Congress will debate an Agricultural Bill in 2007 and that will provide an occasion to visit the subject of subsidies for corn based ethanol. The growing use of a gasoline-ethanol mixture called E85 has raised corn prices, gladdened farmers, and attracted investors. Ethanol subsidies provide Congress an opportunity to send money to farmers in the Midwest, including the presidential caucus state, Iowa, while talking about environmental and energy security benefits. It’s a political trifecta, and it will have huge momentum in the upcoming Congress.
So, let me just raise a couple of issues about E85 ethanol. First of all, the subsidies.
- there’s a 51-cent-a-gallon direct subsidy;
- there are protectionist tariffs that exclude cheaper ethanol from Brazil made from sugarcane;
- there is a loophole in the fuel economy standards that allows the automobile manufacturers to claim a fuel economy credit if they build cars that can use E85, even if those cars never drive within 500 miles of a filling station that sells E85.
And the environmental benefits are limited. So much energy is used in the production of corn based ethanol that the GHG emissions are only about 20 percent less than for a car burning straight gasoline. Only about a few hundred filling stations out of tens of thousands nationwide sell E85. They are concentrated, not surprisingly in the big corn producing states.
While E85 could reduce use of gasoline and help in backing out foreign oil, the potential is limited. Even if you dedicated every acre in the country that we now use for growing corn to making ethanol you would produce only 12 percent of current U.S. gasoline demand.
Despite the ads you saw last year from one automaker, “yellow” is not “the
new green,” and corn based ethanol is more effective as a way to help farmers
than as a way to reduce GHG emissions.