While the bill approved this week contains incentives for domestic ethanol production, it also includes some reductions. The current 51 cents per gallon tax credit for blenders of ethanol was cut to 45 cents. Reducing the "blender's credit" was favored by livestock producers, who claim subsidies for crop-based fuels are driving up the price of corn -- -- their primary feed component.
Other critics say America's ethanol boom is to blame for everything from higher food prices to starvation in 3rd world countries. And, as Andrew Batt explains, the debate over whether corn should be used for food or fuel is far from over.
Six months can be an eternity on Capitol Hill. Modern ethanol policy is a classic example of shifting political winds in light of recent economic events. Just six months ago in December 2007, President Bush signed a sweeping energy bill. The measure demands higher fuel efficiency for cars and trucks and an aggressive mandate for biofuel production.
President George W. Bush: "The bill I sign today takes a significant step because it will require fuel producers to use at least 36 billion gallons of biofuel in 2022. This is nearly a fivefold increase over current levels. It will help us diversify our energy supplies and reduce our dependence on oil. It's an important part of this legislation, and I thank the members of Congress for your wisdom."
Many members of Congress that Bush thanked in 2007 have shifted their position on a renewable fuels mandate. In six months time, gas prices have skyrocketed…food costs have soared…global hunger has grown…and many lawmakers and pundits are pointing the finger at corn-based ethanol.
Sen. John McCain, R-Arizona: "Americans are hurting and they're spending way too much on high food costs."
Arizona Senator and Presidential candidate John McCain is one of 24 Republican Senators requesting the Environmental Protection Agency to either revise or completely waive the newly-minted biofuels mandate.
In the past month, major congressional committee hearings have probed if and how ethanol may be driving high food and energy costs.
Rep. Greg Walden, R-Oregon: "I understand that Chevron blends about 40 percent of its gasoline in the Unites States with ethanol. Is that driving gas up or not?"
Peter Robertson, Chevron: "Ethanol prices have been very volatile but it's a very small part of the price of gasoline. Even with the wild prices, ethanol has not had much of an affect."
In an April hearing, oil company executives pointed towards crude oil and the growing power of speculators in the commodity markets as the root cause of high prices at the pump. One executive claimed internal analysis of only supply and demand pegged the price per barrel of oil at $55. He elaborated that a weak dollar and speculation were overwhelming factors in more than $120 oil.
A recent study at Iowa State University in Ames, Iowa, claims a growing ethanol market has actually lowered gas prices by as much as 39 cents in the Midwest. But even if ethanol critics concede the renewable fuel isn't driving gas prices higher, costs at the checkout counter are another story.
Prices for commodities like corn, beans and wheat have doubled and even tripled over the past year. Biofuel critics have drawn a direct link from ethanol to high corn costs to even higher grocery prices to worldwide starvation. A United Nations report blasted the use of food as an energy source and called American biofuel production a "crime against humanity."
The connection between food, fuel, starvation, and ethanol has led some farm-state lawmakers to push back hard.
Sen. Charles Grassley, R-Iowa: "And I don't think farmers can be responsible for the high cost of food. I went out this morning and bought a big box of corn flakes for about five dollars. The farmer gets about a nickel out of this box. "
Iowa Senator Charles Grassley is a staunch defender of corn-based ethanol. In a recent press conference, Grassley characterized ethanol as a scapegoat for economic calamities.
Sen. Charles Grassley, R-Iowa: "When a farmer gets so little out of a box of Corn Flakes don't be blaming the farmer and ethanol for the high price of food. Now, I get the impression that people think that they're eating this corn. This is what we make ethanol out of. I don't know whether people that are complaining think sweet corn is impacting the price of food. Take one of these kernels here and chew on it. It's not something you'd sit down at your kitchen table and eat."
Farm-state lawmakers like Grassley have reached a boiling point following months of negative newspaper editorials and scathing magazine covers. But many journalists and biofuel critics claim there is truth behind ethanol forcing high costs at the supermarket.
Perhaps the strongest link is meat prices. Farmers and ranchers are paying much more for corn-based feed needs in the new world of $6 corn. But the stronger relationship with all grocery items is high transportation costs.
Bruce Babcock, director of the Center for Agriculture and Rural Development at Iowa State University, claims the picture is not as clear as either side insists.
Bruce Babcock: "You can't ask agriculture to do more of everything. If you want agriculture to supply fuel then in the short run in the United States it's going to come from corn."
Babcock has examined the potential affects of pulling back the renewable fuels standard, ethanol blenders credit, and America's import tariff. Some lawmakers have proposed those steps as a way to slash food costs.
Bruce Babcock: "So we found that if in fact you got rid of all three instruments: the import tariff, the RFS, and the blenders credit then the price of corn would drop by about 13 percent. "
A 13 percent drop in corn prices may not result in a similar drop in consumer grocery costs. But a pullback in government support could hurt rural America's burgeoning ethanol industry.
A worldwide strain on global grain has been heavily affected by growing demand in countries like India and China. But the main food source in the developing world is rice – not corn. Babcock has found minimal proof that domestic corn ethanol is pinching global rice supplies.
Bruce Babcock: "There is no doubt that ethanol and the biofuels industry in the United States has affected the price of corn and the price of soybeans and vegetable oils. But probably not the price of wheat or rice and that's probably the biggest misunderstanding."
For Market to Market, I'm Andrew Batt.