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Monday, May 5, 2008
Ethanol, gas tax and designer fuels
The Atlanta Journal-Constitution
One of the dumbest policy decision Congress and the Bush Administration have made is to put food in the gas tank.
Barack Obama on Sunday joined John McCain and a group of two dozen Republican senators who want the Environmental Protection Agency to ease requirements passed by Congress last year to blend nine million gallons of biofuels into gasoline. By 2022, the requirement would be 36 billion gallons. In 2000, it was three billion gallons. Most of that is corn-based ethanol.
Obama said rising food prices may force the decision to relax the requirement. “What I’ve said is my top priority is making sure people are able to get enough to eat,” he said on NBC’s “Meet the Press” “If it turns out we need to make changes in our ethanol policy to help people get something to eat, that has got to be the step we take.”
Hillary Clinton, on ABC’s “This Week,” spoke to the issue, too. “What we need to do is accelerate the research into farm waste and into other cellulosic plant materials. Because, I think, instead of using the corn, let’s figure out if we can use the corn cob,” she said. “Let’s figure out if we can use the corn stalk. Let’s figure out what other kind of food, you know, waste we can use.”
When the biofuel mandate was first imposed, corn sold for about $2 per bushel. Now it’s above $5. About a quarter of the corn crop goes to ethanol. Eliminating it could reduce corn prices by 20 percent, by some estimates. About $15 billion of the $22 billion increase in food costs in 2007, or $130 per household, is related to the increase in demand for corn as fuel, according to Perdue University researchers Corrine Alexander and Chris Hurt.
Food costs increased by 4 percent in 2007, highest since 1990, the chief economist of the U.S. Department of Agriculture, Joseph Glauber, told Congress last week. Projected increase for 2008 is another 4 percent to 4.5 percent.
In addition to the food cost increase, taxpayers provide a subsidy of 51 cents per gallon for ethanol. A bill now under debate in the Senate would reduce that to 45 cents, but would create a new subsidy, at $1.01 per gallon, for cellulosic ethanol, made from wood chips, switchgrass, citrus waste and other non-food waste.
No question Congress should throw in the towel on corn-based ethanol subsidies, It was a dumb policy from the start and it always will be.
On a related subject, suspending the federal gas tax of 18.4 percent, as McCain and Clinton suggest, is another pointless exercise. If anything, the requirement for designer fuels, which increase the cost of gasoline in the Atlanta area by about 5 cents per gallon, should be suspended while gas hovers at $3.50 to $4 per gallon.
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