Biofuel Backlash

Subsidies for biofuels in the United States have reached levels unimagined when support for an “infant industry” began in the late 1970s. Today, the infant has grown into a strapping behemoth with a powerful sense of entitlement and an insatiable appetite for ethanol’s primary feedstock: corn. In 2009, the U.S. Department of Agriculture reported a record corn harvest of 13.2 billion bushels, 9 percent larger than the harvest of 2008. Ethanol production consumed more than a quarter of that crop–enough to feed 330 million people for a year, according to the Earth Policy Institute, an environmental organization in Washington, DC.

Apart from subsidies paid to blenders of ethanol (passed along as higher prices to farmers), the industry is supported mainly by laws mandating ethanol blending, escalating from 12.95 billion gallons in 2010 to 36 billion gallons in 2022. President Obama has proposed extending this mandate to 60 billion gallons by 2030. If there is one thing the United States has an uncontested comparative advantage in producing and exporting, it’s corn. But when that corn is turned into ethanol, it requires 54 cents a gallon in tariff protection to compete with Brazilian sugar-based ethanol–demonstrating a clear disadvantage.

Doug Koplow, founder of the energy consulting firm Earth Track in Cambridge, MA, has calculated that the combination of tax credits, mandates, and tariffs will cost taxpayers $400 billion from 2008 through 2022, assuming that the mandated targets can be met. Eventually, 16 billion gallons are to come from cellulosic biofuels–yet not a drop of such fuels is now being commercially produced. If President Obama’s target becomes fact, the cumulative taxpayer cost of subsidizing biofuels will exceed $1 trillion by 2030.

It would be one thing if–as advertised–these subsidies had no adverse impact on food prices, encouraged the substitution of homegrown energy for foreign petroleum, and reduced the energy sector’s carbon footprint. But evidence suggests the opposite. Perhaps the most salient recent criticisms of biofuel policy relate to their impact on the environment. A worldwide agricultural model estimating emissions stemming from changed land use found that corn-based ethanol will nearly double greenhouse emissions over 30 years and increase greenhouse gases for 167 years.

The Environmental Protection Agency has been forced to reduce the amount of cellulosic biofuels mandated for 2010 by 94 percent–from 100 million gallons to a mere 6.5 million, all of it produced at heavily subsidized pilot plants. When cellulosic or other alternative biofuels (see “Solar Fuel,” TR10) will begin replacing today’s corn- and soybean-based fuels is anybody’s guess, but it won’t be tomorrow, and it may be never. Who really thinks the corn growers’ associations, and major ethanol producers, will hand their subsidies over to grass?

C. Ford Runge is the Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. This article is based on a study conducted with Robbin S. Johnson for the Woodrow Wilson Center for Scholars, in Washington, DC.