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What Not to Do 101: Ethanol Policy

Posted By Nicolas Loris On April 9, 2009 @ 8:10 am In Energy | Comments Disabled

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. A Congressional Budget Office (CBO) report released yesterday confirmed this [1]:

Increased use of ethanol accounted for about 10 percent to 15 percent of the rise in food prices between April 2007 and April 2008. In turn, increases in food prices will boost federal spending for mandatory nutrition programs such as the Supplemental Nutrition Assistance Program (SNAP, formerly known as Food Stamps) and the school lunch program by an estimated $600 million to $900 million in fiscal year 2009.”

And its supposed environmental benefit [1]?

Last year the use of ethanol reduced gasoline usage in the United States by about 4 percent and greenhouse-gas emissions from the transportation sector by less than 1 percent. The future impact of ethanol on greenhouse-gas emissions is unclear. Research suggests that in the short run, the production, distribution, and consumption of ethanol will create about 20 percent fewer greenhouse gas emissions than the equivalent processes for gasoline. In the long run, if increases in the production of ethanol led to a large amount of forests or grasslands being converted into new cropland, those changes in land use could more than offset any reduction in greenhouse-gas emissions—because forests and grasslands naturally absorb more carbon from the atmosphere than cropland absorbs.”

The full CBO report is here [2]. The Heritage Foundation’s Ben Lieberman has detailed comments on ethanol here [3].

Recognizing the unintended consequences of the ethanol mandate (detrimental effects on both the economy and the environment), some Members of Congress have taken a second look at America’s ethanol policy [4]. Although it is very rare to repeal a law and repealing the 6 billion gallons by 2022 is highly unlikely, one step in the right direction would be to remove protectionist tariffs that unnecessarily crowd out cheaper sugar cane–based ethanol from Brazil.

Perhaps the more important lesson to take away is we shouldn’t go down this road with other energy sources. Chairman Henry Waxman (D–CA) of the House Energy and Commerce Committee and Chairman Edward Markey (D–MA) of the House Energy and Environment Subcommittee recently introduced draft legislation of a comprehensive energy bill [5]. The draft includes a renewable electricity standard (RES) that requires 6 percent of electricity to come from renewable energy by 2012. This requirement will increase to 25 percent in 2025.

The only reason mandates are put in place (on top of subsidies and tax breaks) is because renewables are too expensive to compete otherwise. Before going down the same road by mandating wind, solar and other renewable sources of energy, legislators should fully absorb the consequences and lessons learned from ethanol before implementing more bad policy.

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

URL to article: http://blog.heritage.org/2009/04/09/ethanol-policy-what-not-to-do-101/

URLs in this post:

[1] confirmed this: http://cboblog.cbo.gov/?p=228

[2] here: http://www.cbo.gov/ftpdocs/100xx/doc10057/04-08-Ethanol.pdf

[3] here: http://www.heritage.org/Research/Energyandenvironment/wm1912.cfm

[4] have taken a second look at America’s ethanol policy: http://www.heritage.org/research/energyandenvironment/wm1925.cfm

[5] draft legislation of a comprehensive energy bill: http://www.heritage.org/Research/EnergyandEnvironment/wm2378.cfm

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