BY MARJORIE KORN, MEDILL NEWS SERVICE

The U.S. Environmental Protection Agency denied a waiver request made by the State of Texas to reduce by half the amount of ethanol blending mandated in the Renewable Fuel Standard (RFS) on Thursday. Thus the currently mandated 9 billion gallons [...]]]>

BY MARJORIE KORN, MEDILL NEWS SERVICE

The U.S. Environmental Protection Agency denied a waiver request made by the State of Texas to reduce by half the amount of ethanol blending mandated in the Renewable Fuel Standard (RFS) on Thursday. Thus the currently mandated 9 billion gallons of blended ethanol in 2008 and 11.1 billion gallons in 2009 stands.

The request originated with Texas Gov. Rick Perry, but has been supported by fellow Texan, Sen. Kay Bailey Hutchinson, as well as a host of food processors, ranchers and poultry farmers who blame U.S. ethanol mandates and subsidies for higher costs of commodities, narrow profit margins and the rising cost of food.

“After reviewing the facts, it was clear this request did not meet the criteria in the law,” EPA Administrator Stephen L. Johnson said in a press release. Johnson said RFS was important both to “reduce America’s greenhouse gas emissions and lessen our dependence on foreign oil, in aggressive yet practical ways.”

On his Web site, Perry responded, “I am greatly disappointed with the EPA’s inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households.” Perry blamed RFS for driving up food prices and cutting into the margins in the livestock industry.

But ethanol proponents, especially corn farmers and biofuels activists, laud the EPA’s decision. Jim Greenwood, president and CEO of Biotechnology Industry Organization (BIO) said in a press release, “The EPA’s decision today sends a strong message that we must continue moving forward toward sustainable production of advanced biofuels to reduce both our dependence on imported oil and greenhouse gas emissions from transportation, and to increase production of biofuels from non-food sources.”

This is just the latest blow to the efforts of a coalition of ethanol dissenters in Washington, who have been looking for a way to break into the ethanol industry’s stronghold on the Capitol. A whole host of agriculture departments of major universities have released economic reports on the impact of ethanol on the cost of corn—including The Agricultural & Food Policy Center at Texas A&M—with many concluding that the impact of higher oil costs has been a primary driver of commodities and food prices.

Anti-ethanol’s cause hasn’t been helped by the fact that corn prices on the CME Group exchange have fallen significantly in the past two months. December corn futures contracts rose 14 cents, or 2.7 percent, to $5.42 a bushel. Wednesday, corn contracts hit $5.22 per bushel, the lowest price since March 24, and corn is down 32 percent from a record high $7.99 per bushel on June 27.

Photo by Marjorie Korn, Medill News Service

BY FRANK N. CARLSON–MEDILL NEWS SERVICE

When our bionic counterparts look back to the first half of 2008 from the safety and security of their sleek, iPod Nano-like future, they will likely recall a few events as pivotal to [...]]]>

BY FRANK N. CARLSON–MEDILL NEWS SERVICE

When our bionic counterparts look back to the first half of 2008 from the safety and security of their sleek, iPod Nano-like future, they will likely recall a few events as pivotal to human history: the collapse of the housing bubble and the ensuing credit crisis; the historic but painfully long U.S. Democratic primary between Sens. Barack Obama and Hillary Clinton; and the soaring global prices of food and energy.

It is this last one—the cost of food and energy—that I want to examine more closely, for the end of cheap energy and food may do more to change the way we think, work and live than any of the others aforementioned. This isn’t to suggest that the housing crisis didn’t shatter many Americans’ dreams of owning a home or their retirement plans, or that the presidential primary process was unimporatant.

But the rising costs of food and energy supersede political parties and breeze over mountains, oceans and time zones to cross international borders. They are both democratic and global, and strike at the very fundamentals of our social organization and existence. And they could be here for a while.

Thus, our newfound interest in energy conservation and developing alternative sources of energy. Moving to renewables such as wind, hydroelectricity, solar, geothermal and biomass hold great promise for economic growth in the form of new industries and jobs, greater international political stability, combating climate change and creating a cleaner environment. But the policy decisions must be based on good science as well as viable business practices, and thus far, this hasn’t been the case.

I’m thinking specifically of the push for alternative energy in the form of corn ethanol and biodiesel, known together as biofuels. The U.S. has invested in corn ethanol for essentially the same reasons that it continued to invest in oil for all these years—because it was cheap, abundant and we already had the infrastructure for it. Most professors and alternative energy activists I’ve spoken with bristle at the suggestion that corn ethanol is inherently misguided because they never considered it a viable source of alternative energy to begin with—they always thought of it as a transitional technology until ethanol from cellulose and other plant or human waste could be developed.

But Congress obviously thought otherwise, and in December of 2007 mandated 15 billion gallons of corn ethanol be in use by 2022. Another 21 billion gallons would come from alternative sources of biomass, such as plant stalks or switchgrass.

This has contributed to the soaring price of food worldwide, and the U.N. has met in Italy this week to discuss the problem. Biofuels certainly are not the sole cause, but most people, even farmers and their lobbyists, will admit that they’re one of them. The price of energy in the form of fertilizer and transportation costs are another. Global growth in Asia, which has led to dietary changes favoring more meat and thus more grain to raise livestock, is yet another.

But the point is that if the U.S. production of biofuels is exacerbating soaring food prices, particularly in developing countries, there should be a moratorium on production until the question is resolved. People are starving not because there’s no food but because they can’t afford to buy the food that’s available. Congress may be doing the wrong thing for the right reasons, but that isn’t good enough.

