Once subsidies and tariffs are removed, watch out
So, Bush wants massive new ethanol subsidies. He wants 35 billion gallons of "renewable and alternative fuels" — the vast bulk of which will be corn ethanol — online by 2017.
Right now, there’s basically no opposition to this push. It’s got support from industry (mainly Big Corn and Big Auto), legislators from both parties, farmers, environmentalists, national security types, and the public at large.
That’s not going to last.
It’s clear that there’s just not enough corn, or room to grow it, to get even to Bush’s relatively modest target. As corn supplies are stressed, the price of corn goes up and the economic benefit of producing ethanol starts to wane. What to do? More subsidies? It’s possible that cellulosic will ride to the rescue, but to do so it would have to undergo research breakthroughs and massive deployment in an extremely short period of time. Doubtful.
So what’s the other way to boost ethanol supply? Import it from overseas. The administration is fully aware that removing the protectionist tariffs and subsidies that favor U.S. corn producers is inevitable. U.S. Energy Secretary Samuel Bodman said "he did not see subsidies to U.S. farmers remaining in place beyond 2010 or import tariffs on ethanol beyond 2008."
How will the political dynamic change at that point? It’s difficult to predict such things, but I’d be willing to wager that all hell breaks loose.
When you introduce competition from cheap ethanol imports:
- You lose the support of the farm lobby and thus the support of midwestern legislators — this is an enormous amount of pork on the line for them.
- You lose the support of Big Corn, which was practically created by federal subsidies.
- You lose the support of environmentalists, who probably won’t cotton to ethanol imported on oil-burning ships from countries that clear rainforests to grow it.
- You lose the support of the national security crowd, which probably wasn’t envisioning simply shifting our energy dependence to a different set of countries.
At that point, who’s left? What’s the benefit? Where’s the support?
It may not be as cut-and-dried as all that. But it’s nonetheless clear that much of ethanol’s support is tied to the very economic and political arrangements that limit its usefulness.
Once the global market for ethanol is opened up, its unified domestic political support in the U.S. will fragment. It will come as a surprise to no one to learn that this strikes me as excellent evidence that ethanol is at best a bridge or niche fuel. Electrification’s the way, baby!