The Quest: Energy, Security, and the Remaking of the Modern World

by Daniel Yergin

  This broad-based political support has generated an impressive array of programs, subsidies, incentives, and federal and state mandates meant to jump-start the biofuels industry in the United States. The most compelling is the requirement that the amount of biofuels blended with transportation fuel must almost triple from about somewhere below 1 million barrels per day in 2011 to 2.35 mbd by 2022. This could be the equivalent of about 20 percent of all motor fuel in the United States. It is like adding to world supply another Venezuela or Nigeria. The push to biofuels has been global. The European Union mandates at least 10 percent renewable energy, including biofuels, in the transport sector of each member state by 2020. India has proposed an ambitious 20 percent target for biofuels blending by 2017. But the champion is Brazil, where 60 percent of automotive motor fuel today is already ethanol.

  In the biofuels vision, the process that produces fossil fuels—compressing organic matter into oil at tremendous pressure and heat deep below the earth’s surface over hundreds of millions of years—could be foreshortened into a cycle measured in seasons. A larger and larger share of the world’s transportation fuels would be cultivated, rather than drilled for. Hydrocarbon Man—the quintessential embodiment of the twentieth century, the century of oil—would increasingly give way over the twenty-first century to Carbohydrate Man. If this vision eventuates and biofuels do take away significant market share from traditional oil-based fuels over the next few decades, the results would reset global economics and politics. And agri-dollars would come to compete with petro-dollars.

  Significant growth of ethanol use has already been registered. Today the amount of ethanol blended into gasoline is close to 900,000 barrels per day, in terms of volume, almost 10 percent of total U.S. gasoline (including blended ethanol) consumption. However, ethanol, on a volume basis, has only about two thirds the energy value of conventional gasoline, and so on an energy basis, today’s ethanol consumption is the energy equivalent of 600,000 barrels per day of gasoline.

  Ethanol’s share in the United States is likely to grow over the next few years, although it must first contend with a “wall” on the amount of ethanol that can be blended with gasoline for use in all gas-powered vehicles. The fear is that greater concentrations of ethanol could harm engines not designed to run on biofuels.

  There is also E85 fuel, which contains between 70 percent and 85 percent ethanol, but it can only be used in flex-fuel vehicles that can switch between oil and ethanol-based fuels or all-ethanol vehicles, specifically designed to accommodate this type of fuel. Currently such vehicles total only about 3 percent of the U.S. car fleet.

  All this may strike many as new. But it isn’t, not by any means.

  THE FIRST FLEX-FUEL VEHICLE

  Henry Ford did not much care for cities. “There is something about a city of a million people which is untamed and threatening,” he once said. “Thirty miles away, happy and contented villages read of the ravings of the city.” Not that he had illusions about rural life. “I have followed many a weary mile behind a plough and I know all the drudgery of it.” The automobile would be the “messenger,” the liberator, linking farms and villages to the wider world, and the tractor would overcome the drudgery of rural work, enabling the farmer to get beyond “a bare living” and become so much more productive. “What a waste it is for a human being to spend hours and days behind a slowly moving team of horses when in the same time a tractor could do six times as much work!”

  Ford was keen on using the preferred auto fuel, ethanol, produced by farmers, to tie farm and city together in a mutual interdependence, a sort of social contract. “If we industrialists want the American farmer to be our customer, we must find a way to become his customer.”1

  Yet there was a huge obstacle in the way of ethanol: price. Every gallon of alcohol carried a $2.08 a gallon tax imposed as a revenue measure during the Civil War. With the discovery of vast amounts of oil in Texas and Oklahoma around the beginning of the twentieth century, gasoline had a decided cost advantage, at least in the United States. That was not the case in Europe, where auto races pitted ethanol against gasoline as a fuel. The French and German governments used tariffs and mandates to encourage alcohol fuels. Finally, in 1906, responding to farmers who were reeling from low grain prices, Theodore Roosevelt signed a bill eliminating the alcohol tax. One congressman (and a future Speaker of the House) predicted that alcohol “made from cornstalks” would soon be one of the “most pertinent factors in modern civilization.”2

  With the tax eliminated, demand shot up, and ethanol was once again locked in a great race with gasoline as to which would be the “fuel of the future.”

