Biofuels, Solar and Wind as Renewable Energy Systems_Benefits and Risks Episode 1 Part 4 pot

3 A Review of the Economic Rewards and Risks of Ethanol Production 59

agri-businesses as production of ethanol and byproducts increase. The last section

discusses the near and longer term growth prospects for rural areas in the Midwest

and the nation as they relate to biofuels production.

3.2 Measuring and Mismeasuring Biofuels Economic Impacts

It is important to sort out the rhetoric of claimed economic benefits to be expected

from biofuels development in the Midwest and the nation because there are tremen￾dous amounts of public money at stake. In the very early stages of this modern

boom in ethanol plant construction, politicians, farm commodity groups, and eco￾nomic developers hailed the emerging industry as the right and proper evolution

of modern agricultural production capacities coupled inexorably with technological

breakthroughs and long overdue changes in the nation’s energy policies. Amidst this

enthusiasm, biofuels trade associations and some agricultural commodity groups

reported in various venues that scores of thousands of jobs have been created across

the Corn Belt and the nation. Some politicians and government agency represen￾tatives parroted those reports uncritically; Midwestern state governments began to

specifically and energetically apply government agency services in support of the

boom, along with offering lucrative tax credits and incentives to promote even faster

growth; land-grant universities promoted their vital scientific contributions in this

coming energy revolution; cities and counties scrambled to be the site of a modern

ethanol factory, to be on the plus side of economic trends for a change given the

historical deterioration of rural Midwestern economies and communities; and some

leaders in Midwestern states began to envision a social and economic resurgence in

rural areas.

Profound expectations like the aforementioned demand careful scrutiny, espe￾cially when massive amounts of national, state, and local government subsidy are at

stake. The place to begin is with the measurement of net economic gain attributable

to this run-up in ethanol production in the U.S. and the identification of who ben￾efits. Those aggressively promoting private and public investment in more biofuels

processing capacities range from farm commodity groups, farm state politicians,

some environmental organizations, automobile manufacturers, to both liberal and

conservative political orientations.

There are wide ranges of economic activity attributed to biofuels production. The

nation’s production of ethanol creates jobs at the ethanol plants, boosts the demand

for critical mechanical, technical, and service inputs, and helps to improve the prices

received by input commodity providers, namely corn producers. Beyond that, few

of the conclusions about the economic impacts of biofuels production appear to be

based on rigorous, enterprise or industry level research, however (Swenson 2006).

Much is of a very rudimentary level using broad assumptions about ethanol industry

activity and applying, uncritically and often inappropriately, national economic im￾pact ratios to deduce the size of economic activity attributable to ethanol production.

The estimates either at the local level or at the national level are quite diverse and

often incredible.

60 D. Swenson

As examples, at the national level, an Urbanchuck (2005) report for the Renew￾able Fuels Association used US Bureau of Economic Analysis factors to conclude

that 114,844 jobs in the national economy depended indirectly on the operation of

all ethanol plants and the purchases that are made by workers (and this did not

include ethanol plant employment). Earlier in the decade, when the industry was

even smaller, Novack (2002) of the Federal Reserve Bank of Kansas City was more

upbeat about the job total and reported in a widely read periodical that “... the

[ethanol] industry added nearly 200,000 jobs to the U.S. economy.” This is a curi￾ous claim given that the U.S. Department of Commerce’s industrial census for that

same year (2002) indicated the ethyl-alcohol industry had just 2,200 jobs. How the

author got from 2,200 jobs to 200,000 is not revealed, but the writer went on to

predict that “an additional 214,000 jobs [would] be created through the economy

over the next decade.” Last, as just one example of comments made by many farm

state politicians, former South Dakota U.S. Senator Thomas Daschle concluded in a

national and widely reprinted publication that the production of 3.1 billion gallons

of ethanol in the U.S. created 200,000 jobs (Daschle 2006).

These three examples are emblematic of the rhetoric underscoring ethanol pro￾duction expansion and public policy development in the U.S. The first was made by

a consultancy with long-standing ties with the Renewable Fuels Association, a trade

group that aggressively promotes corn ethanol policies and serves as the primary

information source for information on renewable fuels opportunities and capacities

in the U.S. The second claim came from a writer from the nation’s respected public

banking regulatory and financial research sector. In this case the Kansas City Federal

Reserve Bank also has a specialization in rural development economic studies and

affairs; hence, an assumption of rigor and credibility. The third job claim came from

a respected and long-time political leader and strong advocate for alternative energy

development. Given the implied authority of these three sources it is important to

investigate the source of their numerical enthusiasms. A good example for under￾standing the basis for the robust, yet quite misleading, job claims can be found in

recent work sponsored by the Iowa Renewable Fuels Association.

3.2.1 Deconstructing Ethanol Job Impact Claims in the Midwest

An Urbanchuck (2007) report for the Iowa Renewable Fuels Association (IRFA)

concluded that Iowa’s ethanol industry had created 46,938 jobs and contributed

$7.315 billion in state domestic product. Research at Iowa State University (Swenson

2007b) concluded, in contrast, that the state’s 28 ethanol producers in processing

600 million bushels of corn into approximately 1.65 billion gallons of ethanol cre￾ated from 4,100 to 4,700 net new jobs in the Iowa economy through 2005. The

public university statistics are a tenth of those produced by the trade group. The

following exercise explains most of the differences. Figure 3.1 displays the type and

number of jobs the IRFA research credited to lowa.

First, from the original number of 46,938 jobs are subtracted the 19,733 jobs

linked to capital development and construction. There are several good reasons for