Expensive, wasteful ethanol can’t solve our problems

By Jerry Taylor & Peter Van Doren, Sun-Times, January 27, 2007

In his State of the Union address on Tuesday, President Bush spoke a lot about energy independence and alternative energy sources like ethanol. According to the president, ethanol is the magical elixir that will solve virtually every economic, environmental and foreign policy problem on the horizon. In reality, it’s enormously expensive and wasteful.

Lie No. 1: Ethanol will lead to energy independence. If all the corn produced in America last year were dedicated to ethanol production (and only 14.3 percent of it was), U.S. gasoline consumption would drop by only 12 percent. For corn ethanol to displace gasoline in this country, we would need to appropriate all cropland, turn it over to corn-ethanol production, and then find 20 percent more land on top of that for cultivation. The U.S. Energy Information Administration believes that the practical limit for domestic ethanol production is about 700,000 barrels a day — a figure they don’t think is realistic until 2030.

Lie No. 2: Ethanol is economically competitive now. According to a 2005 report by the U.S. Agriculture Department, corn ethanol costs an average of $2.53 to produce, or several times what it costs to produce a gallon of gasoline. Without the subsidies, costs would be higher still.

Lie No. 3: Ethanol reduces gasoline prices. If you lived in urban areas that used reformulated gasoline last summer — that’s the environmentally “clean” gasoline required for areas with air pollution problems — you might have paid up to 60 cents a gallon more for gasoline than you would have otherwise. That’s because the federal government required oil refineries to use 4 billion gallons of ethanol in 2006 regardless of price.

Lie No. 4: Ethanol is a renewable fuel. According to a group of academics from the University of California at Berkeley who published in Science magazine, only 5 to 26 percent of the energy content of ethanol is “renewable.” The balance of ethanol’s energy actually comes from the staggering amount of coal, natural gas and nuclear power necessary to produce corn and process it into ethanol.

Lie No. 5: Ethanol reduces air pollution. A review of the literature by Australian academic Robert Niven found that, when evaporative emissions are taken into account, E10 (fuel that’s 10 percent ethanol and 90 percent gasoline, the standard mix that constitutes the bulk of the ethanol available today) increases emissions of total hydrocarbons, non-methane organic compounds and air toxics compared to conventional gasoline. The pollution is actually worse for E85.

Lie No. 6: Ethanol reduces greenhouse gas emissions. At best, E10 reduces greenhouse gas emissions by zero to 5 percent; pure ethanol by 12 percent. The International Energy Agency, however, estimates that it costs about $250 to reduce a ton of greenhouse gases this way, or more than 10 times what Yale economist William Nordhaus thinks is economically sensible given the economics of climate change.

Lie No. 7: Ethanol subsidies are necessary to ”level the playing field.” Petroleum subsidies are less than $1 billion a year — six to eight times less than ethanol subsidies — and work out to about 0.3 cents per gallon.

Lie No. 8: Switchgrass (a k a ”cellulosic ethanol”) will set us free. Guy Caruso, head of the U.S. Energy Information Administration, noted in a speech last December that the capital costs associated with cellulosic ethanol production were five times greater than those associated with conventional corn ethanol production. Estimates like that are a bit soft, however, because there is no cellulosic ethanol industry at present, so data are hard to come by. Betting the farm on an industry that doesn’t yet exist to produce a product that is known to be staggeringly expensive isn’t the best use of tax dollars.

If ethanol has commercial merit, it doesn’t need the subsidy. If it doesn’t, no amount of subsidy will bestow it. And that’s the truth.

Jerry Taylor and Peter Van Doren are senior fellows at the Cato Institute. Van Doren is also editor of Regulation magazine.