NCPA - National Center for Policy Analysis

Ethanol Forges Ahead -- As Politics Trumps Economics

August 23, 2002

A number of factors are boosting the political prospects of ethanol -- the government-subsidized gasoline additive made from corn. The energy bill Congress will consider this fall has a mandate -- supported by leaders in both parties and the White House -- that 5 billion gallons of ethanol be added to gasoline within 10 years, up from 2 billion today. So farm-state politicians like it.

There are signs the oil industry -- which has fought ethanol in the past -- may be coming around. And farmers and farm-state politicians like it.

Ethanol is now being seen as a possible stabilizer of world oil markets. It seems only economists are unconvinced, having protested as government subsidies poured in during the decades-long development effort.

  • Cornell University's David Pimentel calculated in 1979 that growing corn, fertilizing it, harvesting it and making it into ethanol consumes more energy than it produces -- and asks, "If it's so damned great, why do we need to subsidize it?"
  • Commenting on the political factors building in ethanol's favor, Brookings Institution economist Robert Litan comments, "You can't go to the Iowa primaries without supporting ethanol."
  • He adds that ethanol, "from an economic point of view makes no sense."
  • Even some politicians from non-corn states are outraged -- with California's Sen. Dianne Feinstein complaining, "This is a ridiculously expensive way to subsidized farmers."

And while critics warn food prices will rise if more corn goes into gas tanks rather being fed to cattle, years of artful lobbying and overlapping ethanol subsidies and mandates seem to have confused even some experts as to its true costs.

Source: John J. Fialka, "Years of Subsidies Now Put Ethanol on Verge of Victory," Wall Street Journal, August 23, 2002.


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