Steven Bernstetter

There's recently been a sort of backlash in the local media regarding the state and federal govt's efforts to  subsidize the ethanol industry and build expensive plants all over the midwest and elsewhere. An article from the STL Post-Dispatch summarizes the general concerns fairly well, and an article in the Southeast Missourian gives a taste of the unease in a city near such a plant. However, the best synopsis of the real issues confronting the current ethanol push can be found over at the Kansas City Star, which makes several good points about the economic difficulties surrounding it. According to the Star:

More water, pesticides and land are being used to grow corn for ethanol, raising environmental concerns. It takes a lot of energy to make ethanol, which, when blended with gasoline, gets fewer miles per gallon than gasoline alone.

The federal government continues to hand out an extravagant 51-cent-a-gallon subsidy for domestic ethanol while slapping a 54-cent-a-gallon tariff on imported ethanol, such as that made from sugar cane in Brazil.

The first paragraph presents an efficiency problem: corn-based ethanol is simply not cost-effective. While ethanol does burn cleaner than conventional gasoline, there are other hidden externalities, such as the water issues discussed in this STL P-D article and the rising costs of feed for animal stock, which in turn drives up the price for associated goods like meat and dairy products. The second paragraph demonstrates how the gov't, eyes aglow with the political possibilities inherent in helping agribusiness, only serves to exacerbate this inefficiency. If politicians were really concerned about cheap, independant, clean energy, we'd eliminate both the subsidies for the domestic stuff and the tariffs on the imported stuff.

The Brazilians are old pros at the ethanol game, and it's likely we could benefit from their expertise. Furthermore, let's not forget basic economics and the gains from trade. If the Brazilians make cheaper ethanol that we can, and we can in turn provide some good or service better than they, then it's in both our best interests to trade. The KC Star sums up this notion nicely:

Congress should eliminate the tariff on imported ethanol, and reduce or eliminate the federal subsidy for domestic ethanol. Both moves would be positive blows for free markets, making it easier to evaluate the true costs of corn-based ethanol.

It seems a little foolish to be dumping millions of tax-payer dollars into a largely unproven technology. Rather, we should wait for the unfettered decisions of a free market to determine the best alternative to imported gasoline, and then, maybe, look to gov't to facilitate the transition. As stated in the STL Post-Dispatch:

As the United States — like many other countries of the world — hastens to find ways to curb its dependence on oil, we must make sure we don't trade one set of environmental, political and economic problems for another.

I couldn't agree more.

About the Author

Steven Bernstetter