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Ethanol mandates could be costly misstep

MICHIGAN STATE (US) — While many people are willing to pay a premium for ethanol, the number is not enough to justify a government mandate for the corn-based fuel, according to economist Soren Anderson.

Federal law requires increasing volumes of renewable fuels to be blended with the nation’s fuel supply. This year, the requirement includes the use of more than 13 billion gallons of corn-based ethanol nationwide. Ethanol is more expensive to make than gasoline and must be sold at a loss or subsidized unless consumers are willing to make up the difference.

Anderson, assistant professor of economics at Michigan State University, studied the demand for ethanol, or E85, in the United States and found that when ethanol prices rose 10 cents per gallon, demand for ethanol fell only 12 percent to 16 percent on average.

“I was a bit surprised,” he says. “I was looking for this sharp decline in ethanol sales the moment the price got higher than the price of gas.”

His study, published in the Journal of Environmental Economics and Management, suggests that some people are, in fact, willing to pay more to help protect the environment.

Ethanol is a clean-burning fuel that reduces harmful auto emissions and decreases the amount of crude oil needed to satisfy the nation’s thirst for transportation fuel, according to the American Coalition for Ethanol.

But from an economic perspective, mandating ethanol doesn’t appear to be the best option, Anderson says. Not only is it expensive, but the amount of emissions it reduces might not be that large.

“If our goal is to reduce greenhouse gas emissions, this is quite a costly way to go about doing it. There are lots of other things we could do before switching over to ethanol.”

Two easy examples, he says, are giving consumers options or incentives for driving less or buying more efficient cars.

“You really want to give people the right incentives,” he says. “If we taxed fuels at a higher rate based on the amount of pollution they caused, people would tend to choose cleaner fuels—but also use less fuel overall.”

More news from Michigan State University: http://news.msu.edu/

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5 Comments

  1. Dan McCullough

    Why is it that even Professors cant get a grasp of the very basics of ethanol ?

    Ethanol as E85 is NOT mandated.. never has been . E85 is an alternative ethanol fuel to gasoline

    The only ethanol that is “mandated” is when ethanol is uses as an additive.. E10..MOST gasoline in the Gasoline in the United States has 10% ethanol in it.. of the nearly 14 billion gallons of ethanol produced in the united States this past year nearly 13 billion gallons was used as nothing more than a mandated additive..E10.. 1 billion gallons was exported and only 250 million gallons was used as an alternative fuel” like E85.

    E85 is a Choice..choice at the Pump.. E10 is where all the “mandated” volume goes..where 99% of ethanal production is

    Secondly ethanol is NOT more expensive to make than Gasoline..completely ludicrous..in fact it is so much less expensive to produce that it is selling for 70 cents LESS per gallon than gasoline (without any subsidies) is on the commodities Markets..specifically the Chicago Board of Trade http://www.cmegroup.com/trading/energy/

    Ethanol $2.26 per gallon (not subsidized..no VEETC/Blenders credit..)
    Gasoline $2.98 per gallon

  2. Peter

    Turning potential food into fuel is the stupidest boondoggle of the millennium. When producers turn out ethanol that doesn’t take food out of peoples’ mouths it might be a good bargain..

  3. Les

    Is it not the case that corn growers receive a raft of other subsidies and direct payments that will continue to indirectly subsidize ethanol?

    http://farm.ewg.org/progdetail.php?fips=00000&progcode=corn

    In any case, ethanol has pretty much nothing going for it. The environmental benefit is doubtful, it takes food out of people’s mouths (thanks Peter) and together with biodiesel it accelerates land clearing and habitat destruction in developing countries.

  4. Jay Westrick

    1- Ethanol is made predominantly from yellow Corn #2. Yellow Corn #2 is an animal feed not food. You are welcome to eat it but you would starve to death because it is indigestible by humans. So we are talking about animal feed not food.

    2- When ethanol is made a by product call Dried Distiller Grains are produced. It is a high protein animal feed that resales cheaper than corn on a per ton basis. The typical plant will return 40% of the weight of corn back to the market as animal feed.

    3- Ethanol has caused the price of Corn to rise (WRONG). The global demand for corn has risen causing the price of corn to go up. The main reason is the rise of economic status of industrializing nations around the globe. As India, China and other countries become more wealthy their people demand more beef, chicken, milk, eggs and pork. All these animal products need to be feed first.

    4- More land was cultivated with corn in the United States in 1940 than today. The American farmer has increased the productivity of their land @10% a year since 1940. This increase in productivity has lessened the total area under cultivation.

    5- At $6.00 a bushel of corn a farmer receives no subsidies. Just gets paid the market price for his crop.

    Ethanol, the more you know, the more you will buy.

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