Environmental Outlook: Declining Political Support for Ethanol

MS. LAURA KNOY

11:06:56
Thanks for joining us. I'm Laura Knoy from New Hampshire Public Radio sitting in for Diane Rehm. The U.S. produces more than half of the world's ethanol, yet the once strong political support for this bio-fuel is, for the first time, showing signs of waning.

MS. LAURA KNOY

11:07:11
As part of our Environmental Outlook Series, we discuss why an industry that was once the darling of the renewal energy sector seems to be falling out of favor. To discuss this, I'm joined by Bob Dinneen from the Renewable Fuels Association. Hi Bob, thanks for being here.

MR. BOB DINNEEN

11:07:26
Glad to be here.

KNOY

11:07:26
Also with us, Sheila Karpf from the Environmental Working Group. Welcome, Sheila.

MS. SHEILA KARPF

11:07:28
Glad to be here.

KNOY

11:07:31
And Chuck Abbott from Reuters News and Chuck, thank you for your time.

MR. CHUCK ABBOTT

11:07:34
Thank you, you're welcome.

KNOY

11:07:35
And we'll also take your calls, questions and comments at 1-800-433-8850, 1-800-433-8850. Send us e-mail at drshow@wamu.org or join us on Facebook or Twitter. And Chuck, I want to start with you, brand new report just out this morning from the National Research Council called "Renewable Fuel Standard Potential Economic and Environment Effects of U.S. Bio-fuel Policy."

KNOY

11:08:03
This, as I said, just hit the news. What is the bottom line in this report?

ABBOTT

11:08:07
Well, it's easy to summarize, although I'll tell the listeners that it runs around 450 pages. It is full of nuances. It's almost like reading Proust for the way it delves into things. But the main points, cellular bio-fuels will not meet the 16 billion gallon a year target that is set by law for 2022 without significant breakthroughs either in technology or economics.

ABBOTT

11:08:36
Point number two, cellulosic bio-fuels won't be cost-competitive for some time into the future. There's one section in the report that says, well, maybe at the current state of the fuel industry, cellulosic bio-fuels might not be competitive until crude oil is $190 something a barrel...

KNOY

11:08:58
Wow.

ABBOTT

11:08:59
...which is way above the current price. Point number three, the greenhouse gas benefits of cellulosic bio-fuels are debatable. Number four, there will be some impact on feed and food prices from cellulosic bio-fuels, although, of course at this point, you can say that in the fuel and food world, everything is affected by everything. In the summary for the report, the National Research Council makes a point. It will be hard to attribute increases in food prices in the future specifically to compliance with the renewable fuel standard.

ABBOTT

11:09:43
The renewable fuel standard comes out of the 2007 law that mandates or guarantees bio-fuels a share of the motor fuel market in the United States.

KNOY

11:09:53
So we can't blame, though it says, bio-fuels for rising food prices? Is that what you're saying?

ABBOTT

11:09:57
They said it's hard to attribute that. As I said, Pat Westhoff, an economist at the Food and Agriculture Policy Research Institute at the University of Missouri, did an entire book about the economics of food and fuel and one of his chapters is summarized by everything affects everything.

KNOY

11:10:20
Pretty broad statement, but I see what he's trying to say there.

ABBOTT

11:10:23
What you have to remember is that food production and particularly since we're talking about bio-fuels, corn, which is the main feedstock at the moment for ethanol, is used to produce it. Well, in its earliest forms, it produced alcohol for human consumption. It's a dynamic industry. As demand increases, people grow more, produce more of it so it's not as simple as saying there's a finite amount of corn in the world. In some ways, it's like how much oil is in reserve in the world? It depends on what the price is.

KNOY

11:11:02
Well, Bob Dinneen, I want to bring you into this again, president to the Renewable Fuels Association. What's your reaction to this new report from the National Research Council? It doesn't have a lot of good things to say about bio-fuels, not cost-competitive, the greenhouse gas benefit is debatable.

DINNEEN

11:11:18
I think we agree with its fundamental point and that is you need to have consistent federal policy in order to successfully commercialize these new technologies and we agree absolutely. You need to have tax incentives and other policy in place to encourage the investment community to make the investments necessary to commercialize these technologies. On this report in particular, though, I'd say, you know, we're sort of frustrated that once again you have a report that evaluates ethanol and bio-fuels in a vacuum. There's no comparison to what ethanol today is replacing.

DINNEEN

11:11:53
There's no discussion about if you don't have these new bio-fuels where are we going to be getting our energy from? And increasingly today that means you're going to need more tar sands, you're going to need more imported oil, you're going to have to drill deeper in the Gulf of Mexico with all of the environmental consequences of that. So I think you need to have a more comprehensive dialogue about bio-fuels to really get to all of these issues.

DINNEEN

11:12:19
I think the most interesting thing that the authors themselves said however is that their clearest conclusion is that there is a very high uncertainty in the impacts we're trying to estimate. So the bottom line is they looked at a number of very challenging issues. They made some statements but they cautioned the reader about trying to draw too many conclusions about this because even in 450 pages you can't get to a definitive answer about the complex issues associated with indirect land use change or as Chuck says the intricacies affecting food pricing around this country.

