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http://www.atimes.com/atimes/Global_Economy/IH01Dj01.html

Aug 1, 2007

The great biofuel fraud

By F William Engdahl

That bowl of Kellogg's cornflakes on the breakfast table or the 
portion of pasta or corn tortillas, cheese or meat on the dinner 
table is going to rise in price over the coming months as sure as the 
sun rises in the East. Welcome to the new world food-price shock, 
conveniently timed to accompany the current world oil-price shock.

Curiously, it's ominously similar in many respects to the early 1970s 
when prices for oil and food both exploded by several hundred percent 
in a matter of months. That mid-1970s price explosion led the late US 
president Richard Nixon to ask his old pal Arthur Burns, then 
chairman of the Federal Reserve, to find a way to alter the Consumer 
Price Index (CPI) inflation data to take attention away from the 
rising prices.

The result then was the now-commonplace publication of the absurd 
"core inflation" CPI numbers - sans oil and food.

The late American satirist Mark Twain once quipped, "Buy land: 
They've stopped making it." Today we can say almost the same about 
corn, or all grains worldwide. The world is in the early months of 
the greatest sustained rise in prices for all major grains, including 
maize, wheat and rice, that we have seen in three decades. Those 
three crops constitute almost 90% of all grains cultivated in the 
world.

Washington's calculated, absurd plan

What's driving this extraordinary change? Here things get pretty 
interesting. The administration of US President George W Bush is 
making a major public relations push to convince the world it has 
turned into a "better steward of the environment". The problem is 
that many have fallen for the hype.

The center of Bush's program, announced in his January State of the 
Union address, is called "20 in 10", cutting US gasoline use 20% by 
2010. The official reason is to "reduce dependency on imported oil", 
as well as cutting unwanted "greenhouse gas" emissions. That isn't 
the case, but it makes good PR. Repeat it often enough and maybe most 
people will believe it. Maybe they won't realize their taxpayer 
subsidies to grow ethanol corn instead of feed corn are also driving 
the price of their daily bread through the roof.

The heart of the plan is a huge, taxpayer-subsidized expansion of use 
of bio-ethanol for transport fuel. The president's plan requires 
production of 35 billion US gallons (about 133 billion liters) of 
ethanol a year by 2017. Congress has already mandated with the Energy 
Policy Act of 2005 that corn ethanol for fuel must rise from 4 
billion gallons in 2006 to 7.5 billion in 2012.

To make certain it will happen, farmers and big agribusiness giants 
like ADM or David Rockefeller get generous taxpayer subsidies to grow 
corn for fuel instead of food. Currently ethanol producers get a 
subsidy in the US of 51 cents per gallon (13.5 cents per liter) of 
ethanol paid to the blender, usually an oil company that blends it 
with gasoline for sale.

As a result of the beautiful US government subsidies to produce 
bio-ethanol fuels and the new legislative mandate, the US refinery 
industry is investing big-time in building new special ethanol 
distilleries, similar to oil refineries, except they produce ethanol 
fuel. The number currently under construction exceeds the total 
number of oil refineries built in the US over the past 25 years. When 
they are finished in the next two to three years, the demand for corn 
and other grain to make ethanol for car fuel will double from present 
levels.

And not just US bio-ethanol. In March, Bush met with Brazilian 
President Luiz Inacio Lula da Silva to sign a bilateral "Ethanol 
Pact" to cooperate in research and development of "next generation" 
biofuel technologies such as cellulosic ethanol from wood, and joint 
cooperation in "stimulating" expansion of biofuel use in developing 
countries, especially in Central America, and creating a biofuel 
cartel along the lines of the Organization of Petroleum Exporting 
Countries (OPEC) with rules that allow formation of a Western 
Hemisphere ethanol market.

In short, the use of farmland worldwide for bio-ethanol and other 
biofuels - burning the food product rather than using it for human or 
animal food - is being treated in Washington, Brazil and other major 
centers, including the European Union, as a major new growth industry.

