USA subsidies to ethanol-from-corn are not cost effective and push up food prices

13/5/2011 Guardian 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

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

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