Winners and Losers of Renewable Energy Policy

On a recent trip to Memphis via the Fort Worth area I saw the “ethanol free” sign shown here. Just 40 miles west of Cow Town, this sign summarizes a common public sentiment towards corn ethanol that is held in that ranching community. Meanwhile, Midwesterners continue to display adamant support for the corn ethanol production that has increased to more than 9 billion barrels per year and is motivated by the nationally mandated Renewable Fuel Standards (RFS). The discord between these two regions demonstrates a significant hurdle for renewable fuels, in that many renewables are localized in particular regions (wind in west Texas, solar in the Southwest, biomass in the Midwest, etc) and their implementation will benefit some of the population more than others. Additionally, the discord between the two powerful agricultural regions demonstrates how government subsidies and mandates artificially create winners and losers in the marketplace.

The negative impacts of corn ethanol production on Texas agriculture have been significant. Many cattle ranchers could not afford to send their calves to the feedlots (due to high feed costs), therefore drastically reducing their annual income. In the wall street journal, Governor Perry stated that the increased corn prices drove the leading Texas pork producer out of business due to feed costs that rose 50% in four years.[1] Texas is a national leader for many agricultural products, particularly beef cattle, cotton, and broilers, but produces relatively little corn[2]. The agriculture sector employs about 14% of working Texans and yields about 9% of the state’s GDP [3], much greater percentages than the national average for these categories (2% and 0.7% respectively [4]). Negative impacts to the livestock industry can have significant effects on the Texas economy, particularly in heavily ranched counties.

Midwestern support of corn ethanol remains strong and seven Midwestern states account for nearly 80% of the ethanol production, a result illustrated in the map below.[5] The House Agriculture Chairman, Collin Peterson, a democrat from Minnesota demonstrated the region’s dedication to corn ethanol in a recent knee-jerk response to the EPA deciding to incorporate indirect land use change in the overall emissions balance for producing corn ethanol (a change which causes corn ethanol to be slightly worse or equal to petroleum gasoline regarding emissions [6,7]). He declared that, “I will not support any kind of climate change bill,” because believed the EPA would continually tinker with the RFS rules and could not be trusted.[8] The Iowa Corn Growers Association states that “as the first environmentalists, Iowa’s corn growers have worked to build market demand for our current viable source for energy independence,” and support $0.45/gal blender’s credit for ethanol and the $0.54/gal ethanol import tariff.[9] The continuation of corn ethanol production is in the Midwestern agricultural sector’s favor, and they understandably support strong measures to promote its continued growth. The contrast of public opinion towards corn ethanol in different regions of the country highlights a challenge that the deployment of many renewable energy sources will face. With a heterogeneous composition of resources, the U.S. Congress must find a way to promote alternative energy production and balance the interest of all regions. The resolution will undoubtedly be determined by the complex governmental proceedings in Washington as a compromise between regions with varying levels of bargaining power (i.e., corn lobbyists, cattlemen lobbyists, wind lobbyists, etc).

1. Perry R., “Texas is fed up with corn ethanol,” Wall Street Journal, Online at http://online.wsj.com/article/SB121850115460131741.html, August 12, 2008.

2. “The Texas Economy,” Netstate.com, Online at http://www.netstate.com/economy/tx_economy.htm

3. “Texas Agriculture Facts,” Texas Department of Agriculture, Online at http://www.agr.state.tx.us /gt/channel/render/items/0,1218,1670_1693_0_1692,00.html

4. “The 20th Century Transformation of U.S. Agriculture and Farm Policy,” Economic Research Service, USDA, Online at http://www.ers. usda.gov/publications/eib3/eib3.htm

5. Gottsschalk A., “The Impacts of the U.S. Corn Ethanol Policy on the U.S. Cattle Industry,” Range Beef Cow Symposium, University of Nebraska, 2007.
6. “EPA Lifecycle Analysis of Greenhouse Gas Emissions from Renewable Fuels” Environmental Protection Agency, Online at http://epa.gov/otaq/renewablefuels/420f09024.htm, May 2009.

7. O’Hare et al., “Proper accounting for time increases crop-based biofuels’ greenhouse gasdeficit versus petroleum,” Environmental Research Letters, 2009.

8. Geman B. and Samuelsohn D., “CLIMATE: 'I will not support any kind of climate change bill' -- House Ag chair,” Greenwire, Online at http://www.eenews.net/Greenwire/2009/05/06/archive/ 1?terms=Climate+Change+Bill+Peterson

9. “Sound Ag Policy Vital In This Presidential Race,” Iowa Corn Growers Association, Online at http://www.iowacorn.org/aspx/Public/News/NewsItem.aspx?item_id=23, October 17, 2008.