Ethanol's a Big Scam, and Bush Has Fallen for It: Kevin Hassett
2006-02-13 00:06 (New York)
(Commentary. Kevin Hassett is director of economic policy
studies at the American Enterprise Institute. He was chief
economic adviser to Republican Senator John McCain of Arizona
during the 2000 primaries. The opinions expressed are his own.)
By Kevin Hassett
Feb. 13 (Bloomberg) -- In his State of the Union address,
George W. Bush called for an intense effort to develop more
efficient alternative fuel sources.
``We will also fund additional research in cutting-edge
methods of producing ethanol, not just from corn but from wood
chips and stalks or switch grass,'' the president said. ``Our
goal is to make this new kind of ethanol practical and
competitive within six years.''
Bush should have known better. In a capital city that is
full of shameless political scams, ethanol is perhaps the most
egregious. There has probably never been a specific topic around
which so much disinformation is spread. Ethanol lowers our
reliance on fossil fuels! Ethanol helps clean the environment!
Ethanol will save the family farm!
Such sound bites work wonders when it comes to raising
money. And the amount involved is mind-boggling. The federal
government subsidizes ethanol producers with a tax credit of 51
cents per gallon of fuel ethanol; those subsidies will total
about $1.4 billion this year.
Corn Money
The Energy Department and the Agriculture Department spend
tens of millions of dollars every year on biomass-based energy
research and development. This is in addition to the billions of
dollars -- more than $4 billion in 2004 -- the U.S. provides in
subsidies for the production of corn, from which most
domestically produced ethanol is derived.
If you look at the facts, the spending makes no sense
whatsoever.
Consider how ethanol is produced. Corn is grown, harvested,
and delivered to an ethanol plant. There the corn is finely
ground and mixed with water. After fermentation, a mixture that
is about 8 percent ethanol must be repeatedly distilled until it
is 99.5 percent pure ethanol.
Growing and harvesting the corn, and heating and reheating
the fermented corn to produce ethanol of a high enough quality to
replace some of the gasoline in your car requires an enormous
amount of energy. How much?
Adding It Up
A recent careful study by Cornell University's David
Pimentel and the University of California at Berkeley's Tad
Patzek added up all the energy consumption that goes into ethanol
production. They took account of the energy it takes to build and
run tractors. They added in the energy embodied in the other
inputs and irrigation. They parsed out how much is used at the
ethanol plant.
Putting it all together, they found that it takes 29 percent
more energy to make ethanol from corn than is contained in the
ethanol itself.
It's not that corn is a bad source for ethanol. The other
sources mentioned by the president look even worse. Wood biomass
takes 57 percent more energy to produce than it contains. Switch
grass takes about 50 percent more.
Ethanol is just a highly uneconomical product. Some other
authors have disputed these findings, but they invariably come up
with more favorable calculations by excluding some of the costs.
Absurd Waste
Indeed, no matter how expensive fossil fuels become, ethanol
will never be economical because it takes so much fossil fuel to
produce. It might be possible that someday technological
processes will emerge that make production of ethanol less
reliant on fossil fuels, but the billions in subsidies to this
point have left us with a process that is still a disgrace and an
absurd waste of energy and taxpayers' money.
At least ethanol reduces pollution, right? Maybe the
subsidies are worthwhile because they will buy us a cleaner
environment.
Guess again. First, corn production, according to Pimentel
and Patzek, ``uses more herbicides and insecticides than any
other crop produced in the U.S.''
And the Environmental Protection Agency has cited ethanol
plants themselves for air pollution. In a letter to the
industry's trade group, the EPA noted that pollution was a
problem in ``most, if not all, ethanol facilities.'' These plants
produce large quantities of waste water as well.
Ethanol Cash
Ethanol itself contributes to air pollution. Cars emit more
air pollution when they run on gasoline containing ethanol than
they do when running on gasoline alone. Our environment would be
greener if we stopped relying on ethanol.
The arguments against ethanol are so persuasive you have to
ask yourself: Why does Congress keep throwing money at it?
The answer appears to be that elected officials from corn-
growing states such as Iowa and Illinois see it as a cash cow for
their constituents.
The ethanol business is a pretty good source of cash for the
lawmakers too. The political action committee of Archer Daniels
Midland Co., the world's largest producer of corn-based ethanol
fuel, gave $69,000 to federal candidates for the 2004 elections,
according to the Center for Responsive Politics.
In 2002, before such unlimited ``soft money'' donations were
outlawed, ADM gave $1.8 million to political parties. Its
political action committee gave close to $200,000 to individual
campaigns and committees.
ADM spread the money around wisely that year, to
beneficiaries ranging from Republican House Speaker Dennis
Hastert of Illinois to Democratic Senator Tom Harkin from Iowa.
Beneficiaries in 2004 included Hastert as well as Democratic
Senator Kent Conrad of North Dakota.
Where's the Race?
Let's summarize the economics this way. Exxon Mobil Corp.
had $36 billion in net income last year. If an alternative fuel
source could be developed that would compete for that business,
the potential rewards would be enormous. There would be a race to
get there first, and firms would be lining up to do ethanol
research. We wouldn't need a subsidy.
But even with decades of federal subsidies, private
companies still haven't developed an economical ethanol, and
public sector progress is minimal.
Bush's speech holds out hope that finally, after all those
wasted billions, we are just six years away from a quality
product. But it seems unlikely that the magic formula will soon
be discovered. Folks have been distilling things for years. How
much technical progress could the process possibly undergo?
The fact is, ethanol is a scam that allows farm states to
extract resources from everybody else and pretend to be virtuous
while doing so. We would all be better off if Congress just wrote
these states a check with no strings attached. At least then we
wouldn't be wasting all that energy.
--With reporting by Kristin Jensen in Washington. Editor: Winski
(jmg/jto)
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