ITEM: An article in the New York Times for August 16 reported on the ongoing debate over federal quotas for ethanol during a devastating drought. At issue, said the Times, "is whether to suspend a five-year-old federal mandate requiring more ethanol in gasoline each year, a policy that has diverted almost half of the domestic corn supply from animal feedlots to ethanol refineries, driven up corn prices and plantings and created a desperate competition for corn as drought grips the nation's farm belt" American meat producers have been demanding, continued the report, that "the Obama administration waive the ethanol quota to ease rising feed prices. But ethanol producers worry that the loss of the quota will undermine the ethanol industry and do little for corn farmers but drive down the price of their stunted harvest."
Corn growers insist, the Times continued, that "a waiver should be allowed only if careful study showed a severe economic impact."
The Obama administration "seems inclined not to interfere. The president `has been a strong believer in ethanol,' a spokeswoman, Jennifer Psaki, said during Mr Obama's trip to Iowa this week. 'He absolutely believes in it--he thinks it's a driver of the economy here and a key component of renewable energy.'"
ITEM: Reuters for August 24 cited a number of "experts" who maintained that even repealing the Renewable Fuel Standard (RFS)--federal mandates for ethanol production--would not free much corn. Said the wire service: "Unlike five years ago, when ethanol was a marginal and relatively costly fuel that required heavy government subsidies to survive, it is now a competitive source of energy."
Ethanol, commented Reuters, "won't be easily extracted from the U.S. gasoline supply."
ITEM: In an account that focused on how the drought has led to reductions in the forecasts for a number of crops in the United States, the New York Times on August 10 reported: "The ethanol industry said calls to waive the fuel standards were premature. 'So far we have nothing more than speculation about what the danger to the corn crop is going to be,' said Matt Harwig, a spokesman for the Renewable Fuels Association, an ethanol industry trade group. 'We need to take a wait-and-see approach.'"
CORRECTION: If ethanol and other so-called renewable fuels are truly competitive, why have they been subsidized so heavily and their use mandated by the federal government? Once the government is in the business of deciding which industries are going to be the winners and losers, the market-place becomes a political arena.
The law of unintended consequences is already kicking in, domestically and around the globe. Mandates are making a corn shortage even worse. With food and fuel costs rising at home, and the United States being such a major global player, policy blunders domestically are having a rippling impact worldwide. The head of the United Nations' Food and Agriculture Organization, for instance, recently told the Financial Times that an "immediate temporary suspension of that mandate would give some respite to the market and allow more of the crop to be channeled toward food and feed uses."
While the Obama administration might be expected to pay inordinate attention to the UN's wishes, the "farm vote" is apparently of more immediate concern.
There is little doubt that federal policies are driving the cost of food and fuel. A couple of outright ethanol subsidies have gone by the boards within the year, but the federal mandates mean that billions of bushels of corn must be used to help fuel vehicles. The key word is must. How can the federal government presume to know what is the proper amount of biofuels needed each year?
These are not market forces or consumer choices at work, but decisions made by the central government--which work as you might expect: poorly. And as it happens, the diktats pushed by so many in the "green" lobby for more ethanol have also led to an increase, not a decrease, in carbon-dioxide emissions.
Even if the quotas worked as supposedly intended, they tilt the economic playing field unfairly. This is a point addressed by Marlo Lewis (in his GlobalWarming. org blog): "Why as a matter of law should ethanol producers get first dibs on the U.S. corn crop? Why should their interest legally trump that of every other industry and consumer affected by corn prices? Why should they have a legal privilege to jump to the front of the line ahead of meat, poultry, and dairy producers, or those who export grain to hunger-stricken countries?" (Emphasis in the original.)
It was Washington that ordered the subsidies and mandates for using ethanol in motor fuel. The actions increased demand for the corn to be used for ethanol, boosting the price. On top of that, earlier this year the Environmental Protection Agency authorized a 50-percent increase (from 10 percent to 15 percent) in the amount of ethanol that may be blended with gasoline.
As it is, about 40 percent of the corn crop in this country is used for the production of ethanol. As noted in July by Richard Rahn, chairman of the Institute for Global Economic Growth:
Corn prices rose as a result of the government creating an artificial, additional demand. As a result of higher corn prices, many farmers grew more corn and fewer other crops, such as wheat, which, in turn, caused the prices of those other crops to rise because of lower production. The drought is resulting in a much smaller corn crop, but by law, much of the remaining corn must be used to produce ethanol, resulting in even higher prices for corn. ... Higher corn prices drive up the price for other grains that are affected by the drought, resulting in higher prices for almost all grains. Corn and other grains also are used to feed animals. This means it is more costly to produce meat, which, in turn, will cause meat prices to rise rapidly.
