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Con: Update ethanol subsidies to pressure OPEC

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John D. Graham
August 14, 2010
EDITOR’S NOTE: The writer is addressing the question, Should Congress eliminate federal subsidies for ethanol?

The U.S. government supports domestic ethanol development to reduce America’s oil dependence. Additionally, ethanol weakens OPEC’s control over world oil prices, reduces tailpipe pollutants and supplies extra octane that improves engine operation.


America’s pro-ethanol policies include tax credits for businesses, support for research and development, tariffs on imported ethanol, rules requiring refiners to blend small amounts of ethanol with gasoline, and rules requiring automakers to produce cars that can run on gasoline or a mix of 85 percent ethanol and 15 percent gasoline (E85).


Due to large swings in oil prices, which are partly manipulated by OPEC, a domestic ethanol industry wouldn’t survive without government support. Countries with strong ethanol industries such as Brazil have pro-ethanol policies.


Now is a particularly dangerous time to eliminate federal support. OPEC’s power will rise as the global economy recovers and as a strong appetite for oil in China and India continues to be satisfied.


If pro-ethanol policies were terminated immediately, U.S. taxpayers might benefit in the near term, but, in the long run, the real beneficiaries would be the oil barons in the Middle East, Venezuela and Russia.


Critics argue that more oil is used growing corn and making ethanol than is saved by replacing gasoline. In fact, the energy sources for producing ethanol are primarily natural gas and coal. Each 10 gallons of ethanol displaces at least five gallons of gasoline—accounting for the fact that ethanol has somewhat less energy content than gasoline.


It’s valid to argue that hybrid and diesel engines reduce gasoline use at a lower cost than ethanol. But even more oil can be saved with hybrid engines running on E85 and trucks using biodiesel mixtures.


Critics claim that the sharp rise in corn prices was due to the increased use of corn-based ethanol. In reality, the big culprit was the growing demand for food worldwide.


While U.S. ethanol policies contributed to the rise temporarily, the effect could have been reduced if blending requirements had been phased in more gradually, allowing more time for corn supplies to respond.


Some fear that land clearing creates more carbon dioxide, which exacerbates global warming. Modernized ethanol refineries supported by federal subsidies are now minimizing the land-use effect through more efficient farming and refining practices.


As new federal subsidies facilitate use of cellulosic ethanol made by producing ethanol from wastes such as the stalk of the corn and the cob, there will be less demand for land.


In addition, ethanol is particularly effective in reducing tailpipe emissions of carbon monoxide, nitrogen dioxide, and particulate matter. Ethanol pollutants such as formaldehyde are not harmful at the small concentrations projected for America’s cities.


Although it’s unwise to pull the plug on ethanol, America’s policies should be modernized. Refueling stations need stronger incentives to provide at least one E85 pump. Tax credits should be aimed at consumers who use E85 instead of businesses that already have a mandated market for their products. Tariffs on imported ethanol should be gradually reduced so the domestic industry has time to prepare for intensified competition.


Research and development support should be expanded to encourage innovation in the production of ethanol from agricultural waste, while rules requiring automakers to offer cars that can run on E85 should be tightened.


In order to minimize the environmental footprint of greater land use, subsidies for producers and farmers should encourage modern practices that maximize corn yield per acre and ethanol yield per bushel.


Commercial-scale demonstrations on how to make ethanol from the cob and stalk would ease concerns about food prices and land use.


Although America’s pro-ethanol policies are far from ideal, they should not be eliminated. Instead, they should be modernized to keep the competitive pressure on OPEC while improving urban air quality and reducing the environmental footprint of ethanol production.


John D. Graham is dean of Indiana University’s School of Public and Environmental Affairs and author of “Bush on the Home Front.” He served as administrator of the Office of Management and Budget under President George W. Bush, and prior to that spent 16 years at Harvard’s School of Public Health. Readers may write to him at SPEA, Indiana University, 1315 E. Tenth St., Bloomington, Ind. 47405.

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