Although the media and the public spend most of their time focusing on the largest and easiest issues to understand in politics, some of the worst government policies often arise in the lesser-known areas.
One of these areas is the subject of government subsidies to business: direct payments, tax cuts or other benefits given to producers of a particular good or service. One of the worst offenders in terms of federal and state subsidies is the ethanol industry.
On the surface, the arguments that politicians and ethanol-industry advocates use to justify the massive federal and state subsidies for ethanol seem persuasive. One line of argument pushes for the United States to increase ethanol production to achieve energy independence from foreign oil sources. Another argues that ethanol burns cleaner than gasoline and is renewable.
Unsurprisingly, this has resulted in a spurt of political support from politicians who see this as an easy and effective way to cater to farmers and environmentalists. This has resulted in the creation of a tax break for ethanol production that effectively pays producers an extra $0.51 for every gallon of ethanol they produce, as well as mandating ethanol be blended into gasoline.
The problem with current ethanol production arises from the use of corn as the main ingredient in producing ethanol. Right now, the amount of energy used to produce a gallon of ethanol from corn is just a bit less than the amount of energy gained from that ethanol. The process does not produce the excess energy necessary to drive a car or otherwise replace the use of gasoline.
Despite the lack of actual energy benefits from producing ethanol with corn, the process has continued to grow. According to the USDA Economic Research Service, the percentage of the annual corn crop in the United States that is used for “fuel alcohol” has increased from roughly 7 percent in 2001 to 24 percent of the total crop today.
The ethanol subsidy has in turn fueled a dramatic rise in the amount of corn that is planted. The number of acres of corn planted every year has increased from 80 million in 2001 to 94 million in 2007. Needless to say, most of the new corn has been devoted to ethanol production.
Regrettably, the ethanol subsidy has had an impact not just in terms of wasteful tax spending but also in the increasingly worrisome inflation of food prices both inside and outside the United States. Since 2005, the price of corn per bushel has tripled, from $2 to more than $6 today. Given the broad uses of corn as feed for meat and dairy animals, as well as in processed foods, the higher price of corn has translated into higher food prices.
The rising price for corn comes at the same time the price of other foodstuffs, such as wheat and rice, have risen dramatically in the United States and all over the world. With ethanol production using 24 percent of the total corn crop, roughly 20 million acres of cropland in the United States alone is being devoted to a non-food product. Without the subsidies that make ethanol an artificially attractive product, some of the land devoted to corn for ethanol would instead be moderating the tight supplies of corn for human and animal consumption as well as wheat.
Although there are other factors involved — including a string of bad harvests in Australia, rising demand from India and China and population growth — ethanol policy cannot escape from at least part of the blame.
For years, ethanol advocates have been promising the production process will get more efficient once technology advances so that more energy can be extracted. One of the promising technologies, cellulosic ethanol, breaks down the cellulose that makes up most of a plant into the sugars necessary for fermentation. This would end up being more efficient than the current method — which only uses the kernels of the corn to generate sugar — and could use other crops beside corn. However, it is still uncertain when this technology could be available for use on a commercial scale.
The revealed drawbacks of the ethanol subsidy show what needs to be done: Eliminate the artificial market conditions that spur producers to make it. The current technology for the industrial production of ethanol is not efficient enough to justify the inflation it is causing in food prices. The only responsible step policymakers in Washington and the states have left is to eliminate the subsidies that continue to drive the ethanol market until better technology is available.
Andrew Wagner ([email protected]) is a junior majoring in computer science and political science.