U.S. Ethanol Policy: Is It the Best Energy Alternative?

This paper was presented at the annual meeting of the Canadian Agricultural Economics Society (Halifax, June 2004) in a session entitled “Bio-Energy in North America: Problems, Policies and Potential”. Papers presented at CAES meetings are not subject to the journal’s standard refereeing process. The Issue U.S. ethanol policy has several drivers. Among these are increasing the incomes of U.S. corn farmers, enhancing the environment, providing a source of sustainable energy, and reducing dependence on foreign oil. Each of these has its own advocates and critics. While it is true that ethanol production can enhance the incomes of corn farmers, some ask who benefits more from the public subsidy of ethanol production – farmers or processors. Some question whether ethanol always delivers a clean air benefit and whether it provides a source of sustainable energy while reducing dependence on foreign oil. The large public subsidy provided for ethanol production is yet another issue. While all of the above considerations relate to ethanol policy, this article focuses primarily on energy-related issues. The context for ethanol policy is U.S. energy policy, which is almost exclusively supply driven. Consistent with this thrust, the current target is to increase annual ethanol production from 3 billion to 5 billion gallons over the next several years. At the direct subsidy level of $US0.52 per gallon of ethanol produced, this level of production will result in a public expenditure of US$2.6 billion. The question is, what other options might provide better energy alternatives on the basis of cost and other considerations