Despite Its Huge Flaws, Ethanol Is Political Holy Water in DC

By Robert Bryce, The Washington Spectator. Posted July 7, 2007.

Ethanol is a magic elixir. It allows politicians and political operatives to promise voters that America can achieve "energy independence." In this new energy Valhalla, American farmers will be rich, fat and happy, thanks to all the money they will be making from "energy crops." Better yet, U.S. soldiers will never again need to visit the Persian Gulf--except, perhaps, on vacation. With enough ethanol-blended motor fuel, America can finally dictate terms to those rascally Arab sheikhs with their rag-covered heads, multiple wives and supertankers loaded with sulfurous crude.

George W. Bush believes. In January, he declared that the U.S. should be producing 35 billion gallons of ethanol and other alternative fuels by 2017. During a March trip to Latin America, where he signed an agreement to expand ethanol-related trade between the U.S. and Brazil, Bush said that he was "very upbeat about the potential of biofuel and ethanol."

Not to be outdone, former North Carolina senator John Edwards declared that the U.S. should be producing 65 billion gallons of ethanol per year by 2025. He claims that his proposed New Economy Energy Fund will "develop new methods of producing and using ethanol, including cellulosic ethanol, and offer loan guarantees to new refineries."

Even longtime ethanol foe Senator John McCain--who in the past has called ethanol "highway robbery" and a "giveaway to special interests"--has become an ethanol evangelist. Last August, during a visit to Iowa, the Republican presidential hopeful called ethanol "a vital alternative energy source not only because of our dependency on foreign oil but its greenhouse-gas reduction effects."

Every major presidential candidate has come out in favor of ethanol. So have the Democrats on Capitol Hill. Speaker of the House Nancy Pelosi wants automakers to build more ethanol-fueled vehicles and wants to see "America's farmers fueling America's energy independence."

It all sounds wonderful. But there are a bushelful of problems with ethanol, none of which fit neatly into a politician's soundbite. Of those many problems, four stand out: the massive subsidies; ethanol's inability to displace significant amounts of imported oil; its deleterious effect on air quality; and its effect on food prices.

Inconvenient Facts

First, the subsidies. Making ethanol from corn borders on fiscal insanity. It uses taxpayer money to make subsidized motor fuel from the single most subsidized crop in America. Between 1995 and 2005, federal corn subsidies totaled $51.2 billion. In 2005 alone, according to data compiled by the Environmental Working Group, corn subsidies totaled $9.4 billion. That $9.4 billion is approximately equal to the budget for the U.S. Department of Commerce, a federal agency that has 39,000 employees.

Need another comparison? That $9.4 billion is nearly twice as much as the federal government spends on WIC, short for the Special Supplemental Nutrition Program for Women, Infants and Children, a program that provides health care and nutrition assistance for low-income mothers and children under the age of five.

Corn subsidies dwarf all other agricultural subsidy programs. The $51.2 billion that American taxpayers spent on corn subsidies between 1995 and 2005 was twice as much as the amount spent on wheat subsidies, more than twice as much as the amount spent on cotton, four times as much as the amount spent on soybeans and 96 times as much as the total subsidies for tobacco during that period.

But the ethanol lobby isn't satisfied with the subsidies paid out to grow the grain. They are also getting huge subsidies to turn that grain into fuel. According the Global Subsidies Initiative, meeting Bush's goal of producing 35 billion gallons of renewable and alternative fuels per year by 2017 will require total subsidies of $118 billion. The group claims that the $118 billion price tag "would be the minimum subsidy" over the eleven-year period. In a report released on February 9, the group said that adding in tax breaks that the corn distillers are getting from state and local governments and federal tariffs imposed on foreign ethanol (mostly from Brazil) "would likely add tens of billions of dollars of subsidies" to the $118 billion estimate.

Despite the subsidies, ethanol has always been more expensive than gasoline. Between 1982 and 2006, the price of ethanol never dropped below that of gasoline--even though ethanol contains just two-thirds of the heat energy of gasoline. That lower energy content means a car using ethanol gets worse gas mileage than one that uses gasoline.

The second problem: no matter how you slice it, ethanol production is just too small to have a significant effect on the overall energy market in the U.S.

Ethanol advocates talk about how domestically produced alcohol will reduce the amount of oil America imports. But by any measure, the total energy produced by America's ethanol plants borders on the insignificant. In 2006, the U.S. produced about 5 billion gallons of ethanol. That's the equivalent of just 215,264 barrels of oil per day. For comparison, the U.S. now consumes over 21 million barrels of oil per day. Thus, ethanol provides just one percent of total U.S. oil consumption.

Ethanol will never make a big dent in America's oil imports. And that's true even if all the corn grown in America were turned into ethanol. The U.S. Department of Agriculture estimates that distillers can get 2.7 gallons of ethanol out of one bushel of corn. In 2006, U.S. farmers produced about 10.5 billion bushels of corn. Converting all that corn into fuel would produce about 28.3 billion gallons of ethanol. However, ethanol's lower heat content means that the actual output would be equivalent to 18.7 billion gallons of gasoline, or about 1.2 million barrels per day. (The U.S. currently imports 10.1 million barrels per day.) Even if the U.S. turned all its corn crop into ethanol, it would supply less than 6 percent of America's total oil needs.

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Texas-based journalist Robert Bryce is the managing editor of Energy Tribune magazine. His third book, about the mirage of energy independence, will be published early next year.

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