Sunday, April 3, 2011

Government mandates increased use of ethanol and corn prices skyrocket. Who could have seen that coming?

Here is a case of a Government program that originally had good intentions but wasn't thought all the way through and in the end will do more harm than good.   In order to reduce our Nation's dependency on foreign oil and I suppose to reduce greenhouse gas emissions (although I question the math), the Government enacted the Energy Policy Act of 2005 with all sorts of provisions to increase the use of renewable fuels (read: ethanol). Here is a good link to get up to speed on details of the Government's efforts to replace petroleum with renewable fuels..  Texas State Energy Conservation Office: Ethanol Incentives

  The U.S. Environmental Protection Agency (EPA) announced in February 2008 that it is raising the renewable fuel standard (RFS) for 2008 to comply with the Energy Independence and Security Act, which President Bush signed in December 2007. The RFS applies to refiners, importers, and non-oxygenate blenders of gasoline and sets a minimum percentage of the fuel that must be displaced with renewable fuels, such as ethanol. The EPA is raising that minimum percentage from 4.66% to 7.76%, a 66% increase, in order to meet the new energy act's requirement to consume 9 billion gallons of renewable fuels in 2008. The requirement will continue to ratchet up each year until it reaches 36 billion gallons in 2022.
And to illustrate the Theory of Unintended Consequences, the price of corn has been skyrocketing, doubling in the past year alone.  Corn is King as Farmers Chase Prices

Demand for corn is so strong—thanks to the expanding appetite of the federally supported ethanol-fuel industry, record-high prices of corn-fed livestock and booming farm exports—that grain traders are worried that even the bumper corn harvest farmers could produce this year might not be enough to rebuild unusually low U.S. corn reserves to comfortable levels.

The USDA reported that the amount of corn stored around the U.S. had plunged by a steeper-than-expected 15% on March 1 from a year ago, signaling that prices may have to climb further to cool intense demand.
So, Americans and everyone else in the world will pay more for corn and all other agricultural commodities as well because acreage has been converted to corn production to chase higher prices. We the taxpayers are subsidizing a burgeoning industry that by design will make all our food more expensive. There is plenty of oil in the ground for the taking but we let it stay there and take food and convert it into fuel instead. This way we can pay more for fuel and more for food. Genius of a plan there Washington.

Fast forward a couple years and the USA's short-sighted ethanol policy will be getting blamed for vulnerable people starving all around the world, creating social unrest, political upheaval and a global humanitarian  crisis.  Lets just hope for good weather and bumper crops.    

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