US Government crazy about Ethanol

The Senate bill calls for annual ethanol production to rise to 36 billion gallons by 2022, up from less than 5 billion gallons in 2006. Let's set aside the question of whether that's enough ethanol to wean us from an oil addiction that has us consuming more than 140 billion gallons of gasoline each year. What are the economic implications of trying to meet the Senate target?

The U.S. Department of Agriculture projects that 12.5 billion bushels of corn will be produced this year. A bushel of corn yields about 2.7 gallons of ethanol, so we'll harvest enough corn to distill nearly 34 billion gallons. However, if we used all of our corn for ethanol, what would we feed our livestock? Where would we get high-fructose corn syrup to sweeten our sodas? It's not an all-or-nothing proposition, but even with increases in corn acreage and yields, the demand for ethanol is already crowding out other corn products.

For years, ethanol's share of corn production hovered around 5 percent. But since 2000, that percentage has grown. Last year, about 20 percent of the American corn crop was used for alcohol-based fuels, and the USDA projects that it will be more than 30 percent by 2016. Even at 30 percent it's unlikely that we'll meet the Senate's goal using corn ethanol. But perhaps that's just as well, because it'll be very hard to build the necessary distillation and distribution capacity by 2022.

Jason E. Berkes
www.jasonberkes.com