Saturday, December 31, 2011

Congress Lets Ethanol Subsidies and Tariffs Expire

Ethanol subsidy expires; local effect unknown

Hooray for some fiscal responsibility!  Congress allowed a $6 billion corn subsidy to expire and a tariff on Brazilian ethanol to die with it.

This is good for several reasons.

*Firstly, with our massive deficit and national debt, cutting wasteful spending should be a priority and this is a biggie in terms of uselessness.  $6 billion is a drop in the bucket as far as cutting spending is concerned, but one has to start somewhere.  After all, many drops and the bucket is filled.  :)

*Secondly, corn ethanol takes crops that could be used for food and turns them into gasoline.  This drives up the cost of corn and makes the poor pay higher food prices, both at home (where it's less of an issue) and abroad (where it is more).  Ethanol production in Brazil, however, uses stuff leftover from processing sugar (cane fibers and various syrups) to make fuel, so real food isn't wasted.  In any event, even if more sugar could be distilled from the stuff used to make ethanol fuel, sugar is much less of a necessity than corn is.  One does not need sugar to survive, but one definitely needs staple grains.  This is one area where I actually agree with Fidel Castro.  And lest anyone think I'm some left-winger, so does The Economist.  Both the bearded tyrant in Havana and The Economist think Brazil's ideas are better.

*Thirdly, this might be a sign the corn lobby and the sugar lobby aren't as strong as they used to be.   According to one of my former professors at the University of Georgia, the sugar lobby has pushed for high tariffs on sugar that made it cheaper to use high-fructose corn syrup in soda.  Here's a link corroborating this.  And some material from the government too, lest you think the first site is too ideological.  Ending a tariff on imported ethanol made from sugar will benefit Brazilian sugar producers--who've integrated sugar and ethanol production--and I'm sure the American sugar lobby doesn't like that At All.

However, without the subsidy, I suspect ethanol made from sugar will be more competitive now and it will be in the American sugar producers' interest to borrow the Brazilian technique and put it to work here.  If they can grab a big chunk of the American fuel market, they won't need tariffs and quotas to protect themselves from foreign competition.  Getting rid of those will in turn benefit sugar producers in other countries, to whom increasing exports is a matter of survival.

*Fourthly, with the tariff gone, the Brazilians will be able to sell us more of their ethanol and use the profits to increase their own production, which in turn might eventually lead to lower gas prices here.  If we're going to be importing energy resources, they should be from responsible countries like Brazil and not unstable or unfriendly places in the Middle East.

So good on Congress for letting some unnecessary spending expire and making our trade with Brazil just a little bit freer.  And good for the corn-ethanol people for not putting up too much of a fight.

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