Data Also Disproves Food v. Fuel Claims

The Wall Street Journal’s Scott Kilman reported earlier this week on a letter sent by General Mills, the Grocery Manufacturers Association and Kraft Foods to Ag. Sec. Tom Vilsack, asking for reduction of trade tariffs on sugar. From Kilman’s article and the letter, it’s clear that grocery manufacturers are once again trying to distract public attention from their price increases by pointing a finger of blame at biofuels.

Last year, you may recall, Roll Call exposed the Grocery Manufacturers Association’s plan to use the food vs. fuel debate to cover their industry’s price increases.

Kilman writes:

Prices are up because the world is consuming more sugar than farmers are producing. One big factor: The world’s largest sugar producer, Brazil, is diverting huge amounts of its cane crop to making ethanol fuel. Likewise, the food industry has complained bitterly in recent years about the U.S. ethanol industry’s ravenous appetite for corn, which helped push up prices for that key ingredient too.”

Sugarcaneblog provides the real explanation for current, temporary sugar price increases – rain has slowed the pace of harvesting – even while Brazil’s sugar production is up 15 percent this year.

Reuters reporter Brad Dorfman provides much more thorough, clearer analysis on the claims made by the grocery manufacturers:

Food industry analysts say inflation should be contained for an industry that sharply increased prices in the past year as costs for commodities such as vegetable oil, wheat and corn surged.
“Many commodity prices have retreated, and manufacturers are trying to defend the price increases as consumers and retailers try to rein in costs in a weak economy.”

The Consumer Price Index shows that food prices have actually declined a percentage point over the first half of this year, after rapid increases in the past two years. The data also show that the increases in the past year were out of proportion to inflation in other categories.

CPI Percent increase/decrease

2002

2003

2004

2005

2006

2007

2008

2009

Food

1.5

3.6

2.7

2.3

2.1

4.9

5.9

-1.1

Energy

10.7

6.9

16.6

17.1

2.9

17.4

-21.3

14.8

Other Goods

1.9

1.1

2.2

2.2

2.6

2.4

1.8

2.3

Source: Bureau of Labor Statistics.

Neither biofuels nor energy provide a good explanation for increases in food prices.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Increases in food price inflation do not correlate well to either biofuel production or energy price data.

Even a Congressional Budget Office study requested by Members of Congress who wanted to make a case that biofuels’ were raising the cost of government food programs could only find a 10 percent to 15 percent impact on food prices from biofuels. That study showed that nearly two-thirds of the price increases could not be explained by either biofuels or energy prices.

Of the 5.1 percent CPI increase for food between April 2007 and April 2008, energy had a larger effect than biofuels. But even together, they account for a fraction of food price inflation:

Biofuels

0.5 to 0.8

10 to 16%

Energy

1.1

22%

Other Causes

3.2 to 3.5

62 to 68%

Source: Congressional Budget Office, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” April 2009

So why is GMA resurrecting its campaign to blame biofuels for food price increases? (See also their letter to Sen. Boxer from a few weeks ago.) Likely because it was a very profitable strategy for them last year and it continues to work, at least with half the time.

Land O’Lakes

16%

Kraft Foods

21%

Sara Lee

55%

General Mills

61%

Kellogg Co.

9%

Source: 2020 Project, FoodPriceTruth.org.

More data contradicts theory of indirect land use change

This morning, the USDA released their August crop report and it is the latest data that completely contradicts the theory of indirect land use change (ILUC). Loosely translated, the theory of ILUC posits that the increased use of corn for ethanol production in the U.S. will displace other domestic crops like soybeans, which means that new acres around the world will have to come into production to make up the shortfall in U.S. crop exports. For a complete recap of ILUC and its shortfalls, see this white paper from Growth Energy.

The problem, as Jim Lane at Biofuels Digest has so conclusively pointed out, is that the theory of ILUC is not supported by data when you back-cast (check the predictions of the model against known outcomes in the past to see if the predictions were accurate). The USDA crop report is the latest example of how the theory of ILUC does not fit real-world data.

The USDA crop report, in case you missed it, showed that there will be a record soybean crop in the U.S. That’s despite the fact that there will be record ethanol production this year as well. According to the theory of ILUC, those two things can’t happen at the same time. A larger amount of corn used for ethanol leads to a smaller soybean crop, not a record. The reason is simple. ILUC is being modeled with a general equilibrium model, of which the shortcomings have been discussed on this blog before. General equilibrium models assume a point of equilibrium, hold everything constant and then shock the model. In the case of ILUC, the shock is adding several billion gallons of U.S. ethanol production to an otherwise static global economic system. If you do that, you will obviously get land use change because there is nowhere else for the crops to be produced. Then the debate is only about where that additional land comes from: rain forest (which is highly unlikely) or formerly abandoned cropland that is brought back into production.