Phony green arguments

Biofuel - gasoline or other fuel produced from refining food products 
- is being touted as a solution to the controversial global-warming 
problem. Leaving aside the faked science and the political interests 
behind the sudden hype about dangers of global warming, biofuels 
offer no net positive benefits over oil even under the best 
conditions.

Their advocates claim that present first-generation biofuels save up 
to 60% of the carbon emission of equivalent petroleum fuels. As well, 
amid rising oil prices at $75 per barrel for Brent marker grades, 
governments such as Brazil's are frantic to substitute home-grown 
biofuels for imported gasoline. In Brazil today, 70% of all cars have 
"flexi-fuel" engines able to switch from conventional gasoline to 
100% biofuel or any mix. Biofuel production has become one of 
Brazil's major export industries as well.

The green claims for biofuel as a friendly and better fuel than 
gasoline are at best dubious, if not outright fraudulent. Depending 
on who runs the tests, ethanol has little if any effect on 
exhaust-pipe emissions in current car models. It has significant 
emission, however, of some toxins, including formaldehyde and 
acetaldehyde, a suspected neurotoxin that has been banned as 
carcinogenic in California.

Ethanol is not some benign substance as we are led to think from the 
industry propaganda. It is highly corrosive to pipelines as well as 
to seals and fuel systems of existing car or other gasoline engines. 
It requires special new pumps. All that conversion costs money.

But the killer about ethanol is that it holds at least 30% less 
energy per liter than normal gasoline, translating into a loss in 
fuel economy of at least 25% over gasoline for an Ethanol E-85% blend.

No advocate of the ethanol boondoggle addresses the huge social cost 
that is beginning to hit the dining-room tables across the US, Europe 
and the rest of the world. Food prices are exploding as corn, 
soybeans and all cereal-grain prices are going through the roof 
because of the astronomical - US Congress-driven - demand for corn to 
burn for biofuel.

This year the Massachusetts Institute of Technology issued a report 
concluding that using corn-based ethanol instead of gasoline would 
have no impact on greenhouse-gas emissions, and would even expand 
fossil-fuel use because of increased demand for fertilizer and 
irrigation to expand acreage of ethanol crops. And according to MIT, 
"natural-gas consumption is 66% of total corn-ethanol production 
energy", meaning huge new strains on natural-gas supply, pushing 
prices of that product higher.

The idea that the world can "grow" out of oil dependency with 
biofuels is the PR hype being used to sell what is shaping up to be 
the most dangerous threat to the planet's food supply since the 
creation of patented genetically manipulated corn and other crops.

US farms become biofuel factories

The main reason US and world grain prices have been soaring in the 
past two years, and are now pre-programmed to continue rising at a 
major pace, is the conversion of US farmland to become de facto 
biofuel factories. Last year, US farmland devoted to biofuel crops 
increased by 48%. None of that land was replaced for food-crop 
cultivation; the tax subsidies make it far too profitable to produce 
ethanol fuel.

Since 2001, the amount of corn used to produce bio-ethanol in the US 
has risen 300%. In fact, in 2006 US corn crops for biofuel equaled 
the tonnage of corn used for export. In 2007 it is estimated it will 
exceed the corn for export by a hefty amount. The United States is 
the world's leading corn exporter, most going for animal feed to EU 
and other countries. The traditional US Department of Agriculture 
statistics on acreage planted to corn is no longer a useful metric of 
food prices, as all marginal acreage is going for biofuel growing. 
The amount available for animal and human feed is actually declining.

Brazil and China are similarly switching from food to biofuels with 
large swatches of land.

A result of the biofuel revolution in agriculture is that world 
carryover or reserve stocks of grains have been plunging for six of 
the past seven years. Carryover reserve stocks of all grains fell at 
the end of 2006 to 57 days of consumption, the lowest level since 
1972. Little wonder that world grain prices rose 100% over the past 
12 months. This is just the start.

