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Saturday, May 19, 2007

Ethanol Backlash

There's a good piece here about the rising back-lash against corn-based ethanol mandates. The government is now finding out that mandating more ethanol is putting pressure on corn prices, which has some undesirable unintended consequences. Such as more expensive feed for livestock, which will translate into more expensive meat; more expensive corn syrup, which is the cheap sweetener of choice in just about every commercial food; more planting means more land use and more pesticides.

Corn ethanol seemed unstoppable, but a remarkable thing happened on the road from Des Moines. Just as the smart people warned, the government's decision to play energy market God and forcibly divert huge amounts of corn stocks into ethanol has played havoc with key sectors of the economy. Corn prices have nearly doubled, which means livestock owners can't afford to feed their animals, and food and drink manufacturers are struggling to buy corn and corn syrup. Environmentalists are sour over new stresses on farmland; international aid groups are moaning that the U.S. is cutting back its charitable food giving, and many of these folks are taking out their anger on Congress.


Things are even hotter in Washington, where lobbying groups are firming up their positions against corn ethanol. The hugely influential National Cattlemen's Beef Association has gone so far as to outline a series of public demands, including an end to any government tax credits (subsidies) for ethanol and an axe to the import tariff on foreign ethanol. Put another way, the cattlemen are so angry that they are demanding free markets and free trade--a first.

Those wacky cattlemen.

Once again, a great example of how poorly considered government rule-making can distort the market.

If we really wanted to increase ethanol use, we would drop the tariff on imported ethanol, a whopping $0.54 per gallon. We could then import Brazilian ethanol, which is made more cheaply than our own. But the truth is, the ethanol mandates are mostly a farm lobby pay-off.


Anonymous said...

Not to worry, AP - New York Times reports Superjero Schumer has everything under control:

Oil Industry Says Biofuel Push May Hurt at Pump

And some oil executives are now warning that the current shortages of fuel could become a long-term problem, leading to stubbornly higher prices at the pump.

They point to a surprising culprit: uncertainty created by the government’s push to increase the supply of biofuels like ethanol in coming years.

In his State of the Union address in January, President Bush called for a sharp increase in the use of biofuels, along with some improvement in automobile fuel efficiency to reduce America’s use of gasoline by 20 percent within 10 years. Congress is considering legislation calling for a nearly fivefold increase in the use of ethanol.

Bush's Fault - Schumer to the RESCUE!!!

Even so, the current cost of gas — which in real terms is approaching the old peak of $1.42 a gallon in March 1981, or $3.31 adjusted for inflation — has renewed suspicions that the oil industry is looking for ways to keep profits high by delaying much-needed investments. Senator Charles E. Schumer, Democrat of New York, began hearings yesterday on the topic “Is Market Concentration in the U.S. Petroleum Industry Harming Consumers?”

Dublin Saab said...

"Mostly" a farm lobby payoff? You have a wonderfully powerful gift of understatement.

HoosierDaddy said...

Of course if we removed the sugar tariff and the corn subsidies while we were at it the soft drink makers could use sugar to sweeten their wares. But that'd be too simple.

The Ethanol boondoggle looks to be well entrenched though. Why be grown up when you can be seen to be "doing something" while shoveling some taxpayer money out the door?

By the way, just for truth in advertising maybe politicians should be like NASCAR drivers and wear jumpsuits with all their corporate sponsors' logos. Then we'd have at least some idea who owned them.