DINNEEN

11:12:59
Because absolutely everything affects everything and importantly the single most important factor driving food inflation today is skyrocketing prices of oil, again, not something that they looked at. So, you know, it's another in a long series of reports that, you know, raises a number of issues but resolves nothing.

KNOY

11:13:21
Well, and Sheila I want to get to you, too, but just back up for us, if you could, Bob, cellulosic ethanol, is that the same thing as what people usually call corn ethanol or are these two different things here?

DINNEEN

11:13:31
Well, ethanol is ethanol, but the feedstock would be different. Grain ethanol today is what we are largely producing whether it's corn or sorghum or some other grain. But there is technology to produce ethanol from cellulose material, whether it is woody biomass or municipal solid waste or other agricultural residues, corn stalks, corn cobs. These are the types of feed stocks that the industry is moving toward.

DINNEEN

11:13:59
Importantly, there is not an ethanol producer in the country today that doesn't have an aggressive program in place to try to commercialize some of these new technologies. The industry is continuing to evolve and policy ought to encourage that continued evolution and today it doesn't.

KNOY

11:14:16
So when we talk about this, is there more support, do you think, Bob, for ethanol made from these bi-products, the husks or, you know, waste and so forth than ethanol made from the actual corn that people might eat, because that seems to be some of the debate.

DINNEEN

11:14:30
I think that there is strong bipartisan, (word?) support for reducing our reliance on imported oil, period. I think most people recognize that we need to be looking at all energy sources. Nobody wants to say, you know, no corn ethanol whatsoever. There is a foundation of the corn ethanol industry that has helped build the markets, helped build the infrastructure, helped build the technology from which new technologies will grow. We're at the beginning state and nobody wants it to end here.

KNOY

11:15:03
Sheila, let's bring you into it. So cellulosic ethanol often touted as a better alternative to corn ethanol made from non-food crops harvest waste, what do you think about what Bob says, that what the industry needs is support for this type of ethanol to help bring it to the point of self-sufficiency, to create a really new type of fuel here?

KARPF

11:15:23
Right. Well, the one thing that the report does say, though, is that we're not going to meet our mandate for cellulosic ethanol by the year 2022, which is when the renewable fuels standard is set to expire and it also says that there's going to be a lot more unintended consequences with cellulosic ethanol which we've been saying all along that we've had with corn ethanol because you have to find some land in order to grow some of these bio-energy crops like switch grass, miscanthus and other things.

KARPF

11:15:51
So if and when that competes with land that is used to grow food, then we're going to have increased food prices again, which we've already seen with corn ethanol and this report that came out this morning definitely details that. A few other things, the report that did come out today is an independent study which we support. We've been saying these things all along, that corn ethanol has increased food prices. It has not reduced greenhouse gases and it is not making a dent in our reliance on foreign oil.

KARPF

11:16:21
The report backed all of those arguments up. In contrast the ethanol industry, you know, they may not agree with some of these conclusions but they tend to rely on industry-funded studies and they tend to rely on only one industry-funded study in order to promote their policies and we believe that this report is an independent, non-partisan study that comes to good conclusions.

KNOY

11:16:47
So Sheila if you get rid of ethanol of all types, what replaces it? Are we relying on more oil then?

KARPF

11:16:52
Well we have proposed several alternatives. We need to invest more in public transportation. We need to look at how to reduce gasoline consumption overall and increase energy efficiency. And we've also talked about putting money towards investment and research in truly advanced bio-fuels that reduce greenhouse gases, don't compete with the food supply, etc.

KNOY

11:17:16
Truly advanced such as?

KARPF

11:17:18
Well, those would be bio-fuels that would be produced from true wastes. Now we're talking about like limbs from wood waste and other things. You can use some corn cobs potentially but now some of these companies that are investing in corn stover technologies are talking about using not only corn cobs but leaves and the whole entirely of the corn stover. So we need to make sure that we're going to protect soil and water quality in the long run.

KNOY

11:17:48
Bob Dinneen, thought from you there?

DINNEEN

11:17:49
Well, she was doing exactly what the authors of the report admonished the reader not to do and that is to draw quantitative conclusions to many of the questions that were asked when they themselves said these are complicated issues and we really can't draw quantitative conclusions in that way. Look we agree that you need to be moving toward more advanced bio-fuels. The only way to do that though is to allow the continued evolution of the industry and if you do damage to the foundation you're never going to build the building that you would like to see.

DINNEEN

11:18:24
The fact of the matter is that nobody is talking today about energy crops, they are talking about producing ethanol from exactly the kind of materials that Sheila would like to see us do.

KNOY

11:18:35
All right. And coming up, more on ethanol and we'll look at ethanol politics plus your comments and questions at 1-800-433-8850, 1-800-433-8850. Stay with us.

KNOY

11:20:05
Welcome back. I'm Laura Knoy sitting in for Diane Rehm. We're talking about Ethanol this hour and the possibility of diminished political support for ethanol. We welcome your questions and comments, 1-800-433-8850. Send your e-mail to drshow@wamu.org or join us on Facebook or Twitter.

KNOY

11:20:25
Chuck Abbott, again, with Reuters News, what's the political climate for ethanol right now? For a long time, congress has happily subsidized ethanol, mostly corn ethanol. What's it like now on Capitol Hill?