But, as the USDA crop report clearly shows, the system doesn’t stay static. It adapts and evolves with changing market conditions. That’s why in the real world, you CAN have a record soybean crop AND record ethanol production. And it’s being done primarily with increases in crop yields – not acres. The only question is: how much longer can the theory of ILUC last if all the data continues to contradict it?

Strange Bedfellows Indeed

The Environmental Working Group, Friends of the Earth, the Grocery Manufacturers Association, the National Marine Manufacturers Association, the National Petrochemical & Refiners Association, and the Natural Resources Defense Council have cosigned a series of letters to Senate leaders opposing additional study of the theory of indirect land use change. These groups would like to lock in the EPA’s current measurement of indirect land use change, which includes heavy penalties for corn- and soybean-based biofuels.

The coalition is responding to the inclusion in the American Clean Energy and Security Act of 2009 of Section 551, under the Agriculture and Forestry offsets. This part of the legislation directs the National Academies of Science to review existing studies of indirect land use change and determine whether models can reliably project the greenhouse gas emissions for both biofuels and conventional petroleum fuels.

According to Nathanael Greene of the NRDC, “This coalition has come together because we want sound science rather than special interests to determine our biofuels policies.” And according to the NPRA’s Greg Scott, “Sound, verifiable science should always guide the crafting and implementation of environmental and energy policy.”

So is the EPA’s current analysis of indirect land use change sound and verifiable? I’ve noted before that the EPA’s methodology is based on an assumption that there is a cause and effect relationship between production of renewable fuels and international land use change. Yet, they have not footnoted their assertion or demonstrated this cause and effect relationship. Sorry, but that’s not science, let alone sound and verifiable science.

Section 204(a)(3) of the 2007 Energy Independence and Security Act, the law that established the current RFS, already obligates the EPA to study whether there is an international impact from biofuel production. By December 2010, the EPA will have to come up with some direct evidence of the cause and effect relationship.

Section 203 of that same law asked the National Academies to study the issue of food and biofuel. Though the NAS appears not to have done the study, the Congressional Budget Office did complete a study. While showing that biofuels had roughly half the impact of oil on food prices, the CBO’s findings failed to explain roughly two thirds of food price increases during 2007 and 2008. The 2020 Project finds an easy explanation for food price increases in the profits made by members of the Grocery Manufacturers Association.

Politics is definitely about strange bedfellows. So, which of these groups will gain what from ensuring that biofuels are penalized for international land use change?

Global Sustainable Bioenergy Initiative Discussed at World Congress

Professor Lee Lynd of Dartmouth, who is also the CSO of Mascoma, addressed a plenary session the 2009 BIO World Congress on Industrial Biotechnology. He gave additional insight on the article he coauthored with David Tilman et al in a recent issue of Science and discussed the initiative that led to the article.

According to Lynd, it has been suggessted that we should forego the biofuel option, but before we do we should ask three questions: What are the alternatives? What benefits do we miss if we forego biofuels? and Can biofuel land use challenges be resolved gracefully.

Lynd says the new initiative starts from the premise that very large scale biofuel production — enough to meet 25 percent of world demand, which is the threshhold for making a significant contribution to oil replacement and environmental benefits — can be reconciled with food production and land use.

Lynd outlined the choice as either planning for a world of 10 billion people who have access to modern energy services or accepting a world of poverty.

New Biofuels Manifesto

University of Minnesota Professor David Tilman, Princeton University Visiting Scholar Tim Searchinger, Dartmouth Professor Lee Lynd and others involved in the debate over the environmental and social impacts of biofuels have published in Science magazine what amounts to a new manifesto on how biofuels can be done right.

The authors list five biofuel feedstocks that are the best in terms of sustainability — “lower life-cycle greenhouse-gas emissions than traditional fossil fuels and with little or no competition with food products.”

The authors conclude:

Three steps should be taken: meaningful science-based environmental safeguards should be adopted, a robust biofuels industry should be enabled, and those who have invested in first-generation biofuels should have a viable path forward.

The EPA’s proposed rule on the Renewable Fuel Standard was intended to outline a viable path forward for first-generation biofuels. The Best Case Natural Gas Dry Mill, the Biomass Dry Mill, and the Biomass Dry Mill with Combined Heat and Power scenarios outlined in the “EPA Lifecycle Analysis of Greenhouse Gas Emissions from Renewable Fuels” all produce reductions in greenhouse gases that come close to or exceed the 20 percent standard in the RFS. The EPA’s definition of the Best Case is: “Best case plants produce wet distillers grain co-product and include the following technologies: combined heat and power (CHP), fractionation, membrane separation and raw starch hydrolysis.”

