Ethanol, Green House Gases and the Food Crisis

By now, you may all have read about or experienced the increase in the price of basic foods. In some parts of the world, mostly very poor countries, riots have broken out in reaction to the significant increase in the price of staples such as bread and rice. And this is all linked to the unintended consequences of government “clean energy” policies in the western world. Some may disagree with my analysis, but what the “H-E-double hockey sticks”, that is what public debate and discourse is all about!

There is considerable evidence that some forms of bio-fuels actually result in an increase in Green House Gases (GHGs). How you may ask? There are basically two major types of ethanol used as vehicle fuel in the world – one derived from sugar cane (mostly from Brazil) and the other from corn. Western governments are now mandating ethanol content in fuel. For example in the US, the Energy Policy Act (2005) required that 7.5 billion gallons of renewable fuel be used by 2012. In December 2007, a new bill was passed in the US Congress that will mandate the use of 36 billion gallons of bio-fuel by 2022. The act also includes substantial financial incentives. According to an article that I read in Time Magazine, in 2007 less than 2% of US gas stations provided ethanol and the subsidies provided to produce 7 billion gallons was $8 billion! The 3 remaining US presidential candidates are espousing increased usage of bio-fuels with Hilary Clinton calling for 60 billion gallons by 2030. In Iowa, according to a Time Magazine article I read (April 7, 2008 edition), there are “so many ethanol distilleries under construction that it’s [Iowa] poised to become a net importer of corn.”

In Canada, various governments have legislated that a certain percentage of gasoline be blended with ethanol. For example, in Ontario “beginning January 1, 2007, Ontario Regulation 535/05 will require that gasoline sold in Ontario contain an annual average of five per cent ethanol.”

The Government of Canada has “Regulations under development by Environment Canada will require 5% renewable content based on the gasoline pool by 2010 and 2% renewable content in diesel and heating oil by 2012, upon successful demonstration of renewable diesel fuel use under the range of Canadian conditions.” (http://ecoaction.gc.ca/ecoenergy-ecoenergie/renewablefuels-carburantsrenouvelables-eng.cfm )

So here we have government programs and subsidy programs that are diverting food crops to bio-fuels. These subsidies cause the normal reaction one would expect – farmers are changing their crops to corn to cash in on these government subsidies. A recent report from the US Department of Agriculture has shown a significant increase in US corn production with a falling or flat production of soybeans and wheat. In the Amazon, rain forest is being converted into cattle pastures and soybean fields. This “deforestation” of the Amazon – one of the “lungs” of our world, is directly linked to the bio-fuel craze.
Let’s address the question of how “green” are these bio-fuels. There are a number of studies that have cast doubt on the efficiency of corn derived ethanol. A UK study showing the carbon intensity of bio-ethanol and fossil fuels indicates that the US corn production method has a higher output of CO2 per mega-joule of energy than does natural gas or gasoline. (see Carbon and Sustainability Reporting Within the Renewable Transport Fuel Obligation report - http://www.dft.gov.uk/pgr/roads/environment/rtfo/govrecrfa.pdf


A recent report from BCStats from January 2008 (http://www.bcstats.gov.bc.ca/pubs/es/es2008-1.pdf ) entitled “It Ain’t Easy Being Green: Why Biofuels May Not Be the Answer” casts “doubt about the validity of claims that ethanol and bio-fuels conserve energy, there is also evidence to suggest that they actually create more greenhouse gas emissions than they remove.” The reason for this was the underestimated impacts of the fertilizer used in the production of corn. If we layer the other consequences – such as the deforestation of the Amazon – then the GHG impact of corn-based bio-fuels is even more significant.
For those who are wondering about this last statement, here is the cycle of how the western world subsidy program for corn-based ethanol is contributing to deforestation in Brazil (from Time Magazine):

1. Food to Fuel: One-fifth of US corn production is diverted to more than 100 ethanol refineries. The increased demand boosts the price of corn to record levels.

2. Field Change: Eager to cash in, many US soybean growers switch to planting corn, which is pricier. Soybean prices rise as supplies shrink.

3. Ripple Effects: To meet global demand for soybean, farmers in Brazil are expanding into fields previously used as cattle pastureland. Displaced ranchers, in turn, clear new grazing lands in the Amazon rain forest or the Cerrado Savanna, releasing carbon.

Let’s now turn our attention to the recent food crisis that is reverberating around the world with riots in many poor countries. Canadian have been somewhat insulated from the increase in the price of food due to the appreciation of the Canadian dollar, but that will likely not last. Recent reports have mentioned that “Ethanol's popularity comes despite charges from environmentalists, livestock farmers, and opponents of subsidies that the move won't meet energy goals and may damage the environment as food prices soar” (http://www.csmonitor.com/2007/1115/p02s02-uspo.html) .

So is there a link between increased corn-based ethanol production and food shortages/increased commodity prices for staples? Let’s follow a simple chain:

1. Governments develop policies to incent the production of corn-based ethanol as a green fuel;

2. Governments create financial incentive systems to move to this green technology;

3. Farmers respond to the incentives (who can blame them) and switch their production to corn, decreasing production of soybean, wheat and other crops;

4. The price of feed for cattle, poultry, etc increases as the supply of corn is no longer available;

5. The price of milk increases as it is more costly to feed the cows; the price of meat increases, and so on, and so on.

I am not saying that diversion of corn to bio-fuels is the major or only reason for the increase in the price of food. For example, rice production is not impacted by bio-fuel production. Other factors such as drought, flooding and increased transportation costs have impacted the price of these staples. As well, the growing middle class in China and India has meant that in these markets the demand for meat, poultry etc has increased. All that being said the diversion of corn to bio-fuel does have an impact on the recent food crisis let’s not pretend otherwise. Is it 10%, 20% or whatever % of the impact – I don’t know. Does anybody?