That decline in grain reserves, the measure of food security in event 
of drought or harvest failure - an increasingly common event in 
recent years - is pre-programmed to continue going as far ahead as 
the eye can see. Assuming a modest world population increase annually 
of some 70 million over the coming decade, especially in the South 
Asian subcontinent and Africa, the stagnation or even decline in the 
tonnages of feed corn or other feed grains, including rice, that is 
harvested annually as growing amounts of bio-ethanol and other 
biofuels displaces food grain in fact means we are just getting 
started on the greatest transformation of global agriculture since 
the introduction of the agribusiness revolution with fertilizers and 
mechanized farming after World War II.

The difference is that this revolution is at the expense of food 
production. That pre-programs exploding global grain prices, 
increased poverty, and malnutrition. And the effect on gasoline 
import demand will be minimal.

Professor M A Altieri of the University of California at Berkeley 
estimates that dedicating all US corn and soybean production to 
biofuels would only meet 12% of gasoline and 6% of diesel needs. He 
notes that although one-fifth of last year's US corn harvest went to 
bio-ethanol, it met a mere 3% of energy needs. But the farmland is 
converting at a record pace. In 2006 more than 50% of Iowa and South 
Dakota corn went to ethanol refineries.

Farmers across the US Midwest, desperate for more income after years 
of depressed corn prices, are abandoning traditional crop rotation to 
grow exclusively soybeans or corn, with dramatic added impact on soil 
erosion and needs for added chemical pesticides. In the US some 41% 
of all herbicides used are already applied to corn. Monsanto and 
other makers of glyphosate herbicides such as Roundup are clearly 
smiling on the way to the bank.

Going global with biofuels

The Bush-Lula pact is just the start of a growing global rush to 
plant crops for biofuel. Huge sugarcane, oil-palm and soy plantations 
for biofuel refining are taking over forests and grasslands in 
Brazil, Argentina, Colombia, Ecuador and Paraguay. Soy cultivation 
has already caused the deforestation of 21 million hectares in Brazil 
and 14 million hectares in Argentina, with no end in sight, as world 
grain prices continue to rise. Soya is used for bio-diesel fuel.

China, desperate for energy sources, is a major player in biofuel 
cultivation, reducing food-crop acreage there as well. In the EU, 
most bio-diesel fuel is produced using rapeseed plants, a popular 
animal feed. The result? Meat prices around the globe are rising and 
set to continue rising as far as the eye can see. The EU has a target 
requiring minimum biofuel content of 10%, a foolish demand that will 
set aside 18% of EU farmland to cultivate crops to be burned as 
biofuel.

Big Oil is also driving the biofuels bandwagon. Professor David 
Pimentel of Cornell University and other scientists claim that net 
energy output from bio-ethanol fuel is less than the fossil-fuel 
energy used to produce the ethanol. Measuring all energy inputs to 
produce ethanol, from production of nitrogen fertilizer to energy 
needed to clean the considerable waste from biofuel refineries, 
Pimintel's research showed a net energy loss of 22% for biofuel - 
they use more energy than they produce. That translates into little 
threat to oil demand and huge profit for clever oil giants that 
re-profile themselves as "green energy" producers.

So it's little wonder that ExxonMobil, Chevron and BP are all into 
biofuels. This past May, BP announced the largest ever 
research-and-development grant to a university, $500 million to the 
University of California-Berkeley, to fund BP-dictated R&D into 
alternative energy, including biofuels. Stanford University's Global 
Climate and Energy Program got $100 million from ExxonMobil; 
University of California-Davis got $25 million from Chevron for its 
Bio-energy Research Group. Princeton University's Carbon Mitigation 
Initiative takes $15 million from BP.

