NCPA - National Center for Policy Analysis

THE ETHANOL HANGOVER

February 29, 2008

Despite what is often heard, there is not a right way to produce ethanol.  However, several wrong ones -- spawned by congressional and presidential edicts -- could wreak havoc on food prices and the natural environment, says Henry I. Miller, a physician and fellow at Stanford University's Hoover Institution.

Consider:

  • An analysis by the Organization for Economic Cooperation and Development (OECD) suggested that replacing even 10 percent of U.S. motor fuel with biofuels would require that about a third of the nation's cropland be devoted to oilseeds, cereals and sugar crops.
  • Achieving the 15 percent goal would require the entire current U.S. corn crop, which represents a whopping 40 percent of the world's corn supply.

In reality, ethanol can do little to affect oil consumption.  But the diversion of grain from food to fuel exerts widespread and profound ripple effects on various commodity markets.  It has already been catastrophic for the poor around the world:

  • The U.N. Food and Agriculture Organization's food price index climbed 37 percent last year, following a 14 percent increase in 2006.
  • Protests have erupted in Pakistan and Indonesia over wheat and soybean shortages, respectively, and China has imposed price controls on many staple foods.
  • The shortages and rise in the prices of edible oils have had a devastating impact on the nutrition of poor families not only in Asia, but also in Latin America, Africa and the Middle East.

Moreover, ethanol yields about 30 percent less energy per gallon than gasoline, so mileage per gallon in internal combustion engines drops off significantly, and the addition of ethanol raises the price of blended fuel because it is more expensive to transport and handle.  

Source: Henry I. Miller, "Pols Drunk On Corn-Based Ethanol Have Left Millions With Hangover," Investor's Business Daily, February 27, 2008.

 

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