This year the U.S. vehicle fleet will burn about 13 billion gallons of ethanol, the vast majority of which is made by fermenting corn. Just in time for the upcoming mid-term elections, the Environmental Protection Agency earlier this month bowed to pressure from the ethanol lobby and farm state congressional delegations and increased the amount of ethanol that can be blended into gasoline from 10 percent to 15 percent. The ethanol lobby is now in full mobilization mode to protect the billions in subsidies which are set to expire at the end of this year. On the other hand, environmentalist organizations like the Natural Resources Defense Council are fiercely arguing for letting the subsidies expire [PDF].
As of now, the federal government is mandating that U.S. vehicle fleet burn 36 billion gallons of ethanol per year by 2022. Back in 2008, President Barack Obama promised to increase the ethanol mandate to 60 billion gallons by 2030. Keep in mind that the U.S. currently consumes about 140 billion gallons of gasoline per year.
The National Academy of Sciences' policy journal, Issues in Science and Technology, has just published a remarkably disturbing commentary, "The Dismal State of Biofuels Policy," [subscription required] about how much Americans taxpayers are likely to pay in the future for the privilege of burning food in their gas tanks. The commentary, citing estimates from the subsidy-tracking nonprofit Earth Track, is by University of Minnesota economist, C. Ford Runge and Cargill Foundation* president Robbin Johnson. From the article:
According to estimates by Earth Track founder, Douglas Koplow, if current laws are maintained until 2022, the biofuels industry will receive more than $60 billion per year in subsidies, more than six times the $9.5 billion in support received in 2008. Cumulative subsidies between 2018 and 2022 are expected to total $420 billion. If the Obama plan to require 60 billion gallons by 2030 comes to pass, subsidies in that year would be $125 billion, and cumulative support from 2008 to 2030 would be in excess of $1 trillion.
The commentary further cogently argues:
The specific role of biofuels is rising food costs is significant: The inflexibility of mandates helps cause price spikes when supplies are tight, and the increasing diversion of corn to fuel over time pushes up long-term prices.
And bioethanol subsidies even fail as a way to reduce greenhouse gas emissions cost effectively. A recent Congressional Budget Office report found that the costs to taxpayers of reducing greenhouse gas emissions through the corn ethanol tax credits comes to about $750 per metric ton of carbon dioxide. For comparison, consider that a permit to emit one ton of carbon dioxide could be had for just over $20 per ton on the European Climate Exchange.
Let's hope the environmentalists win this one and that they persuade the denizens of Capitol Hill to let this costly and ineffective energy subsidy die.
Go here to get my impressions of a tour of a bioethanol plant last month in Aberdeen, South Dakota.
*For those few H&R commenters who reflexively indulge in simplistic follow-the-money "analyses" of viewpoints in place of actually exercising their critical faculties (and we all know who you are), please note that Cargill is the third-largest producer of ethanol in the U.S.