NCPA - National Center for Policy Analysis

Irrational Infatuation with Biofuels

August 1, 2012

Much of the United States is in the midst of a major drought, which is a significant party to rapidly increasing food prices nationwide. And while government cannot be blamed for the weather, it is nonetheless the policies politicians created that are making higher food prices more painful than they have to be, says Richard W. Rahn, a senior fellow at the Cato Institute.

This is essentially true because of the role of ethanol mandates in distorting the United States' market for crops.

  • The federal government requires petroleum producers to include a set amount of ethanol in their gasoline cocktail.
  • Given that ethanol would almost certainly not be used by these producers in the absence of such regulations, this policy is responsible for an artificially high demand for the crops used to create ethanol, and especially corn.
  • Currently, about 40 percent of the U.S. corn crop is used in the production of ethanol, and this increased demand has resulted in higher prices for the crop.
  • Because corn is a crucial input in the production of other foods as well (such as livestock), prices for those goods have also increased.
  • Further, as a result of higher corn prices, many farmers are growing more corn and fewer other crops, such as wheat, which, in turn, has caused the prices of those other crops to rise as well.

Crucially, because the United States is the world's leading agro-producer and grows 40 percent of the global corn supply, higher prices domestically translate into higher prices everywhere. This means that higher food prices will also hit low-income countries around the world, whose citizens are least able to bear them.

Furthermore, all of this distortion due to ethanol mandates is for naught. While the argument for mandating ethanol in motor fuel was to help make the United States energy-independent and reduce carbon dioxide emissions, this is far from reality.

  • Recent studies show that the total carbon dioxide emissions from growing, harvesting, processing and burning corn as ethanol are much greater than those from oil and gas production and use.
  • Additionally, ethanol reduces gas mileage in cars because it is less energy-dense than gasoline and causes more wear and tear on engines.
  • Finally, without subsidies, ethanol is more costly than oil and gas.

Source: Richard Rahn, "Irrational Infatuation with Biofuels," Washington Times, July 23, 2012.

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