ABBOTT

11:20:36
Well, the one thing you can say about the atmosphere on Capitol Hill is, at the moment, everybody's waiting to see what the Super Committee does. There is virtually no discussion of anything other than what the Super Committee is doing.

KNOY

11:20:49
The deficit reduction Super Committee.

ABBOTT

11:20:50
Right. One of the ethanol trade groups Growth Energy had a meeting a couple weeks ago. And at the end of it one of its top officials Jim Nussle, you know, talked to us reporters and said, you know, nobody's talking long term energy policy today. We're all waiting for the Super Committee.

ABBOTT

11:21:09
And stepping back a little bit further for some perspective, probably the most consequential day for ethanol policy this year was June 16. That was the day the senate voted 73 to 27 to cut off the excise tax credit for ethanol. And on the same day the House was voting on the agriculture appropriations bill and it voted 283 to 128 to prohibit the agriculture department from using any of its money to install blender pumps. I have to explain here for a moment.

KNOY

11:21:40
Yeah, explain what that is, please.

ABBOTT

11:21:41
Blender pumps are fuel pumps that can dispense mixtures of ethanol and gasoline up to 85 percent ethanol. Now there's a few states where E85, as it's called, 85 percent ethanol, is available. And the industry is some -- a good sizeable faction of the industry believes that if there were more of these pumps around people would roll up to the station, look at the comparative price between crude oil -- you know, petroleum-derived fuel and biomass fuel and say, well, you know, maybe today I'll like 25 percent ethanol. And there is reason to believe this could happen 'cause in Brazil...

KNOY

11:22:21
So the consumer can choose itself what level her or she wants?

ABBOTT

11:22:23
Right. (unintelligible) Right, right. And in -- you know, the comparison could be that in Brazil, these sorts of pumps exist and they -- and people in Brazil walk around with calculators and they figure out what's the best price today. And as I said, the -- June 16 was probably the most consequential day.

ABBOTT

11:22:42
Since -- I looked at the Library of Congress web, you know, search engine yesterday. About three dozen pieces of legislation have been filed this session of congress, you know, dealing with ethanol. And they pretty much are either get rid of the excise tax credit or stop EPA from allowing E15, that's 15 percent ethanol mix to be sold. Or they don't support, you know, don't have any government support for blender pumps.

KNOY

11:23:12
So it seems like there's a strong move against ethanol.

ABBOTT

11:23:14
Right, but there's also -- on the other side of it is there's also people who say, yeah, we want to see government support for installation of blender pumps. And the final new, new thing that's going on is that, in the last week or two, a dear colleague letter circulated on The Hill from Congressman Bob Goodlatte, former chairman of the House Agriculture Committee and Jim Costa, a Democrat from the Central Valley of California. I'll back up and say Goodlatte's a Republican from the Shenandoah Valley.

ABBOTT

11:23:43
And it said it's the first attack this year on the renewable fuel standard. It would create a variable renewable fuel standard. The amount of the market share guaranteed for ethanol would be inversely proportional to the government estimate of the corn supply.

KNOY

11:24:02
So Bob Dinneen, do you feel this increasing sense from Capitol Hill that, you know, sorry ethanol folks, we just can't support you anymore, can't afford to subsidize you. Everybody's worried about the deficit.

DINNEEN

11:24:12
You know, I've been doing this for a long time, 24 years. When I started, we were producing about 600 million gallons of ethanol. This year, we will produce some 14 billion gallons. And ethanol is produced all across the country. It's blended in virtually every gallon of gasoline sold coast to coast today. So I've seen tremendous growth in this industry.

DINNEEN

11:24:30
Over that time, I've also seen the political pendulum swing back and forth. Right now it's clearly a more challenging time but I don't think of it as dire as Chuck has laid out. He referred to one day in June. Well, actually there was a vote on the senate floor two days before that in which we defeated an amendment by Senator Inhofe to repeal those very same incentives. Minutes after the vote that he referred to the senate also rejected an amendment by Senator Cain to prevent investment in blender pumps.

DINNEEN

11:25:00
So I looked at the political climate from that week and I scratched my head. I couldn't make heads or tails of it. The fact of the matter is we have strong support in the U.S. Congress primarily from folks that recognize that ethanol production is creating jobs in their districts. They see the rural economic development that has occurred in communities all across the country. And as the ethanol industry grows political support grows.

DINNEEN

11:25:27
Now look, there's also a base of ethanol opposition largely from the oil patch states for obvious reasons. And so you're always going to have that core support and that core opposition. All those in the middle that really don't have a dog in the fight tend to be pretty fickle on this issue. And they will respond to the headline of the day. Today they are indeed responding to concerns that we believe are largely overstated with respect to ethanol's impact on food prices.

DINNEEN

11:25:55
And indeed the independent analyses that have been done suggest that ethanol's role in driving up food prices is very small when compared to the role of energy, the role of speculators in the marketplace, the role of other demand and weather factors. So, you know, I don't see it as dire as Chuck and some others are suggesting. Look, Congress is a fickle place.

DINNEEN

11:26:20
A couple years ago, Sheila and the others in the environmental community were all excited about the carbon legislation that was going to soon get passed. Well, there's no talk about carbon legislation today. So has the environmental influence in the United States Congress waned? You know, I would suggest maybe it has a bit, but I think it does reflect the fickleness of the United States Congress.

