Monday, January 29, 2007

Paul Krugman On Useless U.S. Ethanol Subsidies

Paul Krugman may be a left-liberal and so I very often disagree with him, but he is right on the mark when pointing out the irrationality of U.S. ethanol policy, which will do little or nothing to reduce oil consumption, while costing the U.S. economy far more than alternative policies to reduce oil consumption. The source of this irrational policy is the parasitical U.S. farm lobby which both the Republican and Democratic establishment panders to. What could be added to Krugman's piece is that the reason Brazilian ethanol isn't used instead of the far more costly U.S. ethanol, is the fact that the U.S. congress, led by Senatar Barack Obama have slapped punitive tariffs on it.

"For those hoping for real action on global warming and energy policy, the State of the Union address was a downer.....

Too bad... The only real substance was Mr. Bush’s call for ... ethanol to replace gasoline. Unfortunately, that’s a really bad idea. There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, ... researchers ... estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year...

What’s more, ethanol production has hidden costs. ...[T]he Department of Energy ... says that the net energy savings from replacing a gallon of gasoline with ethanol are only ... about a quarter of a gallon, because of the energy used to grow corn, transport it, run ethanol plants, and so on. And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions....

...Subsidizing ethanol benefits two well-organized groups: corn growers and ethanol producers (especially the corporate giant Archer Daniels Midland). As a result, it’s bad policy with bipartisan support. For example, earlier this month legislation calling for a huge increase in ethanol use was introduced by five senators, of whom four, including ... Barack Obama and Joseph Biden, were Democrats. In a recent town meeting in Iowa, Hillary Clinton managed to mention ethanol twice..."


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