19 Nov 2008

Ethanol Smack Down

I got this from a PR person: "On Tuesday, a wide array of organizations came together to call on the next Administration and Congress to repeal subsidies for ethanol in light of its harmful effects on the environment, consumers and numerous industries."

Most of these organizations are food processors worried about higher food prices resulting from the ethanol program. Other organizations are small-government, pro-environment and anti-stupid policies -- a crowd I've joined in prior posts.

The food processors have a point (the ethanol program is leading to higher food prices), and economists have backed them up:

Mitchell of the World Bank concludes that 65 percent of the rise in food prices is due to biofuels policies.

Alex McCalla (Professor Emertus at my old department at UC Davis) says [doc] that there are many factors responsible for higher food prices, but "there should no longer be any question that bio-fuel policy, and the resulting increase in feed stock production, will have a major impact on future food prices."

The FAO takes a diplomatic line, discussing [PDF] the new and significant impact of ethanol/biofuel policies (the US ethanol program absorbs 12 percent of WORLDWIDE corn production), while declining to assign a share of blame for higher prices to the ethanol program. The FAO does note that demand for corn is scheduled to increase as the program is expanded.

In congressional testimony, Joachim von Braun of IFPRI, said "The rapid expansion of ethanol and biodiesel has increased dependency on natural vegetation and crops grown specifically for energy. Biofuel production has also introduced new food-security risks and new challenges for the poor, particularly when resource constraints have lead to trade-offs between food and biofuel production and rising food prices." He provided the chart to the right, which shows the decrease in per capita caloric availability under current and stronger biofuel programs.

Most economists (and me!) think that the biofuel program is harmful to the poor, damaging to the environment and useless for energy security or rural development. (I am hoping to get a guest post from one who disagrees.)

Bottom Line: There's going to be a big fight among lobbyists in Washington. Those favoring ethanol love their subsidies; those against it are right. Stop starving the poor and destroying the environment, end the subsidies, tax carbon and let the market decide!

massive hattip to AA

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