...in all the decades ethanol has been subsidized, Washington has never rigorously applied cost-benefit analysis to ethanol's myriad preferences.
A study I authored with Caroline Cecot, just released by the AEI-Brookings Joint Center, attempts to fill that gap. The results, based on a recent Environmental Protection Agency report on the economics of mandating the production of alternative fuels, strongly suggest that that the case for ethanol is lacking.
We used EPA numbers to calculate the environmental benefits of ethanol, along with the security benefits linked to its potential to reduce oil imports. We then compared these benefits with the direct costs of producing and distributing ethanol, the environmental costs associated with its manufacture and combustion, and the cost of the slew of incentives offered to refiners and corn farmers.
If annual production increases by three billion gallons in 2012 -- a plausibly modest number when the EPA made its own calculations -- we estimate that the costs will exceed the benefits by about $1 billion a year. If domestic production reaches the more "optimistic" Energy Department projection for that year, net economic costs would likely top $2 billion annually.
Our analysis is deliberately weighted to give ethanol the benefit of a doubt. For example, we assume that, on balance, ethanol from corn reduces greenhouse emissions, even though recent science suggests that substituting ethanol for gasoline might actually have a negative impact (it increases emissions of nitrous oxide, a more potent greenhouse gas than carbon dioxide). Ethanol distilled from grasses and waste materials has a better environmental payoff, but has much higher direct production costs.
Even if ways are found to make alcohol cost-effectively from otherwise worthless sources of carbon, the process would undermine local air quality as it slowed global warming. Though ethanol is likely to reduce tailpipe emissions of carbon monoxide and toxic hydrocarbons including benzene and formaldehyde, the extra nitrogen oxides react in sunlight to form smog.
Saturday, November 24, 2007
"Ethanol's Bottom Line"
Excerpt from this Wall Street Journal article:
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1 comment:
Ethanol subsidies have always been rational, you are simply following he wrong rationales.
The senatorial system creates a strong bias of power towards the sparely populated states (the farm states). ADM and other large corporations that benefit from these sorts of programs know how to use this built in bias.
Do all the rational analysis you want from the standpoint of economic benefits or pollution and you will miss the point.
These subsidies make perfect, rational sense given the senatorial system and the narrow self interests of the over represented farm states and the corporations and individuals that can benefit from this bias.
The ethanol subsidy and all the like ones will never disappear as a class unless you change the constitution to create a system of proportional representation based on population such as the house has. I just don't see that ever happening.
Shedding light on the situation may eventually help but only when some other interests that are hurt by the ethanol nonsense manage to concentrate enough power within the political system to do something about it.
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