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
    David Sternlight, 3 Jul 2007 @ 7:05pm

    Who is responsible?

    Ethanol from corn is a scam. In Brazil they have lots of waste biomass; here corn is a food and feed grain subject to the vagaries of the weather. In times of low production of corn, dependence on it for ethanol will push not only auto fuel up in price, but meat, food, then through cost-of-living clauses the entire economy, resulting in devastating inflation and unemployment.

    This happened once before when El Nino caused the anchovies off Peru, the primary source of fish meal cattle feed, to disappear. We had the above chain reaction resulting in massive inflation.

    So let's "follow the money". Whining about the "ethanol lobby" is speaking in the third person invisible. The real culprit is the major force and beneficiary of ethanol lobbying, Archer Daniels Midland. Public contumely directed there would be more effective than against the "ethanol lobby" since the broad range of their products are much more susceptible to economic resistance than that of some semi-invisible lobby.

    David Sternlight, Ph.D.
    Los Angeles

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