Ethanol is an alcohol made from plant material – usually corn or sugar cane – that is processed into sugar, then fermented. The vast majority of ethanol is used as a biofuel – a substitute for gasoline. Although many early automobiles – including the Model T Ford – were fueled with ethanol, the availability of cheap oil kept ethanol use from increasing in the U.S. for decades.

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Concerns about energy supplies, combined with aggressive lobbying by ADM and other companies, have led to policies designed to jumpstart ethanol production, which continued to accelerate 15 percent annually between 2000 and 2006. With consumer demand for alternative fuel vehicles increasing, auto manufacturers are working to produce more flex fuel vehicles (FFVs), which are capable of operating on a blend containing gasoline and as much as 85 percent ethanol (E-85) About 7 million FFVs (designed to run on ethanol blends higher than the 10 percent that normal cars can handle) are already in use in the U.S.

Half of the world’s 13.1 billion gallons of ethanol were produced from corn grown in the U.S. in 2007 according to the Renewable Fuels Association. ADM, the largest producer of ethanol in the U.S., controls about 25 percent of the U.S. market.

Although the vast majority of ADM’s profits have traditionally come from crushing products such as corn for the use in food, ethanol production has become central to ADM’s growth and profitability, making up to 40 percent of its net income in recent years. (“Ethanol Fuels ADM’s Profits,” Business Week, 2/1/07; Alexei Barrionuevo, “A Bet on Ethanol, With a Convert at the Helm,” New York Times, 10/8/06)

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Critics say the growth in ethanol use in recent years relies heavily on political policies that distort commodity markets, creates additional pressures on food prices and overall food security, and introduces false solutions to major environmental challenges such as global warming, among other things. As food costs have risen, ethanol’s foes have gained political support in Congress. A group of 24 Republican senators, including then-presidential candidate John McCain, called on federal officials to roll back ethanol consumption mandates in early 2008.

Although ADM’s ethanol production relies heavily on corn, in recent years the company has announced plans to diversify its involvement into sugar-cane ethanol in Brazil (Laren Etter and Antonio Regalado, “ADM plans Entry Into Sugar-Cane Ethanol in Brazil,” Wall Street Journal, 6/22/07), as well as a plan to jointly explore (with Bayer and Daimler) the biodiesel potential of Jatropha, a Central American plant that can be cultivated on marginal land.

Since it can only be used in most cars in concentrations up to 10 percent, ethanol remains just a small fraction of the nearly 140 billon gallons of gasoline used each year. (EIA, Petroleum Basic Statistics) Industry analysts report that new cars with engines designed to run on a larger percentage of ethanol – up to 100 percent in some cases – can be expected in the coming years. But potential ethanol resources are also limited by the amount of land available to grow feedstock. According to the Union of Concerned Scientists (UCS), using all of the corn grown in the U.S. with nothing left for food or animal feed would only displace about 15 percent of U.S. gasoline demand by 2025. (“The Truth About Ethanol,” UCS, updated 12/07)

Although the Renewable Fuels Association claims that the “use of 10 percent ethanol blends reduces greenhouse gas emissions by 18-29 percent compared with conventional gasoline,” skeptics report that when the entire lifecycle of ethanol is considered, ethanol use provides no net benefit and may actually increase net greenhouse gas emissions. A report published by the International Forum on Globalization, for example suggests that satisfying just 10 percent of U.S. fuel consumption using corn ethanol would add 127 million metric tons per year of additional CO2 emissions. (Jack Santa Barbara, “The False Promise of Biofuels” International Forum on Globalization and Institute for Policy Studies, 2007. Available at http://www.ifg.org/pdf/biofuels.pdf ).

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The U.S. Energy Information Agency reports that corn ethanol fuel use results in almost as much CO2 as gasoline, more methane and nitrous oxide, and considerably more water vapor. In addition to these greenhouse gases, burning ethanol contributes to urban smog, with byproducts including ozone and peroxy-acetyl-nitrate (PAN).(Mark Jacobson, Mark. Addressing Global Warming, Air Pollution Health Damage, and Long-Term Energy NeedsSimultaneously. Stanford University: Dept. of Civil and Environmental Engineering, 9 May 2006. Available at: http://www.stanford.edu/group/efmh/jacobson/E85vWindSol)

Other activities involved in the production of corn-based ethanol production account for a significant amount of the greenhouse gases, including corn farming, which degrades soil structure by leeching nitrogen from the soil (especially when corn stalks, leaves and cobs are used as corn stover to produce biofuels instead of being left in the field, where they mitigate the erosive quality of intensive corn production), leading to the increased use of fertilizer, which relies on petroleum and releases nitrous oxide, a potent greenhouse gas.

