The Economics of Ethanol

One whiff at an opportunity and business will attack; one sniff at an opportunity and politicians will pounce.

This New York Times editorial entitled The High Costs of Ethanol shows both business and politics for what they are” predatory opportunists …

The economics of corn ethanol have never made much sense. Rather than importing cheap Brazilian ethanol made from sugar cane, the United States slaps a tariff of 54 cents a gallon on ethanol from Brazil. Then the government provides a tax break of 51 cents a gallon to American ethanol producers — on top of the generous subsidies that corn growers already receive under the farm program.

Corn-based ethanol also requires a lot of land. An O.E.C.D. report two years ago suggested that replacing 10 percent of America’s motor fuel with biofuels would require about a third of the total cropland devoted to cereals, oilseeds and sugar crops.

Meanwhile, the environmental benefits are modest. A study published last year by scientists at the University of California, Berkeley, estimated that after accounting for the energy used to grow the corn and turn it into ethanol, corn ethanol lowers emissions of greenhouse gases by only 13 percent.

There is nothing wrong with developing alternative fuels, and there is high hope among environmentalists and even venture capitalists that more advanced biofuels — like cellulosic ethanol — can eventually play a constructive role in reducing oil dependency and greenhouse gases. What’s wrong is letting politics — the kind that leads to unnecessary subsidies, the invasion of natural landscapes best left alone and soaring food prices that hurt the poor — rather than sound science and sound economics drive America’s energy policy.