  Making good on his social contract with America’s farmers, Ford ensured that the Model T, at least when he introduced it, could run on either ethanol or gasoline. It was the first flex-fuel vehicle. Later he introduced Fordson tractors that could run on alcohol as well as gasoline. With all that, however, gasoline was the dominant fuel because it cost only a third as much.

  Toward the end of World War I and in the years immediately after, however, prices shot up as gasoline once again went into short supply. Alexander Graham Bell, the inventor of the telephone, hailed alcohol as “a wonderfully clean-burning fuel . . . that can be produced from farm crops, agricultural waste and even garbage.” A scientist from General Motors warned that the crude oil was “being rapidly depleted” and would soon run out. The solution was alcohol fuel, he said, which was “the most direct route which we know for converting energy from its source, the sun, into a material that is suitable for use as fuel.”

  However, almost insurmountable obstacles to ethanol have appeared. On January 16, 1919, the Eighteenth Amendment to the Constitution made Prohibition the law of the land. Alcoholic beverages were banned. Prohibition was aimed at ending drunkenness, alcoholism, and immorality, and at protecting the family against abuse and dissolution. But it also turned millions of Americans into lawbreakers and gave an immense boost to moonshine, bathtub gin, speakeasies, bootlegging, racketeering, and the rise of organized crime.

  Prohibition stopped alcohol fuels dead in their tracks. The new Constitutional amendment prohibited “intoxicating liquors” that could be ingested by humans, not fuels that could be fed to cars. But whether made into an “intoxicating drink” or into a fuel, alcohol was alcohol. Moreover, there was no telling what a farmer would really do with the alcohol.

  Yet when the Great Depression led to a collapse in commodity prices and ruin for farmers across America, ethanol seemed a key element in farm relief. It would expand the market for agricultural products and, at the same time, make the farmer self-sufficient in terms of his own fuels. Opponents denounced the idea. “To force the use of alcohol in motor fuel,” said one critic, “would be to make every filling station and gasoline pump a potential speakeasy.” But by the time Franklin Roosevelt became president in 1933, it was widely recognized that the “Great Experiment,” as Prohibition was known, was a dismal failure, and the Twenty-first Amendment to the Constitution repealed it.

  Ethanol was back in business. By the late 1930s, at least 2,000 service stations across the Middle West were selling Agroblends, gasoline with some mixture of alcohol. But this was pretty limited. Rising grain prices removed the political drive. One of Henry Ford’s assistants privately admitted the harsh truth: alcohol fuels could not compete economically against gasoline.3

  BIRTH OF GASOHOL

  After World War II ethanol faded away once again. Agricultural income had risen, and the political pressure dissipated. But the oil shocks of the 1970s—and the difficult economic times they brought about—hit farmers hard. Many were struggling; others were going bankrupt. Agricultural prices swooned with the economic downturn. At the same time, prices of their critical inputs—diesel fuel for their tractors, fertilizers made from hydrocarbons—shot up.

  When in 1977 President Jimmy Carter launched his National Energy Plan, there was not a word about gasohol, as ethanol was called at the time.
But political support built rapidly among senators and congressmen from agricultural states. The advocates found many ways to express their support, including street theater, Washington, D.C.–style. At one such event in 1977, Senator Birch Bayh of Indiana, standing on the grounds of the Capitol, opened a bottle of vodka and triumphantly poured it directly into the fuel tank of an ancient car. The engine sprang to life without a delay to the huge delight of the assembled crowd. The political support translated into legislative support—a 40-cents-a-gallon subsidy, along with additional incentives to encourage investment in ethanol facilities. Supplies began to increase.

