October 1, 2015

Risky Business: When Safety Regulations Cause Harm

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At the turn of the 21st century, biofuels appeared to be a solution to mounting concerns over greenhouse gas emissions, climate change, skyrocketing fuel prices, and dependence on foreign energy.2 When Congress passed the Energy Policy Act (EP Act) in 2005 with a renewable fuel standard (RFS) provision mandating producers to add ethanol to gasoline,3 it is unlikely that lawmakers thought the act would increase hunger and social unrest in the world’s poorest countries. However, unintended consequences frequently accompany even the most well intentioned policies. 

Lawmakers specifically intended for the RFS provision to address both environmental and energy issues.4 Ethanol is a cleaner fuel with lower carbon emissions than gasoline and is often added to gasoline as an oxygenate, allowing gasoline to burn more completely and thereby reducing carbon emissions.5 The EP Act simply ramped up the already increasing use of ethanol as a fuel additive with the hope of reducing greenhouse gas emissions.6 The law’s proponents expected higher ethanol use to offset rising oil prices by filling at least some of the domestic demand for fuel.7 Further, because most ethanol in the United States comes from domestically produced corn, policy advocates hoped the act would make the country less dependent on imported oil.8 As an added bonus, the policy would benefit US farmers.9 At the time, the policy seemed perfect.

As the policy went into effect and was further ramped up in 2007,10 scholars and environmentalists began to question its environmental and energy benefits.11 Producing ethanol from corn or other crops consumes energy. For ethanol to be a viable fuel source, it should, on balance, produce more energy than it consumes. Experts, however, disagree about whether this is the case.12 Beyond ethanol’s questionable viability as a fuel, the negative environmental impacts of corn production undermine ethanol’s benefits. Corn farming leads to greater soil erosion than the farming of other crops.13 Higher pesticide and fertilizer use in corn farming compared to the farming of other crops increases water pollution.14 In addition, ethanol production leads to air pollution and greenhouse gas emissions, offsetting some of the environmental gains from its use as a fuel.15

Perhaps the most unexpected consequence of the policy has been its impact on worldwide food prices. The US fuel industry relied heavily on corn ethanol to comply with the RFS requirements.16 The resulting demand drastically increased the price for corn globally, not just domestically.17 Higher corn prices effectively reduced purchasing power for lower-income households across the globe.18 As corn prices skyrocketed, farmers switched to corn production from production of other food crops, which reduced the latter’s supply.19 At the same time, consumers substituted less expensive rice and wheat for corn, which increased demand and prices for those food staples as well. Overall, the RFS program led to higher food prices around the world.20 By some estimates, up to “70–75 percent [of the] increase in food prices was due to biofuels and the related consequences of low grain stocks, large land use shifts, speculative activity and export bans.”21 The spike in food prices, coupled with the global economic crisis, halted and even reversed the long-term trend of reducing hunger, as the number of undernourished in the developing world, which had been declining steadily since the 1970s, increased sharply between 2006 and 2009.22 In addition, the spike in food prices may have triggered political instability and food riots in lower-income countries, resulting in dozens of fatalities.23

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