The Senate has finally voted to end ethanol subsidies. So what will happen in the House? And conference? And will the White House go along?
17 thoughts on “A Rare Fit Of Sanity On The Hill”
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The Senate has finally voted to end ethanol subsidies. So what will happen in the House? And conference? And will the White House go along?
Comments are closed.
But wait! The ethanol in gasoline mandate still exists so without further action, gas prices increase…maybe 5 cents. They did cut the tariff on Brazilian ethanol which is cheaper than ours.
Yes, government can usually be counted on to close the barn door quite firmly after the horse is gone.
I’ll drink to that.
This won’t help much unless they get rid of the mandate, which this doesn’t. I want that damn ethanol out of my gas.
I’d be very much in favor of ethanol, *IF* we were making it in a cost-competitive way that was actually (unlike our current mess) a large producer of net energy. It’d be worth higher food prices if we could replace most of our oil imports (nearly a trillion a year staying in the US that isn’t now). but, corn-based ethanol just isn’t even close to viable for this; it doesn’t produce anywhere near enough energy compared to energy taken.
Maybe bio-engineered switchgrass has some hope; theoretically (not yet in practice!) it could produce many times the gallons per acre of corn, enough that by replacing about 2/3 of our grain crops with it, we’d solve the oil import issue (good for both fiscal and strategic reasons). Drawback; we’d lose our food exports, but the economic value of that pales in comparison to what we’d save on oil imports.
Food prices would rise, but the economic benefit of a trillion a year staying in the US would be worth it, I think. I hope they can make this (or something like it, or economically viable coal-to-methanol, etc) work someday, but I’m sure that if it ever becomes viable, it won’t be due to some government program.
I’m against government mandates – like this one – on general principle. Gubbmint shouldn’t be picking winners and losers, or distorting the market.
But let me play Devil’s Advocate on one point:
One objection is that lots of the the corn grown goes to ethanol, so that reduces corn for feed stock and food stock thusly driving up food prices.
But doesn’t basic supply/demand theory say that that is a temporary thing? That if the demand is high the supply will catch up?
If so then this objection isn’t important.
Yeah!!! Us peasants may soon be able to afford to buy corn again.
Gregg-
There’s only so much land on which to grow corn, and, if you have any sense as a farmer, you still rotate in soybeans every 3 years to fix nitrogen levels in the soil.
However, in this whole situation, pure supply/demand has little to no comparison to reality, inasmuch as almost every farmer still has grain in their bins throughout the year, and they never actually sell it all, because, thankfully, at least some of them are still old and wise enough to understand that “bumper crops” cannot happen EVERY year.
We’re actually one bad storm or one bad growing season away from even more insane food and ethanol prices, honestly. The significant amounts of rain falling throughout the grain belt throughout May and June have left a lot of farms flooded and/or un-plantable.
John,
but you are overlooking the acreage that is NOT being planted to keep the corn price up! That’s a whole different subsidy system. And all of that acreage is being subsidized to keep it out of planting. Subsidized with MY tax dollars, and yours. To the best of my knowledge, no one would keep heir land out of a crop, to keep the price UP, and do it without the subsidy. Doing so is a net loss for the farmer, right?
If you’ll go look up the statistics, we aren’t growing ALL we can. If we were, no one would be getting a DIME of subsidy money from the USDA. And no, not all land is good for corn, and yes, smart Farmers will rotate their crops. Others will spend the $$$ for nitrogen chemicals for their farm. That’s a business decision. But the idea that we are growing all of ANY crop on best available land right now seems crazy on the face of it.
The last year for which I can find statistics is 2004. We paid $2.4 billion in grain subsidies, most of it for corn. That was BEFORE the ethanol subsidy if memory serves. So we’re double subsidizing some of this.
Even if the demand gets high enough that the “don’t plant here” subsidies no longer make economic sense for an individual farmer, if that demand comes up after, say, June 15th or so, there’s not much the farmer can do about it for another 9-ish months.
And even if the demand comes BEFORE June 15th, farmers have to work through the system to actually buy the seed to plant. Pardon the tin-foil-hattery, but it wouldn’t surprise me if the government had a hand in Monsanto, et. al.’s supply chains, ensuring that they only give out enough seed as the government deems “necessary and proper” to plant for the year.
if the demand is high the supply will catch up?
