Though intended to help consumers and reduce greenhouse gas
emissions, the ethanol mandate has done just the opposite,
contributing to high food and gas prices with little environmental
benefit. Representative Jeff Flake (R-AZ) has introduced H.R. 5911,
the Remove Incentives for Producing Ethanol Act of 2008, which
would eliminate the mandate and other benefits for ethanol, and
other measures may soon be introduced.
A return to a free market for ethanol would be a welcome step.
Congress should eliminate the ethanol mandate, ethanol-related tax
breaks, and protectionist tariffs that keep out potentially cheaper
A Growing Mandate
Renewable fuels, and particularly corn-ethanol, have long
enjoyed preferential treatment from the federal government. This
includes a tax credit worth $0.51 per gallon. In addition, tariffs
discourage imports of ethanol, including potentially cheaper sugar
cane-based ethanol from Brazil.
Yet the ethanol industry still wanted more, and Congress,
concerned about high gas prices, global warming, and domestic
energy production, enacted a mandate. The 2005 energy bill
contained the first-ever requirement that renewable fuels be mixed
into the gasoline supply. The 2007 energy bill increased the
mandate substantially. The U.S is now committed to using 9 billion
gallons in 2008, rising to 36 billion by 2022.
Ethanol and Fuel Costs
With pump prices rising to record levels, consumers are not
seeing the promised benefits from ethanol use. Proponents of the
mandate insist that without ethanol, prices would be even higher,
but this is not likely.
The logistical and regulatory costs of mixing ethanol into the
fuel supply raise the cost of driving beyond the level imposed by
plain gasoline usage. Unlike gasoline, ethanol cannot be shipped
via pipelines and must be transported via rail, barge, or truck.
Ethanol use also complicates compliance with some Environmental
Protection Agency regulations for gasoline, especially those
designed to fight summer smog. Most significantly, as the American
Automobile Association and others have pointed out, ethanol use
lowers fuel economy.
Ethanol and Food Costs
Diverting corn from food to fuel use has raised food prices. At
a little over $2 per bushel when the 2005 energy law was signed,
the price of corn has surged above $5 per bushel, primarily because
a quarter of the crop is now used to produce energy. A host of
corn-related foods, such as corn-fed meat and dairy, have seen
sharp price increases. Farmers, realizing the benefits to be
derived from producing corn, are switching from soybeans and wheat,
reducing the supply and contributing to the price rise.
For corn farmers, the mandate has exceeded their wildest dreams,
but for consumers, it has been an expensive hit-higher costs to
drive to the supermarket and higher prices once you're there. A
recent study from Purdue University puts the added food cost from
the renewable mandate at $15 billion in 2007-about $130 per
household. The impact thus far in 2008 is even
The effects of America's ethanol policy, as well as similar
food-for-fuel policies in Europe, are felt globally. Several United
Nations and anti-hunger organizations have weighed in heavily
against current policies. World Bank President Robert Zoellick has
acknowledged that "biofuels is no doubt a significant contributor"
to high food costs, adding that "it is clearly the case that
programs in Europe and the United States that have increased
biofuel production have contributed to the added demand for
food." There has been food-related rioting in
several developing nations. Although a number of factors have led to
this, biofuels mandates are undeniably a contributor and exacerbate
any other pressures on food prices.
Repealing the ethanol mandate would have an immediate effect on
food prices. A study conducted by the International Food Policy
Research Institute found that placing a moratorium on biofuels in
2008 would decrease corn prices by 20 percent and wheat prices 10
percent by 2009-2010. The faster Congress acts, the quicker
consumers will see a drop in food prices.
Ethanol and the Environment
Ethanol was promoted in part for its claimed environmental
benefits: lower pollution and reduced greenhouse gas emissions
relative to gasoline. That is why the growing chorus of
environmentalist criticism of the mandate is particularly
Many environmental organizations have raised concerns about the
increased inputs of energy, pesticides, and fertilizer needed to
grow more corn. The same is true for the stress on water
supplies, especially now that corn production is being expanded in
locales where rainfall is insufficient and irrigation is needed. Even
land that is now protected under federal conservation programs may
soon be cleared for corn.
In addition, the facilities that turn corn into ethanol create
emissions issues of their own. The goal of the ethanol mandate was
to reduce carbon dioxide emissions, but after taking into account
the carbon dioxide emitted from ethanol production, the reduction
in emissions is modest. These effects on the land, air, and water
have already raised serious concerns, and we are only one-quarter
of the way toward the eventual 36 billion-gallon target. Clearly,
the food and fuel impacts cannot be justified by environmental
Even worse is the turnabout on the major environmental issue of
the day: climate change. Proponents of ethanol and other biofuels
claimed that they are responsible for lower carbon dioxide and
other greenhouse gas emissions than the gasoline they displace, but
several recent studies challenge this assertion and argue that
biofuels increase such emissions. Oxfam, an international
aid organization, argues that "large-scale growth in biofuels
demand has pushed up food prices and so far there is little
evidence that it is reducing overall carbon emissions."
Policymakers are rightly beginning to reconsider whether
biofuels are worth the cost. Ethanol policy has contributed to a
rise in energy and food costs, both domestically and
internationally. Moreover, ethanol has damaged-not protected-the
The anti-consumer and environmental impact can only get worse.
Even many long-time critics of ethanol mandates did not expect
serious problems to arise this soon. We are only one-quarter of the
way toward the 36 billion-gallon mandate. More corn will have to be
devoted to ethanol production-up to 15 billion gallons annually-and
then the rest of the mandate will have to be met through fuels like
cellulosic ethanol that currently are even more expensive.
It should be noted that there is little to no downside risk in
repealing the ethanol mandate, as well as the generous tax credits
and protectionist tariffs that also tilt the playing field in favor
of corn ethanol use. To the extent that there is a valid economic
case for fuel ethanol, it will continue to be used even in the
absence of government dictates and incentives.
The lesson seems clear: The consequences of the ethanol mandate
have had detrimental effects on both the economy and the
environment. Congress should take a hard, honest look at America's
ethanol policy, and the mandate should be repealed, along with the
tax breaks and protectionist tariffs.
Ben Lieberman is
Senior Policy Analyst for Energy and Environment and Nicolas Loris
is a Research Assistant in the Thomas A. Roe Institute for Economic
Policy Studies at The Heritage Foundation.
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