Framing the Ethanol Debate
Ethanol proponents need to justify ethanol subsidies along the lines of national defense or creating a lower-cost industry for the future.
Compiled by staff
Published: Apr 25, 2006
Want to keep federal and state tax subsidies for ethanol production? Then we need to come up with a new rationale for their existence, according to two University of Illinois agricultural economists.
"Rather than saying ethanol production creates jobs or lowers the price of gas, ethanol proponents will need to justify the subsidies along the lines of national defense or creating a lower-cost industry for the future," says David Bullock, an associate professor in the Department of Agricultural and Consumer Economics.
"Are there enough environmental benefits from the use of ethanol and other biofuels to justify the subsidies? Are there good reasons to subsidize the Midwestern rural economy at the expense of the rest of the country?" Bullock asks. "These questions are unanswered at this point."
Bullock termed the politics surrounding biofuels production as "colorful" and "complicated." Both proponents and opponents have made claims sometimes founded in questionable research. The situation is complicated by avoiding discussions of the trade-offs inherent in government support for a specific industry or region.
Additionally, policies that on the surface seem to only impact bioenergy markets actually affect many markets. "There are many markets linked to bioenergy markets," Bullock says. "When you raise the price of corn, for instance, by subsidizing ethanol production, you impact many other markets."
Net job creation claims for ethanol are based on speculative economic models, he notes. These models don't account for the lost tax revenue (from the rebates given ethanol producers) that could be used for other needs.
Winners and losers
"When you implement these policies you have winners and losers," he says. "The Midwestern rural areas are clearly winners because the tax dollars that support these programs are coming from other areas of the country as well.
"When are such policies appropriate, and when are they wasteful? Government subsidizes many things - national defense, national parks, education, infrastructure, and targeted industries - and none of these are necessarily bad things. But you have to have reasons for doing so."
The idea that ethanol will (by itself) produce lower gas prices is false, he notes. "It will be a long wait before U.S. farmers can produce energy more cheaply than the Saudis can pull crude oil out of the desert," Bullock says. "Pulling it out of the desert is cheaper than trying to grow energy through corn.
"And if the price of crude oil does go down too low, the price of ethanol won't pay the producers' costs to grow corn."
Those involved in promoting biofuels need to clearly define the reasons for the redirection of resources and funds involved in government support for a specific industry, says Bullock.
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Tagged: ethanol, biofuels, bioenergy, grow corn
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