May 7, 2008; Page A18

Speaking of energy (see here), we can’t help but give more attention to a recent press release from some of the Senate’s leading liberals. Charles Schumer, Byron Dorgan, Bernie Sanders, Bob Casey and Mary Landrieu are demanding that President Bush tell OPEC nations to increase their oil supplies or risk losing arms deals with the United States. The Senators say U.S. consumers need the price relief that only increased oil production can bring.

Yes, that Senator Schumer and that Senator Dorgan, both of whom voted against increasing U.S. oil production because they couldn’t abide drilling across 1% of Alaska’s wilderness. Yes, that Senator Casey, who has called for mandatory reductions in emissions of carbon dioxide. At least Senator Landrieu of Louisiana has fought to allow more offshore drilling in the Gulf of Mexico.

All of these Senate Democrats are willing to accept greater carbon emissions, as long as we can also outsource jobs in the petroleum industry to Middle Eastern dictatorships. The Senators do aver that “some of us have concerns in general about arming this region to the teeth,” but apparently cheap fossil fuel buys a lot of peace of mind.

A special word of concern about Mr. Sanders: He is the only avowed socialist in Congress, but the Vermonter appears to be losing his religion over $122-a-barrel oil. By signing this letter, not only is he officially recognizing the law of supply and demand; he’s also proposing a more crassly commercial trade of guns for oil than anything we’ve ever heard from the most candid realpolitician.

To top it off, the Senator whose Web site proudly proclaims that the first bill he introduced was to combat global warming now wants more fossil fuels ready for burning. We hope his friends are closely watching Mr. Sanders, in case he blows a gasket over all of this cognitive ideological dissonance.

May 5, 2008

Food for Fuel Is No Laughing Matter   [Marlo Lewis]

Cliff May begins his NRO column, “The Hunger,” by retelling an old joke about astronomers discovering a giant meteor hurtling towards Earth and the Washington Post running a headline: “World to end tomorrow: minorities and poor to suffer most.” While it is fine to make light of the media’s tendency to paint any change in market conditions as a class issue, in this case the joke doesn’t work. When we are talking about substantial food price inflation, it is the poor who suffer. Rampant food inflation also increases the number of poor people.

I don’t usually quote eco-radical George Monbiot, but on this topic nobody has said it better: “Even when the price of food was low, 850 million people went hungry because they could not afford to buy it. With every increment in the price of flour or grain, several million more are pushed below the bread line.”

Here’s a somewhat more technical explanation by Josette Sheeran, executive director of the UN World Food Program: “For the middle classes” in poor countries, the rise in food prices means “cutting out medical care. For those on $2 a day, it means cutting out meat and taking the children out of school. For those on $1 a day, it means cutting out meat and vegetables and eating only cereals. And for those on 50 cents a day, it means total disaster.”

Both World Bank President Robert Zoellick and International Monetary Fund Managing Director Domenique Strauss-Kahn warn that the increase in world food prices could force 100 million people back into absolute poverty (defined as a household income of $1 a day or less), wiping out all the gains the poorest billion people achieved during the past decade.

The price of wheat jumped 120 percent in the past year, hitting a 28-year high in February. The price of rice, the staple for billions of Asians, is up 147 percent over the past year, hitting 19-year high. The price of corn tripled in the past two years, increasing from $2.00 a bushel in January 2006, to $3.05 in January 2007, to $4.25 in January 2008, and hitting $6 a bushel in April 2008.

The consequences are appalling. El Salvador’s poor are eating only half as much as they did a year ago. Afghans are now spending half their income on food, up from a tenth in 2006. In Bangladesh, a two-kilogram bag of rice now consumes about half of the daily income of a poor family. Many Haitians try to assuage their hunger by eating toxic patties made of dirt, spice, and cooking oil.

Cliff observes that, “if you happen to be a poor farmer, increasing prices for crops should not make you ’suffer most’ - they should make you suffer less. If you can grow even a little more than you consume, you will end up with additional cash in your pocket.” Yes, and that’s why some experts used to say that a modest increase in grain prices could be a net benefit for poor countries. But steep inflation in basic staples hurts far more people than it helps.

