1. Low net energy balance
Ethanol production is an energy-intensive process. Corn ethanol produces only 25% more energy than the energy input for its production. This is a low net energy balance, most of which is due to the energy credit from using its DDGS co-product for animal feed. In comparison, soybean biodiesel’s energy output exceeds 93% of its energy input. Furthermore, corn ethanol has the lowest fossil energy balance (energy output per unit of fossil fuel input) of 1.5, compared with ethanol produced from other feedstock such as celluloses, sugar cane, wheat, sugar beets which are 2-36, 8, 2, 2 respectively (Worldwatch). Besides, it requires approximately 7,090 liters of fossil energy equivalents to produce 3,330 liters of ethanol (Pimentel, 2003). The low net energy balance of ethanol not only questions ethanol’s claims to reduce green house gases but also to wean the U.S. from foreign oil. Ethanol production uses natural gas as a process fuel, thereby subject to the supply risks of the natural gas market co-existent with crude oil. Switching from natural gas to coal may solve this security dilemma but induces environmental problems with burning coal.
2. Food versus fuel problem
The past decade has seen a drastic increase in the share of corn used to produce ethanol. The first spike occurred in 2001, which was attributable to rising panic of petroleum shortage resulted from the 911 attack. The subsequent U.S. involvement in Afghanistan and Iraq intensified the political instability of the region, putting a risk premium on crude oil, pushing its price upward. The rise of oil price induced more investment, production and consumption of alternative fuels including ethanol, leading to an increase in demand for corn. The second spike of the share of corn used for ethanol production occurred in 2005, partly because of the phasing out of MTBE, partly because of the renewable fuel standards instituted in the Energy Policy Act of 2005. Despite a rapid surge in ethanol production, corn production remained nearly unchanged. As more corn was converted into ethanol, corn was gradually transformed into an “energy crop”. From late 2007 onward, corn price index started following fluctuations of ethanol price closely. Corn price increased rapidly from October 2006 and reached its peak in 2008.
David Pimentel argued that, “Abusing our precious croplands to grow corn for an energy-inefficient process that yields low-grade automobile fuel amounts to unsustainable, subsidized food burning.” He made this point with a dramatic comparison of food and fuel. Iit would take 22 pounds of corn grain to produce 1 gallon of ethanol, thus 660 pounds of corn, which could feed two people in a developing country for an entire year to fill up an SUV.
In the controversial ‘food versus fuel’ battle, many ethanol critics call it “crime against humanity” because of its detrimental effects on food price. The increase in food price from 2005 to mid-2008 has been attributed to the use of corn for ethanol production by many corn ethanol opponents. Fairly speaking, the U.S corn used for ethanol production in 2007-08 accounted for a small share, less than 35% of the global cereal production. However, what is important is that this share enlarged rapidly. During this period, its increase made up half of the total increase in global cereal use, which means that the use of corn for ethanol had a certain impact on the world food price. This impact on some particularly food and agricultural products is not always direct. An interesting case is the tortilla price increase in Mexico which was widely attributed to the U.S. corn ethanol’s production. However, the corn that the U.S. exports to Mexico is yellow corn used as an animal feed while tortilla is produced from white corn. Nevertheless, a rise in yellow corn price could make white corn in some places cheaper than yellow corn, which induced people to switch to white corn to feed animal (Westhoff, 2010). This impact is not direct and large but surely not insignificant. It reflects the complex impacts of corn ethanol production on food price. For example, as the U.S. farmers sell their corn to ethanol production, many U.S. farmers who grow different crops such as soy beans would switch to corn, causing the price of these crops to rise. By the same token, a large proportion of corn grain in the U.S. is fed to livestock, as corn price increases, meat and poultry can similarly become more expensive. The National Center for Policy Analysis in 2002 estimated that ethanol production is adding more than $1 billion to the beef production cost.