Ethanol’s ablest advocate comes up short.
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ZUBRIN REALLY beggars belief when he claims “Adam Smith would love ethanol,” because it provides such steep fuel savings for such a small subsidy — “only” about $4 billion dollars a year. But that figure is misleading because it only counts one of many handouts enjoyed by ethanol manufacturers, the blender excise credit.
In fact, government support is provided at all stages of biofuel production and consumption, and by both federal and state governments. According to the Global Subsidies Initiative, when all the subsidies are added together, ethanol will cost the American taxpayer between $9 billion and $11 billion in 2008, more than double Zubrin’s estimate.
Federal subsidies increase with production. The blender’s excise credit that costs us “only” $4 billion now, when production is at 9 billion gallons, will cost $28 billion in 2022, when production will be at 36 billion gallons. And remember, that’s only one of the subsidies.
Zubrin says government support for ethanol “allows for the elimination of $8 billion in preexisting government-funded crop price supports, such as payments to farmers not to grow crops.” He seems to confuse counter-cyclical payments (“price supports”), which pay farmers when commodity prices fall below a target price, with the Conservation Reserve Program (CRP), which pays annual rent to farmers who agree to take part of their land out of production.
In either case, what Zubrin seems to be saying (he provides no details) is that if ethanol policy increases corn prices, then counter-cyclical payments to corn farmers will decline and corn farmers will withdraw acres from the CRP. But note that the supposed savings materialize only if ethanol policy does what Zubrin assured us it doesn’t do — inflate corn prices.
Even if corn farmers withdraw acreage from the CRP, there would be little or no taxpayer savings, because the program operates under an acreage cap that applies collectively to all eligible crops. If Farmer Jones pulls 100 acres of corn out of the CRP, that simply frees up space for Farmer Brown to enroll 100 acres of wheat in the program. There will be no “ethanol dividend” for struggling taxpayers.
UNDAUNTED, ZUBRIN wants to press on to “energy victory” over OPEC, with a bigger ethanol mandate, and the requirement that all new cars sold in the U.S. be flex-fuel vehicles, that can run on gasoline or biofuels.
Zubrin sees this requirement (costing about $100 per car) as a way to create a robust global competition among motor fuels, “protecting not just America but the entire world from escalating looting by the oil cartel.”
If only it were so easy to change the world! It is, at the very least, counter-intuitive to claim that ethanol, which makes up 1.5 percent of world liquid fuels, is already inflicting a $180 billion annual penalty on OPEC and that ethanol, which accounts for almost half the increase in global production of major food crops, has no effect on grain prices in global markets.
The results of ethanol policy are dismal. Oil prices are at an all-time high, OPEC’s profits are at an all-time high, and ethanol production is at an all-time high. There is simply no evidence that ethanol is eroding OPEC’s economic power or enhancing U.S. energy security.
There’s a better solution — market-driven innovation. Auto companies have the biggest possible incentive to develop affordable automobiles that abolish pain at the pump. It’s called $130 oil. Unlike Zubrin’s proposal, the automakers’s road to energy victory won’t fleece consumers or lead to manufactured starvation.
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