And it’s not just because of what biofuels are doing to food prices, but what they may be doing to the environment as well. In Brazil, Indonesia and even here in the U.S., lands previously conserved or allowed to fallow are being cultivated to grow corn, soybeans and palm hearts to cash in on record high prices. Science magazine pointed out that when forests and swamps are burned to make room for these crops, vast stores of carbon are released into the air, wiping out any benefit of replacing petroleum fuels with ethanol or biodiesel.

Which brings us to carbon credits. One way to do protect forests and swamps from being burned to produce these biofuel cash crops, many think, is with a cap and trade system. The Senate this week is debating the Climate Security Act, also known as the Warner-Lieberman bill, that would create such a system in the U.S. Under a cap and trade system, the total amount of carbon a company can create is capped each year, and if that company wants to exceed its allotted amount then it must pay to do so. The money it pays can go to building windmills or hydroelectric plants, or it can to go conserving native forests like those in Brazil. The bill will almost certainly not become law—Bush has said he would veto the measure—but it sets the stage for the law under the next administration and raises good questions about how to create a law and administer it.

Michael Specter points out in this great New Yorker article on carbon trading that the only way to stop people from cutting down their forests is if their lands are more valuable preserved than cultivated.

“From both a political and an economic perspective, it would be easier and cheaper to reduce the rate of deforestation than to cut back significantly on air travel. It would also have a far greater impact on climate change and on social welfare in the developing world,” Specter writes.

I’ve heard alternative energy activists, journalists and policy wonks deridingly compare carbon credits to the indulgences the Catholic Church once sold to parishioners, implying that these credits will assuage our guilt without actually helping the environment. The metaphor is clever, if overused, but as Specter points out, it misses the point.

It doesn’t really matter if businesses are doing the “moral” thing in buying and selling the right to pollute—they will certainly be acting in their own self interest, which is what they have always done best. What matters is what effect this might have on the environment. Biofuels, as they are done now, hurt both the environment and the poor. Carbon credits, for all their shaky, derivative-based logic and specious standards, could help protect our carbon stores by incentivizing landowners to protect their property. We must be careful not to exclude an option simply because it doesn’t fit into our cultural concepts of what is fair or unfair.

It’s like I tell my pastor, “Hey–just because it’s immoral, buddy, don’t mean it’s wrong.”

Global food prices have been skyrocketing in recent months, with global food commodities 60 percent higher than just two years ago. But can increased demand, driven by developing nations, explain such a meteoric increase? If China has been humming along at [...]]]> BY FRANK N. CARLSON – MEDILL NEWS SERVICE

Global food prices have been skyrocketing in recent months, with global food commodities 60 percent higher than just two years ago. But can increased demand, driven by developing nations, explain such a meteoric increase? If China has been humming along at double digit growth for a decade, why are food and energy prices only now catching up with us?

In a report released this month, Ronald Trostle of the Economic Research Service, part of the USDA, explains the many factors that have led to these rapid price increases. Perhaps a disappointment to some, the causes are not as simple and straightforward as we may want them to be, and there is not one culprit (“demon ethanol,” speculation, OPEC, etc.) that deserves the sole responsibility or blame for the current situation.

Rather, the factors that led us to this point are many and complex, and likewise the remedies will be long in coming and involve difficult adjustments. Famed investor Jim Rodgers said in a recent interview with Barron’s that the commodities bubble may last until 2018. But understanding the roots of this bubble is the first step in bringing much needed relief to the people of developing nations, and Trostle has brought to light several causes worth exploring:

Robbing the kitchen pantry–The relative stability of prices in the 80s and 90s led governments to decrease their buffer stocks because more liberalized trade meant they could depend on the global market for food. So, as they drew down their grain stocks, they increased their dependency on other countries for their immediate food needs while limiting their ability to absorb price shocks and shortfalls abroad. In fact, the global stocks-to-use ratio has fallen from 30 percent in 1999 to less than 15 percent today, the lowest level since 1970

A day of reckoning–Now more vulnerable to shocks in the global food market, harvest shortfalls occurred in a number of regions around the world in 2006 and 2007 because of adverse weather conditions. These shortfalls cumulatively led to back-to-back drops in global average yields of grain and oilseeds, something that has happened only three other times since 1971. Without the benefit of a backup supply of grain stocks, this led many countries to promote protective policies like eliminating export subsidies and increasing export taxes, restricting or banning exports, and this seized up markets and induced a buying panic.

If you don’t eat your meat–Changes in dietary preferences of rapidly developing nations mean more people are eating meat, which requires more grain. For example, to raise one lb. of beef, you need 7 lbs. of grain; For one lb. of pork, you need 6. 5 lbs. of grain. So as people in developing nations are lifted out of poverty, undeniably a good thing, their preference for more meat increases demand for grain and puts more pressure on already strained supplies.

Fields of fuel–Increased ethanol production, mostly a result of a Federal mandate that required a noxious fuel additive to be replaced with ethanol, led vast amounts of corn and soy to be diverted from food production to fuel. While one cause among many, this stress on food prices has been singled out by many as the culprit in rising prices and legislators may move to alter the 2007 energy bill in order to relieve this added pressure.

They’re in the money–Because of large foreign exchange reserves held by net importers of food like the oil-exporting nations and countries with large trade surpluses like China, high-priced commodities continue to be bought at the expense of developing nations without those large currency reserves. This means that nations most unable to deal with rising food prices are the ones hit hardest by them.

The high rollers’ suite–Many are now starting to question the role of hedge funds, index funds and sovereign wealth funds in speculating in and possibly exacerbating high commodity prices. In 2006 more of these investing arms became involved in commodities, often with long-term buying positions. Under pressure from farming groups, the Commodities Futures Trading Commission is considering closing a loophole that currently allows hedge funds to speculate with more money than previously allowed.