farmgate: What Does The Brazilian Rain Forest Have To Do With US Ethanol Policy?
There is no one whose name causes a Cornbelt ethanol advocate to spit and cuss more than that of David Pimentel of Cornell University. Even Bruce Babcock at Iowa State University, who has written some economic analyses of ethanol that make a corn grower grimace, acknowledges that Pimentel’s credibility is up for debate. The Cornell Ecologist contends that ethanol consumes more energy than it returns, which Babcock says is based on suspect data. But the Pimentel contentions continue to show up in public debates, most recently within the Environmental Protection Agency and the California Air Resources Board, which believes ethanol does not qualify as a low carbon fuel. The future of ethanol is on the line here, and it could have a major impact on corn market dynamics.
The latest challenges to ethanol involve conversion of forest and grasslands around the world to produce crops and feed livestock, which ethanol critics decry. In the Summer edition of the Iowa Ag Review, Bruce Babcock says the ethanol critics at EPA say the loss of carbon stocks on the converted land would more than offset any benefits of ethanol in the way of greenhouse gas emissions. This has generated considerable rural debate over whether US ethanol policy should even be driven by what might happen in another country, and how would such changes ever be accurately measured.
The EPA has employed help from Purdue, Iowa State, and Texas A&M Universities to analyze the measurement process, which looks at corn demand from US ethanol refineries. Such demand results in higher prices, more corn acres, fewer acres for beans and wheat, and conversion of Brazilian forests into cropland for soybean production. At least that is the theory in a nutshell that is being evaluated. Babcock says each step has to be analyzed, such as:
• Which crops will U.S. farmers decrease in response to higher corn prices?
• How much U.S. pasture and forest land will be converted to crops?
• How much will farmers increase yields in response to price?
• How much will prices, demand, and production change in each important producing or consuming country in response to a change in U.S. production and exports?
Babcock says the economists have a good idea about US farmer responses to such change, but not such a clear idea of how a Brazilian rancher would respond to changes in the US beef market. He says it is easy to say more Brazilian beef would be produced if US beef prices rise, but then Brazilian and international trade policies cloud the equation.
Babcock says if the theory is correct that more US ethanol production would cause more conversion of rain forest to cropland, then US soybean acreage should decline along with fewer exports of corn and beans. But that has not been the case. Since 2005, ethanol production has increased by 6 billion gallons, corn acres are up 6%, soybean acres are up 7%, corn exports are flat, but soybean exports are up over 25%.
Babcock engages in a lengthy evaluation of creating economic models to make predictions that the EPA and the California Air Resources Board could use, but says the models never work out to equal the real world. However, he says “expansion of U.S. biofuels will result in more land being devoted to crop production on an aggregate worldwide basis. However, given all the forces that affect agricultural production decisions, it is impossible to attribute any given agricultural development project to U.S. biofuels expansion, which is why CARB and EPA have to rely on models that attempt to isolate the effects of U.S. biofuels.” And he adds that the need for using economic models will increase as land use policy is created, particularly for offsetting carbon use.
Summary:
US biofuels policy, at both the federal and state levels, has created concerns among ethanol supporters that policy assumptions are being made based on erroneous data. However, where data cannot be collected, economic models are created, but can themselves differ from the eventual outcome. Recently, environmental regulations have been proposed that are rooted in the assumption that greater US ethanol production will result in the loss of carbon from Brazilian rain forests and grasslands. While those assumptions are difficult to measure, policymakers may have to rely on economic models in lieu of data.
Posted by Stu Ellis on August 19, 2009 12:34 AM to farmgate