Saturday, April 26, 2008

Ethanol is an IQ test

After reading devastating articles like this one at National Review, federal support for corn ethanol subsidies has become a proxy IQ test, and a test that both our political parties have failed.

Haitians are sick and tired of food prices that are 40 percent higher than last summer’s. Some have resorted to eating cookies made of salt, vegetable oil, and dirt. That’s right: Dirt cookies.
Keep in mind that 100 million tons of grain is enough to feed nearly 450 million people for a year” — assuming 1.2 pounds of grain each, daily.

In short, car engines are burning the crops that feed a half-billion people. That has to hurt.
As farmers turn forests into corn fields, they expend energy uprooting trees that produce oxygen, absorb CO2, and store carbon. Princeton University researchers calculate that this ethanol-driven arboricide has spawned a “carbon debt” that already will take 167 years to reverse.
Unless superior substitutes emerge, obeying Congress’ 2022 diktat will require a corn crop equal to 115 percent of 2007’s U.S. output, with every kernel going to ethanol, none for food. The consequences would be calamitous — from movies without popcorn, to over-farmed and under-rotated fields, to growing global starvation.

The meta-question on ethanol is what collective action problem is being addressed by this government action? That is to say, what goal is the government trying to accomplish that cannot be better realized by market forces? It is certainly not global warming, since land-use issues and use of nitrogen fertilizer actually worsen the greenhouse gas situation. It is not reliance on foreign oil, as evidenced by our continued reliance on ethanol subsidies with oil well over $110 / barrel.

Supporters of our corn ethanol subsidies argue that unless we support corn ethanol we will never have the ability to develop cellulosic ethanol technologies. This is utter hogwash. We already know how to transport and consume ethanol. The weakest link is the input. Sufficient infrastructure already exists to support a market for cheaper cellulosic ethanol.

The only thing the government can actually do that addresses a true collective action problem is mandate flex-fuel capacity in new vehicles, expected to cost about $100/vehicle, in order to give drivers their choice between gasoline, ethanol, methanol, and butanol.

Flex fuel is not a silver bullet. There will still be land use issues and food cost trade-offs. But those trade-offs should be made by a free market, not a manipulated market. Flex fuel mandates would accelerate the opening of these fuel markets to true competition.

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