Ethanol: Energy or Illusion?

The United States consumes on average 13,888 barrels of oil per minute. At $86.19 per barrel, spending on oil tops one million dollars per minute, and over 60 % of these expenditures are for imports. This represents a substantial drain on the U.S. economy. Unfortunately, the world is approaching peak oil production, leaving oil prices nowhere to go but up. An impending oil shortage exposes the U.S. economy to energy shocks and to potential stagflation. In an effort to minimize the risk of an energy shock, U.S. military forces serve to ensure a continuous supply of oil. The costs of these forces, combined with the pollution costs generated from the consumption of gasoline, are an estimated $1.00 per gallon. The need for a petroleum substitute has never been greater. Current federal policy seeks to reduce U.S. consumption of gasoline by 20 % over the next decade by increasing the supply of ethanol. The USDA is confident in corn-based ethanol’s ability to help the U.S. reach its energy goals. Claiming corn-based ethanol has a positive net energy value, the USDA argues that each gallon of ethanol produced offsets more than 6 gallons of imported oil. Although this argument makes ethanol politically popular, many scholars reject its validity. Pimentel and Patzek show corn ethanol to have a negative NEV, and accordingly, find a lower displacement factor. Is corn-based ethanol a viable substitute for petroleum? Even considering USDA assumptions, this review finds corn-based ethanol requires 8 percent more energy to make than it possesses. Furthermore, the estimated deadweight-welfare loss resulting from the subsidization of ethanol outweighs any offset external costs from decreased oil imports by $808,374,000 since 2004. The result is a policy in which costs drastically exceed benefits