Ethanol: Economically harmful for environment and tax payers

by 5m Editor
19 September 2007, at 11:29am

US - The US government-supported push for ethanol will not only increase taxes and damage the environment, but will add to Americans’ burden of high fuel and food costs and especially hurt people on fixed incomes, writes Mark J. Perry, Professor of finance and economics at the University of Michigan.

And it will do almost nothing to reduce dependence on foreign oil — all of the ethanol production this year will replace less than five percent of the gasoline sold.

Clearly, there is a limit to how much of the U.S. corn crop can be gobbled up for ethanol without pushing food prices higher and higher. Increased production of corn-based ethanol during just the past 12 months has raised food prices by $47 per person, according to a study by Iowa State University. Before the summer is over, the price of milk is expected to jump 40 cents a gallon, and up to 60 cents more for a pound of cheese.

Nevertheless, a Senate energy bill is coming up for final approval next month that would require a sevenfold increase in ethanol from five billion gallons this year to 36 billion gallons by 2022.

The measure also provides loan guarantees, biofuels research and development grants, and grants for ethanol plant construction for the politically powerful ethanol industry.

As if that’s not enough, Sen. Richard Lugar, R-Ind., and Sen. Tom Harkin, D-Iowa, are co-sponsoring a bill that would raise the ethanol mandate to 60 billion gallons by 2030.

Ethanol cannot be justified on a scientific or economic basis, and the only reason the industry has survived and profited is that the government gives corn farmers and ethanol producers very generous subsidies.

As The Wall Street Journal pointed out, ethanol is produced by mixing corn with our tax dollars, currently $5.5 billion annually in more than 200 ethanol tax breaks and subsidies.

If extended through 2022, as the Senate energy bill provides, the ethanol subsidies will cost taxpayers an estimated $131 billion, according to the Tax Foundation. Subsidies under the Lugar-Harkin measure would cost as much as $205 billion over the next 15 years.

The scientific problem with corn ethanol is that it contains one-third less energy than gasoline. So a motorist has to purchase one-third more fuel to go the same distance. If you total up all of the fossil fuel that goes into making and transporting ethanol — nitrogen-based fertilizer and herbicides, fuel to run farm machinery and delivery trucks, natural gas for the distilling process at ethanol plants — it takes more energy to produce ethanol than the fuel provides.

Furthermore, the rush to produce ethanol is adversely impacting the environment. In many parts of the corn belt, water tables are dropping, in some places 10 feet or more in the past decade, because it takes so much water to grow corn and produce ethanol. For that matter, if the government keeps mandating unreasonably high levels of ethanol production, a prolonged drought that devastates the corn crop could cause fuel shortages in the future.

Source: The MONTANA

5m Editor