Consider Mauritania, a country where only 0.2 percent of the land is arable and people are almost totally dependent on food imports for their survival. In the past six months, the cost of imported wheat in Mauritania soared 67 percent, cooking oil 117 percent, and rice 25 percent. Many are forced to slaughter or sell off their most valuable asset - their livestock - just to obtain or afford their next meal.

Cliff suggests that the corn ethanol mandate can’t be a big factor in the current food crisis, because “the total U.S. corn crop has increased 45 percent since 2002″ while the “amount of corn available for food and feed has increased 34 percent - after the part used for ethanol has been taken out.” These numbers may be correct, but they are misleading, because the first ethanol mandate was not adopted until July 2005.

So let’s compare total U.S. corn production with U.S. corn production for ethanol in two more relevant years - the current crop year and the crop year before the first mandate was enacted. According to the USDA, total U.S. corn production was 11.8 billion bushels in 2004/05 and will reach an estimated 13 billion bushels in 2007/08 - an increase of 1.2 billion bushels. Corn production for ethanol was 1.3 billion bushels in 2004/05 and will reach an estimated 3.2 billion bushels in 2007/08 - an increase of 1.9 billion bushels. Ethanol manufacture is consuming all the increase in total U.S. corn production, and then some.

Indeed, according to the World Bank, “Almost all of the increase in global maize [corn] production from 2004 to 2007 (the period when grain prices rose sharply) went for bio-fuels production in the U.S., while existing stocks were depleted by an increase in global consumption for other uses.” The World Bank explains: “From 2004 to 2007, global maize production increased 51 million tons, biofuel use in the U.S. increased 50 million tons and global consumption for all other uses increased 33 million tons, which caused global stocks to decline by 30 million tons.” That bears repeating: “Almost all” the increase in global corn production from 2004 to 2007 went to produce ethanol in the United States, and in the process global corn stocks declined by 30 million tons. How could that not have dramatic effects on global corn prices?

Cliff’s numbers are also misleading because they tell us nothing about the impact of the ethanol mandate on other crops such as wheat. A major reason wheat prices are so high is that wheat inventories are at record lows. Wheat inventories are low because U.S. farmers, responding to the ethanol mandate, increased corn acreage by 18 percent over the past year but increased wheat acreage by only 1 percent. Moreover, corn competes with wheat not only for land but also for customers. This means that when Congress artificially increases the demand for and price of corn, wheat farmers are able to charge more for their product and still be competitive.

The International Food Policy Research Institute agrees with Cliff that the biggest factor driving up grain prices is global income and demand growth. However, where Cliff sees transportation energy costs from high petroleum prices as the next biggest factor, IFPRI ranks it near the bottom (sixth out of seven factors). The second biggest factor, according to IFPRI, is the surge in biofuel production (see slide 14 of this presentation).

Call me a bleeding heart, but UK Prime Minister Gordon Brown has it exactly right when he endorses the World Health Organization’s view that hunger is the “number one public health threat” across the world, contributing to a third of all child deaths and 10 percent of all disease.

Congress cannot stop the Chinese and Indian economies from growing any more than it can prevent drought in Australia and the consequent drop in global wheat stocks. Congress also can do relatively little in the near-term to bring down petroleum prices. The one factor exacerbating world hunger that Congress can do something about is U.S. biofuel policy. Repealing the corn ethanol mandate would free up billions of bushels to feed people and livestock. Grain prices would fall - by an estimated 20 percent for corn and 10 percent for wheat, according to IFPRI.

When you get right down to it, the ethanol mandate is just a Soviet-style production quota system in green garb. Even the green tint is rubbing off as experts document how corn ethanol produces more greenhouse gas emissions than the gasoline it displaces, and how Europe’s biofuel directive is bankrolling rainforest destruction and species loss in Indonesia and Malaysia. Even Time magazine, a voice of global warming alarmism, now calls the U.S. and EU biofuel programs a “clean energy scam.”

If Soviet five-year plans were the height of economic folly, then what are we to make of the 2007 ethanol mandate, which established a 15-year plan, setting production quota from 2008 through 2022? Just because the mandate does not deliberately aim to starve hungry people, as Soviet policy sometimes did, does not mean conservatives should defend it or trivialize the hardship it is creating.

