Ethanol's concealed costs.(biofuels)

ITEM: The Kalamazoo (Mich.) Gazette reported on February 11, "Not so long ago, operating cars, trucks and tractors on the byproducts of corn, soybeans and sugar beets seemed like science fiction. Today it's so mainstream that President Bush has called for allocating about $13 billion in his 2008 budget for the research, development and production of alternative fuels. He wants to reduce U.S. gasoline consumption by 20-percent in 10 years. Bush is looking to cut American dependence on foreign oil while creating markets for U.S. companies and farmers."

CORRECTION: Ethanol has many uses and certainly can be helpful in providing energy in some circumstances. However, when the government gets into what amounts to the moonshine business, it distorts markets, leading to a variety of negative results.

Subsidies and government mandates are driving the ethanol market, with politicians and lobbyists making the determinations about fuel production for the United States--not supply and demand. There were about 110 ethanol refineries running at the beginning of this year, with scores more due to come online in the next year or so. Why? Well, the leap is in no small part because the government is giving blenders a break of 51 cents per gallon to encourage production. As the Wall Street Journal has noted, that means that ethanol "typically has sold for up to 51 cents per gallon more than gasoline." (The government has also placed a 54-cent-per-gallon tariff on imported ethanol.)

Lawmakers have forced oil companies to blend their gasoline with plant-based biofuels, particularly ethanol. When you hear that ethanol is a growth industry, keep in mind that the government added about $6 billion last year in ethanol subsidies. President Bush's latest alternative-fuel program aims to increase the use of the corn-based additive to gasoline from the current 7.5 billion gallons to 35-plus billion gallons by 2017.

After instituting policies that helped hook Americans on foreign suppliers of oil, the federal government now promises to ease that addiction by subsidizing a product (ethanol) that is not economically competitive; pushes up the prices of many food staples; may increase pollution; is not as energy-efficient as gasoline; and may use more energy to produce than it generates. *

Rhetoric may be cheap, but government mandates and subsidies are not. Moreover, notes Peter Grossman in the Indianapolis Star, "corn-derived ethanol simply cannot provide a significant substitute for oil. Last year we used 14 percent of our corn crop to produce about 3 percent of all transportation fuel. To get to President Bush's goal by 2017 with corn ethanol, we'd need to use more than 100 percent of our current corn crop just for fuel." An economic professor at Butler University, Grossman notes that the expansion of ethanol production will "not only sock taxpayers with a gigantic bill, it will also push up the price of food. Corn is, after all, used everywhere. It's in animal feed, syrup, cooking oil and so on."

Increases in the prices of chicken and pork, for example, are typical examples--part of the hidden cost of government meddling. The law of unintended consequences keeps being replayed: when the government pushed more alternative fuels and additives on Detroit, it drove up the price of tortillas in Mexico. Indeed, with corn prices rising about 70 percent in the last six months, corn tortilla prices also have been jumping dramatically.