Biofuel: A Corny Solution

The government’s policies regarding environmental protection seem to follow the “one step forward, two steps back” approach. This would certainly explain the latest debacle concerning the promotion of our emerging ethanol economy. After years of pushing for the widespread adoption of biofuels through expensive legislation subsidizing producers of ethanol, Congress is now backpedaling on the revelation that biofuel consumption actually produces more pollution than burning gasoline. Just last week, Speaker of the House Nancy Pelosi sent a letter to President Bush urging him to consider the reform of current biofuel policies. This news is especially devastating for those that touted biofuels as America’s best solution for saving the environment while curbing its appetite for foreign oil.

Two articles in the latest February issue of the journal Science contest the idea that renewable energy and emissions reduction go hand in hand. Biofuel is produced when vegetable crops, most commonly corn and rapeseed, are converted into ethanol and mixed into a gasoline blend. It was thought that biofuels would be somewhat environmentally neutral since the crops’ absorption of carbon dioxide would offset the carbon dioxide created in its use as a fuel. However, these articles find that if the environmental impact of the creation of ethanol in all its steps of production is considered, then the use of these biofuels releases 93 times more carbon dioxide than they replace through the reduced use of conventional fossil fuels.

This is because the conversion of natural forests and grasslands to farmland for ethanol-bearing crops is inherently an environmentally dirty process. Not only is carbon being released through the burning, clearing, and plowing of mature ecosystems, but the loss of these trees and other plants means that the burden of absorbing carbon dioxide would rest on the newly planted cornfields. Additionally, crops that require nitrogen fertilizers, like corn and rapeseed, also increase the levels of nitrous oxide released into the atmosphere. Like carbon dioxide, nitrous oxide is a greenhouse gas. However, nitrous oxide also doubles as a destroyer of atmospheric ozone. All this results in an environmental mess even before the ethanol ever gets into your car.

Even if the main goal of biofuels is to reduce the use of non-renewable sources of energy rather than reduce greenhouse emissions, cursory research indicates that an ethanol economy is simply not feasible. Anytime the government subsidizes an industry or enterprise, it is very likely that industry produces a product that consumers would normally deem to be too inferior or costly. Without government aid, these industries could not compete with alternative goods offered in the free market. Subsidizing any good is essentially a government attempt to manipulate the market into supporting an industry that it believes to be beneficial to the public.  However, betting against the judgment of the market is risky because by definition free markets provide the mechanism by which products are judged and distributed in the most theoretically efficient way possible.

In the case of corn-based biofuels, the market was right. Consider these assorted facts:  95% of the ethanol in the United States comes from corn, the government spends 51 cents per gallon of ethanol produced from qualifying refineries in addition to the subsidies it pays out to produces of corn who elect to make it into ethanol, it takes 7 barrels of oil to produce 8 barrels of corn ethanol, and if the entire United States corn crop was converted into ethanol, it would only offset gasoline consumption by merely 12%. All of these figures suggest that an ethanol economy is financially unsustainable and cannot replace the current oil-based economy.

You can also thank the ethanol economy for the record high prices of food. As many economists have noted, ethanol subsidies have enticed farmers to devote a third of the entire national corn harvest to ethanol production. The diminished supply of corn for food predictably pushed corn prices upward. However, due to corn’s many uses in the food industry, the increase in the price of corn has caused a domino effect that has made everything from soda to beef more expensive to produce. These costs have been shifted to the consumer as the government’s decision to value fuel over food bears its bitter fruit.

Herein lies the problem with government attempts to solve any problem by reshaping the market’s purchasing behavior. The wrong decisions almost always have unforeseen consequences which hurt the consumer. In the long run, subsidies hinder economic development when they keep inefficiently produced goods competitive with superior products. It would be tragically ironic if artificially cheap ethanol fuel was keeping in check the development of better alternative sources of fuel.

Certainly, environmental issues are something that the government should be concerned about. Pollution represents a public harm that actors in the market do not take into account when producers assess the costs of production. Government is therefore justified in taking measures to provide for the public safety when it enacts laws that attempt to limit environmental damage. However, this does not give the government a blank check. If anything, the government should be even more careful in devising environmental legislation once it has been established that this problem merits government action. The tendency for bad policies to snowball is too great a risk for the public to allow their creation.

It is clear that the government made the wrong call and it is time to stop throwing money at a non-solution to the energy problem. The taxpayers and the environment simply cannot afford any more of these rescue attempts.

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[Ali W]

spot on