NCPA - National Center for Policy Analysis


June 7, 2005

Ethanol's advocates have long argued that increasing the amount used in gasoline would be a boon to the economy, reduce our dependence on foreign oil and improve air quality.Yet, more than two decades and tens of billions of dollars in subsidies, tax credits and fuel mandates have done little other than enrich the agribusinesses that produce ethanol, says H. Sterling Burnett, a senior fellow with the National Center for Policy Analysis.

Indeed, the economic impact of ethanol subsidies is negative. One report by the U.S. Agriculture department determined that every $1 spent subsidizing ethanol costs consumers more than $4.

There are several reasons for this, says Burnett:

  • Every bushel of corn devoted to ethanol production leaves less for human consumption and animal feed -- thus people pay more for corn, beef, poultry and pork than they would absent the subsidies.
  • And prices for other goods are also higher since farmers, in pursuit of lucrative subsidies, devote more acreage to corn rather than other, unsubsidized, produce.
  • Additionally, the costs of growing, distilling and blending ethanol into gasoline makes it cost 51 cents more per gallon to produce than regular gasoline.

The clamor for increased use of ethanol also raises the specter of the current problems surrounding the use of MTBE, the fuel additive that oil producers began blending with gasoline in the mid-1990s to meet stricter clean-air standards. Although not carcinogenic in humans, MTBE has caused huge problems recently because it leaks from storage tanks and contaminates local water supplies.

Absent federal subsidies and mandates, ethanol would likely disappear from the marketplace. Like so much of the pork Congress bestows upon special interests, ethanol is bad for the economy, consumers and the environment, says Burnett.

Source: H. Sterling Burnett, "Ethanol benefits makers, legislators who support their cause," Billings Gazette, June 5, 2005.


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