Biofuel Demand Could Send Shockwaves through World Economy

Esteemed environmental policy analyst Lester Brown of the Earth Policy Institute told reporters last week that Americans and the rest of the world are likely to see sharp increases in the price of corn, let alone the popular biofuel ethanol, due to errors in projections made by federal agriculture planners. "Because of inadequate data collection on the number of new [fuel ethanol distilleries] under construction, the quantity of grain that will be needed
has been vastly understated," said Brown.

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The potential problem stems from the fact that increased demand for home-grown ethanol as a gasoline fuel additive has led to an unprecedented number of new distilleries coming online, according to Brown. While the U.S. Department of Agriculture estimates that America’s ethanol distilleries will need 60 million tons of corn from the 2008 harvest, Brown pegs the real number closer to 139 million tons. "If [our] estimate is at all close to the mark, the emerging competition between cars and people for grain will likely drive world grain prices to levels never seen before," he said.

And the results could be unsettling. "The U.S. corn crop, accounting for 40 percent of the global harvest and supplying 70 percent of the world’s corn exports, looms large in the world food economy," said Brown. "Substantially reducing this export flow would send shock waves throughout the world economy."

Brown suggested several alternate courses for U.S. agricultural and transportation planners to follow. For starters, the equivalent of the 2 percent of U.S. automotive fuel supplies now coming from ethanol "could be achieved several times over, and at a fraction of the cost, by raising auto fuel efficiency standards by 20 percent." Also, a greater shift to hybrid gas-electric cars would mean less demand not only for gasoline but for ethanol—and corn—as well. Brown is calling for a moratorium on the licensing of new ethanol distilleries "while we catch our breath and decide how much corn can be used for ethanol without dramatically raising food prices."

Source: Earth Policy Institute