The first report in the Financial Times series – published Oct. 22 and 23 – highlighted the losses investors have suffered as the market for ethanol stabilized following the initial 2005 government mandate to mix the fuel with the gasoline supply. The second report illustrated the political support that has kept the failing fuel afloat.
“Investors, such as Microsoft’s Bill Gates, are sitting on billions of dollars in losses after buying into the corn-based ethanol industry that [President] George W. Bush embraced as the answer to US energy woes,” reporters Kevin Allison and Stephanie Kirchgaessner wrote.
But Bush wasn’t the only one pushing for ethanol. Congress passed the mandate in 2005 requiring 7.5 billion gallons be mixed into the gasoline supply by 2012. They doubled that goal in an energy bill in 2007, requiring 36 billion gallons by 2022. Democratic presidential candidate Sen. Barack Obama has supported ethanol, calling it “only the beginning.” His GOP opponent, Sen. John McCain, has criticized ethanol subsidies.
And the media were complicit. In May 2006, then-NBC “Today” show host Katie Couric declared corn-based ethanol was “the wave of the future.” CBS “Evening News” anchor Dan Rather said the fuel was “cheaper and cleaner” than tradition gasoline the same month. In March 2007, the NBC “Nightly News” suggested ethanol would “help rescue
“Congress and the president created a multi-billion dollar market for corn-based ethanol virtually overnight,” the report said, leading to a surge of investment culminating in late 2006. But as more ethanol plants came online and the price of the fuel dropped, the companies’ values started declining even as the price of corn continued to rise.
To add insult to injury, the Times reported that “investor losses come as taxpayers have paid billions to support the ethanol industry. More than $11.2bn has been spent since 2005 on tax breaks for companies that blend ethanol into petrol. Billions more have been spent on direct state and federal subsidies for US ethanol production.”
“By most rational measures, the corn-based ethanol industry should be on its knees,” the Oct. 23 article stated. “Its six biggest public companies have lost more than $8.7bn in market value in the past three years alone. The fuel has had little impact on either greenhouse gases or
But politicians, fed by the interests standing to
It it left out another culprit: the media. Outright praise for ethanol has subsided. Some reports have even linked the increased use to ethanol to rising food prices and global hunger crises. But the
Do the mandates inflate the price of corn, therefore inflating the price of food that depend on corn – everything from dairy to meat to breakfast cereal? “Absolutely,”
“When you dramatically increase the demand for any product, you cause its price to rise,” Boudreaux said. “This is fundamental Economics 101, supply and demand.”
“Farmers, especially corn farmers, made out like bandits because now there’s this artificial market enhancement for their product and so they’re receiving higher returns causing the price of corn products to rise, the price of foods that are close substitutes for corn to rise, and of course it’s … one element in the rise of the price of gasoline.”
The Financial Times’ analysis suggested rising corn prices probably have a small effect on
“Still, most studied now conclude that although biofuels are not the only reason food prices are high, they are a big factor,” the Times reported.
Repealing the mandate would help bring prices back down, according to Boudreaux. “[I] have no doubt that corn prices would fall, food prices would fall and gasoline prices would fall somewhat,” if the mandates were repealed, he said.
But – as the Financial Times report also pointed out – Boudreaux said, “Politically, I don’t think the prospects of getting rid of the ethanol subsidies or ethanol program are very high. This is a concentrated interest group and they’re very powerful.”