Most ethanol plants are also powered by coal, which has the highest greenhouse gas emissions of all the fossil fuels. Ethanol plants are also responsible for other major pollutants, including Volatile Organic Compounds, carbon monoxide and other carcinogens. (Patzek T.W. “Thermodynamics of the Corn-Ethanol Biofuel Cycle.” Critical Reviews in Plant Sciences 2004: 23 (6): 519567. See http://petroleum.berkeley.edu/papers/-patzek/CRPS416-Patzek-Web.pdf)

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In conjunction with the Department of Energy (which contributed $1.48 billion to the project), ADM and the Midwest Geological Sequestration Consortium (led by the Illinois State Geological Survey) have developed plans to sequester 1 million tons of CO2 from its Decatur, Illinois plant in the Mr. Simon Sandstone reservoir, one of numerous carbon capture and storage pilot projects intended to slow down the growing atmospheric buildup of greenhouse gases. (“Secretary Chu Announces First Awards from $1.4 Billion for Industrial Carbon Capture and Storage Projects,” DOE Press Rel., 10/2/09. Available at http://www.energy.gov/news2009/8102.htm)

The UN’s Food and Agriculture Organization (FAO) reported (Soaring Food Prices: Facts, Perspectives, Impacts and Actions Required) in 2008 that biofuels have created a new and significant source of demand for some agricultural commodities, and has “been one of the leading factors behind the increase in their prices in world markets which, in turn, has led to higher food prices.”

In the U.S., ethanol is diverting about 20 percent of the nation’s corn crop, pushing corn prices up to record high levels in recent years. (Paul Merrion and Bob Tita, “Woertz’s worry,” Crain’s Chicago Business, 5/11/08 at http://www.chicagobusiness.com/cgi-bin/news.pl?id=29387 ).

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Skeptics report that the production of the corn- and sugar-based fuels is also a driving force behind the displacement of indigenous people, an unnecessary and dangerous diversion of land away from food crop production, and a contributing factor in the destruction of forests. As the International Forum on Globalization puts it, “the net result is that, already, quite a few of those hungry people in the world are seeing food commodity prices rising rapidly, the value of food growing lands also rising rapidly due to scarcity, and their own prospects of feeding their families and communities falling. … Archer Daniels Midland, Monsanto, and Cargill among others, have lately given up their well known advertising slogans from prior decades about their main job being to “feed a hungry world.” The new campaign might be based on a new slogan, “feed cars not people.” The net result is that, already, quite a few of those hungry people in the world are seeing food commodity prices rising rapidly, the value of food growing lands also rising rapidly due to scarcity, and their own prospects of feeding their families and communities falling.” (Jack Santa Barbara, “The False Promise of Biofuels,” International Forum on Globalization, 2007 Available at: http://www.ifg.org/pdf/biofuels.pdf)

Recent concerns about the use of antibiotics in ethanol production have also been raised. (See Julia Olmstead, “Fueling Resistance,” Institute for Agriculture and Trade Policy, July 2009. Available at http://www.agobservatory.org/library.cfm?refID=106420 )

Critics say ADM’s controlling position in the ethanol market, and the industry’s overall growth have relied heavily on a complex, multi-tiered subsidy regime. With corn and other commodities subject to volatile price swings, along with thin operating margins, ethanol is a speculative and risky business. The company created a range of political initiatives – including large political contributions to both parties, the placement of allies in key government positions, the creation and support of aggressive trade associations including the Farm Bureau, commodity groups (such as the Corn Refiners Association) and related foundations and connections to important media sectors along with heavy advertising campaigns. (Nicholas Hollis, “Ethanol Subsidies for ADM & Other Corporate Kleptomaniacs Will Not Solve Energy Crisis,” Agribusiness Examiner # 373, 9/30/04. at http://www.organicconsumers.org/corp/klepto093004.cfm)

