sissippi River and Chesapeake Bay. Gains made in erosion control through various conservation programs are being offset by substitution to corn crops that are more prone to water erosion. Although water quality improvement efforts in some areas have held nutrient levels steady, there has been little progress in improving water quality in key watersheds or in further reducing erosion to meet water quality and soil maintenance targets.
Biofuels production is developing within the context of shifting options and goals related to U.S. energy production. There are several factors to be considered with regard to biofuels production that are outside the scope of this report but warrant consideration. These factors include: energy return on energy invested including consideration of production of pesticides and fertilizer, running farm machinery and irrigating, harvesting and transporting the crop; the overall “carbon footprint” of biofuels from when the seed is planted to when the fuel is produced; and the “food vs. fuel” concern with the possibility that increased economic incentives could prompt farmers worldwide to grow crops for biofuel production instead of food production.
Staying the current policy path would likely result in the continued trend of expansion of corn-based ethanol production, driven by the economics of input costs and ethanol prices supplemented by the subsidy. If projected future increases in use of corn for ethanol production do occur, the increase in harm to water quality could be considerable. In addition, expansion of corn production on fragile soils or soils that do not hold nutrients can increase both loads of nutrients and sediments.
Policymakers have options to alter the current subsidy structures to make funds available to ameliorate impacts of ethanol or feedstock production on water use and quality. For example, one option to consider is a variable subsidy for ethanol that would reduce public expenditures when ethanol production is profitable on a market basis. Money paid to producers would be reduced as ethanol becomes profitable and then increased as ethanol production costs exceed ethanol prices. Such a policy would likely have prevented the financial distress in the ethanol industry in the late 1990s when oil prices were low and corn prices high.