Monday, June 13, 2011

Even the U.N. Hates Ethanol

Review & Outlook 6/14/11

Another reason to end taxpayer subsidies for biofuels

Oklahoma Republican Tom Coburn believes he'll have 60 Senate votes Tuesday to end the 45-cent blender tax credit for ethanol, as well as the 54-cent tariff on imported ethanol. For Senators still on the fence, a new study suggests that the world's poor would benefit even more than U.S. taxpayers if governments stopped subsidizing the transformation of food into fuel.

The new study, requested by G-20 leaders last November, fingers biofuel subsidies as among the leading causes of agricultural price shocks. According to the report, "between 2000 and 2009, global output of bio-ethanol quadrupled and production of biodiesel increased tenfold," a spike which "has been largely driven by government support policies." The report cites forecasts suggesting that the price of coarse grains could increase as much as 13%, oilseeds by 7% and vegetable oil 35% on average each year between 2013 and 2017.

As farmers respond to artificially high prices for biofuels, farmland is diverted from crops like wheat that people consume to the feedstocks for inefficient energy production. Biofuel production now absorbs 20% of the world's sugar cane, 9% of oilseeds and coarse grains, and 4% of sugar beets—and, we'd add, more than 40% of U.S. corn production.

As food prices rise, both the quantity and the quality of food available to consumers in the developing world have decreased, says the study. The report's recommendation is clear: G-20 governments should "remove provisions of current national policies that subsidize (or mandate) biofuels production or consumption."

These economic points are familiar to readers of these columns, but what is more noteworthy is the source. The report was prepared by 10 international organizations, including the World Bank and five different arms of the U.N., such as the Food and Agriculture Organization and the International Fund for Agricultural Development. These are people who not only don't object to taxpayer subsidies of unproductive activity—their livelihoods depend on them. Yet they are unanimous in calling for an end to biofuel subsidies. Any policy opposed by both the Club for Growth and the U.N. must belong in the government boondoggle hall of fame.

Not that this will stop the biofuels lobby from fighting Mr. Coburn's modest amendment, which would save taxpayers about $6 billion a year. Growth Energy, the ethanol lobby run by retired General Wesley Clark, cites OPEC's recent decision not to increase oil production as a reason to continue propping up the ethanol industry. A press release argues that the Coburn amendment "would permit hostile countries to exert influence over our economy by blocking American motorists from choosing the only viable alternative to foreign oil: domestic ethanol."

You've got to love that "viable" bit, given that ethanol only exists because of subsidies and an annual production mandate that will be 36 billion gallons by 2022. In anticipation of losing to Mr. Coburn on tariffs and tax credits, the lobby is already pushing to expand subsidies for blender pumps and pipelines that could use fuel with an ethanol content higher than 10%. Oh, and oil imports have increased even as ethanol use has risen. The energy independence line is a long-time ethanol lobby canard.

We hope Mr. Coburn succeeds on the Senate floor, for the sake of American taxpayers, the U.S. economy, and the world's poor.

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