- Marlo Lewis is a senior fellow at the Competitive Enterprise Institute.

by Iain Murray (more by this author)

Human Events, April 30, 2008

American grocery stores are starting to introduce food rationing.  Wal Mart is restricting the amount of rice customers can buy.  In Mexico and Yemen, in Egypt and Indonesia, the poor are taking to the streets to protest massive rise in food prices as well as shortages.  A short distance from our shores, the troubled nation of Haiti is in crisis again; Haitians, dependent on U.S. grain imports, have seen those dry up and have been reduced to eating cakes of dirt.

How did this come about?  Because on top of rises in energy prices and some changes in the diets of developing world countries, we are burning a large portion of the world’s food crop in our cars’ fuel tanks, in the name of reducing greenhouse gas emissions and curing our “addiction to oil.”

Last year, Congress, with the backing of the President, increased the amount of ethanol American refineries are required to add to our gasoline, with the aim of doubling that amount by 2015.  With other ethanol manufacturing methods not ready for prime time — and burdensome trade barriers keeping out sugar cane ethanol imports — that means doubling the domestic production of ethanol from corn.

That in turn means a significant reduction in the amount of corn available to eat.  The U.S. is the world’s largest corn supplier, but the World Bank found recently that not a single grain of the increase in corn plantings since 2004 had filled anybody’s stomach.  It had all gone to ethanol.

How did this happen?  For years, ethanol was a relatively minor beneficiary of farm subsidies and small mandates that kept giant agribusinesses like Archer Daniels Midland in profit.  Then, as the mania surrounding global warming grew in recent years, ethanol came to be seen as a great opportunity for reducing carbon emissions from our vehicles.

Many environmental organizations — to their credit — recognized the problem of burning food as fuel, but at the same time they made decarbonization the sine qua non of energy policy.

The result was a perfect Washington storm: Agribusiness lobbying and environmentalist advocacy about “energy independence” came together to push ethanol front and center, from where it has gathered momentum and gained strong champions.

Al Gore, campaigning for Democratic Senator Amy Klobuchar in 2006, defended ethanol with the question, “What is so complicated about choosing fuel that comes from Minnesota farmers rather than from the Middle East?”

Quite a lot, as it turns out, Al.  The former Vice President has been a leading ethanol supporter since the 1970s.  In 1994 he cast the tie-breaking vote in the Senate that stopped a cut in ethanol subsidies.  In 1999 he called ethanol “environmentally friendly” when boasting of the Clinton/Gore administration’s plans to triple its use by 2010.

Recently, as corn ethanol’s problems have become apparent, Gore has switched to promoting cellulosic ethanol, which would make ethanol from switchgrass and the like, rather than corn, but he cannot escape responsibility for promoting corn ethanol to the point where it became the favorite fuel of politicians chasing the support of farm interests.

We’ve been down this road before.  As I detail in my book, The Really Inconvenient Truths, time and again environmentalists have latched on to one issue and one solution, talked it up to the extent that opposition to their stance was met with moral opprobrium, and then moved on to another issue as the humanitarian or environmental consequences of their campaigns became apparent.  Yet the dire effects remain.

We see it with DDT, which they banned to save birds but which has led to the deaths of millions in Africa.

We see it with the Endangered Species Act, which has led to a practice known as “shoot, shovel and shut up” as landowners kill critters listed as endangered to keep the Feds from taking control of their land.

We see it every summer with wildfires, as we strive to deal with decades’ worth of overgrowth following environmentalists’ legal victories over the loggers who used to thin out the forests and keep them healthy.

We are seeing it now with growing hunger as a result of biofuels policy.

Yet even these grim scenarios would pale compared to what awaits us if the environmentalists their way on global warming.  The humanitarian and environmental consequences of making energy more expensive will be felt not just in food prices but in job losses and increased poverty.