KNOY

11:26:42
What about the idea, though, that the deficit is a huge concern? We need to cut it. We need to cut it big. We need to cut it now and look, sorry folks, we just can't afford to subsidize you anymore?

DINNEEN

11:26:52
You know, absolutely. And I'm proud of our industry for stepping forth and saying, you know what? The fact of the matter is our industry has evolved. The fact of the matter is the market place has evolved. When you're looking at 80 or 90 or $100 a barrel of oil, it's hard to suggest that the tax payer needs to encourage the gasoline market to blend ethanol when the market place is already doing that.

DINNEEN

11:27:15
And so we've stepped forward. We said, you know, let the tax incentive expire. We do think that there are other things that the government ought to do in terms of encouraging investment in infrastructure and allowing investments in new technologies, new feed stocks to go, allowing the evolution of the industry to continue.

DINNEEN

11:27:34
But I would challenge any other energy industry to step up as we have done. Because quite frankly, at 80 or 90 or $100 a barrel of oil, the taxpayer ought not be subsidizing Exxon to drill in the Gulf either. And we ought to have a level playing field when it comes to energy tax policy and we ought to be eliminating all those incentives that the petroleum industry continues to get. So again I would say let's have a broader discussion because Mr. Nussle was absolutely right a month ago. There isn't a comprehensive dialogue about energy policy today. And our energy policy needs it.

KNOY

11:28:12
Sheila, what about that? And also is it possible that ethanol has helped keep gasoline prices at the pump down at times when we've seen oil prices spiking by increasing the overall liquid fuel supply in America. What do you think of those two points?

KARPF

11:28:26
Well, number one, we agree with the Renewable Fuels Association and Bob that we need to get rid of oil and gas subsidies. That's something that we've proposed for a long time in addition to ethanol subsidies. One other point on that is that we have over 100 organizations, probably many more, that have advocated for an elimination of the ethanol tax credit, the VEETC, which was extended at the full rate at the end of last year.

KARPF

11:28:50
And if you go back and look at quotes from the ethanol industry at the end of last year they would say that we were going to lose hundreds of thousands of jobs if the ethanol tax credit was let to expire, that we would lose ethanol production and all these things. And now a few months later they come back this year and say, oh well, we're putting forth a proposal to eliminate the ethanol tax credit. So right there they're saying we don't need it. We've been advocating this all along. We have over 100 organizations that have been doing so.

KARPF

11:29:15
When it comes to gasoline prices and ethanol the Renewable Fuels Association has put out ads in The Metro here in Washington D.C. that claim that ethanol is reducing gasoline prices by up to $.89 a gallon, which is completely false. This is based on an industry-funded study, one study again, that was based on a one-year projection. When that study looked over a ten-year timeframe the savings were only $.25.

KARPF

11:29:47
And when you look at any other independent study that has been done by the government or any other source they say that ethanol actually increases gasoline prices since ethanol has less energy content than gasoline. So you go less distance...

KNOY

11:30:00
You get less bang for your buck there.

KARPF

11:30:01
Exactly. So their ads are completely false.

KNOY

11:30:05
Bob Dinneen, I've got to let you jump in there real quick and then we'll go to our callers.

DINNEEN

11:30:08
The study she references actually was not industry funded. It was done by the Iowa State University and the University of Michigan. They did take a longer view and concluded that over ten years the average has been a $.25 reduction. And they did take a look at 2010 when you had skyrocketing oil prices. And absolutely ethanol as the lowest cost liquid transportation fuel in the country is absolutely saving consumers money.

KNOY

11:30:34
Let's take a call again, 1-800-433-8850. This is Deb in Charlotte. Hi, Deb. Go ahead. You're on "The Diane Rehm Show."

DEB

11:30:42
Hi, I'm so glad to get on. I listen all the time. Actually, what you fellows are talking there about is false choices. I have a Prius and on my Prius, I can tell how many miles per gallon I'm getting on a constant basis. And I'll tell you, since they put the ethanol in the gasoline, I have gotten -- on 10 percent ethanol, I get 15 to 20 percent less gas mileage. So to me, there is absolutely no savings. I go looking for gas stations that have very little ethanol in it. And that's no savings for me.

DEB

11:31:14
The other thing is they're giving us false choices. It's not a choice between ethanol and oil and gas. On "The Diane Rehm Show" there was Jeremy Rifkin, "The Third Industrial Energy Revolution" and that's what we need to be doing. We need to be switching to true alternatives, renewable, solar just like Germany's doing with their great economy. So I just want to put that out there to your guests. I'm sorry to counteract them, but the truth is it doesn't work.

KNOY

11:31:41
All right. Well, Deb, thanks a lot for calling in. And you're listening to "The Diane Rehm Show." Again, if you'd like to join us you can call 1-800-433-8850 or e-mail drshow@wamu.org. And, Chuck, I think I'll turn it to you. Wow, she says her miles per gallon actually go down when she puts ethanol-based fuels in her car.

ABBOTT

11:32:03
I am not an engineer.

KNOY

11:32:05
Have you heard this before? Is this a common complaint?

ABBOTT

11:32:07
There have been arguments about -- there've been -- I've heard those sorts of arguments. I can see that Bob Dinneen is better skilled at this.

