Can The Ethanol Market Stand On Its Own Two Feet?

from the etha-what? dept

Soaring energy prices have created an ideal climate for alternative energy investment, as evidenced by the boom in that space. You'd think, then, that with the market doing a good job of sorting things out, there'd be little need for the government to intervene. But while entrepreneurs and VCs are seeking to build sustainable, profit-making businesses, the ethanol industry has sought to profit from the largesse of the US taxpayer. The industry has been helped by direct subsidies as well as indirect ones, such as laws that impose added costs on its rivals. While many people champion higher CAFE standards in order to protect the environment, the ethanol lobby has been a particularly big booster of them, because of a 1988 law carved out an exception for vehicles that could run on ethanol. Meanwhile, this favorable treatment towards the industry causes problems in other pockets of the economy. Increasingly, companies have to be concerned with "agflation", the soaring price of agricultural commodities due to the heightened demand for corn (which, as you learned in econ 101, increases prices for corn substitutes, like rice and wheat). If ethanol is going to be a meaningful energy source in the future, it needs to stand on its own in the market. Otherwise, the existing setup appears to be just more counterproductive agriculture subsidies, cynically concocted in the name of national security and the environment.

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  1. identicon
    Davis Freeberg, 3 Jul 2007 @ 2:13pm

    Substitutions creating substitutions

    I have already seen a lot of companies move away from corn. Tostitos is trying to convince people that all flour tortilla chips are cool and I'm pretty sure that Doritos is using more flour in their chips now.

    It's funny to see the price of flour go up, because the price of corn went up, because the price of oil went up. Considering that there aren't a lot of direct substitutions in oil, it's almost surprising to see so much demand for a product create so many problems for other industries. I still don't understand why hydrogen hasn't been a viable solution, but that seems like the right way to go for me. Either way though, I hate to see the subsidies, taxpayers just end up paying it when they go to the grocery stores instead.

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