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March 17, 2005

Fuels Rush In

This Eugene Register-Guard editorial--cautioning Oregon's politicians to take a sober, hype-free look at biofuels before launching a program to subsidize them--is definitely worth reading.  But it makes one point that, while not clearly out-and-out wrong, at least deserves a closer look. 

According to the editorial, legislative action to promote biofuels in Oregon would be unnecessary...

...if biofuels could compete with other forms of energy in the marketplace. The fact that ethanol and biodiesel need the Legislature's encouragement is evidence that these fuels suffer an economic disadvantage, have environmental costs or both.

Hold on, there, buckeroo.  Petroleum gets huge subsidies of its own, ranging from special tax benefits for oil companies, to the mammoth military costs for defending access to overseas oil supplies, to the environmental and social costs of air & water pollution, greenhouse gases, etc.  So just because ethanol needs subsidies to compete with petroleum, doesn't necessarily mean that ethanol is inherently uncompetitive; it could just be that petroleum's massive subsidies outweigh those to ethanol.

Then again, corn--which is used to make most ethanol today--gets massive federal subsidies too.  As they're currently structured, federal corn subsidies encourage overproduction, which reduces the price of corn, which artificially lowers the price that ethanol distillers have to pay for raw materials.  Plus growing corn carries significant environmental costs:  habitat loss, soil erosion, water quality problems, and greenhouse gas emissions from fertilizer production and use, to name a few.

It's only in an unsubsidized world--where subsidies for both corn and petroleum are eliminated, and all environmental and social costs are accounted with taxes or some other mechanism--that you could even tell whether petroleum and ethanol are playing on a level playing field, or even in the same league. 

But in this world, it's nigh-on-impossible to tell whether ethanol subsidies give an unfair boost to an economically uncompetitive technology, or simply let ethanol compete on even footing with petroleum.

Now, as I've said before (see my comment on this post) I'm very skeptical about the benefits of using food crops to power cars.  And I completely agree with the editorial that Oregon has to take a hard and careful look at any program to subsidize biofuels. But skepticism is only useful to the extent that it keeps you honest--which means that a skeptical look at biofuels should be sure to include an equally skeptical look at why, exactly, petroleum seems so cost-competitive.

Posted by ClarkWD | Permalink



On the military subsidies - in the coming years, the military may waste more oil in operations than it locks up. I see the military as less subsidizing cheap petroleum than taking advantage of it.

The US Military is the single largest petrol user in the world. One estimate is about 5 billion barrels of oil a year, or 15% of the US total consumption. That isn't a wartime figure.

If you assume that it is double in wartime (M1A1 tanks are incredibly thirsty) the US military will deplete the equivalent of one ANWR at the end of this year of operations as a result of the Iraq war.

Posted by: Jon S. | Mar 17, 2005 7:16:30 PM

Nice point, Jon. And a related note: It's always been debatable how much of the US's military spending is really attributable to protecting access to oil. People who've looked closely at the issue still have wide-ranging estimates. But now, it seems harder and harder to call that spending--however much it may be--a "subsidy" for oil: US involvement in the middle east seems to be raising the price of oil, not lowering it, at least in the short term.

I think it's still appropriate to include military spending in the total cost of petroleum, though, since we wouldn't be spending nearly as much on the military if we didn't think it would secure oil supplies.

Posted by: Clark Williams-Derry | Mar 18, 2005 9:45:25 AM