KNOY

11:32:14
Sure. Go ahead, Bob and Sheila, you too.

DINNEEN

11:32:16
Look, you can't get away from the chemistry. And the chemistry is that ethanol has lower BTU content than gasoline. But it's not 15 or 20 percent lower when you're talking about a 10 percent blend. EPA studies have suggested it's about two percent. That's about the same as if your tires are not properly inflated or driving habits.

DINNEEN

11:32:39
There may be differences in vehicle technology. I can't speak to her experience on the Prius. I'm not saying she's necessarily wrong but that is not what the chemistry would suggest.

KNOY

11:32:50
Do you want to jump in there, Sheila Karpf?

KARPF

11:32:52
Yes. Well, thanks for that call, Deb, and she's exactly right. We did a study last year, and you can find this on our blog "agmeg (sic)." And we found that ethanol has only reduced gasoline consumption by a very, very small amount. And as John -- or as Bob just referred to, this is the same amount of gasoline savings that we could've made by just properly inflating our tires, using the right grade of motor oil and other things.

KARPF

11:33:23
But yet we spend about $6 billion a year subsidizing the ethanol industry. And something that a lot of folks don't know is that the subsidy goes directly to oil and gas companies that blend the ethanol with gasoline. So it's actually just another subsidy for the oil and gas industry.

KNOY

11:33:39
Well, and Deb's other point about she said we should stop looking at all these different fuels and what blend we need and subsidies and so forth and look at, Chuck Abbott, true alternative solutions like she said German is doing. You said early in the program that doesn't seem to be on the table right now.

ABBOTT

11:33:55
Well...

KNOY

11:33:57
Big picture energy policy.

ABBOTT

11:33:58
...no, it's not. Chuck Grassley, the senator from Iowa, member of the finance committee, former chairman of the finance committee, this morning said that, well, maybe there'd be an energy bill at the end of this year, but that's if people get concerned about some of the expiring provisions. And there's always expiring provisions. But, yeah, there's no -- you know, conservation is commonly presented as a way of saving energy as well as saving almost anything else you want to talk about. And, you know, it's hard to achieve -- it seems to be hard to achieve legislatively.

KNOY

11:34:36
Conservation.

ABBOTT

11:34:36
Right.

KNOY

11:34:37
Even though many people these days say, that's the first alternative energy we should be looking at is saving what we do already. Bob.

DINNEEN

11:34:43
Look, I think we do need to have an all energy policy in this country. Our energy situation is such that we can't be saying no to anything. And Sheila may think that the impact of ethanol is small, but facts are important here and context is important here. And the fact of the matter is that last year the amount of U.S. ethanol that was produced displaced 435 million barrels of oil. How much is that? That's about as much oil as we currently import from Saudi Arabia. It is not miniscule and it is having a very beneficial impact for consumers across this country.

KNOY

11:35:17
Again, our number 1-800-433-8850. Next up is Charlie from Ann Arbor, Mich. Hi, Charlie. You're on "The Diane Rehm Show." Welcome.

CHARLIE

11:35:26
Thank you. (unintelligible) couple of comments and questions. One, you mentioned Senator Grassley who represents the state of Monsanto, you know. And fact is that the red states are the ones who benefit from this massive subsidy. There're not a lot of blue states growing that much corn. You know, Michigan grows a little bit.

CHARLIE

11:35:45
And I also wanted to mention the -- you know, this is billions of dollars that has turned out to virtually being wasted. I mean, I know it's got a little bit of fuel, but we're finding out now that it pollutes more and it costs more. And yet the Obama Administration is being hammered because (sounds like) a half million dollars what didn't work on producing solar panels. Now your previous show discussed the Chinese subsidies that loath solar panel industries.

CHARLIE

11:36:10
Okay. And I also want to bring up the collateral damage that happened all over the world with food riots from Cairo to Kenya because of the -- what we did to our corn and our various grain crops (unintelligible) .

KNOY

11:36:22
Well, lots of concern about cost of food prices. And we did talk about that and I want to pick up on that. But the first point, Sheila, I think he makes is interesting. He's saying, look, this is all about red states and blue states. What do you think?

KARPF

11:36:32
Well, agriculture policy does tend to follow along those lines about rural and urban a little bit more so than other issues that we see here in Washington. But, you know, one thing that consumers are saying in a recent poll about the Packard Foundation that came out this week showed us that consumers really want healthy and affordable food. They don't want wasteful tax payer subsidies. And they want government to get out of their lives where it's not needed and where there's wasteful subsidies going to industries that really don't need them.

KARPF

11:37:00
I mean, the oil and gas industry and -- is one of the most profitable right now. And we also see this in our work with agriculture subsidies since most of them are going to the largest agriculture producers.

KNOY

11:37:13
Well, and we'll talk about the food element after a short break. So we will get to that, a couple postings on our website and comments from Facebook also about the food connection. So we'll address that coming up. Also more of your calls and questions on ethanol and politics. We'll be right back.

KNOY

11:40:02
Welcome back. I'm Laura Knoy sitting in for Diane Rehm. We're talking about ethanol and politics this hour with Bob Dinneen, president of the Renewable Fuels Association, Sheila Karpf, legislative and policy analyst with the Environmental Working Group and Chuck Abbott, commodity reporter for Reuters News. You can join us at 1-800-433-8850 or send an email to drshow@wamu.org. You can also join us on Facebook or Twitter.

