Speaking of corporate welfare, the cover story in new issue of Regulation, "Neither Renewable nor Reliable" by James Eaves and Stephen Eaves, devastates the environmental and "energy security" arguments for corn-based ethanol. According to Eaves and Eaves, corn-based ethanol is simply not capable of displacing a significant proportion of gasoline consumption, nor would a shift to corn-based ethanol protect markets from volatility due to supply disruptions. They conclude as follows:
When we assume the ethanol production process is fully renewable, it would take all the corn in the country to displace about 3.5 percent of our gasoline consumption — only slightly more than we could displace by making sure drivers’ tires are inflated properly. There are also ethical considerations. In particular, the United States is responsible for over 40 percent of the world’s corn supply and 70 percent of total global exports. Even small diversions of corn supplies to ethanol could have dramatic implications for the world’s poor, especially considering that researchers believe that food production will need to triple by the year 2050 to accommodate expected demand. Furthermore, ethanol would not necessarily be a more reliable source of fuel. By displacing gasoline with ethanol, we are displacing geo-political risk with yield risk, and historical corn yields have been about twice as volatile as oil imports. Finally, because high temperatures can simultaneously increase fuel demand and the cost of growing corn, the supply response of ethanol producers to temperature-induced demand shocks would likely be weaker than that of gasoline producers.
Note: The Regulation article is based upon a longer study forthcoming in Energy Policy.