Energy: Ethanol is Marginal

An article about ethanol is this subhead, "Shucking the hype yields a kernel of truth—oil will still dominate." No surprise there, but it is a point sometimes lost in the rhetoric about alternative and renewable energy. The article, "Ethanol: Economic Gain or Drain," is in the July issue of The Regional Economist, published by the Federal Reserve Bank of St. Louis (www.stlouisfed.org/publications). The article says,
"Greater use of ethanol would make a dent in the demand for oil, albeit a pretty small dent. (Using all corn grown in the U.S. to produce ethanol would replace only 12 percent of the gasoline used for transportation in the U.S.) Moreover, many experts contend that burning ethanol will lower greenhouse-gas emissions.
"These potential benefits must be weighed against the potential costs of ethanol production noted above. But there might be other costs.
"Furthermore, the long-term benefit from ethanol production depends on its viability when compared to conventional fuels. A repeat of the 1980s’ decline in oil prices would most probably lead to a considerable departure of economic resources from ethanol production. This development could create pressure to extend or increase the federal tax credit and the import tax. Hence, meeting the federal mandates set by EISA might require even larger subsidies and government outlays than are currently anticipated.
"One way to partly meet the federal (ethanol use) mandate would be to remove the federal import tax. This would allow imports of ethanol from Brazil, which is the world’s second-largest ethanol producer. According to a recent report by the Congressional Research Service, Brazilian ethanol enjoys a significant cost advantage relative to U.S.-produced ethanol. Moreover, since Brazilian ethanol is made from sugar cane, allowing increased imports from Brazil would lessen the potential supply pressures on U.S. feed grain production noted above."