corn ethanol

Post image for Ethanol: Coburn, ATR, WSJ

There is an ongoing ethanol spat between Senator Coburn (R-OK) and Grover Norquist, President of Americans for Tax Reform. The dispute is over conservative support for a bill that would repeal the ethanol tax credit, which has the effect of raising an industry specific tax. Americans for Tax Reform comes down hard on any effort to increase taxes. The Wall Street Journal added their two cents in favor of Senator Coburn:

Our readers know Mr. Norquist as the plucky author of the no-new-taxes pledge, which has helped to make tax increases a red line in Republican politics. In a letter to Mr. Coburn, a deputy of Mr. Norquist writes: “Repealing the ethanol credit is the right thing to do, but other taxes must be reduced in the same legislation by at least this much to prevent a net tax increase.”

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Post image for Washington Post Chides Obama Over Energy

In an editorial cleverly titled, “Drill, Brazil, Drill says the U.S.The Washington Post joined in the growing public displeasure over President Obama’s public support for the Brazilian oil industry, which seems to be rising at the expense of administration support for the oil industry in the United States.

As CEI’s Myron Ebell pointed out last week:

This is the same President who has spent the last two years doing everything he can to reduce oil production in the United States.  Cancelled and delayed exploration leases on federal lands in the Rocky Mountains; the re-institution of the executive moratorium on offshore exploration in the Atlantic, the Pacific, most Alaskan waters, and the eastern Gulf of Mexico; the deepwater permitting moratorium and the de facto moratorium in the western Gulf.  The result is that domestic oil production is about to start a steep decline.

The editorial also mentions the tariff on ethanol. Trade restrictions are bad policy. However, the case for Brazilian ethanol is slightly more complicated than that. If Brazilian ethanol were imported to the U.S., it might displace some ethanol production that is occurring in the U.S. as historically Brazilian ethanol has been cheaper. This would be fine.

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Post image for Ethanol Industry Continues to Deflect Blame on Food Prices

Instead, they blame those darned speculators (are they aware of the important role played by commodity markets?) again. The industry continues to find support in high places:

Speaking to farmers earlier this month, the Obama administration’s agriculture secretary said he found arguments from the like of Nestlé “irritating”. Mr Vilsack said: “The folks advancing this argument either do not understand or do not accept the notion that our farmers are as productive and smart and innovative and creative enough to meet the needs of food and fuel and feed and export.”

Well, the price of corn has almost doubled in the last 6 months. Now, its obviously unfair to blame this entirely on biofuels. Food crops are heavily dependent on a number of other important factors like the price of oil, the weather, crop yields, etc. However, with 35% of U.S. corn being turned into biofuels, it clearly has a major effect on the price, driving it upwards (and driving other commodities higher as well, as farmland becomes more scarce). Globally, U.S. exports provide about 60% of total corn supply.

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