Ethanol

U.S. ethanol policy embodies all the classic conflicts between politics and economics. This morning’s New York Times signals that Congress’s mandate on refiners to use 12.6 billion gallons of ethanol in 2011 will be “mathematically impossible.” When Congress passed the Energy Independence and Security Act of 2007, it assumed gasoline consumption would keep rising, but the recession and auto fuel economy improvements have leveled gasoline consumption as the chart at the end of the Energy Department link shows. Next week, the Environmental Protection Agency is expected to choose from three options to resolve this impossibility:

It's not often that a U.S. domestic policy change causes worldwide food riots, but that's what our ethanol subsidies have done according to a World Bank analysis. On December 19, 2007, President Bush signed H.R.6 into law with a five-fold increase in the mandated use of ethanol in gasoline. That stood on top of another large ethanol mandate in another H.R.6, enacted on August 8, 2005. Corn prices have jumped from $2/bushel in 2005 to $4/bushel last year, and they've just crested $6/bushel. In 2005, 6% of U.S. corn production went to ethanol; now its up to 23%. Only now are we beginning to realize that we're not achieving any overall energy efficiency with our heavy ethanol subsidies and mandates, we're just helping U.S. corn growers and starving the world's poor.