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Panel sees ethanol as expensive, inefficient

The food versus fuel debate found a new audience Tuesday at the Global Financial Leadership Conference in Naples, Florida sponsored by the Chicago Mercantile Exchange.

The consensus of a panel of experts was that more use of biofuels affects food.

“Ethanol is driving up food prices. The only question is how much,” said Ian Goldin, former vice president of the World Bank and now director of Oxford University’s Oxford Martin School.

One study projects a 42% increase in coarse grain prices over five years, Goldin said, citing a report by the Organization for  Economic Cooperation and Development (OECD) and the Food and Agricultural Organization of the U.N. John Hofmeister, Former President, Shell Oil Company and Founder and Chief Executive Officer, Citizens for Affordable Energy

John Hofmeister, former president of Shell Oil Company and founder of Citizens for Affordable Energy shares that view and mentioned a Rice University Study that says federal subsidies for ethanol cost taxpayers the equivalent of $1.95 a gallon over the cost of a gallon of gasoline.

“The idea of using food for fuel is to me a non sequitur,” Hofmeister said. “Having said that, I believe there’s a role for biomass to be used in the fuel supply system.”

Algae might be a good technology for replacing some diesel fuel, he said. And other crops might make good sources of biomass for fuel. But Hofmeister sees using corn for fuel as a moral issue.

“I think this is a rich-poor issue,” he said. More affluent consumers can adust to higher prices, but “when you’re at the marginal end of the economy, you feel it immediately.”

Goldin was even more blunt.

“I think we should be clear in our minds that this causes people to die of starvation,” he said.

Nor does Goldin see strong environmental benefits. Using ethanol lowers the carbon  footprint of fuels by 3% to 4%, he said, and it causes more carbon output if it’s produced on land taken from tropical rainforests.

It also doesn’t isn’t economically viable, he said, because it depends on subsidies of about $7 billion a year in the U.S. Europe spends about $5 billion a year to support biofuels, mainly biodiesel.

“This is a lawyer's and lobbyist's dream come true,” he said. “It doesn’t make sense for anyone that believes in market forces.”

The exact impact of ethanol on food prices is hard to pin down, said a third panelist, Tim Gallagher, executive vice president of grains and biofuels for Bunge North America.

“Markets find a balance. Does it have an impact on prices? Certainly it does,” he said.

New mandates for biofuel use in the 2007 energy bill caused a shock to the food pricing system but the markets have since adjusted, he said.

He agreed with the others that politically popular government mandates are supporting biofuels.

“Those things are realities and frankly they’re probably not going away very soon,” Gallagher said.

The most recent price spike in grains that followed the USDA’s October 8 crop report was due in part to demand for ethanol, he said, but other factors included short crops in  Europe as well as a lower estimate of the U.S. corn crop, a weak dollar, and strong import demand from China.

“This price action wasn’t caused simply by biofuels,” he said.

Good energy policy also needs to focus on energy efficiency and energy conservation, he said. Biofuels policies need to be market oriented. And research on improving crop yields with better seed needs to continue.

“I don’t think it’s any one single item that’s going to solve this problem,” he said.

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