Ethanol Mandates: A Total Clusterharvest

The Show-Me Institute will soon release a counter-response to a Missouri Corn Merchandising Council study that claims Missouri consumers will save nearly $2 billion during the next 10 years as a result of the state’s recent E-10 fuel mandate, which requires all unleaded fuel sold within the state to contain a 10-percent ethanol blend.

While I’ll leave the details of our case study to the release, suffice it to say that the MCMC study ignores important E-10 cost factors, such as the EPA-documented decrease in fuel efficiency and the cost of taxpayer subsidies. When David Stokes and I recomputed the numbers with these costs in mind, we found that the E-10 mandate will actually cost Missourians nearly $1 billion during the next decade instead of saving them $2 billion.

But today’s agricultural news highlights an even more important point about ethanol usage. Today, corn futures prices surpassed their all-time high in trading on the Chicago Board of Trade. Bloomberg lists the causes for this increase in food prices (emphasis added):

[Agricultural prices] have gained 60 percent in a year, fueled by [demand], market speculation and the push to grow corn for ethanol.

Indeed. It’s not just higher grocery store prices that Missourians can look forward to, though, but a higher tax bill as well. The governor recently released his 2008 fiscal year budget summary, which — despite the governor’s conviction to implement “a balanced budget that does not rely on excessive, job-killing revenues” — contains the following important line item:

$6.4 million increased funding to support an expected seven ethanol plants and $28.5 million to support an estimated nine biodiesel plants. Total funding for Missouri ethanol producers will be $15 million and total funding for Missouri biodiesel producers will be $33.8 million.

Well, right there is an easy $50 million we could save each year in order to sustain the governor’s commitment to a budget that "does not rely on excessive, job-killing revenues.” Oh, and this doesn’t include the $0.51-per-gallon federal ethanol subsidy, either.

Take a look at the personal income figures reported in the governor’s own budget summary, comparing Missouri income growth to that of the United States as a whole during the past three years:

Why is Missouri income growth below the national average? Could it be that excessive taxes and wasteful spending are hurting Missourians more than the government admits? Is the E-10 mandate really going to “save” Missourians money? Or is this just another example of corporate welfare, redistributing wealth from one taxpayer to another?

My bet’s on the latter.