Ethanol Subsidies Popular But Harmful

According to an op-ed by the Economist, the current policy of subsidizing corn-based ethanol is beyond stupid.

The publication says sugar cane ethanol is more energy and cost efficient (as I've said several times before), and that we should drop the tariff on Brazilian sugar cane. The Economist doesn't mince words in stating that we should focus on cellulosic ethanol for the future:

In the meantime, the U.S. should trash its silly policy. If it stopped taxing good ethanol and subsidizing bad ethanol, the former would flourish, the latter would wither, the world would be greener and the U.S. taxpayer would be richer.

The Economist quotes the International Institute for Sustainable development as estimating that the ethanol subsidies cost U.S. taxpayers somewhere between $5.5 billion and $7.3 billion a year. We can argue that keeping the money in the U.S. is better than shipping it to the Middle East.

We can grow sugar cane in the southern U.S. (Louisiana, Mississippi,
Florida, Alabama and parts of Texas), but these poorer states don't have the politicians ears in the same way as the midwest farmers.

Greg Page, the president of Cargill, the world's largest agricultural company, agrees that the subsidy system is screwed up, and that we should let the natural price of ethanol (about $4 per gallon) compete in the market. Rather than this indirect tax, why not just raise the tax on the gasoline instead and use the money for research? Oh wait, that would be transparent government, we can't have any of that...

Congress will soon debate a farm bill which adds $1.6 billion for cellulosic ethanol research, but keeps the current subsidy system in place. This legislation will probably fly through without a peep from Congress or the public.