Lord Browne, the disgraced former chief executive officer of BP, 
declared last year, "The world needs new technologies to maintain 
adequate supplies of energy for the future. We believe bioscience can 
bring immense benefits to the energy sector." The biofuel market is 
booming like few others today. This all is a paradise for global 
agribusiness industrial companies.

All this, combined with severe weather problems in China, Australia, 
Ukraine and large parts of the EU growing areas this harvest season, 
guarantees that grain prices are set to explode further in coming 
months and years. Some are gleefully reporting the end of the era of 
"cheap food". With disappearing food-security reserves and 
disappearing acreage going to plant corn and grains for food, the 
biofuel transformation will impact global food prices massively in 
coming years.

Another agenda behind ethanol?

The dramatic embrace of biofuels by the Bush administration since 
2005 has clearly been the global driver for soaring grain and food 
prices in the past 18 months. The evidence suggests this is no 
accident of sloppy legislative preparation. The US government has 
been researching and developing biofuels since the 1970s.

The bio-ethanol architects did their homework, we can be assured. 
It's increasingly clear that the same people who brought us oil-price 
inflation are now deliberately creating parallel food-price 
inflation. We have had a rise in average oil prices of some 300% 
since the end of 2000 when George W Bush and Dick "Halliburton" 
Cheney made oil the central preoccupation of US foreign policy.

Last year, as bio-ethanol production first became a major market 
factor, corn prices rose by some 130% on the Chicago Mercantile 
Exchange in 14 months. It was more than known when Congress and the 
Bush administration made their heavy push for bio-ethanol in 2005 
that world grain reserves had been declining at alarming levels for 
several years at a time when global demand, driven especially by 
growing wealth and increasing meat consumption in China, was rising.

As a result of the diversion of record acreages of US and Brazilian 
corn and soybeans to biofuel production, food reserves are literally 
disappearing. Global food security, according to Food and Agriculture 
Organization data, is at its lowest since 1972. Curiously, that was 
just the time that Henry Kissinger and the Nixon administration 
engineered, in cahoots with Cargill and ADM - the major backers of 
the ethanol scam today - what was called the Great Grain Robbery, 
sale of huge volumes of US grain to the Soviet Union in exchange for 
sales of record volumes of Russian oil to the West. Both oil and corn 
prices rose by 1975 some 300-400% as a result. Just how that worked, 
I treated in detail in A Century of War: Anglo-American Oil Politics.

Today a new element has replaced Soviet grain demand and harvest 
shortfalls. Biofuel demand, fed by US government subsidies, is 
literally linking food prices to oil prices. The scale of the 
subsidized biofuel consumption has exploded so dramatically since the 
beginning of 2006, when the US Energy Policy Act of 2005 first began 
to impact crop-planting decisions, that there is emerging a de facto 
competition between people and cars for the same grains.

Environmental analyst Lester Brown recently noted, "We're looking at 
competition in the global market between 800 million automobiles and 
the world's 2 billion poorest people for the same commodity, the same 
grains. We are now in a new economic era where oil and food are 
interchangeable commodities because we can convert grain, sugarcane, 
soybeans - anything - into fuel for cars. In effect the price of oil 
is beginning to set the price of food."

In the mid-1970s, secretary of state Henry Kissinger, a protege of 
the Rockefeller family and of its institutions, stated, "Control the 
oil and you control entire nations; control the food and you control 
the people." The same cast of characters who brought the world the 
Iraq war, and who cry about the "problem of world overpopulation", 
are now backing conversion of global grain production to burn as fuel 
at a time of declining global grain reserves. That alone should give 
pause for thought. As the popular saying goes, "Just because you're 
paranoid doesn't mean they aren't out to get you."

F William Engdahl is author of the book Seeds of Destruction: The 
Hidden Agenda of Genetic Manipulation, about to be released by Global 
Research Publishing, and of A Century of War: Anglo-American Oil 
Politics and the New World Order, Pluto Press. He may be reached via 
his website, www.engdahl.oilgeopolitics.net.