KNOY

11:40:31
And, Bob Dinneen, just before the break, we got a call from Charlie. I also got a couple emails to this effect. Worried that ethanol is sucking up food supplies, causing food prices to rise and, he said, causing food riots and other social unrest in other parts of the world where people are already poor and already struggling for food. What do you think about that?

DINNEEN

11:40:46
You know, people think that when you're talking about ethanol from corn, you're talking about the corn that you eat. No. You're talking about number two corn. It's an industrial product. It's used to feed animals and for processing a wide variety of products. We are only using the starch from that corn. What is left behind is a very high value, high protein feed that is then used to feed cattle, feed poultry, feed hogs and is adding to the feed supply.

DINNEEN

11:41:16
In fact, the U.S. ethanol industry last year alone produced enough distillish feed as a co-product of ethanol production to feed all of the cattle fed on feed lots across this country. So the food versus fuel is a myth. There simply is not a challenge there.

KNOY

11:41:33
Is it a myth, Sheila?

KARPF

11:41:34
No. It is not a myth. We are currently using 40 percent of our corn crop for ethanol production. And this other point about we're only using number two yellow corn really irks me, actually. I grew up on a corn farm in Nebraska, actually. So I know the difference between sweet corn and field corn. And the fact that we're using about 40 percent of our -- the rest of our corn crop to feed animals and then we eat those animals, that translates directly into our food supply.

KARPF

11:42:07
So you can't argue that we're not eating any of that number yellow two corn. We are eating it. We're eating it through the livestock supply. One other point I'd like to make is that we did a project earlier this year with Action Aid, an international development group. And we produced a world food map showing countries that are gonna be most affected by higher food prices in the coming months. And, you know, we've seen some really dire consequences in Africa this year and in other places around the world.

KARPF

11:42:34
Now, here in the U.S. we only spend about 10 percent of our income on food, but in developing countries that can be anywhere from 50 to 70 percent of their income being spent on food. And so even a small price increase for corn, wheat or other crops can make or break whether families are feeding themselves.

KNOY

11:42:51
Okay. Back to you, Bob, real quick. And then we'll go to our callers.

DINNEEN

11:42:53
Sheila's just ignoring the fact -- when talking about 40 percent of our corn crop, she is ignoring the fact that we are producing 12 million tons of feed. You just can't ignore that. You just -- that's not just dumped in the ocean. That then goes to feed animals. In terms of developing countries, the best way to help developing countries is to give them a marketplace where they can be growing their own grain and selling it on a world market that will actually empower them and give them economic development opportunities.

DINNEEN

11:43:28
Look, you have seen corn prices over the past several years go up and go down. They're falling now. Ethanol production is staying about the same. We are not the principle cause for rising or falling corn prices. You have to look at other factors, including the skyrocketing price of energy and speculators in the marketplace and other issues that Sheila wants to ignore.

KNOY

11:43:48
All right. Let's take another call. And this is Mary on the eastern shore of Maryland. Hi, Mary. Go ahead. You're on "The Diane Rehm Show".

MARY

11:43:54
Hi. Thank you. I just have a comment and I wonder what your speakers think about it. I have a friend who drives the diesel car, in fact, has now purchased several diesel cars and runs them on used oil from places like McDonald's. And when we're talking about the high cost of fuel and the high cost of even corn that we eat and food in general, why are we not spending more time exploring those kinds of alternative energies when the United States is putting quite a bit of money into places like McDonald's and the oil is there and has to be disposed of anyway?

KNOY

11:44:26
Right. And when the busses go around, they smell like French fries, right, Mary?

MARY

11:44:30
Yes.

KNOY

11:44:31
All right. Thanks a lot for calling in. What do you think about that, Sheila?

KARPF

11:44:34
Well, those small scale solutions can be a great way to recycle some of that cooking oil, recycle cooking oil and other things that come out of restaurants and other municipal waste, things that are truly waste, that wouldn't have other uses, like corn ethanol. We're also seeing -- I recently spoke with some organic producers, agricultural producers in Wisconsin. And they have a small-scale facility that they bring around to various farmers in Wisconsin to produce soy bio-diesel.

KARPF

11:45:09
Now, some of these small-scale solutions can be great, but when you're looking at 40 percent of the corn crop, you know, huge amounts of our commodity is going to ethanol production then you have a real problem there.

KNOY

11:45:19
You know, another justification, Chuck Abbott, for the subsidies that we talked about -- and some question on Capitol Hill as to whether those subsidies should continue tax credits -- another justification for these is that they create jobs in rural communities. They help hard-hit rural America, but with agricultural prices so high and other industries, other types of unemployed people needing help, is ethanol still a priority, do you think?

DINNEEN

11:45:42
Well, ethanol …

KNOY

11:45:42
We're talking politically here.

ABBOTT

11:45:43
Right. It still has a fair amount of support. It's -- I recently listened to Earl Pomeroy, who is a long-time congressman from -- and of course as I say that I forget which state. Is it South …

DINNEEN

11:45:56
North Dakota.

