Ethanol: Behind the Buzz

Cellulosic ethanol's promise is as alluring as it seems remote. According to the U.S. Department of Energy, cellulosic ethanol production can provide an energy balance of 2.6:1 with dedicated inputs and 5:1 with agricultural residue, as well as a net 80% to 100% reduction of greenhouse gases over gasoline. Because production utilizes the entire plant and not just the foodstuff, its energy yield can exceed 1,000 gallons per planted acre, compared to 660 for Brazilian sugar and 400 for U.S. corn. And unlike corn and sugar, no one eats switchgrass or willow trees, meaning that cellulose inputs do not face the cost pressures and political risk that comes with competing against consumers for food. Finally, the diversity of suitable cellulose biomass makes viable worldwide production, offering virtually limitless capacity and easy input substitution.

Enter Politics

Although ethanol may one day compete without subsidies or tariffs, its fortunes today are a result of politics as much as economics. Four political considerations shape current policy: domestic agriculture, energy independence, regional influence and the environment.

For most of its history, domestic farm interests have been ethanol's raison d'etre. In the U.S., a potent combination of agribusiness money and disproportionate farm-state power in the Senate have effectively orchestrated themes of patriotism and Jeffersonian citizen-farmer imagery to the tune of more than $8 billion in 2006 subsidies and strict import tariffs. Support for corn ethanol handouts is as nonpartisan as the need for farm-state votes. While the farm lobby views warily any efforts to encourage foreign sugar ethanol production, it embraces cellulosic ethanol research and development, which may permit farmers to wring more value out of existing crops and grow biomass inputs on land unsuitable for traditional farming.

To see what effect the farm lobby is having on ethanol, click here.