

Farm machines harvesting corn. (Photo by James Brey)

When I was an intern in Chuck Schumer’s office 25 years ago, I tried to pitch my then-boss on including a line in a speech about how the legislation he was opposing was an effort to crucify mankind upon a cross of corn.

The higher-ups, probably wisely, didn’t go for it.

But while ethanol isn’t a subject I cover a lot, every time it comes up, I get kind of angry. And last week someone in marketing decided it would be a good idea to send me spam texts about the virtues of E15 and how we ought to legalize E15 year-round on a permanent basis.

Standard gasoline is 10 percent ethanol by volume, but a higher blend of 15 percent works fine in car engines. You’re normally not allowed to sell E15 in the summer because of concerns about ozone in hot weather. But starting in 2022, waivers have been issued every summer to help contain summer gasoline price spikes. Claude tells me that there’s a reasonable case that this evaporative ozone issue is overblown and year-round E15 is probably fine.

However, I am declining to look into this question in detail because the underlying policy of requiring gasoline to be blended with ethanol is incredibly stupid.

Manufacturing liquid fuel out of corn and soybeans is a thing that one can do, chemically speaking. And if you remember the “peak oil” discourse of 15–20 years ago, one might think “Well, in the future, liquid hydrocarbons will be scarcer and scarcer so we’ll be manufacturing fuel out of corn.”

Instead, though, we found a bunch more oil.

Of course, the particular foreign-policy blunders of Donald Trump have put us in a bit of a global oil supply squeeze this spring. But that’s not about a physical shortage of oil. If for some reason the Strait of Hormuz were closed forever, investors would spend money to build more pipelines (or drill more in Alaska) and the supply problem would be solved.

The world has plenty of oil. The thing that worries people about drilling for, refining, and burning endless amounts of oil is that it’s bad for the environment. We increasingly have batteries and electric motors to address that concern. But more to the point, there’s essentially no reason to believe that biofuels are good for the environment.

If you take their biggest supporters’ claims at face value, biofuels are an incredibly expensive way to reduce greenhouse gas emissions. And even that case for ethanol tends to ignore the broader environmental downsides. Biofuels also push up the global price of staple grains.

Both the Biden and Trump administrations have been torn between an acute desire to do something to bring down grocery prices and a conviction that they have no fast-acting tools available, but they absolutely do: Stop forcing oil companies to turn cropland into gasoline!

The origins of a mistake

If you rewind the tape back to the George W. Bush administration, a lot of conservatives who wanted to drill more oil domestically were talking about energy independence. And a lot of Democrats who wanted to increase fuel efficiency were also talking about energy independence.

The aforementioned Schumer in his 2007 book, “Positively American,” described his efforts to craft a legislative compromise that would have both opened up more Alaskan wilderness to drilling and also raised Corporate Average Fuel Economy standards, an effort he said fell apart amidst advocacy group purism.

But this debate featured a third force: Midwestern agricultural interests.

Their idea was that rather than drilling more oil or burning less gasoline, we could step up our reliance on biofuels.

And in response to their lobbying, the Energy Policy Act of 2005 created a system — greatly expanded by the Energy Independence and Security Act of 2007 — whereby Americans were required to blend ethanol into our gasoline.

At the time, a lot of people rolled their eyes at this, but everyone knew that Iowa was the quintessential swing state so savvy politicos knew there was nothing to be done about it. And to be clear, I fully expect Josh Turek to fight like a rabid dog on behalf of American biofuels interests. But Iowa is no longer a swing state and thus there is no longer any politically compelling reason for this to be a fixed point of the American political landscape. Iowa is the king of corn, but even if you throw in a much larger bucket of farm states (including places like Illinois), there’s just no reason the corn people can’t be rolled by a mix of southern Republicans and coastal Democrats.

To somewhat limit the logistical hassles involved in all this ethanol blending, refiners are allowed to buy their way out of the obligation by purchasing tradable credits from refiners who exceed their quota. This adds up to something like a 30-cent-per-gallon tax on gasoline, which is much higher than the actual federal gasoline tax of 18.4 cents, except instead of generating revenue for the Treasury, it generates revenue for agricultural landowners.

Note that even as a response to oil scarcity, this policy does not make sense.

If oil was expensive enough, it would be worth refiners’ while to blend ethanol into their gasoline. The only reason to require them to do this is that oil is not scarce enough for it to make sense — not today and not in the Bush era when these policies were adopted. For the policy to be justified it would need to have environmental benefits, but it does not.

Ethanol flunks any reasonable cost/benefit analysis

There is an exciting technical debate over whether blending ethanol into gasoline reduces greenhouse gas emissions.

Uisung Lee, Hoyoung Kwon, May Wu, and Michael Wang from the Argonne National Laboratory say that it does because improvements in corn yields have eliminated prior concerns. By contrast, Tyler Lark, Nathan Hendricks, Aaron Smith, and Holly Gibbs say that the land-use changes induced by ethanol mandates (i.e., turning more acreage into growing corn) mean that “the carbon intensity of corn ethanol produced under the [Renewable Fuel Standard] is no less than gasoline and likely at least 24 percent higher.”

The thing is, even if you use the Argonne numbers, this still comes out to something like $160 to $190 in costs per ton of carbon dioxide abated. Using less generous math, of course, the cost is essentially infinite because you’re raising emissions.

Beyond the specific carbon accounting, though, there are without a doubt significant environmental impacts of growing dramatically more corn. This means extra pesticide in the water and corn grown in space that could otherwise be used for conservation or recreation or housing. In a world of growing electrification, that land could also be used for utility-scale solar and wind projects that are dramatically more energy-dense.

All this carbon math really hinges on the fact that the amount of land dedicated to growing corn goes up, which happens because the biofuels mandate pushes up the price of corn, making it lucrative to grow more corn.

The primary cost here is simply that turning corn into gasoline makes food more expensive.

A 2013 paper by Michael Roberts and Wolfram Schlenker with the boring title “Identifying Supply and Demand Elasticities of Agricultural Commodities” has a fairly striking conclusion. The authors look at past shocks to agricultural commodity supplies — including corn, wheat, rice, and soybeans — and they show that the prices of these things are linked. If wheat crops fail somewhere, this raises the price of all four crops because people are substituting. As a result, mandating that American oil refiners turn corn into gasoline raises the global price of rice, as well as the global price of corn.

The authors concluded that the then-current version of the biofuels mandate was raising the global price of food by between 20–30 percent.

The exact number may be different today than it was in 2013 because the world is always changing. But the direction is unquestionably the same.

By forcing refiners to put more ethanol into gasoline than is warranted by the underlying economics, we are pushing up the price of both gasoline and food. We are doing so for emissions reductions that are probably non-existent, and administering considerable non-climate environmental damage for our trouble. Iowa is not a swing state, the politics of this don’t matter anymore, America has plenty of oil, and the future is electric cars anyways.

But we keep crucifying mankind — not just middle-class grocery shoppers but the majority of the global poor — upon a cross of corn. Let’s stop!