A smarter ethanol policy for the US?

I like this analysis of the US ethanol from corn market as it now stands and Geoffrey Styles, proposal for a smarter ethanol policy for the US. Styles points out that after 25 years’ of subsidies the US ethanol market is not economically viable.

He says there is a strong case for

shifting the focus of the ethanol portion of US energy policy–and agricultural policy. Considering all the above factors, I believe a wiser ethanol policy would consist of the following:

1. Freezing the federal RFS at the current level of 7.5 billion gallons per year.

2. Phasing out all subsidies for ethanol derived from food sources within five years.

3. Phasing out the tariff on imported ethanol within two years.

4. Shifting the point of subsidy from the blender to the ethanol plant, to ensure that future subsidies go to US producers, rather than offshore.

5. Increasing the subsidy on cellulosic ethanol to $1.00/gallon until 2010, falling by 10 cents per gallon per year thereafter.

Such a program would focus federal incentives where they will do the most good, promoting the commercialization of cellulosic ethanol, which offers much larger energy and emissions-reduction benefits than corn ethanol and entails fewer concerns about sustainability.

I particularly like his proposal for the end of subsidies on ethanol from food sources and the end to protective tariffs. I guess there would need to be support for cellulose production in the short therm and I’d argue for it to be phased out over 3-5 years after commercial production starts.

Since cellulosic ethanol is expected to be cheaper to produce, once it achieves economies of scale, it should not require permanent subsidies or tariff protection, as corn ethanol has. The result would be a very tough market for current ethanol producers, but it would ensure that the ethanol we use as an oil substitute is produced as efficiently as possible, without merely substituting LNG imports for oil imports

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It would also allow corn to be used for what it is best for Food. He asks an unanswerable question which points up the difficulties that the US renewable fuel industry faces.

Whether or not something like this could ever be enacted by the US Congress, this is where the debate should focus, rather than on arguing about expanding an inefficient program by a factor of five.

Of course, there’s no debate about fuel efficiency or what the price of any of this fuel will be in the future…

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One Response to A smarter ethanol policy for the US?

  1. David Givens 29 November, 2007 at 7:14 pm #

    Good post Simon. I admire the boldness of those claims. Do they have any muscle behind them? We also wonder if cellulosic will ever be produced. David

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