No more ethanol for America, please

The domestic ethanol industry has been up in arms lately because it is becoming less and less likely that tax credits from which the industry benefits will be renewed at the end of this year. Nussle claims that “a coalition of strange political bedfellows,” including food manufacturers and oil companies, are attempting to ruin the industry.
 
Groups opposed to ethanol tax credits include Friends of the Earth, the American Meat Institute, Clean Air Task Force, Grocery Manufacturer’s Association, National Council of Chain Restaurants, Natural Resources Defense Council, Oxfam America, Taxpayers for Common Sense, and the Union of Concerned Scientists. While some of these groups have a financial interest in keeping grain prices lower, this does not hold for all. Noticeably absent are the evil oil companies. Perhaps the environmental groups above have some personal vendetta against the ethanol industry—or they’re in bed with Big Oil.
 
Nussle comments on a new study released by the World Bank, incorrectly claiming that “these new reports conclusively state there is no competition between grain for ethanol, and grain for food” and that “the World Bank disproved the biggest criticism of ethanol once and for all, by showing that the skyrocketing grocery bills of two years ago were not caused by ethanol.”
 
Well, no, that is not what the report states or disproves. Biofuels were originally blamed for as much as one-third of the food price increases of 2007-2008, and the World Bank report concludes that biofuels played a smaller role than the other studies initially suspected.
 
It discusses a number of studies with different conclusions on the amount of influence biofuels had over food prices, while noting the extreme analytical difficulty involved in obtaining a good estimate. So, yes, in some sense the biofuel industry has been vindicated by the World Bank, which concludes as the role of ethanol production was much smaller than originally assumed. However, even a slight increase in food prices can be devastating to those on the brink of starvation. And the report’s findings hardly “demolish” the food-versus-fuel debate, and it absolutely does not state there is no competition for grain among food and fuel producers—in fact, numerous pages are dedicated to explaining the opposite.
 
Nussle goes onto praise the environmental benefits of ethanol. In reality, the environmental benefits are marginal, and come at an enormous cost. The Congressional Budget Office found that reducing greenhouse gas emissions through biofuel tax credits would cost taxpayers approximately $750 per metric ton of carbon dioxide. This analysis does not include any indirect land-use effects, nor does it consider the suspected effects that excessive use of nitrogen fertilizers has had on the Gulf of Mexico’s ecosystem.
 
For perspective, the Energy Information Administration estimated that under the Waxman-Markey cap-and-trade bill, emissions allowances would sell for approximately $32 per metric ton in 2020—23 times lower than the cost of emissions reductions via ethanol policy.
 
Finally, with all other arguments exhausted, Nussle points to the potential future of cellulosic ethanol as a reason to justify continued public assistance. For two years in a row, the EPA has cut the mandate on cellulosic ethanol by over 90 percent—this year from 250 million gallons to 5-17 million. This is because it is incredibly expensive to produce, and it is not clear how much that cost will fall.
 
Nussle fails to mention the potential for importing sugarcane ethanol from Brazil, currently priced out of the American market thanks to a misguided tariff. Sugarcane ethanol has historically been lower in price, and is rated much higher than corn ethanol in lowering greenhouse gas emissions over its lifecycle. The tariff is also set to expire at the end of this year. If ethanol is the fuel of the future and domestic producers are so innovative and productive, why are they terrified of a little international competition?
 
Brian McGraw is a Research Associate at the Competitive Enterprise Institute.