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Allow Free Market to Inform Proper Level of Ethanol Use

Posted By Conn Carroll On May 16, 2008 @ 11:44 am In Energy | Comments Disabled

Domestically produced corn based ethanol has enjoyed preferential federal treatment for years including a $0.51 per gallon tax credit and tariffs that discourage potentially cheaper sugar cane-based ethanol from Brazil. Federal government government support for ethanol has only increased in recent years with the first ever renewable fuel mandate for gasoline in 2005 and the significant raise of the mandate in 2007. Few in Washington predicted the costs of this government interference in the energy market, but now they are beginning to be widely accepted. Heritage scholars Ben Lieberman and Nicolas Loris identify [1] elements of the growing consensus including:

  • A recent Purdue University study [2] found that the renewable fuel mandate has added about $130 per household to food costs.
  • World Bank President Robert Zoellick has acknowledged [3] 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.”
  • A International Food Policy Research Institute study [4] found that placing a moratorium on biofuels in 2008 would decrease corn prices by 20 percent and wheat prices 10 percent by 2009–2010.
  • Oxfam International argues [5] that “large-scale growth in biofuels demand has pushed up food prices and so far there is little evidence that it is reducing overall carbon emissions.”

Lieberman and Loris conclude:

It should be noted that there is little to no downside risk in repealing the ethanol mandate, as well as the generous tax credits and protectionist tariffs that also tilt the playing field in favor of corn ethanol use. To the extent that there is a valid economic case for fuel ethanol, it will continue to be used even in the absence of government dictates and incentives.

Article printed from The Foundry: Conservative Policy News from The Heritage Foundation: http://blog.heritage.org

URL to article: http://blog.heritage.org/2008/05/16/allow-free-market-to-inform-proper-level-of-ethanol-use/

URLs in this post:

[1] identify: http://www.heritage.org/Research/EnergyandEnvironment/wm1925.cfm

[2] study: http://www.ces.purdue.edu/extmedia/ID/ID-346-W.pdf

[3] has acknowledged: http://www.npr.org/templates/story/story/php?storyId=89545855

[4] study: http://www.ifpri.org/pubs/fpr/pr18.pdf

[5] argues: http://www.oxfam.org.uk/applications/blogs/pressoffice/2008/04/oxfam_and_care_call_for_fundam.html

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