  Ethanol was no longer just a “Ma and Pa” farmer’s business. Some agribusiness firms embraced it as well. Archer Daniels Midland (ADM), one of the biggest merchants of agricultural products in the world, would turn out to be decisive. Very quickly, ADM became the biggest producer of ethanol in the United States as well as its most effective political champion.4

  The second oil shock in the late 1970s increased the political pressure for more support from the federal government. In early February 1979, a most unusual sight appeared in Washington, D.C.: a motorcade of 3,000 tractors—or a “tractorcade,” as it became known—made its way down Independence Avenue, eventually reaching the Capitol, which it circled, and then finally settled in on the National Mall for an extended stay. These farmers were angry, and they were desperate, and they wanted to dramatize their need for help. They were united in their demand: a national commitment to ethanol.

  The political imperative became even stronger in December 1979. On Christmas Eve 1979, the Soviet Union launched its invasion of Afghanistan. In addition to promulgating the Carter Doctrine, guaranteeing the security of the Persion Gulf, President Carter also announced a cutoff of grain exports to the Soviet Union, a business much prized by farmers.5 But he promised enraged farmers a highly subsidized major new program for gasohol to absorb some of the now-excess corn. As Deputy Secretary of State Warren Christopher explained, “Our farmers would rather be growing grain to solve our energy problems than they would for the Soviet Union’s [livestock] herds.” Then, in the midst of a tough reelection campaign against Ronald Reagan, Carter did something else that would have lasting benefit for U.S. ethanol: he slapped a tariff on Brazilian ethanol to prevent it from competing with U.S. ethanol.

  Ethanol in the United States really seemed to be on its way. By 1981 10,000 gasoline stations were selling gasohol. A Department of Energy task force demonstrated how far the skepticism of just a few years earlier had turned into enthusiasm. Its high scenario predicted that renewable alcohol fuels could provide more than 100 percent of U.S. gasoline by 2000.

  But, instead, when oil prices collapsed a few years later, ethanol faded away. By 1986 the Agriculture Department was dismissing gasohol subsidies as a “very inefficient” means of increasing farm income. In the first half of the 1990s, very little corn was being turned into ethanol.6

  THE MAKING OF AN ETHANOL BOOM

  Yet at almost exactly the same time, ethanol received a regulatory reprieve. Under the Clean Air Act Amendment of 1990, much of the U.S. gasoline supplies were required to include extra oxygen to improve combustion and reduce pollution. Gasoline so endowed with such oxygenates became known as reformulated gasoline. At first, the favored oxygenate was an additive called MTBE—for methyl tertiary butyl ether—which was derived from petroleum. But in the late 1990s, concern mounted that MTBE could leak out of underground tanks, contaminating groundwater. The only available alternative was ethanol. As it replaced MTBE, ethanol demand started to rise again. What once had been called gasohol had a new name: E10 (90 percent gasoline, 10 percent ethanol).

  Political support was also once again building. In Iowa Governor Tom Vilsack, who had previously worked as a lawyer defending farmers going through bankruptcies, was determined to help raise farm incomes and turn the state into a national laboratory for ethanol. A number of prominent senators—including Richard Lugar of Indiana, Chuck Hagel of Nebraska, and Tom Daschle of South Dakota—promoted legislation to establish mandatory targets for ethanol in the nation’s motor fuel pool. The terrorist attack of September 11, 2001, provided further impetus to ethanol. For now ethanol would provide a partial alternative to oil, particularly oil from the Middle East. “We had a national economic and strategic problem,” said Senator Lugar. By helping to diversify the fuel mix, ethanol would contribute to security. It would also provide an alternative to the traditional system of agricultural subsidies and controls, connect farmers to another market, and help revitalize rural communities.7

  The real boost came with the passage of the Energy Policy Act of 2005. First, it effectively banned MTBE, forcing ethanol’s major competitor off the market. Second, the act established a Renewable Fuel Standard requiring as much as 500,000 barrels per day of ethanol in the motor fuel pool by 2012. That would mean a doubling of ethanol output. But ethanol costs more than gasoline to produce. Thus, third, the act affirmed a most attractive 51-cents-a-gallon tax credit. In addition to all this, the tariff on Brazilian ethanol remained in place, preventing significant volumes of Brazilian ethanol from entering the United States.

