Friday, March 4, 2011

Get Rid of Ethanol Subsidies, Save the World

America's farmers are closely eyeing commodity prices to help them decide what crops they should plant in their fields.

For American farmers, the options look great economically. Soybean futures are fetching 44 percent more than last year; wheat futures now get 69 percent more than a year ago and corn futures are up a full 92 percent.

But for buyers, especially in countries like China, India, Tunisia, Philippines, Egypt, Jordan, Indonesia and Pakistan where food is a full third or more of consumptive income, this spike in food prices is an economic crisis.

Many factors contribute to the world's food emergency. The most severe come from natural causes: drought in Argentina, China and Russia; floods in Australia, Canada and Pakistan.

But there is a set of man-made policies that is having a particularly pernicious impact on marginal world food prices while simultaneously costing the U.S. treasury more than $5 billion annually.

These are our policies to support the production and use of ethanol, a corn-based fuel. Congress provides a subsidy for every gallon of gasoline blended with ethanol. Congress also mandates its use.

It is true that ethanol provides a cleaner and environmentally safer octane boost than its alternatives. But it remains highly debatable whether it offers any net energy savings or any net environmental benefit.

Indeed, by the time one factors in all the petroleum-based inputs that go into ethanol's production and distribution (fertilizer, tilling, harvesting and shipping), David Pimentel at Cornell University estimates that it takes 1.3 gallons of oil to produce one gallon of ethanol.

And even if it takes, as some contend, a little less than a gallon of oil to produce a gallon of ethanol, that claim that ethanol provides environmental benefits becomes more questionable when one considers the water consumption, the fertilizer-laden run-off and pollution inherent in its production and distribution.

In the meantime, however, ethanol's mandated and subsidized use has tilted farmer's planting decisions towards corn. More and more corn is going to ethanol production. And consequently, less and less of what could be food supply is going to address the increasing world demand for food.

Ethanol is an inefficient substitute for petroleum. Subsidizing it not only costs the U.S. taxpayer over $5 billion each year, but it artificially incentivizes converting what could be food production into inefficient energy production at a time when the world is facing a most serious food crisis.

Getting rid of our nation's ethanol subsidy would help improve our country's balance sheet. But more importantly, it would eliminate an artificial price distortion contributing to a global food emergency.


No comments: