Monday, January 29, 2007

The Politics of Ethanol (and corn)

. Monday, January 29, 2007

Current discussion of ethanol and alternative fuels (invigorated by last week's SOTU) has had me wondering how the push for alternative fuel would fit into existing WTO rules and regulations. Is corn grown for ethanol production an agricultural subsidy? Is a tariff on ethanol a tariff on corn, too? Here are some initial and somewhat rambling thoughts.

1. The U.S. does not grow enough corn to produce the amount of ethanol the Bush proposal requires.
2. Perhaps production subsidies would encourage more corn production? Or high tariffs on imported ethanol would raise the price of ethanol and induce more corn production?
3. If the corn is then used to produce fuel for cars (rather than for humans), is the subsidy technically an agricultural subsidy?
4. Brazil seems eager for the WTO to begin thinking about this issue. No surprise, as Brazil produces ethanol with sugar cane more cheaply than the US can from corn.

More broadly, one might usefully wonder whether current ethanol enthusiasm is driven by broad concerns about energy independence, or whether instead it reflects politics--how can politicians maintain the support of the corn belt as they reduce agricultural subsidies? Mandating ethanol raises the demand for corn, greater demand raises corn prices (and thus farm incomes). Of course, we all pay more for our food. And Americans are not the only ones affected--the great tortilla crisis

Many argue that a tax on gasoline is a more direct approach to the energy dependence/climate change question. But it is much harder to sell politically...


The Politics of Ethanol (and corn)
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