The ethanol con


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By Jerry Taylor The closest thing we have to a state religion in America today isn’t Christianity. It’s corn. Yet if this policy religion has merit, it doesn’t need taxpayer subsidy. If it doesn’t have merit, no amount of subsidy will bestow it. The rationales offered for ethanol subsidies are cover stories for the real justification for the program — the transfer of wealth from the general public to corn farmers and ethanol processors. Even at the most fundamental level, the data are being twisted. For instance, we’re told that ethanol has merit because it is a renewable fuel, yet studies find that only 5–26 percent of the energy content of ethanol is truly “renewable.” The balance of ethanol’s energy actually comes from the staggering amount of coal and natural gas necessary to produce corn and process it into ethanol. Ethanol proponents are fond of waving the bloody shirt of energy independence. But for corn ethanol to completely displace gasoline consumption, we would need to appropriate all cropland in the United States, turn it completely over to corn-ethanol production, and then find 20 percent more land on top of that for cultivation. That’s simply not going to happen. The U.S. Energy Information Administration (EIA) believes that the practical limit of domestic ethanol production is about 700,000 barrels per day, a figure they don’t think is realistic until 2030. That translates into about 6 continued on page 3 percent of the U.S. transportation fuels market 24 years hence. Is ethanol a “silver bullet” in our war against al-Qaida and other international bad actors? If the EIA is correct about the practical limit of domestic corn ethanol production, the most that subsidy can do is reduce the price of oil by about 3/10 of 1 percent. That’s unlikely to cause Hugo Chavez, the House of Saud or Osama bin Laden to lose any sleep. Even so, ethanol proponents claim that corn ethanol is a more dependable source of energy than Middle Eastern crude. If history is any guide, however, that’s flatly untrue. U.S. corn production from 1960–2005 varied almost twice as much as did oil imports over that same period. We’re told that ethanol is good for the environment. But that too is a distortion. When both automotive tailpipe and evaporative emissions are taken into account, 10 percent ethanol fuel blends (E10) increase emissions of total hydrocarbons, nitrogen oxides, non-methane organic compounds, and air toxics (particularly acetaldehyde, formaldehyde, ethylene and methanol) relative to conventional gasoline. Hence, ethanol contributes to urban smog and a whole host of other air pollution problems. While it’s true that ethanol reduces emissions of carbon monoxide, not a single city in the United States violates federal air quality standards for carbon monoxide. Stronger ethanol fuel blends — like E85 — are no better. According to Stan­ford atmospheric scientist Mark Jacobson, universal use of E85 would increase ozone-related mortality, hospitalization and asth­ma by 9 percent in Los Angeles and four percent in the United States as a whole, relative to a world in which the auto fleet were powered entirely by conventional gasoline. While it may be true that ethanol reduces greenhouse gases a bit relative to gasoline, increasing ethanol production will almost certainly increase greenhouse gas emissions on balance. That’s because increasing ethanol production will in­var­­iably mean mi­grat­ing from more fertile to less fertile soils, which will, in turn, require more intensive energy inputs into the corn-production process. A recent paper from MIT finds that once this is built into the equation, expanding ethanol production will increase national greenhouse gas emissions. Regarding the subsidy matter, we hear various things from proponents depending upon the time of day. We’re frequently told, for instance, that ethanol is economically competitive now and doesn’t need the subsidy. But that’s demonstrably untrue. As of mid-August, it cost $3.73 to buy enough ethanol from Omaha’s wholesale spot markets to displace the energy contained in a gallon of gasoline. Without the subsidies, that price would be even higher. On other occasions, we are told that ethanol subsidies are necessary to “level the playing field.” But that’s sophistry. Petroleum subsidies total less than $1 billion a year—six to eight times less than total ethanol subsidies — and work out to about a third of a penny per gallon. Even that’s overstating things because domestic oil subsidies don’t reduce global marginal production costs, and thus they don’t reduce final prices. Hence, petroleum subsidies — no matter how obnoxious — are relatively small and do not disadvantage ethanol in the market. But if Brazil can create a healthy and robust ethanol industry with decades of subsidy, proponents ask, why can’t we? Yet if our definition of a healthy and robust ethanol industry is one that can survive without subsidy, then Brazil’s ethanol program is no model for the United States. Brazilian ethanol is still heavily subsidized, despite claims to the contrary, and sells for about $80 a barrel or $106.40 per barrel of oil equivalent. The simple truth is that ethanol mandates impoverish taxpayers, increase automotive fuel prices and — by increasing corn prices — contribute to higher grocery bills as well. Economists at Iowa State University calculate that 30 billion gallons of corn ethanol production a year (a figure just short of the ethanol production mandate proposed by the Senate in energy legislation passed in that chamber last month) would translate into a four percent or more increase of beef, pork and poultry prices and an eight percent increase in egg prices. U.S. food prices on the whole would increase by more than 1.1 percent above baseline levels, which means a significantly higher U.S. inflation rate. In sum, it’s hard to think of a more wrongheaded and ruinous policy than the program to subsidize ethanol. It’s time for the voters to rethink their membership in this political cult. Related: Read Energy Security by Douglas A. Durante

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