The economic insanity of corn ethanol and government

Thursday, May 19, 2011 by: J. D. Heyes
Tags: corn ethanol, energy, health news

(NaturalNews) For a White House that cheerleads about its commitment to renewable clean energy, President Obama has remained committed to the suicide policy set forth during George W. Bush's administration of burning our food for fuel.

Say what you will about "green" alternatives to fossil fuels - there are some good ideas and bad; some practical and not-so-practical. It has never made much sense to chip away at our dangerous over-reliance on imported energy by burning our food supply. Given our economy's size and our daily energy consumption rate, coupled with even a casual analysis of our pre-ethanol rates of corn production and consumption, it doesn't take a Harvard economics grad to figure out that before long, demand will outpace production and prices would, in the words of Obama, "necessarily skyrocket."

Beyond that, writes Tom Philpott of Grist.com, the corn ethanol subsidy program is soaking up the majority of government funds earmarked for "actual green technologies."

He says a January 2009 study by the Environmental Working Group concluded that the incoming Obama administration needed to "take a hard, clear-eyed look at Department of Energy data documenting corn-based ethanol's stranglehold on federal renewable energy tax credits and subsidies."

The study went on to note:

"A little noticed analysis buried in an April 2008 report from the federal Energy Information Administration (EIA) shows that the corn-based ethanol industry received $3 billion in tax credits in 2007, more than four times the $690 million in credits available to companies trying to expand all other forms of renewable energy, including solar, wind and geothermal power."

Worse, there is a kind of hypocrisy in the White House over ethanol. While our current president has probably talked more about renewable clean energy than any other in our history, continuing to rely even more on ethanol doesn't fit his green vision, if for no other reason than it burns dirtier than regular gasoline. Moreover, your car gets worse gas mileage with ethanol. Make sense to you to use more of it?

Mo' money

The rise in ethanol production has also had a costly effect - literally - on consumers and our economy as a whole. As we've begun to blend more ethanol, one of the so-called unintended consequences has been a dramatic rise in food prices - so much so that leaders of developing nations worry about the political instability rising prices will cause.

"The immediate causes of the rise are clear: bad harvests due to drought in Russia, China and Argentina and floods in Australia, among other things," Elizabeth Weise wrote for USA Today in February.

"But a longer-term cause may come as a surprise," she continues. "Twenty-four percent of the U.S. corn crop is now mandated to go to ethanol, taking slack out of the world food market and making price shocks more likely, agricultural economists say."

The U.S. Department of Agriculture says that, not only were corn yields in the U.S. down last year, they are likely to fall again this year as well. Overall, they are at their lowest level in 15 years.

At the same time, corn prices have doubled, reaching $6.10 a bushel in January, up from $3.49 a bushel just six months earlier, in July.

"We're going to be going into next year's harvest with really no surplus inventory at all, so the size of next year's crop becomes critical," Darrel Good, an agricultural economist at the University of Illinois, Urbana-Champaign, told USA Today.

A separate report puts corn-for-ethanol consumption at a much higher rate - 40 percent of our annual crop.

There are other, largely hidden costs as well. Besides paying more at the grocery store, taxpayers have been placed on the hook for billions in subsidies annually to Big Oil.

"Since 2005, American taxpayers have paid more than $23 billion in tax credits to hugely profitable oil companies to blend corn ethanol with gasoline," EWG said in an April 7, 2011 report. "Independent analysts, including the Congressional Budget Office (CBO) and the Government Accountability Office (GAO), have both concluded that this Volumetric Ethanol Excise Tax Credit (VEETC) is unnecessary and duplicative, since oil companies are already required to use an increasing amount of ethanol under the Renewable Fuel Standard (RFS) provisions of the 2007 energy bill."

And consider this - all of the corn-for-ethanol production and tax subsidies aren't really keeping the price of gasoline down much. As of Monday this week, the average price per gallon had climbed to $3.93 a gallon, according to price-tracking Web site - GasBuddy.com.

None of this is news, per se. Corn prices have been rising for years because of our heavier reliance on ethanol.

Bottom line

At present, the U.S. government has no plans to curb the production and use of ethanol, even as situations in oil-producing and exporting nations in the Middle East continue to deteriorate in what has been a historically volatile region. At the same time, our corn production is falling and we are doing the bare minimum in terms of developing viable, greener energy alternatives.

Does this formula for failure make much sense to you?