The corn-based ethanol industry is having a tough 2009. While output remains up, the Agriculture Department estimated in February that production growth will slow over the next two years as operating margins tighten and demand sinks. Then in April, the Congressional Budget Office released a report reinforcing the long-held concern of environmentalists and economists that the production of corn-based biofuels increases food prices and does not significantly limit the nation's transportation emissions. Yesterday, the Obama administration issued its anticipated proposed draft rules on how the Environmental Protection Agency (EPA) will measure the amount of carbon emissions ethanol generates. Agribusiness can't be too happy with the results, which confirm that the EPA plans to consider ethanol's indirect land-use effects. Brad Plumer explains: 

For those who haven't followed this issue, indirect land-use has been the source of much contention. A lot of studies, like this landmark report in 2008 by Tim Searchinger et. al., have found that when you pull corn out of the world's food supply in order to make fuel, that causes farmers in developing nations to cut down rain forests to plant their own corn. As a result, corn- and soy-based ethanol do far more damage to the climate than burning gasoline does.

Why is this a big deal?

When Congress passed a bill that mandated an increase in biofuels production two years ago, environmentalists fought to include a stipulation that ethanol had to emit 20 percent less pollution than gasoline. When indirect land-use is factored in, the corn and soy versions likely won't make the cut. Producers would, in turn, fail to qualify for $3 billion a year in federal tax breaks.

Could the EPA's ruling ruin the economic viability of corn ethanol, given its dependence on government assistance? Not necessarily. The ruling still calls for 15 billion gallons of traditional ethanol blending per year to be grandfathered in by 2015, which is a lot of fuel. Tree Hugger's Alex Pasternack also points out that the EPA will dispense a "slate of subsidies, credits, and financing opportunities" to the ethanol industry, which will supplement the nearly $1 billion in stimulus funds already earmarked. But the hidden costs of corn-based ethanol are slowly coming to the fore, which is good for taxpayers and the planet.

Also encouraging is the effect the ruling might have for cellulosic ethanol -- made from crops like switchgrass and miscanthus -- which is expected to pass the EPA's threshold. In fact, the agency is calling for 16 billion gallons of cellulosic ethanol by 2016, which increases the chance that the technology will become commercially viable. For more on what Illinois scientists are doing to promote this fuel, check out our posts here and here.

Image used under a Creative Commons license by Flickr user ohad.