Popular or not, ethanol use as fuel is burning money. This won't be a popular position here in the Corn Belt, but I don't see any sense in requiring motorists to burn ethanol.
Popular or not, ethanol use as fuel is burning money. This won't be a popular position here in the Corn Belt, but I don't see any sense in requiring motorists to burn ethanol.
If the stuff ever becomes cheaper to produce than gasoline, fine. Market forces should determine whether we fill our tanks with refined crude oil or distilled corn liquor.
When it comes to energy, Congress rarely is willing to leave the market alone. Ethanol producers have benefited from a 51-cent-a-gallon federal subsidy since 1979, and they're ready to seize the political opportunity presented by high oil prices.
Sen. Jim Talent, R-Mo., has become a hero to corn farmers by sponsoring an amendment that would require drivers to use 8 billion gallons of ethanol a year by 2012. His amendment was adopted by the Senate Energy and Natural Resources Committee in a game of one-upmanship with the House, which endorsed a 5-billion-gallon mandate.
The U.S. ethanol industry produced 3.7 billion gallons last year, using about 13 percent of the nation's corn crop, and it is rapidly adding capacity. A federal mandate would drive corn prices higher, and it would ensure a return on farmers' investment in projects such as Mid-Missouri Energy, a farmer-owned plant in Malta Bend, Mo., that began production this year.
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Supporters say ethanol also would reduce our dependence on foreign oil, but we're talking about a drop in the nation's energy bucket. Moreover, farmers and distillers use a lot of energy to grow, harvest and distill all that corn. Research firm Global Insight, in a study funded by the oil industry, says Talent's mandate would cut oil use by just 0.7 percent.
Taxpayers and consumers would pay a steep price. Global Insight estimates that the Senate bill would raise food prices by between $2.9 billion and $12.8 billion.
The ethanol producers argue, correctly, that oil producers have long benefited from their own set of tax breaks. They also say the money our military spends in the Middle East is subsidizing our dependence on oil.
If that's true, the proper way to restore market incentives would be to tax oil more heavily. A gasoline tax of $1 or $2 a gallon would help fund the Pentagon budget while sending people searching for economical alternatives to oil.
If Congress were serious about encouraging drivers to shift to alternative fuels, it also could remove the tariff on ethanol imported from Brazil, which makes the stuff cheaply from sugar. But the farm lobby fiercely defends that tariff.
"We're making this fuel not because it's renewable or because it makes us energy independent, but because it's a hidden way of supporting farmers," said William O'Grady, a commodities analyst at A.G. Edwards & Sons.
At the moment, a glut of new capacity has depressed the wholesale price of ethanol to about $1.20 a gallon, well below the cost of gasoline. That has led to an interesting debate between the Consumer Federation of America, which says motorists could save money if ethanol were sold more widely, and the oil industry.
The consumer group accuses oil producers of colluding to keep an alternative fuel out of consumers' tanks. But Edward Murphy of the American Petroleum Institute says the analysis isn't so simple. Ethanol prices usually track closely with gasoline prices, and he says distributors and retailers would incur costs in switching to an ethanol blend. They won't do that based on a momentary price swing.
If ethanol stays cheap, gas-station owners undoubtedly will find a way to get more of it to consumers. But the ethanol industry has 18 plants under construction, adding about 900 million gallons of annual capacity, and it doesn't want to sell its wares at depressed prices. Far better, farmers figure, to stick it to consumers and taxpayers with an expensive mandate.
David Nicklaus: E-mail: This email address is being protected from spambots. You need JavaScript enabled to view it.; Phone: 314-340-8213
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Source: Knight Ridder/Tribune Business News