Recession and global starvation are hardly the recipes for a peaceful world.  Starving Parisians hated Queen Marie Antoinette for her alleged utterance, “Let them eat cake.”  Today’s equivalent cry from Capitol Hill is “Let them burn ethanol.”  Congressional leaders would do well to keep in mind what happened to Marie Antoinette.
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February 26, 2008

Something is very wrong with this picture: The United Nations’ World Food Program has been hit so hard by skyrocketing grain prices that it may be forced to cut off some food aid to the world’s poorest countries, while the United States is planning to turn record quantities of corn into automotive fuel.

The astonishing callousness of burning millions of bushels of grain in gas tanks even as global starvation worsens has apparently never occurred to Congress, the Bush administration or the remaining presidential candidates, all of whom are big boosters of ethanol. The mania for passing ever-bigger mandates on biofuels reached such a pitch last year that the 2007 energy bill called for a whopping 36 billion gallons of renewable fuels by 2022. In order to ratchet up to that level, the U.S. Environmental Protection Agency recently ordered that 9 billion gallons be blended with gasoline this year. Most of that will be ethanol made from corn; last year, the U.S. produced 5.8 billion gallons of the stuff.

Cereal grain import prices for the world’s poorest countries are expected to rise 35% for the second consecutive year in 2008, according to the U.N. Food and Agriculture Organization. Droughts and floods have reduced grain stocks, and demand is rising in part because better living standards in developing countries are bringing a change in diet — Indians and Chinese are eating more meat, so more grain is needed for livestock feed. And ethanol is making a bad situation worse. The U.S. is the world’s top corn exporter, and about a quarter of last year’s crop went to ethanol. Food prices, meanwhile, have increased so much that the World Food Program says it will have to raise $500 million more just to carry out its scheduled operations.

It needn’t come down to a choice between conserving oil or feeding the poor. The U.N. has developed a tool for assessing the impacts of biofuel production on food security, something Congress never bothered to study before passing its extravagant mandate. Until the environmental and economic effects of biofuels have been thoroughly examined, the government should stop trying to squeeze more energy out of corn cobs. Meanwhile, the U.S. is obliged to contribute more to world food aid in order to undo some of the damage it has wrought.

Myths About Breaking Our Foreign Oil Habit
By Robert Bryce
Washington Post, Sunday, January 13, 2008; B03
With oil prices still flirting with $100 a barrel, everyone is talking about the need for “energy independence.” Late last year, President Bush signed the Energy Independence and Security Act of 2007; Sen. John McCain has declared, “We need energy independence”; and Sen. Barack Obama has called for “serious leadership to get us started down the path of energy independence.”
This may all be good politics. But the idea that the United States, the world’s single largest energy consumer, can be independent of the $5 trillion-per-year energy business — the world’s single biggest industry — is ludicrous on its face. The push for energy independence is based on a series of false premises . Here are a few of the most pernicious ones.

1 Energy independence will reduce or eliminate terrorism.
In a speech last year, former CIA director R. James Woolsey Jr. had some advice for American motorists: “The next time you pull into a gas station to fill your car with gas, bend down a little and take a glance in the side-door mirror. . . . What you will see is a contributor to terrorism against the United States.” Woolsey is known as a conservative, but plenty of liberals have also eagerly adopted the mantra that America’s foreign oil purchases are funding terrorism.
But the hype doesn’t match reality. Remember, the two largest suppliers of crude to the U.S. market are Canada and Mexico — neither exactly known as a belligerent terrorist haven.
Moreover, terrorism is an ancient tactic that predates the oil era. It does not depend on petrodollars. And even small amounts of money can underwrite spectacular plots; as the 9/11 Commission Report noted, “The 9/11 plotters eventually spent somewhere between $400,000 and $500,000 to plan and conduct their attack.” G.I. Wilson, a retired Marine Corps colonel who has fought in Iraq and written extensively on terrorism and asymmetric warfare, calls the conflation of oil and terrorism a “contrivance.” Support for terrorism “doesn’t come from oil,” he says. “It comes from drugs, crime, human trafficking and the weapons trade.”
2 A big push for alternative fuels will break our oil addiction.
The new energy bill requires that the country produce 36 billion gallons of biofuels per year by 2022. That sounds like a lot of fuel, but put it in perspective: The United States uses more than 320 billion gallons of oil per year, of which nearly 200 billion gallons are imported.
So biofuels alone cannot wean the United States off oil. Let’s say the country converted all the soybeans grown by American farmers into biodiesel; that would provide only about 1.5 percent of total annual U.S. oil needs. And if the United States devoted its entire corn crop to producing ethanol, it would supply only about 6 percent of U.S. oil needs.
So what about cellulosic ethanol, the much-hyped biofuel that can be produced from grass, wood and other plant sources? Many in Congress believe that it will ride to the rescue. But the commercial viability of cellulosic ethanol is a bit like the tooth fairy: Many believe in it, but no one ever actually sees it. After all, even with heavy federal subsidies, it took 13 years before the corn-ethanol sector was able to produce 1 billion gallons of fuel per year. Two and a half decades elapsed before annual corn-ethanol production reached 5 billion gallons, as it did in 2006. But now Congress is demanding that the cellulosic-ethanol business magically produce many times that volume of fuel in just 15 years. It’s not going to happen.
3 Energy independence will let America choke off the flow of money to nasty countries.
Fans of energy independence argue that if the United States stops buying foreign energy, it will deny funds to petro-states such as Iran, Saudi Arabia and Hugo Ch¿vez’s Venezuela. But the world marketplace doesn’t work like that. Oil is a global commodity. Its price is set globally, not locally. Oil buyers are always seeking the lowest-cost supplier. So any Saudi crude being loaded at the Red Sea port of Yanbu that doesn’t get purchased by a refinery in Corpus Christi or Houston will instead wind up in Singapore or Shanghai.

