| Time to Repeal the Ethanol Mandate Heritage Foundation by Ben Lieberman and Nick Loris May 15, 2008 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 foreign supplies. 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.[1] 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.[2] The impact thus far in 2008 is even higher. 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."[3] There has been food-related rioting in several developing nations.[4] 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.[5] The faster Congress acts, the quicker consumers will see a drop in food prices. [Read More] |
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