The New Alchemy

I thought most of the president's speech was sensible, but I had to blink in disbelief at his energy proposal vis a vis ethanol. Ethanol has been the supposed energy solution of the future for the past 30 years, primarily useful to politicians currying favor with Midwest farmers and Iowa primary voters. Now Americans are to believe in a new alchemy---an attempt to turn golden corn into energy gold. WSJ:

Ostensibly, the great virtue of ethanol is that it represents a "sustainable," environmentally friendly source of energy--a source that is literally homegrown rather than imported from such unstable places as Nigeria or Iran.

That's one reason why, as Jerry Taylor and Peter Van Doren note in the Milken Institute Review, federal and state subsidies for ethanol ran to about $6 billion last year, equivalent to roughly half its wholesale market price. Ethanol gets a 51-cent a gallon domestic subsidy, and there's another 54-cent a gallon tariff applied at the border against imported ethanol. Without those subsidies, hardly anyone would make the stuff, much less buy it--despite recent high oil prices.

That's also why the percentage of the U.S. corn crop devoted to ethanol has risen to 20% from 3% in just five years, or about 8.6 million acres of farmland. Reaching the President's target of 35 billion gallons of renewable and alternative fuels by 2017 would, at present corn yields, require the entire U.S. corn harvest.

There've been recent stories in the local press about the price of corn tortillas going up, a hardship for some families.

And as the Journal points out, ethanol causes smog, a bit of an issue in urban areas, especially humid ones like Chicago, which has been associated with breathing problems for some.

Then there's the pesky issue of the energy usage that goes into making the fertilizer that contributes to the high yield of corn---basically consuming more energy that ethanol yields.

And you can't use pipelines, because the alcohol eats the seals.

More from the Cato Institute in an oped piece in the Sun Times, pointing out the reason Chicago has among the highest gas prices in the country (aside from local taxes):

Lie No. 3: Ethanol reduces gasoline prices. If you lived in urban areas that used reformulated gasoline last summer -- that's the environmentally "clean" gasoline required for areas with air pollution problems -- you might have paid up to 60 cents a gallon more for gasoline than you would have otherwise. That's because the federal government required oil refineries to use 4 billion gallons of ethanol in 2006 regardless of price.

So sorry, corn is not the answer to our energy needs. So let's not waste even more money on subsidies and let the market come up with real solutions.