Of course. But at a higher price.
Carl Pham Says:
” “if the demand is high the supply will catch up?”
Of course. But at a higher price.”
…until the supply is high then the price comes down, no?
Gregg Says:
“…until the supply is high then the price comes down, no?”
Only if the supply out-paces the demand. If it comes up to meet the demand, the high price will remain. That’s kind of implied by the “equi” part of “equilibrium”, as in “equilibrium price”.
until the supply is high then the price comes down, no?
Of course not. Or rather, generally not. Certainly in some cases you can get an initial overshoot in price when conditions are rapidly changing. For example, if a hurricane wipes out the municipal water system then there will be a short-lived spike in the price of bottled water left over from the previous conditions.
But such things are outside the realm of equilibrium theories of economics, just as temperature transients during rapid energy flow are outside the realm of equilibrium thermodynamics.
As a general rule, price rises when demand rises because the previous price is insufficient to pay for the more expensive resources needed to produce additional supply. Id est, all the good land for corn is already planted, and if you want more corn you have to plant poorer quality land that needs irrigation or has a lower yield, whatever. The price has to rise enough to bring in these more expensive resources to provide the extra supply. It won’t decrease, it’s a new equilibrium.
Perhaps you are thinking about technological change, which can alter the price by reducing the cost of resources. If, for example, a new cheaper way to irrigate comes in, or someone engineers more drought-tolerant corn, then the cost of supplying corn drops and the price at the same demand will drop.
And certainly the conventional wisdom is that the pace of technological change is roughly proportional to the demand, because more people working in the supply business means more minds turning over the problems, because you can spread out a larger R&D cost among a bigger volume of product, and because the increased price at higher demand means there is room for invention to make money, since the price can be reduced but not by the full amount the invention saves you, with the inventor pocketing the difference. (Yay!)
“Perhaps you are thinking about technological change, which can alter the price by reducing the cost of resources.”
No I was just thinking about overshoots.
I would like to see some info on the net energy balance obtainable from growing corn – for fuel purposes in particular, because in that use its nutritional value is irrelevant.
In any case, there are other biofuel technologies that could easily produce automotive fuels with much higher efficiency – jatropha seeds (which need very little irrigation) and oilbearing bluegreen algae being among them. There is also some potential for production of biodiesel from waste frying oil; the main source of this is the manufacture of goods such as potato crisps. Currently, most of this stuff is thrown away.
Admittedly, one potential problem with all of those is that they only work in diesel engines; but surely trains, trucks and agricultural machinery currently use diesel already?
“Currently, most of this stuff is thrown away.”
This is basically no longer true. At least in plenty of places. In Washington State, individual fast food restaurants often have dumpster-like containers marked “Contents owned by BiofuelCorpWhatever, this is not a trash bin, theft will be prosecuted under the felony fuel-oil theft statue WA98374whatever.”
And any chip factory has to undergo enough crap to “dispose of” waste oil, they’ve leapt at the chance to sell it to someone, anyone.
The niche for ‘free’ biodiesel is essentially filled, or well along the path. Last I read, Seattle’s consumption of biodiesel was higher than the state chip&fry oil could manage and they’re getting the oil shipped from farther away.
Al, so I’m wrong. I have rarely been so glad to be proved wrong. But the point about ethanol from corn being possibly the worst possible alternative remains.
On the general point about making use of waste products, from the industry I’m in (not for much longer, to my regret) I can offer two examples; liquid whey and crustacean (prawn and crab) shells. Probably because of tightening regulations, both the cheese and dressed shellfish industries were faced with increasing costs for waste disposal and both of them found useful outlets for their products. Whey protein supplements (used a lot in bodybuilding) and glucosamine supplements result.
There is an entire town in Denmark (IIRC) in which much of the town’s industry and a lot of its space heating is based on byproducts from the power station at its heart. Every house is heated by bottom-end cooling water, as are several acres of greenhouses, and there is a factory making plasterboard with just about all its raw material (gypsum) being a byproduct of the SO2 scrubbers of the power plant. Exhaust gas from the powerplant is pumped into the greenhouses, too.
Try as I might, I can’t find anything wrong with the ideas behind this situation.