More Evidence on Why Ethanol Really IS More Than Just Hype

From the NY Times article “U.S. Unlikely to Use the Ethanol Congress Ordered“:

Two years ago, Congress ordered the nation’s gasoline refiners to do something that is turning out to be mathematically impossible. To please the farm lobby and to help wean the nation off oil, Congress mandated that refiners blend a rising volume of ethanol and other biofuels into gasoline. They are supposed to use at least 15 billion gallons of biofuels by 2012, up from less than seven billion gallons in 2007.

But nobody at the time counted on fuel demand falling in the United States, which is what has happened during the recession (see chart above, data here). And that decline could well continue, as cars become more efficient under other recent government mandates.

At the maximum allowable blend, in which gasoline at the pump contains 10 percent ethanol, updated projections suggest that the country is unlikely to be able to use all the ethanol that Congress has ordered up. So something has to give. “The market is full,” said Jeff Broin, chief executive of Poet, a company in Sioux Falls, S.D., that produces ethanol.

When Congress wrote the rules, in 2007, gasoline consumption had been growing for years, and it looked as if the nation would be able to use considerably more ethanol in the future. Gasoline consumption hit a peak of 3.4 billion barrels that year (see chart above). But gasoline demand fell in 2008, after soaring gas prices early in the year were followed by the economic crisis. Consumption was slightly less than 3.3 billion barrels last year, and it could end 2009 at about the same level. With consumers buying more fuel-efficient cars these days, and carmakers rushing to bring even more of those to market, gasoline demand may not recover much in coming years, even as ethanol production soars.

MP: As I have said before: Anytime you have prominent left-wing economist and NY Times columnist Paul Krugman agreeing that “demon ethanol” is a “scam” with such a diverse group as the Wall Street Journal, Reason Magazine, the Cato Institute, Investor’s Business Daily, Rolling Stone Magazine, the Christian Science Monitor, The New York Times, John Stossel, The Ecological Society of America, the American Enterprise Institute, the Brookings Institution, the Heritage Foundation, George Will and Time Magazine, you know that ethanol has to be one of the most misguided public policies in U.S. history.

From RollingStone Magazine in August 2007:

Ethanol is not just hype — it’s dangerous, delusional bullshit. Ethanol doesn’t burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5% of our gasoline consumption — yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World.

So why bother? Because the whole point of corn ethanol is not to solve America’s energy crisis, but to generate one of the great political boondoggles of our time.

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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