  The U.S. ethanol boom was now on. Investment in biorefineries came from all kinds of people—from farmers and farm co-ops across the Midwest, from famous businessmen, from promoters and developers, from biotech entrepreneurs, and from investment funds.

  But the most prominent booster turned out to be George W. Bush, who had started his career in “Little oil”—that is, as on independent oilman. In the autumn of 2005, after hurricanes Katrina and Rita knocked out for several months oil production in the Gulf of Mexico, gasoline prices shot up. This created a political storm and threw the administration on the defensive. At the same time, the situation in Iraq was deteriorating, and Bush increasingly saw reliance on imported oil as a weakness to America’s position in the world.

  On a trip to California, a venture capitalist who was the co-chairman of a presidential science advisory committee told the president that renewable fuels were now the “new, new thing” among venture capitalists. Soon after, on the farm of then Brazilian President Luis Inácio Lula da Silva, near Brasilia, over what Bush called “a good old-fashioned Brazilian barbecue,” Bush heard Lula explain how ethanol now had a large share of Brazil’s motor fuel market. Indeed, Lula was, as the Brazilian president himself later put it, so “truly obsessed with biofuel” that Bush “almost couldn’t have lunch because I wouldn’t stop talking about biofuel.” Meanwhile, Capitol Hill was vigorously promoting the virtues of ethanol. Ethanol as a national strategy became one of the main themes of Bush’s 2006 State of the Union Address. Americans are “addicted to oil,” the president declared in the speech, and he intended to end that. Bush knew that he would catch people’s attention with the reference to addiction. “I kind of startled my country when, at my State of the Union, I said we’re hooked on oil, and we need to get off oil,” he later said. “That seemed counterintuitive, for some people, to hear a Texan say.”8

  Ethanol was now flowing into the mainstream. Biorefineries were going up at a frantic rate across the farm belt. Farmers were pooling their savings to build their own local biorefineries. Jobs were being created in rural communities where depopulation had become a way of life. Farm incomes were going up, and land prices in the Midwest were rising faster than co-op prices in New York City. The Carbohydrate Economy has been a vision—and a dream—for over a century. But a reality now? If so, how big?

  BRAZIL’S “ALCOHOL”

  Outside the city of Ribeirão Preto, about two hundred miles northwest of São Paulo, the road narrows to two lanes. No one goes fast, for the cars have no choice but to creep along behind long, lumbering trucks, some hauling trailers, all filled as high as possible, almost to overflowing, with sugarcane. Finally, the trucks turn off to the mill, where they line up in a great arc in an open area. One after another they get their turn. They creep forward to a wall, and then the truckbed comes up and ti
lts over, and tons of sugarcane come tumbling down like a waterfall, falling onto a conveyer belt, which carries the cane into the mill where it is crushed and processed. The resulting liquid is fermented and then flows as ethanol into distillation towers and then into tanks. Then the ethanol begins a new journey, this time by tank truck and pipeline to the motorists around the country.

  This scene, replayed over and over in the hinterlands of Brazil, is now part of the world energy market in a way that few would have anticipated even a decade ago. In Brazil, “alcohol,” as it is known locally, has become a central factor in the national energy mix, and Brazil has come to center stage for a world looking for a biofuels role model. It is already the world’s largest exporter of sugar. Its geographic endowment, its experience, its capacity to grow production—all these make it a potential new energy supplier to global markets. But what makes Brazil’s position particularly compelling is the fact that it is the lowestcost producer of ethanol in the world. The reason is that its raw material is not corn but sugar, which is that much closer along the biological spectrum to the creation of ethanol.

  Ethanol has been an important crop in Brazil for centuries. In the Great Depression in the 1930s, sugar prices collapsed. In response, the government ordered that motor fuel include 5 percent ethanol to create extra demand for a crop in serious oversupply and thus help prop up farmers’ incomes. But after World War II, the vast surge of cheap oil washed away the ethanol market in Brazil.