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October 5, 2007
Don't denigrate federal subsidies just because they can lead to market imbalances.
Unfortunately, that certainly seems to have happened with President Bush's initiative to boost ethanol production.
Demand for corn has gone up leading to higher prices, but limited outlets for selling ethanol - or the E85 blend - has resulted in a glut of ethanol and lower prices, according to last Sunday's New York Times.
And that is leading to cutbacks in industry plans and a probable consolidation with smaller players dropping by the wayside, according to the NYT.
Sure, the Senate Finance Committee just approved a tax bill that includes lowering the tax credit for ethanol by 5 cents to 46 cents a gallon when production exceeds 7.5 billion gallons a year which is expected by the end of this year. But it also extended a 54-cent-a-gallon tariff on ethanol imports until 2011.
It may be anathma to neocons like Bush et al, but the federal subsidy program reflects a crude form of the mixed market economics that has been so successful in Japan and other nations.
Maybe if Bush had just offered tax credits, the results would not have been so extreme. But he added protectionist tariffs, resulting in a massive buck a gallon advantage to domestic suppliers.
And prompted by that incentive, ethanol production has gotten out of hand. I mean, consider this simple fact from the NYT: Only about 1,000 pumps at the nation’s 179,000 gasoline stations offer gasoline blended with ethanol. That's "pumps" at "stations."
And none of them are in New England.
- Peter C. T. Elsworth
Posted by Peter C. T. Elsworth 
at 11:18 AM to Alternative fuels
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