NCPA - National Center for Policy Analysis


July 9, 2009

Like most alternative fuel sources, the potential contribution of corn-derived ethanol has been oversold.  It has been heralded as the magic potion that can drive us to the promised land of energy freedom while at the same time slowing global warming and helping America's farmers.  To that end, the ethanol industry is urging Congress to increase the share of ethanol required in gasoline to 15 percent from 10 percent, says Bernard Weinstein, a professor of applied economics at the University of North Texas.

This is not a surprising request, considering that the industry's facilities are 20 percent idle and that several large ethanol refiners have recently filed for bankruptcy, despite a 45-cent-per-galon tax credit and a high tariff to limit imports of sugar-based ethanol from Brazil and other countries, says Weinstein.

One troubling consequence of ethanol production is increased food and feed costs. About 20 percent of the corn planted in the United States is used to produce ethanol.  Since most of the rest is used as animal feed, the prices of beef, milk, poultry and pork are all affected by the cost of corn, says Weinstein.

According to the Congressional Budget Office:

  • The increased use of ethanol accounted for 10 percent to 15 percent of the rise in food costs between 2007 and 2008.
  • Because Americans spend about $1.1 trillion a year on food, ethanol substitutes cost families between $5.5 billion and $8.8 billion in higher grocery bills.
  • This is in addition to the direct tax credit subsidy that currently amounts to $3 billion a year.

A recent analysis from the Environmental Protection Agency (EPA) highlights another negative consequence of ethanol production.  This analysis finds that the reduction in CO2 emissions from burning ethanol is minimal and may actually be negative since making ethanol requires new land from clearing forests and grasslands that would otherwise sequester carbon emissions.

Though clearly ethanol has a role to play in energy diversification, Congress should not buy a pig in a poke by raising the gasoline mandate to 15 percent.

At the same time, a dose of reality is in order -- namely, that oil and natural gas will remain the principal transportation fuels for the foreseeable future, says Weinstein.

Source: Bernard L. Weinstein, "The Overselling of Ethanol Continues," Star Telegram, July 7, 2009.


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