NCPA - National Center for Policy Analysis

The Truth about Ethanol

August 3, 2011

Congress is debating whether it's time to end subsidies for ethanol from corn.  This debate comes with good reason: while using more ethanol might reduce the use of imported oil, the production of ethanol has its own costs, says Scientific American.

The various costs associated with producing ethanol are alarming.  Despite the fact that in recent years the fermentation process has become more efficient in making enzymes and prices have gone down, ethanol continues to be more expensive than petroleum-derived gasoline.

  • Government subsidization of ethanol production has resulted in $19 billion in tax breaks between 1980 and 2000 to the ethanol-from-corn effort, according to the Government Accountability Office.
  • Substantial profits have resulted for a handful of large private enterprises.
  • There is also the production cost of building the new infrastructure for ethanol -- it is expected to take decades to build the needed additional 300-plus bio-refineries.

The push for increasing ethanol production has come despite a 1986 report that ethanol "cannot be justified on economic grounds" and "had no long-term prospect for survival without massive new government assistance."  Additionally, the purported environment benefits of using ethanol include reduced greenhouse gas emissions.  This benefit, however, seems to be offset by other environmental externalities from increasing ethanol production.  At least one study has found that all of the world's most significant biofuels combined do more damage overall than fossil fuels.

Finally, arguably the greatest concern over ethanol is that it is raising food prices.  While the livelihoods of rural communities are enhanced through increased biofuel production, less agricultural goods are directed towards feeding livestock and filling market shelves, among other things.

Source: David Biello, "Intoxicated on Independence: Is Domestically Produced Ethanol Worth the Cost?" Scientific American, July 28, 2011.

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