The question will be whether anyone invests in these technologies or in additional biofuel production at all, given the current economic and social climate in which biofuel companies are operating. One possible factor in choosing the best biofuels ought to be how soon they can become a reality and whether they can be improved from there.

EPA Gathers Input on RFS

The EPA today held a public hearing on the RFS2 Rule and will be holding a Workshop on Lifecycle Greenhouse Gas Analysis for the Proposed Revisions to the National Renewable Fuels Standard Program tomorrow. These fora are intended to solicit feedback from stakeholders in the rulemaking and provide information on how the EPA developed its lifecycle model.

BIO submitted testimony to the EPA asking that the agency maintain flexibility in the rule to reconsider the greenhouse gas reductions associated with biofuels as the science of life cycle assessment, particularly methods of accounting indirect land use change, matures.

At a U.S. House Agriculture Subcommittee hearing on May 6, several experts discussed the considerable uncertainties that remain in the current models for ILUC that the EPA has employed.

Joe Glauber, chief economist of the USDA, listed some of the sources of uncertainty, including crop yields and production growth over time, economic and non-economic limits to land use change, and assumptions plugged into the models at the start. Glauber also noted that predicted U.S. plantings of principal crops for 2009 remain well below historical trends and that increases in corn and soybean acres are offset by declines in wheat and cotton acres.

As Glauber points out, conversion of forests is one of the key factors in the life cycle greenhouse gas estimates of the EPA’s analysis and many of the published studies on ILUC. Yet, there is considerable uncertainty over whether forest would be the primary source of new cropland.

Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University, pointed out that there is little evidence that U.S. biofuel production has caused deforestation either in the United States or in Brazil. Rather than conversion of forest or pastureland, “U.S. cropland has increased primarily through a reduction in CRP acres and through increased double cropping of soybeans after wheat.” Similarly, expansion of soybean production in Brazil has been accommodated by increased stocking rates on pastureland. It is increases in cattle production in Brazil that have led to deforestation for pastureland in the Amazon.

Babcock concluded, “The precision with which models can estimate emissions associated with market-induced land use changes is low.”

The fact is that the model employed by the EPA attaches heavy penalties for greenhouse gas emissions to production of biofuels based on assumptions that worldwide agriculture is a zero-sum game in which use of crops for one purpose leaves a shortfall in crop availability elsewhere that can only be made up by converting forest to agriculture. When the conclusions of the model are driven by the assumptions, they should be seen as logically invalid.

CBO Calculates Ethanol’s Impact on Food Prices

According to a newly released Congressional Budget Office report, ethanol contributed between 0.5 and 0.8 percentage points (10-15 percent) of the overall 5.1 percent increase in food prices between April 2007 and April 2008. That estimate is considerably lower than previous estimates. The report also calculated the increase in costs for federal food aid programs, which was the initial reason that Reps. Ron Kind (D-Wisc.), Rosa DeLauro (D-Conn.), and James McGovern (D-Mass.) requested it.

Despite that purpose, the Grocery Manufacturers Association, American Meat Institute, National Turkey Federation and National Council of Chain Restaurants were quick to publicize the report in their anti-ethanol Food Before Fuel campaign.

However, the report leaves a very large question open about the true causes of food price increases. The CBO notes that energy costs contributed another 1.1 percentage points (22 percent) to the 5.1 percent increase. That means that 3.2 percentage points (roughly two-thirds) are unaccounted for. And note, the 5.1 percent rise came on top of 2.5 percent and 4 percent food price increases in 2006 and 2007.

The other cited causes of increased food prices are growing global demand for meat, the depreciation of the U.S. dollar, which made U.S. corn cheaper than overseas corn, and speculation in corn futures due to expected poor harvests and overall hype about demand for corn. Is it possible that ethanol’s impact on food prices is much lower than the impact of certain groups simply raising food prices?

New Studies Question Cellulosic Biofuels

A new study from MIT’s Joint Program on the Science and Policy of Global Change examines what it calls the Unintended Environmental Consequences of a Global Biofuels Program. Unintended consequences seems to be the watchword of the year. The authors posit that there will be a feedback loop from climate change and policies that promote biofuels to address it. Climate change itself will affect the productivity of land, shifting agricultural production to new areas, and causing land use change, according to the authors. At the same time, a growing population will create additional demand for food while climate change policies promote biofuels, both of which require more land, causing land use change and associated emissions, which in turn affects the ability of farmers to meet food and fuel demand.

