Is Ethanol Getting a Bum Rap?

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Ethanol critics also may forget other benefits. For one, the billions of gallons of ethanol are moderating oil prices by "easing energy bottlenecks," says Francisco Blanch, head of global commodity research at Merrill Lynch (MER). Blanch figures that oil prices would be at least 15% higher than they are, if not for today's output of ethanol. And given the dependence of the whole food supply chain on oil and gas, "food prices might be higher if we were not producing biofuels," says venture capitalist Vinod Khosla. The stacks of corn going into ethanol "act as a large cushion," adds Illinois farmer John Reifsteck. As corn prices climb, ethanol companies make less money. When corn becomes too valuable to convert to biofuels, the grain will go back into feed and food.

THE WRONG CROP

Still, corn ethanol is far from perfect. It barely helps in the fight against global warming, because of the carbon emissions from all the fossil-fuel energy needed to make it. "Everyone agrees corn is not the right crop," says Merrill Lynch's Blanch. Brazilian sugarcane is more efficient. It doesn't grow in the Amazon region, so it doesn't cause rainforest destruction, and it can be turned into other, more valuable fuels. On Apr. 23, Amyris Biotechnologies in Emeryville, Calif., announced plans, with Brazilian partners, to make biodiesel, jet fuel, and bio-gasoline from sugarcane.

Even better is biofuel from feedstocks that don't eat into food supplies, displace crops, or cause greenhouse gas emissions from plowing up forests or prairies. One prime candidate is switchgrass, a perennial prairie plant. Thanks to nine-foot-deep roots, switchgrass in test plots in the American Southeast thrived last summer despite an historic drought. The growth and decay of those deep roots also adds carbon to soil, making switchgrass cultivation a boon to fighting global warming. Ceres figures that its new commercial strain of the plant, with improved yields, could be grown on former tobacco, cotton, and rice fields across the southern U.S. "There are a lot of available acres out there," says Ceres' Hamilton.

Instead of throwing out biofuels, the key is to speed up the transition from corn to crops that offer more benefits. There's a surprisingly simple way to do it: Judge fuels on how much greenhouse gas is emitted during their entire production and transport, including emissions caused by converting land from food crops and other uses to fuel crops. Then ratchet down the amount of carbon that's allowed.

This low-carbon fuel standard approach sets the market free to pick the best fuels to meet the standard. It immediately rules out biofuels from palm oil plantations carved out of the rainforest, for instance. It would also steer farmers away from corn because of corn ethanol's lack of substantial greenhouse gas benefits. "Almost all of the pathways for using food crops to make energy will look very bad with a carbon metric," explains UC Davis' Sperling, who has worked on the approach. "The low-carbon fuel standard is one of the most outstanding policy instruments we have ever developed," he says. Make this approach widespread, and it should be possible to have our biofuels and eat our crops, too.

Carey is a senior correspondent for BusinessWeek in Washington .