Congress should slow down and give the ethanol boondoggle the skeptical scrutiny it deserves. Instead, it looks like the taxpayers will be saddled with another costly subsidy program under the guise of fictional energy independence.
The rush to embrace ethanol by the Bush administration and Congress is already hitting consumers indirectly in higher food prices, particularly for beef, chicken and cereals. The rate of inflation is running around 5.5 percent, more than double last year’s, driven by high energy costs but also by demand for corn-based ethanol. The price of corn, already one of our most heavily subsidized crops, has doubled and farmers have planted the largest crop since World War II.
Ethanol has been billed as cutting our dependence on foreign oil. The energy bill, reminiscent of the Carter administration’s meddling in the energy markets, has the wildly ambitious goal of boosting today’s modest production of ethanol to 15 billion gallons by 2015 and 36 billion gallons by 2022. Even if that goal was attained, it would only displace a fraction of U.S. gasoline consumption, which today is 134 billion gallons a year.
For ethanol to be even faintly competitive requires continuing high gas prices. And if the volatile world oil market has a big downturn, as it has in the past, the government will be under pressure to keep the price of imported oil high to protect the domestic ethanol industry. Ethanol already receives a taxpayer subsidy of 51 cents a gallon. Ethanol can be made cheaper elsewhere. Brazil already does using sugar cane, but the U.S. industry has succeeded in getting a 54-cent-agallon tariff on imported ethanol.
Congress may have given ethanol an exemption from the laws of economics but not from the law of unintended consequences. The Associated Press reports that, because of administration and congressional support for ethanol and vehicle fuel efficiency standards, all aimed at cutting demand for gasoline, the oil industry is rethinking plans to expand refining capacity. Tight refining capacity is one of the culprits in today’s high prices, and expanding that capacity was a key objective of President Bush’s firstterm energy bill. But that was back when the Bush administration believed command economics was a bad idea. It still is.