An Ethanol Policy That Hurts Consumers

Posted by Consumers for World Trade Fri, 15 Jun 2007 20:13:00 GMT

Sarah Press

June 15, 2007 -In an effort to respond to concerns over global warming, our lawmakers have developed a policy designed to provide stocks of cleaner gasoline by using ethanol, a carbon-friendly bio-fuel. While achieving a readily available supply of "green" gasoline for our cars and trucks is certainly a laudable goal, this policy has also, in part, increased food prices paid by consumers. Yet, there is solution to this problem and it lies with freeing our energy market for more efficient sources of foreign ethanol through a prudent trade policy.

Ethanol is a clean renewable bio-fuel that can be produced from any cellulose producing plant that is high in sugar. In the US, this means mainly corn, but here's the catch: corn ethanol only produces a tiny amount of energy compared to the energy used to produce it. Ethanol produced from other plants such as sugarcane, switchgrass, and soybeans are significantly more efficient means of producing this cost effective and clean fuel.

The most efficient source of sugar for the production of ethanol comes from sugarcane that produces eight times the amount of energy used to produce it. The most abundant source of sugarcane for the production of ethanol comes from Brazil. In fact, sugar cane is so abundant in that country, that Brazilians solely use ethanol to fuel their cars and trucks with even more left over to export to other countries.

Ok so you're probably saying, "Great, let's just use sugarcane ethanol, since it's cheaper and more energy efficient." Yet Congress remains intent protecting US corn growers - a powerful agricultural interest in almost every farm state. The US gives a 51 cent per gallon "Blender's Credit" subsidy that is applied to ethanol regardless of its country of origin. However, a 54 cent per gallon secondary tariff - or border tax - on ethanol imported into the United States keeps Brazilian sugarcane ethanol out of US markets. Legislators from farm states seek to maintain the ethanol tariff to appease their corn-growing constituents. But it's not just the friendly family farm that gets the benefits of these subsidies. Under the current farm bill, which is up for reauthorization this year, taxpayers give over $25 billion each year to corn growers, 62% of which are large, industrial corporate farms.

These enormous ethanol subsidies to primarily corporate agricultural concerns coupled with the high ethanol tariff designed to keep out foreign sources of the bio-fuel, have been in part responsible for the rising cost of food paid by consumers. An Iowa State University study found that the ethanol market dominated by US producers has contributed to the steady increase in food prices. The price of corn can effect the price of many food items especially meat and poultry whose growers use corn-based feed to nourish their livestock. Lately, this extra cost has been passed along to the consumer. In fact, a whole slew of consumer food producers have recently increased the price of many products at grocery strores thanks, in growing part, to high corn prices.

Of course, if the US government eliminated the high border taxes on foreign supplies of ethanol, such as efficient Brazilian ethanol made from sugar cane, Americans could enjoy a carbon-friendly gasoline while also keeping food prices in check. Basically, the added supply of Brazilian ethanol would help fuel our cars while US corn growers could meet the demands of our food market. Yet our Congress remains intent on protecting US corn growers to the detriment of consumers. While Congress claims that the policy benefits the family farmer it is really just a handout to big corporate agriculture.

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  1. Jason Allen said 3 days later:
    I've long thought (and said) that protectionism is for the worst. With few exceptions (things like a country preserving its [pop]culture). Here is just another example. While the final sentence may be a bit extreme (if only 62% goes to corporations), the fact that this practice exists thoroughly irks me as an intelligent, informed citizen. Now then - let's go stop them.
  2. Matt said 4 days later:
    You cannot underestimate the importance of Iowa being the first caucus in the election cycle. John McCain did not even campaign there in 2000 because of a refusal to support corn subsidies. Now in our current election cycle, no candidate who is serious about winning in Iowa would harm the powerful agricultural interests there. A structural arrangement which only aggravates a misguided policy.
  3. Sarah Press said 4 days later:
    You're absolutely right Matt, it is unlikely that congress will move against the ethanol tariffs under pressure from corn-growing and agriculture lobbyists. Congressmen from farm-states in the mid-west also have to consider their reelection and the support of their constituencies. After all, the growth of the domestic ethanol market is a huge boon for them. As for a presidential candidate coming out against the ethanol tariffs in the primaries, don't count on it, as you said. The production of corn ethanol has its supporters dug in for the long haul, and the cost for the environment and Americans is large. Other sources of ethanol are simply more efficient to produce. If the corn-growers are so confident in their domestic fuel product, they should let it stand in the free market.
  4. david hodges said 17 days later:
    Of course, if the US government eliminated the high border taxes on foreign supplies of ethanol, such as efficient Brazilian ethanol made from sugar cane, Americans could enjoy a carbon-friendly gasoline while also keeping food prices in check. i agree but only partly. if the government removed tariffs as a part of a comprehensive plan to create the infrastructure necessary to changeover the average american driver from petrol to ethanol, then yes this would create your desired effect. but before opening the US market to brazilian ethanol would have this effect, you'd have to start a campaign to retrofit cars currently on the road to run on ethanol. my understanding is that older cars can't be upgraded, or at least not easily with the home kits pushed by hippies you see on the internet. you'd also have to either replace every gas station in america or expand them to support the new fuel-type. i mean, if there's only one place in my city to refill the ethanol, but there are 50 gas stations, why in the hell would i inconvenience myself to such a degree, regardless of how much "cheaper" and more "eco-friendly" the car might be? studies show consumers will recycle, but only if they dont have to go too far out of their way. jiffy-lubes would have to be re-outfitted with new equipment to test emissions standards that the government would have to re-write for the new fuel-type. thousands of employees in oil refineries would have to be re-educated and relocated to new jobs, presumably in the upstart ethanol industry (which, lets not kid ourselves, would probably be run by the same companies currently oligopolizing the oil industry--so if this is an attempt to fight big oil shrouded in environmentalist’s clothing, it’s not going to work). in short, it's not as simple as remove the tariffs, open the market, and watch the environment be saved. personally, i don’t think the US would ever important brazilian ethanol. instead we would import the raw corn, like we import crude oil, and refine it ourselves. it enables the government to make sure it meets the strict regulations it would inevitably pass, and at the same time creates a specialized labor market. and congress protects farmers with pretty good reason. agriculture is labor-intensive. if the US didn't protect agriculture and went to a totally free market, we'd import almost all of our food except for a few specialized items because labor is vastly cheaper in other countries (think outsourcing). without some protectionist measures, our food supply would be dependent on foreign markets. it's a pseudo-matter of national security at that point, because instead of an oil crisis in the middle east, imagine a sudden corn crisis in brazil if its government changes in a sudden, unstable manner. not such a stretch when you consider brazil's government is an aggregate of four independent entities at state, federal, local and “union” levels; and that they've only had popular democratic elections since 1985, which replaced a military state that ruled following a coup d'etat in 1964 not only that, but there is so much money necessary to be invested in the infrastructure of ethanol that as long as there are still billions of dollars in business transactions of oil in the ground, it's highly unlikely that anyone--government, corporation, private consumer group or otherwise--is going to be able to seriously consider bringing about this change. gas goes to $10-12 dollars per gallon, maybe things would be different.
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