Ethanol: Train Wreck Ahead? Government Policy Is Stoking Unsustainable Growth of the Corn-Based Fuel. A More Sober, Diversified Approach Is Needed (Perspectives‪)‬

The new vogue in energy policy is plant-derived alternative fuels. Corn-based ethanol, and to a lesser extent oilseed-based biodiesel, have emerged from the margins to take center stage. However, although ethanol and biodiesel will surely play a role in our energy future, the rush to embrace them has overlooked numerous obstacles and untoward implications that merit careful assessment. The current policy bias toward corn-based ethanol has driven a run-up in the prices of staple foods in the United States and around the world, with particularly hurtful consequences for poor consumers in developing countries. U.S. ethanol policies rig the market against alternatives based on the conversion of cellulosic inputs such as switchgrass and wood fibers. Moreover, the environmental consequences of corn-based ethanol are far from benign, and indeed are negative in a number of important respects. Given the tremendous growth in the corn-based ethanol market, it should no longer be considered an infant industry deserving of tax breaks, tariff protection, and mandates. In place of current approaches, we propose initiatives that would cool the overheated market and encourage more diversified investment in cellulosic alternatives and energy conservation. First, we would freeze current mandates for renewable fuels to reduce overinvestment in and overreliance on corn-based ethanol. Second, we would replace current ethanol tax breaks with a sliding scale that would reduce incentives to produce ethanol when corn prices are high and thus slow the diversion of corn from food to fuel. Third, we would implement a wide-ranging set of federal fees and rebates that discourage energy consumption and encourage conservation. Fourth, we would shift federal investment in cellulosic alternatives from subsidies for inefficient production facilities and direct them instead to upstream investment in R & D to improve conversion technologies. Together, these four changes would still retain a key role for biofuels in our energy future, while eliminating many of the distortions that current policy has created.