Governments, such as the Ontario Ministry of Agriculture, are now funding research to use corn husks and stalks, rather than the corn kernels, to create ethanol. I think we need to accelerate this type of innovation.

I think that the story above illustrates the impact of unintended consequences of government policy, to put it kindly. There is much more that I could write about this, but then this blog post would be so long you might get bored! I will come back to this topic in the near future.

2nd Global Network of Government Innovators

Today was the first full day of the Global Network of Government Innovators conference here in Cambridge, Mass. In the morning Thomas Vilsack, former Governor of Iowa (1998 – 2006) spoke about the need for innovation to solve problems facing society.

Governor Vilsack spoke about the challenges facing the United States and the world from lack of health care coverage for 47 million Americans, to the 350 million malnourished children around the world to Climate Change. He then outlined the 4 barriers to innovation that need to be dealt with in order to innovate.

The first barrier is cultural. As any of you who have been involved in innovation know, most people are resistant to change. They prefer the status quo because that means that they don’t have to change how they do things. Governor Vilsack, not surprisingly, said that leadership is the key to overcoming the cultural barrier. “Leaders challenge the status quo”. To do that leaders must have/set out a clear vision and use that vision to highlight the problem with the status quo. This will create the creative tension needed to innovate. One example the Governor used was the decision to invest in Early Childhood Education. Using 3rd party experts, the Governor used non-traditional arguments to push for investments in ECE – these included the economic arguments that showed that a dollar invested in ECE had a much higher return than investing that dollar in primary/secondary or post secondary education.

The second barrier is the economic barrier. As we all know, change requires resources to accomplish. Therefore governments need a budgetary system that is tied to results. In Iowa under the Governor, the State established 5 key goals and required that all government programs tie to those goals. By focusing on results and gathering the appropriate data one can establish why a particular program is important to meeting the goals outlined. These goals are posted on the web and are updated every quarter. As well, a performance contract was developed between the Governor and the department heads that outlined expectations and included rewards for meeting/exceeding goals. These goals were not all monetary in nature but also include things such as the Governor addressing all the staff of that department.

The third barrier is the scientific barrier. The Governor lamented the fact that the US has gotten away from funding basic research and that the private sector funds very specific research not basic research. He used the example of Climate Change as an area that requires a substantive investment in basic research to innovate. Where is the research into innovative ways to deal with the storage and sequestration of CO2?

The last barrier to innovation is the political/regulatory barrier. The Governor emphasized that most government processes and regulations discourage innovation. To encourage innovation in Iowa, the state under the Governors leadership established “Charter Agencies” in Iowa. At first, 6 such agencies were created in Iowa. In exchange for their commitment to produce measurable results and reduce expenditures, the agencies were given greater flexibility and authority.

Finally, the Governor spoke about the need to have a system that does not punish mistakes. He stated that “you cannot innovate if you are fearful of mistakes” and that “mistakes are OK as long as you learn from them”. He encouraged innovators to experiment and try new ideas in part of the system and see if it works.

Stay tuned for more on this very interesting conference, including what the UK is doing to increase citizen engagement.

Blogging from Beantown!

Actually, I’m in Cambridge, Mass across the Charles River from Boston. I’m here attending the 2nd Global Network of Government Innovators organized by the Ash Institute for Democratic Governance & Innovation at the John F. Kennedy School of Government.

This conference brings together innovators from around the world to discuss and share ideas. As well, this year marks the 20th anniversary of “The Innovations in American Government Awards”.

The conference officially kicked off this evening with a speech by Vicente Fox, former President of Mexico (2000-2006). Mr. Fox addressed the issues of immigration, economic development, good government and democratization in his remarks. You can find the Ash Institute website herehttp://ashinsttest.org.ezdeal.no/corporate_site

I spent the day yesterday walking along the Charles River and looking out at the sailboats on the river and the rowers in their skulls. I then went to Harvard Square (http://en.wikipedia.org/wiki/Harvard_Square) and visited the Harvard Co-op which is a wonderful bookstore. I had to hold myself back from buying too many books. After a dinner of Boston Clam Chowder (what else) and fresh tuna at Legal Sea Food, I then walked through the MIT campus and looked at the interesting architecture.

Today I took the “T” (that’s the subway) and went to the JFK Library (http://www.jfklibrary.org/). It was a moving experience walking through the exhibits.

Tomorrow will be a full day of conference workshops – with workshops on Ethics and Accountability in the Public Sector; Citizen Engagement in Deliberative Democracy; and New Approaches to Neglected Diseases.

As part of the 20th Anniversary of the Innovation Awards, a book on the award winners over the last twenty years was published. The editor of the “Innovation in Government: Research, Recognition, and Replication” book, Sandy Borins, IPAC member par excellence and professor at the University of Toronto will be signing the book. Congratulations Sandy!!

Stay tuned for more about this very interesting conference.