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
    Jeff from NJ, 6 Jul 2007 @ 6:10am

    It's about the money

    Let's remember that NOTHING happens in Washington anymore that doesn't directly benefit some group of campaign donors. Leave it to the corrupt clowns in DC to suggest that our energy problems can be solved by shifting from subsidies of the oil industry (of which there are many) to subsidies of the ethanol industry. Consider why you'll never hear any Washington sleazeball championing wind & solar power in any big way -- there is no scarcity of those resources! Once the infrastructure is built there will be no oil company to claim refining capacity has forced (cough, cough) them to raise prices. We'll soon hear the same about corn prices. Ethanol is just another political scam to support ADM & it's bretheren.

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