More Unintended Consequences Of Ethanol Mandate

I'm not the only one questioning the wisdom of blending ethanol with gasoline. It's not just the net energy gain or lose, the decreased fuel economy compared with unblended gasoline, or the problems ethanol causes in fuel systems. There's also the economic effects, particularly the always ubiquitous unintended consequences ethanol brings to the equation.

...[M]aking ethanol (grain alcohol) from corn…is a fairly straightforward and cheap process, so even without the federal subsidy, so-called “E10” gas (90 percent gasoline, 10 percent ethanol) is cheaper than straight 100 percent stuff. But instead of simply allowing refiners to mix in up to 10 percent ethanol if the market and production environment made it favorable, the law mandated a steep ramp-up to full sales of nothing but E10 in a very short time. On the surface we would move that much closer to energy independence with this law. Well and good.

The not-so-advertised reasons for the law have to do with the strength of the agricultural lobby. The E10 mandate was a tremendous windfall for everybody who grows corn. While some ethanol from corn was being used voluntarily as a fuel additive before 2007, the mandate caused this use to skyrocket. By 2011, according to the Mosbacher Institute report by economist James Griffin, 37 percent of the entire U.S. corn crop went toward ethanol production. And corn prices soared from $2.50 per bushel up to as high as $7.50.

If the only people hurt were U.S. food consumers (not everybody drives a car, but everybody eats), it would be bad enough. But the U.S. grows and sells more corn than any other nation, and much of it is exported to poorer countries, where it is a staple in many diets. While the rise in corn prices was not solely responsible for the worldwide inflation in food costs that led to food riots in many nations in recent years, the timing is suspicious, and there is no question that the EISA law led to hardships for many poor people around the world who were now even less able to afford to eat.

It's not too often those pushing for mandates look at the consequences they may create. As long as those unintended consequences don't affect them, they don't care. Call it yet another proof that crony capitalism (better yet just call it crony economics because it really has nothing to do with capitalism) always causes more harm than good because only a few benefit and everyone else pays the price, with little if any return for what they pay.