4 Energy independence will mean reform in the Muslim world.
The most vocal proponent of this one is New York Times columnist Thomas L. Friedman, who argues that the United States should build “a wall of energy independence” around itself and thereby lower global oil prices: “Shrink the oil revenue and they will have to open up their economies and their schools and liberate their women so that their people can compete. It is that simple.” When the petro-states are effectively bankrupt, Friedman argues, we’ll see “political and economic reform from Algeria to Iran.”
If only it were that easy. Between about 1986 and 2000, oil prices generally stayed below $20 per barrel; by the end of 1998, they were as low as $11 per barrel. As Alan Reynolds pointed out in May 2005 in the conservative National Review Online, this prolonged period of “cheap oil did nothing to promote economic or political liberty in Algeria, Iran, or anywhere else. This theory has been tested — and it failed completely.”
5 Energy independence will mean a more secure U.S. energy supply.
To see why this is a myth, think back to 2005. After hurricanes ravaged the Gulf Coast, chewing up refineries as they went, several cities in the southeastern United States were hit with gasoline shortages. Thankfully, they were short-lived. The reason? Imported gasoline, from refineries in Venezuela, the Netherlands and elsewhere. Throughout the first nine months of 2005, the United States imported about 1 million barrels of gasoline per day. By mid-October 2005, just six weeks after Hurricane Katrina, those imports soared to 1.5 million barrels per day.
So we’re woven in with the rest of the world — and going to stay that way. Today, in addition to gasoline imports, the United States is buying crude oil from Angola, jet fuel from South Korea, natural gas from Trinidad, coal from Colombia and uranium from Australia. Those imports show that the global energy market is just that: global. Anyone who argues that the United States will be more secure by going it alone on energy hasn’t done the homework.
robert@robertbryce.com
Robert Bryce is a fellow at the Institute for Energy Research. He is the author of the forthcoming “Gusher of Lies: The Dangerous Delusions of ‘Energy Independence.’

THE  ETHANOL  CON

By Jerry Taylor

The closest thing we have to a state religion in America today isn’t
Christianity. It’s corn. Yet if this policy religion has merit, it doesn’t
need taxpayer subsidy. If it doesn’t have merit, no amount of subsidy will
bestow it.

The rationales offered for ethanol subsidies are cover stories for the real
justification for the program — the transfer of wealth from the general
public to corn farmers and ethanol processors.

Even at the most fundamental level, the data are being twisted. For
instance, we’re told that ethanol has merit because it is a renewable fuel,
yet studies find that only 5­26 percent of the energy content of ethanol is
truly “renewable.” The balance of ethanol’s energy actually comes from the
staggering amount of coal and natural gas necessary to produce corn and
process it into ethanol.

