The US's vast subsidy of ethanol production for petrol is a disastrous case of special-interest capture of public policy
Henry Miller guardian.co.uk 12 May 11;
The American government continues to provide unnecessary, unwise subsidies to special interests. Those related to the production of ethanol for fuel are among the worst.
The historical mission of the US department of agriculture (USDA) has been to promote American agriculture. Presumably, that is the justification, however tenuous, for a grant and loan guarantee programme to promote the installation of "ethanol blender", or "flexible fuel", pumps at petrol stations. The Obama administration intends to install 10,000 flexible fuel pumps nationwide within five years. "Flex-fuel pumps will give Americans a choice to purchase domestically produced renewable transportation fuels," secretary of agriculture Tom Vilsack said on 11 April.
But this piles additional government subsidies on an already huge and flawed giveaway programme that promotes the production of ethanol almost exclusively from corn, even though it is a non cost-effective source. And if there were a demand from consumers for "domestically produced renewable transportation fuels", the owners of petrol stations themselves would have a financial incentive to install the ethanol-blender pumps to boost their business; they wouldn't need a government subsidy to provide them.
The ethanol mania has verged on the bizarre. Politicians like to say that ethanol is environmentally friendly, but these claims must be put into perspective. Although corn is a renewable resource, it has a far lower energy yield relative to the energy used to produce it – what policy wonks call "net energy balance" – than either biodiesel (such as soybean oil) or ethanol from many other plants. Moreover, ethanol production, particularly from corn, is a thirsty process, consuming roughly four gallons of water to produce each gallon of fuel. And when you count the water actually required to grow the corn, one gallon of ethanol "costs" a whopping 1,700 gallons of water.
Finally, ethanol yields about 30% less energy per gallon than petrol, so mileage per gallon in internal combustion engines drops off significantly. And adding ethanol raises the price of blended fuel because it is more expensive to transport and handle.
Lower-cost biomass ethanol – for example, from rice straw (a byproduct of harvesting rice) or switchgrass – would make vastly more economic sense, but large volumes of ethanol from biomass will not be commercially viable for many years. (And production will be delayed by government policies that specifically encourage corn-based ethanol with subsidies.)
The ethanol boondoggle is, in effect, protected by a federal mandate that requires the production of 13.95bn gallons of alternative fuels this year, and 36bn gallons by 2022. Absent that mandate and a 54-cent-a-gallon tariff on foreign ethanol – affecting mainly Brazil, which produces ethanol cheaply from sugar cane – American ethanol would not be remotely competitive in the marketplace.
The ripple effects of this nonsensical policy have been profound. As the US Congressional Budget Office reported in 2009:
"The increased use of ethanol accounted for about 10% to 15% of the rise in food prices between April 2007 and April 2008. In turn, that increase will boost federal spending for the Supplemental Nutrition Assistance Programme (Snap, formerly known as the Food Stamp programme) and child nutrition programmes by an estimated $600m to $900m in FY [financial year] 2009."
Politicians, especially those from the Midwestern farm states, may be intoxicated with the prospect of corn-derived ethanol, but if we don't adopt policies based on science and sound economics, consumers will suffer from the hangover.
