Thursday, July 24, 2008

Common Sense vs. Ethanol

As I wrote in a previous post, "Adding up the Cost of Ethanol," the production of ethanol takes more fuel than it creates, it uses 10,000 liters of water for the 5 liters it returns, and it is made by using food crops. As you can imagine, this is about one of the worst strategies for decreasing dependence on foreign oil.

Finally, responsible adults have started to speak up. Governor Rick Perry of Texas has asked the US EPA " temporarily waive regulations requiring the oil industry to blend ever-increasing amounts of ethanol into gasoline." according to the New York Times. His contention is that ethanol is causing food prices to sky rocket, including animal feed. Of course, farmers and ethanol producers don't want any waiver.

Some big names have lined up on both sides of this issue. "Senator Kay Bailey Hutchison, Republican of Texas, has introduced legislation calling for a freeze of the mandate at the current level, saying it “is clearly causing unintended consequences on food prices.” The measure is co-sponsored by 11 other Republican senators, including John McCain, the presumptive presidential nominee." Some could argue that these Senators are in the pocket of ranchers and the preeminent boogie man, "Big Oil."

That same argument can be applied by those who are against the waiver, namely Senator Chuck Grassley of Iowa. He has been a major recipient of ADM largess. Grassley has stated that support of this waiver is "treasonous." Sure, treason. Good grief!

There is another way to look at this, though. Corn farmers are claiming that fuel costs, as well as those for fertilizer have gone up, thus his prices have to go up to cover his costs. That is reasonable. They also claim that they geared up to meet the regulations and demand for ethanol. If that demand changes because of a change in regulation, then they are stuck with way too much corn. While I sympathize with argument, hey, that's business. How did every liquor manufacturer feel when Prohibition went into effect? The same is true for Freon and other things that regulation has changed the market for.

So what does all of this mean? Probably not much. Oil is still expensive. Anything that uses petroleum and its associated products are going up in price. With or without ethanol, the cost of a bushel of corn will probably stay fairly high, because of the cost of fuel and fertilizer. However, it is good that folks are finally catching on that ethanol is a loser.

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