Ethanol proponents are fond of waving the bloody shirt of energy
independence. But for corn ethanol to completely displace gasoline
consumption, we would need to appropriate all cropland in the United States,
turn it completely over to corn-ethanol production, and then find 20 percent
more land on top of that for cultivation. That’s simply not going to happen.

The U.S. Energy Information Administration (EIA) believes that the practical
limit of domestic ethanol production is about 700,000 barrels per day, a
figure they don’t think is realistic until 2030. That translates into about
6 percent of the U.S. transportation fuels market 24 years hence.

Is ethanol a “silver bullet” in our war against al-Qaida and other
international bad actors? If the EIA is correct about the practical limit of
domestic corn ethanol production, the most that subsidy can do is reduce the
price of oil by about 3/10 of 1 percent. That’s unlikely to cause Hugo
Chavez, the House of Saud or Osama bin Laden to lose any sleep.

Even so, ethanol proponents claim that corn ethanol is a more dependable
source of energy than Middle Eastern crude. If history is any guide,
however, that’s flatly untrue. U.S. corn production from 1960­ to 2005 varied
almost twice as much as did oil imports over that same period.

We’re told that ethanol is good for the environment. But that too is a
distortion. When both automotive tailpipe and evaporative emissions are
taken into account, 10 percent ethanol fuel blends (E10) increase emissions
of total hydrocarbons, nitrogen oxides, non-methane organic compounds, and
air toxics (particularly acetaldehyde, formaldehyde, ethylene and methanol)
relative to conventional gasoline. Hence, ethanol contributes to urban smog
and a whole host of other air pollution problems. While it’s true that
ethanol reduces emissions of carbon monoxide, not a single city in the
United States violates federal air quality standards for carbon monoxide.

Stronger ethanol fuel blends — like E85 — are no better. According to
Stanford atmospheric scientist Mark Jacobson, universal use of E85 would
increase ozone-related mortality, hospitalization and asthma by 9 percent in
Los Angeles and four percent in the United States as a whole, relative to a
world in which the auto fleet were powered entirely by conventional
gasoline.

While it may be true that ethanol reduces greenhouse gases a bit relative to
gasoline, increasing ethanol production will almost certainly increase
greenhouse gas emissions on balance. That’s because increasing ethanol
production will invariably mean migrating from more fertile to less fertile
soils, which will, in turn, require more intensive energy inputs into the
corn-production process. A recent paper from MIT finds that once this is
built into the equation, expanding ethanol production will increase national
greenhouse gas emissions.

Regarding the subsidy matter, we hear various things from proponents
depending upon the time of day. We’re frequently told, for instance, that
ethanol is economically competitive now and doesn’t need the subsidy. But
that’s demonstrably untrue. As of mid-August, it cost $3.73 to buy enough
ethanol from Omaha’s wholesale spot markets to displace the energy contained
in a gallon of gasoline. Without the subsidies, that price would be even
higher.

On other occasions, we are told that ethanol subsidies are necessary to
“level the playing field.” But that’s sophistry. Petroleum subsidies total
less than $1 billion a year — six to eight times less than total ethanol
subsidies — and work out to about a third of a penny per gallon.

Even that’s overstating things because domestic oil subsidies don’t reduce
global marginal production costs, and thus they don’t reduce final prices.
Hence, petroleum subsidies — no matter how obnoxious — are relatively
small and do not disadvantage ethanol in the market.

But if Brazil can create a healthy and robust ethanol industry with decades
of subsidy, proponents ask, why can’t we? Yet if our definition of a healthy
and robust ethanol industry is one that can survive without subsidy, then
Brazil’s ethanol program is no model for the United States. Brazilian
ethanol is still heavily subsidized, despite claims to the contrary, and
sells for about $80 a barrel or $106.40 per barrel of oil equivalent.

The simple truth is that ethanol mandates impoverish taxpayers, increase
automotive fuel prices and — by increasing corn prices — contribute to
higher grocery bills as well. Economists at Iowa State University calculate
that 30 billion gallons of corn ethanol production a year (a figure just
short of the ethanol production mandate proposed by the Senate in energy
legislation passed in that chamber last month) would translate into a four
percent or more increase of beef, pork and poultry prices and an eight
percent increase in egg prices. U.S. food prices on the whole would increase
by more than 1.1 percent above baseline levels, which means a significantly
higher U.S. inflation rate.

