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Stupid Energy Policies: Ethanol and Politics

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Even before commodities were on a steep rise, the agricultural lobbyists have pushed for new ways to sell grain. In many Midwestern states, corn-based ethanol was added to gasoline as a way to sell the ethanol that was produced to helped maintain the values of corn. All of this was (and still is–to the tune of $5.5 billion per year) subsidized. Now, with the increasing political push and popularity of buzz words such as energy independence, global warming/climate change, and green, this has turned into an energy policy.

This year, Congress passed legislation to increase the US biofuel output by nearly five times, the UK just enacted a policy requiring the use of biofuels, and the EU is working on meeting a 10% of transport fuel requirement by 2020. Quite obviously, this will vastly increase the amount of needed biofuels, but is this the right direction for energy policy in the United States and Europe? There are a number of problems with biofuels–especially, the corn-based ethanol. Briefly, we will look at some of the issues: the debate on commodity inflation, academic research completed recently on biofuels, and other issues.

Many articles have claimed that biofuels are driving the inflation in commodity and food prices (see Ronald Bailey at Reason and Simon Jenkins at the Guardian). A report from Texas A & M’s Agricultural Policy and Research Center sees it as the increase in petroleum costs. There is also a lot of talk on Wall Street about the overall upward push commodities (see Seeking Alpha, for example). This overall inflation, not just one or a group of commodities, might be to blame, but there are still plenty of empirically proven problems with biofuels and the policies dreamt up by governments and lobbyists (or are those one in the same?)

For example, Chinese academics Zhang and Yuan have found that corn-based ethanol does not reduce carbon emissions compared to gasoline over its lifecycle. They suggest that a reduction in fertilizer usage and electricity used during irrigation would help this.

Second, Searchinger, et al, have found that using crop lands for biofuels increase greenhouse gases via changes in land use. Corn-based ethanol, thought to save emissions (compared to gasoline) by 20%, actually doubles emissions. Switch-grass increases emissions by 50%. The study also, “raises concerns about large biofuel mandates and highlights the value of using waste products.”

Third, Groom, Gary, and Townsend believe that bio-diversity is at risk and that there are many fuels that have very poor carbon footprints. Carbon output should be less over the entire production process of the raw material, fuel synthesis and transport to market. They write that, “Corn-based ethanol is the worst among the alternatives that are available at present. […] We urge aggressive pursuit of alternatives to corn as a biofuel feedstock.”

Ronald Bailey (linked above), writing in Reason believes food prices will be driven up by sheer population demand and a broadening worldwide middle class, both requiring much more food. Also, he uses a favorite of free-market economists–that governments need to quit supporting these industries with subsidies and handouts. If they are economically viable, and there really is a market for biofuels, they will expand and be efficient without burdening the taxpayer.

As for the up comming election, economist Paul Krugman believes none of the candidates have good policies. A blog, JustOneMinute, looks more deeply into the issue and separates himself with a sort of lesser-evils analysis, saying:

Let’s say that McCain may have flipped (probably without much conviction or knowledge) on the science by declaring that ethanol “is part of the solution to this climate greenhouse gas emissions problem” but he has been consistently opposed to subsidies, which means that in terms of policy he is miles ahead of Obama.

He also places Hillary in the middle of the two party nomination front runners.

It is pretty easy to see that we have made some bad decisions on biofuels and developing industries before we know whether they truly are better. Simon Jenkins (linked above), is with me, believing we could do better in reducing our carbon footprint as nations if we simply told the anti-nuclear lobby to “shove it” and got comfortable with the fact that nuclear power is clean and efficient, if managed correctly–but that’s an entirely different screed.

The answer is plain–an energy policy that doesn’t use a flawed economic policy (the subsidies of ethanol) and allows for investment in many new energy technologies, will be most effective at reducing pollution and dealing with the popular political buzz words of the day.

UPDATE (4/18 @ 1PM): CNBC just reported that the Bush Administration has taken a stance on moving away from corn-based ethanol to other options. I’ll get an article link up when I find one. Also, Gordon Brown sent letters to G8 leaders requesting further inquiry into the use of biofuels. This news is one of the things weighing down corn futures today.

Works Cited:

Zhang and Yuan. “[Carbon balance analysis of corn fuel ethanol life cycle].” Translated from chinese. Abstract found here.

Searchinger, et al. “Use of U.S. croplands for biofuels increases greenhouse gases through emissions from land-use change.” Science 319(2008): 1238-40.

Groom, Gary, and Townsend. “Biofuels and Biodiversity: Principles for Creating Better Policies for Biofuel Production.” Conservation Biology (2008).

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