The Green Bullet

U.S. President George W. Bush says he wants to cure Americas addiction to imported oil and reduce greenhouse gas emissions. Asworld trade negotiations move forward, he faces international pressure to cut U.S. farm subsidies and domestic pressure to keep them. How are these problems related? Bush has an opportunity to address each of them with one deft stroke by transforming farm subsidies into fuel subsidies. If Washington subsidized corn and switchgrass for domestic ethanol production instead of export, Bush would relieve his headache on trade, bolster energy security, and improve the environment.

After years of deadlock, World Trade Organization (WTO) talks may this year result in a deal that calls for a reduction in rich-country agricultural export subsidies. In the United States, the weight of such a ruling would fall on corn. The U.S. government transfers around $4.5 billion from taxpayers to corn farmers each year. The United States exports between 1.5 and 2.5 billion bushels of corn annually, worth some $3 to $5 billion. After World War II, American farmers fed much of the world. Five decades later, improved global food production means the world doesnt need U.S. grain exports. Luckily for farmers, and the political leaders who cannot afford to alienate them, the United States must diversify its energy sources. The United States can and should continue to subsidize the cornfor ethanolnot for export.

One bushel of corn yields about 2.8 gallons of ethanol. Converting all U.S. corn exports to ethanol would add 47 billion gallons of ethanol per year to current production volumes, increasing total corn ethanol production to as much as 11 billion gallons per year. That would easily meet Congress new mandate that America produce 7.5 billion gallons of renewable fuels each year by 2012. U.S. annual gasoline consumption is 140 billion gallons and growing. Ethanol could lower that gasoline consumption by 300,000 to 400,000 barrels per daythe equivalent to the daily production of an Arctic National Wildlife Refuge-sized oil field. Home-grown ethanol would also help protect Americans against oil-supply shocks and could help reduce the overall U.S. trade deficit by cutting oil spending on the order of $7 to $10 billion per year.

So whats the catch?Corn farming is rough on the environment. Soil erosion due to wind and water is rampant. Fertilizer and pesticide runoffs produce algae blooms that result in dead zones, including one in the Gulf of Mexico that is so polluted it cannot support aquatic life. Furthermore,building the ethanol processing plants will take 34 years, and gas stations would have to commit to providing ethanol. And, because ethanol uses only the starch in corn, not the oil, protein, or other components, converting corn into ethanol is attractive only if there is a market for the byproducts. Opinions differ, but some estimate that byproduct markets could saturate well short of 11 billion gallons of production.

Fortunately, the surplus corn that isnt economic to convert to ethanol doesnt have to be grown, because it could easily be replaced with switchgrass. The prairie grass that President Bush mentioned in the 2006 State of the Union Address is naturally resistant to many pests and diseases, requiring far smaller amounts of chemicals and fertilizers. Its also drought-tolerant and can grow in poor soil. Most important, it can be used to produce ethanol. If the current federal subsidy given to corn were extended to switchgrass, farmers would realize approximately the same income per acre as they do growing corn today. The new crop would use less fertilizer and pesticides, resulting in less erosion. Fertilizer and pesticide runoff would be dramatically reduced, and much of our motor fuel would be renewable.

To be sure, producing ethanol from switchgrass uses new technology that isnt fully developed. There are pioneer plants in Canada and Brazil, but the costs of commercial production are unclear. Current estimates are $1.16 per gallon based on a switchgrass price of $39 per ton, on the conservative assumption that the cropland used to grow switchgrass rather than corn will yield 6 tons per acre. Those yields will rise as switchgrass becomes a commercial crop and seed manufacturers produce better strains. If yields were to rise to 10 tons of switchgrass per acre, switchgrass were priced at $30 per ton, and farmers were given the same $61 per acre subsidy they are given for corn, the price of the resulting ethanol would fall to $1.06 per gallonand farmers would enjoy the same income per acre they now get from growing corn. In addition, replacing gasoline with corn-derived ethanol can decrease greenhouse gas emissions by as much as 30 percent.

By offering farmers a subsidy of $61 per acre for growing switchgrass on farmland that now supports corn, the nation would have a substantial supply of a renewable fuel that starts to cure our addiction to oil. We have a remarkable opportunity to promote free trade, help farmers, preserve farmland, reduce greenhouse gas emissions, and make the United States less dependent on foreign oil. And the best part: It can be done without Washington spending a dime more than it already does.