Food For Fuel

Posted by: 

The Secretary of Agriculture, Tom Vilsack, is taking a stand for ethanol. He claims that the government support of ethanol has created jobs that will be lost when the government relinquishes its $0.45 per gallon subsidy due to expire at the end of this year. In fact, he promotes government assistance in building a larger market for the use of ethanol, like government helping to produce ethanol-running vehicles.

The government already sets use mandates for refineries. This year gas refineries are required to blend 12.6 billion gallons of ethanol with gasoline. That number will rise to 15 billion gallons by 2015. What more can the ethanol lobby ask for?

Recently, the Obama administration proposed to provide government grants and loans to gas stations that install E85 pumps. Those are the gas pumps that contain 85 percent ethanol and 15 percent gasoline. Most gas contains less than 10 percent ethanol.

All the while, ethanol studies point out that the environmental benefits of ethanol over gas are marginal, the energy created is less efficient than gas, and one unintended consequence of increased corn ethanol use is the upward pressure on corn prices which impacts other corn users (such as livestock producers and people who eat corn tortillas).

This seems to be a story about jobs and the ethanol lobby. Understandably, people are worried about jobs in the present economy. If government stopped supporting jobs the market doesn’t, however, that money could go into enhancing our future productivity rather than maintaining make-work jobs for products people have to be mandated to buy.

If the goal of energy policy is job creation, subsidies and mandates can help achieve it. If the goal is clean, affordable energy for the future, subsides merely distort the price signals and encourage investment and use of ethanol over other fuels.

Originally posted at Environmental Trends.

Holly Fretwell is a Research Fellow at PERC and an adjunct instructor at Montana State University where she has taught  introductory economics, macroeconomics, natural resources and environmental economics. She works with the Foundation for Teaching Economics, giving workshops for  high school teachers to improve their skills in teaching and...
Read More > More Articles by Holly Fretwell >