In sum, it’s hard to think of a more wrongheaded and ruinous policy than the
program to subsidize ethanol. It’s time for the voters to rethink their
membership in this political cult.

Republicans Drunk on Ethanol

By The Editors, National Review

It’s a depressing ritual. Every four years, as Iowans prepare to cast the first votes in the presidential-primary season, candidates descend on the corn-covered state and discover the miraculous properties of ethanol. The latest convert is Fred Thompson, who voted against ethanol subsidies when he was a U.S. senator but now says that ethanol is “a matter . . . of national security.” What he means is that he supports increasing federal assistance for ethanol production, on the grounds that this will reduce American dependence on oil from the Middle East. But, like most arguments for ethanol subsidies, this one is spurious.

First, even the biggest of proposed ethanol supports - an increase in mandated ethanol consumption from 7.5 billion gallons a year to 15 billion gallons a year, as called for in the energy bill Congress is currently debating - would barely dent America’s oil consumption, which is approximately 150 billion gallons annually. We could plant corn from New York to California and still not produce an equivalent amount of ethanol.

Second, only around 5 million automobiles in America are “flexible-fuel vehicles” - cars that are equipped to run on a blend of 85 percent ethanol and 15 percent gasoline (known as E85). That’s out of 135 million registered passenger cars in the United States. Moreover, as the Dallas Morning News reported last year, the owners of almost all of these flex-fuel vehicles tend to fill them up with regular gas, owing to a scarcity of gas stations that sell E85. Simply mandating greater ethanol consumption won’t change that. A more drastic intervention - for example, requiring gas stations to sell E85 - would also be necessary. Some liberal groups have called for just that. Does Thompson agree with them? Conservative voters should hope not.

Thompson has cited high oil prices to defend his about-face on ethanol: “When I was in the Senate, I think oil was at $23 a barrel,” he told the Associated Press. But this is another red herring. Petroleum is a major input in the manufacture of ethanol - it is required not just to make ethanol, but to transport it to points of sale. In fact, there’s good evidence that making ethanol requires more petroleum than making gasoline does. So if high oil prices should make us want to use less oil, that’s an argument for diminishing our ethanol consumption right now, not boosting it.

None of this is to deny that there’s a legitimate market for ethanol. All gasoline is required to contain additives known as “oxygenates,” and ethanol is one of them. Gasoline blenders have turned increasingly to it since MBTE - another additive - was found to contaminate groundwater.

But the momentum behind federal support for ethanol militates toward production of far more than the market can absorb. The Energy Policy Act of 2005, which enacted the initial ethanol mandate of 7.5 billion gallons a year, encouraged the ethanol industry to increase production dramatically. Now, reports of an ethanol glut suggest that the industry has overproduced - something that tends to happen when companies make production decisions based on government mandates rather than market signals.

The ethanol glut is inefficient, but it’s bad in other ways too. The diversion of corn from use as food to ethanol production has led to higher food prices - a side-effect that has finally gotten Congress’s attention. As farmers grow more corn in hopes of selling it to ethanol makers, they also threaten to disrupt the water supply in some regions. That’s because farmers are both planting new corn on formerly uncultivated soil, and converting acres already under cultivation toward corn and away from other, less water-intensive food crops. To put the current expansion of corn production into perspective, consider that we have more corn growing on American soil right now than at any time since World War II, when the farms of Europe had been devastated by war and America was feeding two continents.

There is no excuse for Congress to bail out the ethanol industry again by doubling a mandate that should not exist in the first place. If any major 2008 presidential candidate aside from John McCain opposes this heavy-handed dirigisme, he or she has yet to say so. McCain, for his part, deserves credit for taking a clear-eyed view of ethanol subsidies - even as he jokes that he drinks “a glass of ethanol every morning.” That position on ethanol is quite possibly the most sober in Washington.

“For the urban poor, food is usually the most significant expenditure, and when people can no longer afford bread, they tend to reach for stones.”

