U.S. Ethanol Policy Starves the World & Raises Gas Prices

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The United States is the biggest exporter of grains in the world. Further, the United States provides more than 50% of the world’s corn supply. In the past, over 20% of US corn production was exported, but now less is available, thus spiking the price of corn and other grains worldwide. Why, you ask? Because the U.S. law mandates that a certain amount of biofuel be used in the fuel making process and therefore more corn is used for ethanol than for export.

From the burning platform, a succinct summary:

The grand lame duck Congress tax compromise extended a 45-cent incentive to ethanol refiners for each gallon of the fuel blended with gasoline and renewed a 54-cent tariff on Brazilian imports. The extension of these subsidies, besides costing American taxpayers $6 billion per year, has the added benefit of driving up food costs across the globe, causing food riots in Tunisia, and resulting in the starving of poor peasants throughout the world. This taxpayer boondoggle is a real feather in the cap of that fiscally conservative curmudgeon Senator Charley Grassley. He was joined in this noble effort by another fiscal conservative, presidential hopeful John Thune. It seems these guys hate wasteful spending, except when it benefits their states. The bipartisanship in this effort was truly touching, as Democrats Kent Conrad and Tom Harkin also brought home the pork for their states.

Many folks have been adamant in their efforts to rid the U.S. of  ethanol-based trade protectionism.

The National Review’s Harry de Gorter and Jerry Taylor wrote in December of 2010 that:

“the way things are looking, we may finally be rid of these indefensible and parochial market distortions. The ethanol tax credit alone costs taxpayers over $6 billion per year.”

Of course, as can be seen from the first quote, the tax credit/tariffs were not allowed to expire. The reasoning for this defies common market logic, as the authors state:

Letting the tariff expire can provide more competition in the ethanol market and allow more environmentally friendly ethanol onto the market — such as Brazilian sugarcane ethanol. The primary reason sugarcane ethanol is, by far, the world’s lowest-carbon-intensity biofuel produced on a commercial scale is that one obtains twice the amount of ethanol per land unit from sugarcane as from corn. Furthermore, sugarcane is not a staple food crop and, unlike corn, has only an indirect effect on food prices. It is better for Brazil to produce ethanol and the U.S. to produce corn.(emphasis added)

It is important to note who was against the expiration of ethanol trade protectionism: Chuck Grassley (R., Iowa) and Kent Conrad (R., N.D), whose constituencies are located in the heart of U.S. ethanol production. But U.S. policy is supposed to benefit the nation as a whole, not one or two states over the rest. And that is what the current policies seem to be for: if sugar ethanol from Brazil is cheaper and more efficient, it follows that prices for ethanol-mixed gasoline will be lower and thus benefit the U.S. economy as a whole rather than a select group of ethanol industrialists.

More importantly for macro-stability i.e. world peace, the elimination of tariffs for sugar ethanol would mean lower prices for food worldwide and less starving populations. The Mayor of New York City, Michael Bloomberg, explains the danger of the current U.S. energy policy regarding ethanol production:

People literally will starve to death in parts of the world, it always happens when food prices go up… Terrorists kill people, weapons of mass destruction have the potential to kill enormous numbers of people, global warming has the potential to kill everybody. This [raising of food prices by ethanol production] is really just as lethal – it’s just that the results are something we will face long term.”

Here is a short hypothetical: a developing nation, say Pakistan, is suddenly facing a food-crisis; more and more Pakistanis are starving. An influential Mullah starts telling the newly minted starving population that the prices of food are so high because of the U.S. The Mullah is right, and then there are more recruits for terrorism in Pakistan. The danger of the U.S. ethanol policy is so daunting in its scope because it can literally negatively affect every person in the world. And for what?  Jeff Goodell of the Rolling Stones has a good answer:

This is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.

In reading up on this issue, I asked myself: when was the last time I heard a politician campaigning on the specific issue of Ethanol? I answered: Never. The creation of this policy seems to be far outside the ambit of any legitimate democratic process; the people of the United States were never given any sort of objective data on what mandating corn-produced ethanol would mean for the U.S. and the World.

In a society where elected officials harp on and on about of acting on what the American people want, policies made solely on account of special interests have a convenient way of being buried somewhere on the outer-circles of the mainstream media.

In the end, if policies such as the one discussed here are allowed to be created without a thorough public vetting process, the future of the United States is dim.

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