Tag Archives: Jay Yarrow

Ethanol – $4 billion boondoggle

I bet that $4 billion is understating the case.

From what we’re reading in a report released by the Congressional Budget Office, ethanol can’t become profitable on its own, it barely reduces our use of foreign oil, its benefit to the environment is questionable and its cost to the government is massive–$4 billion to be precise.

In the report the CBO says that increased use of the ethanol between April 2007 and 2008, accounted for 10 to 15 percent of the rise in food prices during that same period. The 10-15% increase in food prices attributed to ethanol means that federal spending on the Supplemental Nutrition Assisteance Program and child nutrition programs went up by $600 to $900 million.

Also in the report, the CBO says firms that blend ethanol with gasoline receive a tax credit of 45 cents per gallon. The cost of that credit in forgone tax revenue was $3 billion in 2007. If that remains steady for this year, it means that the total bill for ethanol production could be $3.9 billion. Factor in an increase in $75 million to the WIC (another government food program) and you’re basically at $4 billion for ethanol.

For all that spending, the benefits appear to be minimal. As far as reducing greenhouse gas emissions is concerned, the Argonne National Labratory says it only reduces them by 20% in the short term on average compared to gasoline. In the long run it becomes less clear, because increasing the amount of land used to farm corn means that there are fewer trees around to absorb carbon.

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