The authors develop a “deforestation” scenario, in which new agricultural land comes from the cheapest, most readily available source, which includes ecologically sensitive forest land. They develop another “intensification” scenario, in which ecologically sensitive hotspot lands are protected, but new agricultural land again comes from the cheapest source.

The authors expand even further the idea of indirect land use. Unlike earlier papers that assume that use of grain for biofuels in the United States will require farmers elsewhere to grow additional grain to meet market demand, leading to land use change, the current authors define indirect land use as “when biofuels production moves on to croplands or pastures, and causes new forest clearing to relocate agriculture.” By attributing land use change to any use of land, rather than food crop market mechanisms, they apply the land use change theory to cellulosic biofuels.

This isn’t the first time members of this group have raised the question of “unintended consequences” for cellulosic biofuels. See my earlier post regarding “Sustainable Biofuels Redux” in Science. Brent Erickson here at BIO corresponded with the authors at that time, urging clarity about the term “carbon debt”:

This is atmospheric carbon generated by the expansion of agriculture throughout the world to meet increased demand (for food, feed and fiber as well as biofuels) and to take advantage of higher prices for agricultural production.”

Though the letter was not printed in Science, the authors did send a formal response, noting first that “meeting new demand does not necessarily mean that large carbon debts are inevitable” and further:

We also know that carbon debt can be minimized or avoided if we can increase crop yields on lands already being used for agriculture (including degraded pastures) or on abandoned agricultural lands if we employ innovative management techniques, including the use of advanced biotechnology. A number of researchable questions about carbon debt remain to be answered. Our primary argument is that we should take the time and care to get it right from the start, and pay attention to early indications of environmental regret and synergy.”

The Food Before Fuel Coalition in mid-February issued a list of principles for further development of biofuels, including:

Proceed with caution by engaging in serious and practical research on ‘advanced biofuels’ to ensure we avoid the same kind of ‘unintended consequences’ that have resulted from the push to expand production of corn ethanol.”

Members of that coalition, the Worldwatch Institute and the Sierra Club, also issued a report, Smart Choices for Biofuels, saying in a press release:

The steps proposed in the report include an accelerated transition to cellulosic feedstocks such as switchgrass and the use of more effective agricultural practices to decrease erosion and soil nutrient depletion.”

A post by John Guerrerio of the Examiner takes a look at the proposal by the Sierra Club and Worldwatch:

The claims made by the Sierra Club and the Worldwatch Institute in their report are widely seen as valid. They are, however, part of a process that may be used to delay biofuel production and ultimately drive the final nail into the coffin of a dying industry.”

Though environmental groups profess support for cellulosic and advanced biofuels, the continued expansion of the definition of “indirect land use change” appears to constitute a divide and conquer strategy – undermine support for conventional ethanol, and then let cellulosic biofuels fall by themselves.

Indirect land use change continues to be a moving target with no clear definition and no direct evidence to support it.

Setting the Record Straight

I was pleased to read AP reporter Deborah Jian Lee’s story on Jan. 12, saying that the food and fuel debate has “receded to a murmur, and even the Grocers Manufacturers Association, one of the most vocal biofuel critics, seems to be backing off a bit.” Biofuel producers will likely remember that last May the Capitol Hill newspaper Roll Call revealed that the Grocery Manufacturers Association had launched a public relations effort to blame biofuels for rising food prices. I asked the question then whether the press would set the record straight, as noted economists and BIO have tried to do throughout the year.
It was interesting to note the comments of the GMA’s Scott Faber, who apparently said ethanol production is “just one in seven sources of commodity price inflation.”

How Much Corn Is in a Barrel of Oil?

A segment on the Discovery Channel’s show “How Stuff Works” caught my eye this week and prompted that question. The segment points out that Xanthan gum, fermented from corn syrup, is used in oil drilling. Xanthan is combined with the drilling mud used to cool drilling equipment, and it helps to clear dirt and rock from the mud as well as maintain a pressure cap on the bore hole.

The primary markets for Xanthan gum are of course food and cosmetic ingredients — check your supermarket shelves for the number of products containing it. But enough is used in oil production that a 2006 Saudi Aramco white paper explored establishment of a Xanthan gum production plant in Saudi Arabia to meet oil drilling needs. The white paper projects the market for Xanthan gum for 2007 and 2008 among the Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), using Saudi Aramco’s exploration and production models. For 2007, the projected need was nearly 15 million pounds, and for 2008, nearly 12.5 million pounds.

Arguments about the diversion of food and land for biofuel fail to consider exactly how many non-food products contain corn.