ABBOTT

11:45:56
North Dakota. See, I would have got it in the wrong. North Dakota, who -- he's a big booster of bio-fuels. He regards them as a -- he says they take the slack out of agricultural production. You have to -- although, at the moment we have -- we, being the United States have high demand for grain and high and volatile prices. The history, starting with, you know, the great depression was United States suffered from agricultural surpluses and, you know, crushingly low prices.

ABBOTT

11:46:33
It's only been in the last generation that rural -- that farm incomes have achieved parody with urban incomes. So when you get to -- and only in the last five years that grain demand has coincided with, you know, with the supply. It's a hard way of talking about supply and demand, but so we have -- it's -- since 2006, there's been fairly up-surgence, a boom in grain prices and grain demand. Part of that's due to rising demand from China, disappointing crops in some other of the major countries.

KNOY

11:47:08
So other factors at play, not just bio-fuels.

ABBOTT

11:47:10
But they're -- right, right, right.

KNOY

11:47:10
In terms of boosting rural America. But there are folks who, at some of the farm organizations, who will tell you like from their view, they got kicked for 50 years for accepting subsidies, not, you know, as the common lingo is, not to grow something. Now, they're being kicked because they're making money. They think it's unfair.

KNOY

11:47:28
So you can't win.

ABBOTT

11:47:30
And 'cause we talked about economic growth and I think it's one of those basic facts you have to lay out, there are more than 200 ethanol plants across the country. Each plant employs around four dozen people, costs a couple hundred million dollars to build. They spend, what, 50 million, 100 million a year to buy corn. You know, it generates a lot of economic activity.

KNOY

11:47:50
Do you wanna jump in there, Bob Dinneen? And I know Sheila, you want to, too.

DINNEEN

11:47:52
And indeed -- and those facilities are rural economic engines that are driving the communities and insulating them from some of the economic recession that the rest of the country is suffered from. And the fact of the matter is, one of the reasons that Congress created the ethanol program was, in fact, to revitalize rural communities, was, in fact, to assure that farmers could get more of their income from the marketplace than from the federal government. And indeed, that's what you have seen over the last several years. Loan deficiency payments have gone away. There haven't been any because the price of grain has been boosted by the demand for ethanol. That is a good thing.

DINNEEN

11:48:34
It doesn't create the spikes that you've seen. You haven't seen that. But, you know, $2 corn, which is what you had through much of the 1980's, was not sustainable. Rural economies were being devastated by that. This value-added market that ethanol has created has absolutely helped rural communities and been a good thing for the taxpayer. An analysis that USDA did a couple of years ago, said that ethanol was actually reducing farm program costs by $9 billion, far more than the cost of the tax incentive.

KNOY

11:49:07
Because the farmers are doing so well because of ethanol.

DINNEEN

11:49:09
Because …

KNOY

11:49:09
Let me just ask you right up front, though, would you be okay, Bob, with just getting rid of all the subsidies and tax credits now? Just free and clear, you're in the market open and competitive just like other types of interests?

DINNEEN

11:49:21
That's what we've been talking about. The fact of the matter is the ethanol tax incentive goes away this December. And we are not trying to get it extended.

KNOY

11:49:27
You're okay with that.

DINNEEN

11:49:27
We are fine with it. The marketplace has changed, policy has changed, our industry has evolved. We are fine with that. So we're sort of debating about a non-issue right now. What we ought to be debating about is what's our future energy tax policy going to be? Can we level the playing field? Can we address oil tax subsidies? How do we get the federal government to invest in new technologies, cellulosic ethanol and other advanced bio-fuels? That's the debate we ought to be having.

KNOY

11:49:52
What do you think, Sheila?

KARPF

11:49:53
A couple of things, again, this hits home for me because I care very much about rural development and economic development in states like Nebraska, Iowa and elsewhere. Right now, farmers are doing extremely well. Farm income is expected to be up 31 percent this year. And in my home state of Nebraska it was up 50 percent last year. Farmers are doing extremely well. And one farmer told me recently that it's a sin that we're still paying direct payments to them, which go out regardless of price, income or anything.

KARPF

11:50:25
What our farm subsidy database also shows us is that about the top 10 percent of all agricultural producers are raking in over 70 percent of all farm subsidies. So the small or the largest producers are taking in all the money, while 60 percent of farmers receive no farm subsidies at all. And so -- and what we've seen on -- in rural communities, how these farm subsidies have translated into rural economic development, some studies have shown that they've actually harmed rural development, that in states where most of the ag subsidies go we have rural population decline.

KARPF

11:51:01
And a lot of farmers will tell you, too, that all the money going to these big farmers has driven up land prices to the point where a lot of young and beginning farmers cannot afford land. I wanna mention one other thing on the ethanol front. We looked at the Renewable Fuels Association's industry data. They come out with this every year. And we found that only 14 percent of ethanol facilities are now local -- locally or farmer-owned. Whereas, this percentage used to be as high as 40 to 50 percent. So we've actually seen oil companies buy up ethanol facilities now, like Valero and others.

KNOY

11:51:33
I'm Laura Knoy and you're listening to “The Diane Rehm Show”. If you'd like to join us call 1-800-433-8850 or send an email to drshow@wamu.org. Lots to talk about. And let's take another call. This is Ryan, in Raleigh, N.C. Hi, Ryan. Go ahead. You're on “The Diane Rehm Show". Welcome.

