Ethanol

It's been a few years since U.S. ethanol subsidies have generated chatter (remember all of those Fidel Castro op-eds?).  In the wake of the vote in the U.S. Senate to remove subsidies for corn-based ethanol, the New York Times has a very good op-ed.  The upshot is that it is costly, drives up food prices, and serves no good economic purpose.

Eating up just a tenth of the corn crop as recently as 2004, ethanol was turbocharged by legislation in 2005 and 2007 that set specific requirements for its use in gasoline, mandating steep rises from year to year. Yet another government bureaucracy was born to enforce the quotas.

To ease the pain, Congress threw in a 45-cents-a-gallon subsidy ($6 billion a year); to add another layer of protection, it imposed a tariff on imported ethanol of 54 cents a gallon. That successfully shut off cheap imports, produced more efficiently from sugar cane, principally from Brazil

Here is perhaps the most incredible part: Because of the subsidy, ethanol became cheaper than gasoline, and so we sent 397 million gallons of ethanol overseas last year. America is simultaneously importing costly foreign oil and subsidizing the export of its equivalent.

That’s not all. Ethanol packs less punch than gasoline and uses considerable energy in its production process. All told, each gallon of gasoline that is displaced costs the Treasury $1.78 in subsidies and lost tax revenue.

Meanwhile, the Latin Business Chronicle notes that Brazil has a friend in the Tea Party.  For the first time ever, there are congressional interests potentially strong enough to overcome the longtime obeisance to farm states like Iowa.  This is also a reminder of how screwy our system of presidential primaries is.