CBO Blasts Ethanol

An article published last Thrusday by the Washington Times suggests that federal support for corn ethanol has large negative consequences and a dubious impact on the environment. It seems that the Congressional Budget Office is catching up to the many critics of ethanol (for some of our own criticism of ethanol, feel free to check here). This should be the final nail in the coffin for aggressive corn-based ethanol policies.

The report indicates that the misplaced excitement over ethanol cost Americans up to 0.8 percent extra in food prices in 2008, and could account for $600 to $900 billion dollars of food stamp spending this year, not to mention the effect on inflation more generally. Meanwhile, the report suggests that the resulting reduction in US greenhouse gas emissions is under 0.34%. Plus, this may be a generous estimate. The government has been criticized in the past for overvaluing ethanol’s coproduct, dried distiller’s grain and for failing to consider changes in behavior. The CBO itself partially concedes this:

“If increases in the production of ethanol led to a large amount of forests or grassland being converted into new cropland, those changes in land use could more than offset any reduction in greenhouse-gas emissions.” (from the Washington Times article)

Short of a major innovation in cellulosic ethanol, there does not seem to be much promise regarding ethanol as fuel. Lucky, with this report there is growing evidence that the government is beginning to take notice. Instead of clinging to piecemeal, poorly aimed subsidies, world should move forward with a cap-and-trade plan.

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