NCPA - National Center for Policy Analysis


January 30, 2007

Despite the rhetoric about ethanol, it is not the economic and environmental solution to the United States' energy problems, says the Wall Street Journal.

The first problem is its inability to compete in the market:

  • Federal and state subsidies for ethanol ran to about $6 billion last year, equivalent to roughly half its wholesale market price.
  • Ethanol gets a 51-cent a gallon domestic subsidy, and there's another 54-cent a gallon tariff applied at the border against imported ethanol.

And while the subsidies and tariffs help corn farmers, it hurts most everyone else, says the Journal.  For example:

  • The price of corn rose nearly 80 percent in 2006 alone, forcing cattle, poultry and hog farmers to adjust to suddenly exorbitant prices for feed corn.
  • In Mexico, the price of corn tortillas -- the dietary staple of the country's poorest -- has risen by about 30 percent in recent months, leading to widespread protests and price controls.

As for the environmental impact, the indications aren't any better:

  • As an oxygenate, ethanol increases the level of nitrous oxides in the atmosphere and thus causes smog.
  • Many scientists argue that ethanol energy inputs outweigh the output; even the most optimistic estimate says ethanol's net energy output is a marginal improvement of only 1.3 to one.
  • For purposes of comparison, energy outputs from gasoline exceed inputs by an estimated 10 to one.

Further, on the global warming issue, ethanol barely makes a dent, says the Journal:

  • Australian researcher Robert Niven finds that the use of ethanol in gasoline reduces greenhouse gas emissions by no more than 5 percent.
  • Jerry Taylor and Peter Van Doren note in the Milken Institute Review that using ethanol to reduce greenhouse gases costs as much as 16 times the optimal abatement cost for removing a ton of carbon from the atmosphere.

Source: Editorial, "Very, Very Big Corn," Wall Street Journal, January 28, 2007.

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