With different political pressures at play, some want relief; others seek more favors. In the case of ethanol, it was sold under false pretenses--supposedly an environmentally friendly way to help make the United States "energy independent."
That didn't hold up in the wash. Indeed, Rahn points to some problematic facts: "Recent studies show that the total carbon-dioxide emissions from growing, harvesting, processing and burning corn as ethanol are much greater than those from oil and gas production and use. Ethanol reduces gas mileage in cars because it is less energydense than gasoline, and it causes more wear and tear on engines."
Those subsidies have added up. The tax credit for blending ethanol and gasoline, points out an analyst from the Heritage Foundation, has wasted about $45 billion overall and $6 billion just in 2011, "while hardly making a dent in meeting America's energy needs." Meanwhile, the "protectionist tariff' of 54 cents per gallon of imported ethanol (not extended in 2011) "has prevented developing countries from exporting cheaper, more efficiently produced ethanol to the United States," writes Nicolas Loris.
A free market would adjust prices and production with changes of supply and demand. But that is not how the feds act--with bureaucratic squirts all too often thinking that they are fountains of knowledge.
Accordingly, many members of Congress--from both houses and both major parties--now find themselves obliged to make supplications for favors from Lisa Jackson, the administrator of the Environmental Protection Agency. She has been granted the authority to waive the Renewable Fuel Standard targets (RFS), the official name for the ethanol mandate. A letter signed by 156 members of the House of Representatives on August 1 says:
As you are aware, U.S. corn prices have consistently risen, and the corn market has been increasingly volatile, since expansion of the RFS in 2007. This reflects the reality that approximately 40 percent of the corn crop now goes into ethanol production, a dramatic rise since the first ethanol mandates were put in place in 2005. Ethanol now consumes more corn than animal agriculture, a fact directly attributable to the federal mandate. While the government cannot control the weather, it fortunately has one tool still available that can directly impact corn demand. By adjusting the normally rigid Renewable Fuel Standard to align with current market conditions, the federal government can help avoid a dangerous economic situation because of the prolonged record high cost of corn.
The world may be growing more hungry, but political decisions are essentially deciding who may eat. According to a peer-reviewed study cited by the Washington-based Competitive Enterprise Institute (CEI), almost 200,000 lives are lost annually worldwide because of the food-to-fuel programs that divert grain.
The ethanol boondoggle is even more bizarre when it comes to "cellulosic ethanol," whose use is also mandated by the federal government. There is a basic problem, however: To date there has been no practical commercial production of cellulosic ethanol (made from wood chips and switch grass, among other sources). As the Wall Street Journal put it succinctly: "Congress subsidized a product that didn't exist, mandated its purchase though it still didn't exist, is punishing oil companies for not buying the product that doesn't exist, and is now doubling down on the subsidies in the hope that someday it might exist."
This loopy program dates, as do many others having to do with biofuels, to the previous Bush administration; it continues to be enforced by the Obama administration. The EPA, writes Hoover Institution fellow and syndicated columnist Deroy Murdock, "has slapped a $6.8 million penalty on oil refiners for not blending clelulosic ethano into gasoline, jet fuel, and other products. These dastardly petroleummongers are being so intransigent because cellulosic ethanol does not exist. It remains a fantasy fuel. EPA might as well mandate that Exxon hire leprechauns."
None of this fatuity has stopped the EPA from upping the ante with corn ethanol. In June, the EPA gave the green light for the sale of "E15," a 15-percent mixture of ethanol with 85 percent gasoline--a decision that promptly caused nine automakers to announce that they would not honor their car warranties because of the potential problems with that fuel.
The Agriculture Department is also on board with this additional mandate for corn ethanol. Tom Vilsack, the secretary of agriculture, has indicated that his department will spend your money to back the effort. The goal, as noted by Franklin Center Fellow Nash Keune in National Review Online, is to have "10,000 E15 blender pumps installed in the next five years. The administration's indefinite plan to reach this definite goal involves 'grants, loans, and loan guarantees' (the standard catchphrase for this administration's attempts at green venture capitalism) rather than channeling funds into a direct EIS subsidy. Given the obstacles to E15's marketability and its possible harmful effects, even this hazy commitment seems like an overreach."
The federal powers-that-be consider criticism of their sagacity to be out of order. True, such market madness is bad for the economy. Yet, it is apparently deemed to be good for politics.
One has to have priorities. In a different era, one political leader reputedly put it this way: "On ne saurait faire une omelette sans casser des oeufs." As translated from the words attributed to Robespierre, in the days of the French Revolution when the guillotine was kept busy taking care of reactionary malcontents: "One can't expect to make an omelet without breaking eggs."