Live by politics, die by politics. No one escapes the rule. But some live by politics better than others do.
As a vehicle fuel, ethanol lives by politics. Relatively little of the material would enter US gasoline streams if not for state and federal tax credits and a volumetric mandate. But a subsidized, growing market for ethanol enriches corn growers and distillers and thus finds political favor among agricultural interests. For others, ethanol can be made to seem like a way for the US to grow its way out of dependency on foreign oil.
US President George W. Bush took ethanol politics abroad this month in his swing through Latin America. Amid much local hoopla, he signed a memorandum of understanding with Brazilian President Luiz Inacio Lula da Silva on cooperation in research on renewable energy. Brazil has been using ethanol as a vehicle fuel since the mid-1980s and now basks in the glory of showing the world how it’s done.
The triumph
So how, exactly, did Brazil achieve this marvelous triumph? With decrees by the military government that ruled the country until 1985-that’s how. Stung by the oil price increases of the 1970s and wanting to boost agriculture, the generals-in-chief paid farmers to grow sugar cane, the source of Brazilian ethanol, and capped retail prices of the fuel. It’s really quite simple-for countries ruled by soldiers little concerned about economics and consumer choice.
But all that’s history. Brazil has its fleet of tax-favored vehicles that burn ethanol, which is still subsidized, and its network for distributing and dispensing the fuel. And nearly everyone has forgotten how, after oil prices fell in the latter 1980s and civilians replaced the military in the government, it looked like a big mistake. Yes, Brazil and the US have much to teach one another about ethanol.
For example, there’s that nagging rule about living and dying by politics. Brazil sees in the US an export market much bigger than exists now for its ethanol. It also sees a problem: a 54¢/gal US tariff that shields US ethanol producers from competition. It’s a political market, after all. In Brazil, Bush made clear that the tariff wasn’t something he wanted to discuss with Lula. This diplomatic equivalent of an invitation to dance without touching represents the “die by” aspect of politics.
In US farm country, the hollow overture still stirred up worry.
“Transferring the United States’ addiction to foreign oil to foreign biofuels doesn’t make sense,” declared National Farmers Union Pres. Tom Buis in a press statement. Buis complained about press reports that the Bush-Lula agreement might enable Brazil to ship sugar cane to processors in the Caribbean that are exempt from the tariff. “The current tariff,” he said, “ensures US taxpayer dollars do not subsidize foreign-produced ethanol.”
What a distressing prospect! It’s only patriotic to prefer that taxpayer dollars subsidize US-produced ethanol made from corn, which even before distillation receives various subsidies that the Congressional Research Service estimates have averaged $5.5 billion/year since 2000. That plus the $2.5 billion or so that the federal ethanol blender’s credit will cost the treasury this year might not sound like much against the whole federal budget. But it’s $8 billion that taxpayers are spending to make politically favored constituencies rich.
Consumers’ contribution
Food and fuel consumers also are contributing to agricultural prosperity. Growing demand for ethanol is raising the price of corn and foods that contain it. And refiners making summertime gasoline must reject more normal butane and pentane than they have in the past from blendstock to accommodate ethanol’s volatility. An extra supply squeeze just before driving season will tend to raise gasoline prices. Consumers won’t recognize the increment, which is impossible to measure, just as they probably don’t notice the 3% mileage penalty that comes with 10% ethanol blends. Overall, though, they’re spending more to drive than they were before ethanol’s expansion in the fuel market.
For all this, consumers can thank politics, which if they grow or distill corn might make them rich. If not, well, sorry.