Ethanol Is Not the Answer
Most government officials have a soft spot in their hearts for the historically important agricultural sector and companies such as Archer Daniels Midland (ADM) and Bunge Ltd. (BG). It turns out, however, that these companies could be doing a lot better if government officials had a better understanding of science and economics.
Consider ethanol, an alternative biofuel trumpeted by, among others, Vice President Gore. Until recently, it was the fuel of choice for the progressive cognoscenti. Such supporters said ethanol would displace petroleum products that often prop up unsavory dictatorships around the world and politically conservative petroleum companies at home. Ethanol would diminish our dependence on foreign oil, create jobs in the agricultural sector, and reduce greenhouse emissions, they added. It was hailed as the great friend of the environment.
In recent months, a series of papers by academic scientists have called into question whether ethanol is in fact environmentally friendly. The prestigious academic journal Science, hardly a tool of foreign dictators or American oil companies, recently published articles concluding that shifting agricultural activity to ethanol production and away from other uses would increase greenhouse gases. One article was authored by Professor Timothy Searchinger of Princeton University and a team of eminent scientists. The other paper was written by Joseph Fargione of the Nature Conservancy and another team of distinguished scientists.
Many researchers have long recognized that corn-based ethanol is not environmentally friendly, and have placed great hope in cellulosic ethanol based on switchgrass. The Science articles conclude that even the alternative cellulosic ethanol causes increased greenhouse emissions relative to other land uses. The scientists still find value in biofuel production, but primarily from waste products, not the focus of most current biofuel activity in America.
Other studies find that increased agricultural activity necessary for ethanol production both diverts scarce water resources upstream and deposits harmful fertilizer products downstream that threaten the ecology of the Mississippi River and the Gulf of Mexico. In a paper soon to be published in the Stanford Law & Policy Review, Robert Hahn of the American Enterprise Institute finds that under current policies, the costs of ethanol production substantially exceed any possible benefits.
The obvious solution is to stop producing — or at the very least stop subsidizing — ethanol. In America, government programs, tax credits, and subsidies have made ethanol an increasingly popular, but still costly, fuel. Without government intervention, there would be little ethanol — and little associated increased greenhouse gases and other environmental harms from ethanol. Tax credits alone subsidize 51 cents a gallon of ethanol. Other government programs also subsidize ethanol, particularly new mandated biofuel requirements for automotive fuels. Year after year, Congress passes requirements for more, not less, ethanol and other renewable fuels.
If America's energy and environmental policy were governed by scientists, ethanol would receive little if any subsidy. But federal energy and environmental policy is guided by many concerns, mostly political.
With the notable exception of Senator McCain, both Republican and Democratic presidential candidates campaigning in Iowa and other agricultural states touted ethanol as the cure for much of what ails America. Curiously, they do not give the same stump speech in New York's Manhattan as they do in Manhattan, Kan.
What ails America is not to be found in New York or in Kansas, but in Washington, where decisions are driven not by science or economics but by politics. The case of ethanol is but one of many examples. Under current policies, we are cursed with both the harms from greenhouse gas emissions and a misallocation of resources in the agricultural sector. This need not be the outcome. Private businesses such as Archer Daniels Midland and Bunge, and millions of farmers and agricultural workers across America, could profit even more if our government were better informed by science.
A former FCC commissioner, Mr. Furchtgott-Roth is president of Furchtgott-Roth Economic Enterprises. He is organizing a seminar series at the Hudson Institute. He can be reached at hfr@furchtgottroth.com.
