GROWING FUEL: Third of four articles

Ethanol is expensive for the taxpayer.

The federal government pays 51 cents of the cost of every gallon of ethanol you buy. Then there's a 54-cent-per-gallon protective tariff on imported ethanol. In Minnesota, there's a state subsidy of about 13 cents per gallon of the biofuel. And that's only the beginning of the assistance for an industry its critics say would not exist in its present form without government help.

Is ethanol worth it?

Any discussion of the economics of ethanol has to include the cost of importing oil from the Middle East. The costs — in human life, dollars, national security — of maintaining the flow of cheap fuel are staggering. Isn't anything we can do to reduce the use of that oil an economic good?

The answer is not a simple as it may appear: the policy choices that assist in energy independence are controversial, expensive and not without winners and losers.

Using less oil — conservation — is the most logical solution, and yet it has been among the hardest to achieve. For example, the average miles per gallon for the American car fleet has remained flat since 1980, while the average commute to work is up 20 percent.

"What if, instead of 22 miles per gallon, all our cars got 44 miles per gallon? Then we save half the oil," said Michael Noble, executive director of Fresh Energy, a St. Paul-based non-profit that focuses on energy and environmental issues.

Other forms of conservation, including mass transit and plug-in electric cars, should be job one, he said. "Let's do these other smart things first, then have biofuels do the balance of the problem."

Ethanol, as a fuel additive to gasoline, has been positioned as an alternative to foreign oil and an economic benefit to rural America. Almost all of it is made from corn, which the United States is very good at growing. (In Minnesota, about 25 percent of the 2008 corn crop will go into ethanol production.) But the economics of ethanol production and use are complicated.

Energy efficiency
For starters, ethanol is not as efficient as gasoline. A gallon of E85, which is 85 percent ethanol and 15 percent gas, contains 24 percent less energy than a gallon of gas. This means that your flex-fuel (runs on gas or a blend) '07 Chevy Tahoe gets 15 miles per gallon running on E85 and 20 mpg on regular gas, according to the Environmental Protection Agency. A counter claim is made in a recent study, funded in part by the industry, that reports E20 and E30 mixes get better mileage than regular unleaded gasoline.

Including all the subsidies, E85 is cheaper at the pump than gas. According to AAA, the national average price for E85 in December was $2.42 per gallon, compared to $2.99 for regular unleaded.

Does the lower price make up for the reduction in gas mileage? It can, but you have to search for E85 pumps and stop to fill up more often.

"In my state, we've got 16,000 or 17,000 flex-fuel vehicles," said Sen. Byron Dorgan, D-N.D. But "we've got only 23 places where you can pull up and say, fill it up with corn." In Canada, according to CanWest News Service, about 600,000 cars could run on E85 but there are only two stations in the entire country to buy it. Minnesota, on the other hand, leads U.S. states in E85 pumps with more than 330.

"One of the best ways to encourage lower E85 prices is to work to install more E85 outlets across the country," said Mark Hamerlinck of the Minnesota Corn Growers Association. "In general, areas where there is more competition for E85 business tend to have better E85 prices."

Biofuel users can feel better about their carbon footprint — that E85 Tahoe will emit 2.2 fewer tons of carbon dioxide per year than the gasoline version. And there's less foreign oil in your tank.

Minnesota has required that all pumps in the state offer a 10 percent ethanol blend (E10) since 1997. That requirement jumps to a 20 percent blend by 2013. Gov. Tim Pawlenty is a big ethanol supporter; he has challenged his fellow governors to adopt the Minnesota standard ("E10 by 2010").

That biofuels, and E85 in particular, are important in Minnesota was illustrated in the 2006 gubernatorial election. Answering a question from a reporter a week before the election, Democratic Lt. Gov. candidate Judi Dutcher did not recognize the term E85. Her running mate, Mike Hatch, said the gaffe was one of the reasons why they lost to Pawlenty and Carol Molnau.

Ethanol production
Another question in the economic equation centers on the cost efficiency of ethanol production.

Scientists examine the "energy balance" in fuel — how much goes in and how much comes out. The U.S. Department of Agriculture concluded "the net energy balance of biofuels is positive (energy output is greater than energy input), but estimates vary widely. Net balances are small for corn ethanol and more significant for biodiesel from soybeans and ethanol from sugarcane and from cellulose."

A study by University of Minnesota scientist David Tilman suggests that 20 percent of each gallon of ethanol is "new" energy. "That is because it takes a lot of 'old' fossil energy to make it: diesel to run tractors, natural gas to make fertilizer and, of course, fuel to run the refineries that convert corn to ethanol," he wrote in a Washington Post op-ed piece.

There are scientists who disagree. Chief among them is David Pimentel at Cornell University, who published a study in 2005 with Tad Patzek of the University of California-Berkeley that showed a net energy loss of 29 percent in ethanol production. His critics say he is using old data.

Subsidies
The total amount of subsidies for ethanol is hard to determine. Pimentel argues that the sum of all government subsides on a gallon of ethanol is $3. A 2006 study for the International Institute for Sustainable Development puts the range of subsidies at $1.05 to $1.38 per gallon, depending on the state. "Such high rates of subsidization might be considered reasonable if the industry was new, and ethanol and biodiesel were being made on a small-scale, experimental basis using advanced technologies," the report said. "But that is not the case: they are being produced using mature technologies that, notwithstanding progressive improvements, have been around for decades."

Grants, tax breaks, lending and credit programs, funding for research and development, and usage mandates vary from state to state. Minnesota is among the most generous states in aiding the industry. For example, as part of a $15.1 million annual program, Minnesota paid many refiners 13 cents per gallon (payments are capped per producer) for ethanol in 2007. In 1993 the state created a $3.5 million loan program (at 6 percent interest over seven to 10 years) to assist in the construction of seven ethanol plants. Another program, totaling $1.2 million, offered farmers low-interest loans for purchasing shares in ethanol plants.

Pawlenty and others argue that subsidies are a good investment and note that the petroleum industry is also heavily subsidized. One thing is clear: The free market is not at work in the biofuel business. Subsidies, the tariff, and other state and federal incentives have contributed to a sharp rise in production capacity; the distribution and usage systems have not kept pace, however, and the result by the end of 2007 was a glut — supply was far outstripping demand.

As a result, several planned ethanol plants around the country have been put on hold and the price of publicly held stocks in ethanol companies has fallen. Per gallon profits plunged from more than $2 to around 25 cents. According to Bloomberg, shareholders lost 25 percent of their money in 2007 in ethanol investments.

Meanwhile, the price of corn continues in the mid-$3 range. That's good for growers but of concern for livestock farmers who feed their animals corn; it is also a worry for packaged-food companies who depend on cheap grain (often made into high fructose sweetener) to produce soda pop and ketchup for the nation. Higher food prices for beef, pork, poultry and eggs are ahead, according to a study (PDF) by Iowa State University that concluded that the jump in food costs will be about $47 per person.

President Bush, in his final news conference of 2007, acknowledged the price increase has hit livestock producers. "And that's one of the trade-offs you have to make," he said. "But what I want to assure people out there is that we're spending a lot of taxpayers' money in a way to figure out how to use wood chips or switchgrass in order to make ethanol. But this is a real national plan."

One result of the higher corn prices in 2007 was that some federal farm payments were dramatically reduced. Other farm support programs have disappeared since the introduction of ethanol.

Mark Neuzil, a former reporter and editor for the Associated Press, the Star Tribune and several other newspapers, covers the environment and agriculture.

Thursday: Alternatives to corn ethanol.