NCPA - National Center for Policy Analysis

Ethanol: Is It About Energy And The Environment, Or Farm Income?

July 23, 2001

Ethanol is a lavishly subsidized motor fuel made from corn. Lobbyists for even higher government subsidies for ethanol contend it provides environmental benefits, reduces reliance on imported oil and raises farm income.

But a growing number of critics say many of those claims are groundless.

  • In 1999, the National Academy of Sciences reported that when ethanol is blended with gasoline, it does not significantly reduce pollution and may even increase the pollutants that cause smog.
  • According to many economists and agricultural experts, the bulk of the profits generated from ethanol go to giant agricultural processors like the Archer Daniels Midland Co. -- which is turning greater volumes of low-priced corn into high-priced fuel.
  • ADM -- which tributes heavily to both political parties -- controls about 50 percent of the ethanol market and ethanol has yielded the company profits of about $1 billion over the past two decades, according to Prudential Securities.
  • If prices remain stable, Wall Street analysts say, ADM could earn $200 million on about $1 billion in ethanol sales in the current fiscal year.

Ethanol subsidies are now approaching $1 billion a year, experts report -- and total about $10 billion since the program began in 1979.

Source: Lizette Alvarez and David Barboza, "Support Grows for Corn-Based Fuel Despite Critics," New York Times, July 23, 2001.


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