Ethanol boondoggle (revisited)

An op-ed I wrote for this newspaper in September 2006 titled "The ethanol boondoggle" elicited two spirited responses. U.S. Kit Bond described my article as "highly misleading or, in some cases, patently false." And corn industry lobbyist Gary Marshall wrote, "This finance professor for a state-funded university is not seeing the whole picture."

From 1995 to 2004, taxpayer-financed subsidies to corn growers totaled $41.9 billion, with Missouri farmers receiving $1.3 billion. In Missouri, more than 50 percent of the total subsidy went to the top 5 percent of recipients, predominantly big corporate operators. Predictably, the subsidy results in overproduction of corn. One way to get rid of the surplus is to refine it into ethanol and require consumers to burn it in their vehicles. Unfortunately, ethanol is unprofitable without subsidies and tariffs.

In 2005, Senator Bond and U.S. Sen. Jim Talent co-sponsored the Energy Policy Act that provided tax subsidies and required oil companies to purchase 7.5 billion gallons of ethanol per year by 2012. In July 2006, Gov. Matt Blunt signed a bill that mandates all gasoline sold in Missouri to contain 10 percent ethanol by 2008, making Missouri the third state in the country to have a captive commercial ethanol market.

Since then, communities have sued to block the construction of corn ethanol plants that consume millions of gallons of water from local aquifers. Publications such as Time magazine have concluded that corn ethanol actually increases carbon dioxide in the atmosphere. Food riots have broken out in Haiti, Bangladesh and Egypt because of soaring grain prices.

Last week Joseph Glauber of the USDA predicted that corn prices will continue to rise because of "expanding use for ethanol." This is bad news for low-income Americans who spend a larger proportion of their income on corn-derived food items. It is life or death for the 2 billion people on the planet who live on less than one dollar a day.

U.S. Sen. John McCain, along with 24 other senators, is urging the EPA to consider using its broad waiver authority to eliminate the biofuels mandates. Even U.S. Sen. Barack Obama, who suggested increasing mandates while campaigning in Iowa, admitted May 4 on "Meet the Press" that "people getting something to eat" is a higher priority than biofuels.

In fairness to Bond and Marshall, we expect politicians and lobbyists to bring home the bacon for their constituents, even when it requires building a bridge to nowhere. What is most disturbing about the corn ethanol boondoggle is the large number of scientists, economists, environmentalists and policy experts who knew it was a bad idea but chose to remain silent or even promote it. One can only wonder how much of the billions of dollars in taxpayer funded "scientific research" is little more than pork-barrel propaganda.

The domestic and international political agenda suggests we are embarking on a new era of government intervention to address the negative influence of globalization, energy costs, climate change and health care costs. For those of us who have less faith in government's ability to solve problems, the corn ethanol boondoggle does little to inspire confidence.

Corn ethanol was a relatively simple call. Complex problems like global warming will require government to use sound analysis if it is to achieve the unpopular but necessary tradeoffs. Experience suggests that it might be a good idea to stock up on sun screen and look for property in Canada.

Michael Devaney is a professor in the Department of Economics and Finance at Southeast Missouri State University.