Ethanol Debate Surges on Wake of Emergency Oil Summit

According to Great Britain’s PM Gordon Brown, our current energy crisis is a simple case of Economics 101. There is more demand than supply, and that is why oil prices are skyrocketing. At this past weekend’s emergency oil summit in Jeddah, Brown sought a way to rebalance that disparity, according to the Guardian UK, by offering a long-term deal of energy supply diversification as well as an investment by oil-supplying countries into western renewable technologies. Yet, despite his best efforts, he was unable to take the “heat” out of the rising oil prices, which at 12:00 EDT today, was trading at $137.18.
Amongst other things, this has refueled the debate on ethanol. Bloomberg reported on Friday that the US, Brazil, and the EU are accelerating efforts to create global standards and make the alternative fuel an internationally traded commodity. The standards would let buyers and sellers trade the fuel like copper, sugar, and oil, undoubtedly boosting ethanol’s usage. “We can start seeing a world where we’ll begin to really replace gasoline with ethanol,” said Gregory Manuel, Secretary of State Condoleeza Rice’s special adviser for alternative energy. “Trade is a function of commoditization.”

As many view the trade and commoditization of ethanol as a positive step to diversifying our energy reliance, during the election year in the US however, the ethanol issue remains complicated. Brazil, who is the world’s second largest producer of ethanol behind the US, produces a sugar-based biofuel that many proponents claim has a far more efficient production cycle compared to the United States’ corn-based, and provides 8 times more energy. The Brazilian ethanol, though, has a high import tariff, which aides to the subsidization of domestic production, and according to an article in the NY Times this morning, this is a point where candidates McCain and Obama stand divided.
“We made a series of mistakes by not adopting a sustainable energy policy, one of which is the subsidies for corn ethanol, which I warned in Iowa were going to destroy the market and contribute to inflation,” said Senator McCain to Brazilian newspaper O Estado de S√£o Paulo earlier this month.
Standing in contrast to McCain’s support of a more open trade policy for Brazilian sugar-based ethanol, Obama has remained a supporter of domestic production subsidies. As the NY Times reports, Obama is regarded as a reformer seeking to reduce the influence of special interests in politics. “But like any other politician, he has powerful constituencies that help shape his views. And when it comes to domestic ethanol, he also has advisers and prominent supporters with close ties to the industry at a time when energy policy is a point of sharp contrast between the parties and their presidential candidates.”
One example of which is Tom Daschle, the former Senate Majority Leader and national co-chairman for the Obama campaign. Daschle also serves on the board of three corn-based ethanol companies, which has remained a controversial topic in the US as many critics indict it for the amount of land and energy that is required to produce it. Though in a phone interview with the Times, Daschle said his role as an adviser on energy matters was limited, Obama has remained a supporter of corn-based ethanol subsidies, citing America’s need to build “energy independence.”
The article in many instances alludes to Obama’s rhetoric of “energy independence” as a way of further establishing his presence in mid-western states, the largest corn producers in the country. According to statistics on from Industrial Info Resources, the US currently has 156 operational ethanol plants, and based on USDA numbers, nearly a quarter of all domestic corn crops will be used for ethanol production. At these levels, corn-based ethanol is estimated to expand to 8.8 billion gallons next year, which could definitely help combat our continued reliance on petroleum. Yet, citing the sharp rise of corn prices in tandem with oil, the Times also claimed that the subsidies would end up in the hands of the same oil companies that Obama says should be subjected to the windfall profits tax.
As the election year continues, as politicians and candidates seek to find solutions for rising oil prices, a slacking domestic economy, international trade policies, and global warming, amongst other things, it will be interesting to see how the ethanol debate evolves and shapes political discourse. Though it is positive to see that both main presidential candidates are in favor of fostering alternative energies, what remains unclear in all of this is what is best for the country and what is best for us in the long run.

Ashwin is an Associate Editor of Triple Pundit. He recently returned to the Bay Area after living in Argentina, where he wholeheartedly missed the Pacific Ocean. He is a freelance editor and media and marketing consultant.After a brief stint working in the wine world, when not staring blankly at a computer screen, you'll find him working on Anand Confections or at 826 Valencia, where he has been a long-time volunteer.