RYAN

11:51:53
Well, you guys touched on a new point there, too. I was calling in regards with the, I guess, the trickle-down effect in food prices, but more or less towards the agriculture crops with cows, dog food, all along those lines. I mean, just for instance, I've grown up around rural community farming my whole life and for the, I guess, for the easier scenario, you see deer hunters use a lot of corn out there. And I've seen through the years where the -- a 50 pound bag has gone from, you know, a couple dollars to $10. And this year it's $15 for a 50 pound bag. That's outrageous.

RYAN

11:52:29
But the hard part of it is, I'm a huge proponent for these alternative fuels and especially the ethanol. I mean, it's a great idea. You've got your own renewable source in your backyard, but there's gotta be a balance. And I think some of that comes from lack of education that the industry is taking advantage of the general populace on.

RYAN

11:52:46
If they're saying, like you quoted earlier, 40 percent of the corn crop is being used for ethanol this year, well, if you don't know the whole process behind it, you're gonna think, oh, crap. You know, they're gonna be using up a whole bunch of the crop for this and there's not gonna be a whole lot leftover for the cows. And then the industry can manipulate that and say -- start driving up the prices, supply and demand, so to speak.

KNOY

11:53:04
So, yeah, the concern.

RYAN

11:53:04
That's my …

KNOY

11:53:05
Go ahead, Ryan. Yeah, thanks. Go ahead and finish up there.

RYAN

11:53:08
That's my biggest, I guess, conundrum with this whole thing, is do you draw the line and say it's the industry's fault or do you say it's the consumer's fault for not educating themselves or do you say the industry's responsible for it …

KNOY

11:53:19
All right.

RYAN

11:53:19
…without more information.

KNOY

11:53:20
Ryan, thanks a lot for calling. Sheila and then, uh, Bob and Chuck. Go ahead, Sheila.

KARPF

11:53:24
Well, thanks for those comments, Ryan. I'd like to make one point. And this is an example of maybe a broader point, but his point on consumer education. We've seen the ethanol industry put out incredibly inflated numbers. They're claiming that the ethanol industry supports something like 400,000 jobs. And some estimates are even as high as 625,000 to 645,00 jobs. And as Chuck mentioned before, there's about 200 ethanol facilities in the U.S.

KARPF

11:53:54
So if you do the math that equates to about 2,000 or more people being employed by each ethanol facility when it's in reality only 50. And, again, I know, you know, the ethanol industry has created some jobs, but they're numbers are incredibly inflated. And that's just one example of the inflated numbers that we're seeing out of the ethanol industry.

KNOY

11:54:09
Bob, jump in and then,, Chuck I have a question for you.

DINNEEN

11:54:10
That somewhat mystifies me because we've said that there are 70,000 direct jobs and 330,000 indirect jobs and those are BLS multipliers. So it's nothing …

KNOY

11:54:21
(word?) statistics.

DINNEEN

11:54:23
Yeah, it's nothing that we've done. If you have a beef talk to the Department of Labor. But with respect to Ryan's question I can tell him that there's certainly not $15 worth of corn in that 50 pound bag. And so he probably needs to look for other reasons. You know, there's less than 10 cents worth of corn in a $2.50 box of cornflakes, as well. It gets to my point earlier, what's driving food prices is, you know, the marketing costs, the price of energy and all the other things that are associated with food, storage and distribution across this country. And the miniscule impact of bio-fuels on commodity prices is simply not a driving factor.

KNOY

11:55:04
I wanna ask you, Chuck, a question about, again, what we started talking about, political support on Capitol Hill for bio-fuels, especially ethanol. And Bob Dinneen said he was fine with the taxes and subsidies going away. What about, though, Chuck, the federal mandate that says, you know, gasoline has to have X percentage of ethanol? What does that say now and what's the future of that? 'Cause I know that's at play here.

ABBOTT

11:55:26
Well, the 2007 energy law, which updated the 2005 energy law, guarantees renewable fuels a share of the motor fuel market. And maybe I can get out my little chart here from the National Research Council report. It -- the share for corn-based ethanol is supposed to top out at 15 billion gallons a year in 2015. Cellulosic and other types of advanced, as they're called, advanced bio-fuels are supposed to bring on another 16 billion gallons more or less.

ABBOTT

11:56:04
So that's the -- that sort of helps explain why the National Research Council was requested by Congress to produce a report. We're at the stage that the advanced bio-fuels are supposed to be coming on stream and they're not. The explanation a couple of years ago was the recession just knocked the heck out of the industry. You know, the risk -- there was no risk capital around and the bigger companies didn't wanna try it out. The government, through the energy department and the agriculture department has put out some loan guarantees to bring commercially -- commercial-sized plants …

KNOY

11:56:39
And, Chuck, I'm sorry to interrupt you there. I need to close it up.

ABBOTT

11:56:41
Okay.

KNOY

11:56:41
But real quick, so what's the future? Is this mandate gonna change or not?

ABBOTT

11:56:46
This is the first time anybody's tried change -- well, the second time. Rick Perry, as governor of Texas, requested EPA to waive the mandate. EPA declined to do that. It would be, you know, it -- at the moment, it's probably an uphill battle to change the mandate.

KNOY

11:57:01
All right. And we'll end it there. I'm Laura Knoy sitting in for Diane Rehm. Thanks for listening.
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