February 18, 2009

Impact of corn-based ethanol production studied

by K.C. Jaehnig

CARBONDALE, Ill. -- Federal support for clean energy has given ethanol the jump-start it needed to become an alternative fuel. But we need to take a close look at what we gain and what we give up in making the switch, says Silvia Secchi, an economist in the College of Agricultural Sciences at Southern Illinois University Carbondale.

“As biofuels become a more important energy source in our country, we need to understand their effects both on local economies and the environment because they could go in opposite directions,” says Secchi, who specializes in the science of trade-offs.

Secchi is part of a team of economists, environmental scientists and a statistician assessing the costs and benefits of corn-based ethanol production. The group includes researchers from Iowa State University and North Carolina Agricultural and Technical State University, with funds coming from the federal departments of agriculture and energy to the tune of $700,000.

Using data from Illinois, Iowa, Minnesota, Missouri and Wisconsin -- home base for the bulk of the country’s ethanol plants -- the researchers are looking at how production affects crop prices, crop choices, land use, water quality and regional economies.

“Much of the work looking at impacts of ethanol production has been done on a small scale,” Secchi says.

“This involves five states in a ‘hot spot’ where a lot of ethanol activity is taking place.”

Secchi’s portion of the project focuses on the interrelationships between the presence of ethanol plants, the amount of corn farmers grow and the prices they get for it. Such knowledge could help entrepreneurs decide where to build new factories as, in making that decision, they have to factor in what the raw feedstock will cost.

“In developing their business plan, they can’t take the historical price of corn as a given because by building a plant they’re introducing something new in the landscape,” Secchi says.

Because expanded corn production can have substantial environmental impacts, she also is looking at the effects of expanded corn production on water quality in the Upper Mississippi River Basin. Here she is breaking new ground. Environmental impact studies done by other researchers have focused mainly on the amount of fuel it takes to grow and harvest the corn and turn it into ethanol and on the level of greenhouse gasses those activities produce.

“Water quality impacts are often neglected, but an increase in agricultural production will probably mean more nitrogen and phosphorus runoff (likely contributors to the “dead zone” in the Gulf of Mexico near the mouth of the Mississippi),” Secchi says.

Most of the project involves modeling -- using a computerized simulation that attempts to predict what would happen as different factors change and interact.

“I am using both existing assessment tools and new models I have developed with my collaborators,” Secchi says. As much of the official data she’s using in her models dates back 10 years or more, she also is collecting newer information to yield more accurate results.

Other team members are using models to look at how factory characteristics and the proximity of markets affect corn prices and premiums, the impact an ethanol factory has on land use and crop rotations, the factory’s direct and indirect effects on its region’s economy and the amount of fossil fuel ethanol could replace in the five-state study area.

While these studies extrapolate from known data -- plant location, size and ownership, acreage and location of farmland involved in crop production -- one portion of the project attempts to predict outcomes resulting from changes in some of these factors. What would happen if, for example, outside investors began building plants, or existing plants produced more, or an increased demand by livestock producers for ethanol’s edible by-products led to construction of additional plants near those customers? What would occur if farmers start growing corn on land currently out of production because of federal subsidies?

With the concentration of both corn acreage and ethanol production in the Upper Mississippi River Basin and the growing emphasis on using biofuel, the team’s findings will have particular relevance for that five-state area. But the tools they develop to reach their conclusions should have much broader applications.

“There are a gazillion questions because everyone has different risks, costs and conditions, and technology creates new problems as it solves old ones,” Secchi says.

“We’re just starting to get a handle on some of these things, but it’s a good time for agribusiness economists. There’s a huge need for research.”