The push to jumpstart ethanol production began in the late 1970s, in response to rising oil prices. According to a report by the libertarian Cato Institute, then-ADM CEO Dwayne Andreas (a major donor to both Democratic and Republican parties) approached President Carter in 1978 with a proposal to accelerate the country’s energy independence by creating a large tax break for ethanol production. (James Bovard, “Archer Daniels Midland: A Case Study in Corporate Welfare,” Cato Institute, September 26, 1995 – at http://www.cato.org/pubs/pas/pa-241.html) With Carter’s support, the Energy Tax Act of 1978 exempted gasohol (gasoline blended with 10 percent ethanol) from the 4 cents per gallon federal excise tax.

In addition, Andreas lobbied Carter for government-backed loans for ethanol plants and a stiff tariff on Brazilian ethanol (derived from sugar) – ethanol’s biggest competitor. Carter did both – announcing $340 million in loans for new ethanol plants. (Tom Philpott, “How cash and corporate pressure pushed ethanol to the fore,” Grist, December 6, 2006. Available at: http://www.grist.org/article/ADM1)

The “gasohol” tax exemption and sugar quotas continued with the election of Ronald Reagan and remained in place for decades to come. Under George W. Bush, federal policies continued to favor ADM and ethanol, including stiff tariffs against foreign ethanol, a quota on sugar imports, the ethanol tax exemption, and heavily subsidized corn production. The Energy Policy Act of 2005 required the U.S. renewable fuel content to double by 2015.

Although corn doesn’t have an exclusive hold on the renewable fuels market, years of federal support have given it a distinct advantage. As International Institute for Sustainable Development researcher Doug Koplow told a reporter for Grist, “virtually every production input and production stage of ethanol and biodiesel is subsidized somewhere in the country; in many locations, producers can tap into multiple subsidies at once.” (Tom Philpott, “How cash and corporate pressure pushed ethanol to the fore,” Grist, Dec. 6, 2006. Available at: http://www.grist.org/article/ADM1)

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In 2007, Koplow estimated that total government support for ethanol added up to somewhere between $5.8 and $7.0 billion in 2006, an amount he estimates will rise to somewhere between $11.6 and $14.4 billion in 2016. (Doug Koplow, “At What Cost? Government Support for Ethanol and Biodiesel in the United States 2007 Update,” IISD, 2007. Available at: http://www.iisd.org/publications/pub.aspx?pno=904 Figures taken from detailed subsidy estimates on pp. 66-67.) With ADM controlling a third of the ethanol market, government subsidies to the company have been estimated to amount to about $2 billion. (Tom Philpott, “How cash and corporate pressure pushed ethanol to the fore,” Grist, Dec. 6, 2006. Available at: http://www.grist.org/article/ADM1)

Subsidies for ethanol have been criticized by food retailers, including the Grocery Manufacturers Association, which asserts that ethanol subsidies and related policies (e.g. import restrictions) have contributed to a rise in food prices. (Anna Palmer, “Beating Up on Ethanol,” Roll Call, May 14, 2008. Available at: http://www.agobservatory.org/library.cfm?refID=106177)

In 2007, ADM and ConocoPhilips announced in September that they would collaborate on the development of renewable transportation fuels from crops, wood and/or switchgrass.

Image: Political Cartoons of Michael Ramirez

Some environmental advocates suggest that corn-based ethanol (with its marginal net energy balance and fertilizer-reliant feedstock) is less damaging than cellulosic ethanol, which uses more benign crops such as switchgrass. Other sources, including a study published by the MIT Joint Program on the Science and Policy of Global Change in 2009 say cellulosic biofuels could have other unintended consequences, such as significant habitat loss from the clearing of large areas of natural forest. (J.M. Melillo et al., “Indirect Emissions from Biofuels: How Important?”, 356(5958) : 1397-1399, 2009).

Although ADM is involved in the development of cellulose, its dominant share in corn-based ethanol (representing billions of dollars in infrastructure), makes it unlikely to push for the elimination of corn. Indeed Grist columnist Tom Philpott reported in 2006 that ADM’s new CEO Patricia Woertz – a former Chevron executive – affirmed the company’s commitment to corn in the coming cellulosic age by declaring that the company’s main cellulosic push involved “waste” from the corn harvest.