National Review Online, September 24, 2007
Biofueling Disorder
Food for thought.

By William Yeatman

Would you believe that the weather in Indiana could trigger popular unrest in China? Global demand for fuel made out of food is growing so fast that grain supplies are becoming dangerously thin. In this market, a hiccup in agricultural production - like a drought in America’s Corn Belt - could cause food prices to skyrocket in countries like China that depend on food imports. When poor urbanites in developing nations suddenly cannot afford to eat, they just might take to the streets in anger.

Fuel from food - biofuel - has become a policy priority in developed countries because its combustion emits fewer greenhouse gas than regular unleaded gasoline. Lawmakers in Europe and North America are supporting the manufacture of biofuel with generous subsidies and production quotas, without which the industry would not be economically viable.

So across the globe, huge quantities of food are being turned into fuel. This year alone, American biofuel producers used more than 550 billion pounds of corn. By 2016, Europe is expected to turn more than 39 billion pounds of wheat into fuel each year. Last year, in more than 100 production plants across the United States, 250 million gallons of biodiesel were made from soybeans. Brazil now dedicates about half its sugar crop to the production of fuel.

This revolution in agricultural production patterns is straining the food supply at the same time that China’s extraordinary growth is transforming global commodity markets. China needs more of everything - oil, tungsten, copper… and food.

For years, China was able to grow enough to feed itself and even had enough left over to become a major exporter of grains (like corn) and oilseeds (like soybeans). Now that’s changing. China already has become the world’s leading importer of soybeans, and economists predict that China will import 25 million tons of corn annually by 2020.

Between biofuel and China, food supplies are tightening, which is why food is becoming more expensive. Global market prices for grains and oilseeds are hovering at historically high or record levels. The United Nations predicts that over the next decade, demand for food will continue to outpace supply and the cost of all grains and oilseeds will increase by 50-80-percent.

To be sure, there will be no Malthusian famine. There are tremendous gains in production to be made in the developing world, especially in China and Brazil. And technological advances to improve productivity, such as biotechnology, will mean greater yields-per-acre and enhanced crops that can grow in previously inhospitable regions. In the long term, the world’s farmers will meet demand.

In the short to medium term, however, the global supply chain is going to be a problem. A natural disaster in America or in any other major food-exporting country could send the market price of food spiraling upward.
This could cause a worldwide catastrophe. The developing world has been urbanizing for decades, resulting in unprecedented concentrations of the poor in the world’s cities. There are no sustenance farms in urban areas; food must be bought. For the urban poor, food is usually the most significant expenditure, and when people can no longer afford bread, they tend to reach for stones.

Consider the case of corn tortillas in Mexico, which gets 80-percent of its corn imports from America. Earlier this year, demand for corn-based ethanol caused the price of corn to spike, resulting in higher tortilla prices. Thousands of poor Mexicans to took to the streets in protest.

Many countries in Africa are dependent upon the global market for wheat. Egypt, for example, is the world’s largest importer of wheat. With global supplies tight, an abnormally cold growing season in a major wheat exporter like Russia or Canada quickly would push up the price of wheat on the global market and could instigate panic in African urban areas.

In China, the price of pork is politically sensitive, because urbanites there rely on pig meat for protein. Pork is so important in China that the government actually maintains a strategic pork reserve to mitigate the social repercussions of a shortage.

The cost of pork is determined primarily by the price of corn and soybeans, from which hog feed is made. As China becomes increasingly reliant on the global market for these staples, the potential grows for rapid inflation in the price of Chinese pork due to disruptions in the global supply chain of ingredients for feed. And expensive pork makes for social instability in the Middle Kingdom.

In an increasingly globalized economy, instability in a major trading partner like Mexico or China would have dire repercussions here. Are biofuels and feel-good green politics worth the risk to global order?

- William Yeatman is an energy-policy analyst at the Competitive Enterprise Institute in Washington, D.C.

• Spikes in food and feed costs
• Spikes in land costs
• Reduced competitiveness of U.S. farm exports
• Reduced global food security
• Loss of wildlife habitat
• Increased emissions of the carcinogen acetaldehyde

A copy of the study may be obtained here.