Gas, Corn, and Consequences

Gasoline prices are at all-time highs here in Texas, including a whopping $3.46 in Houston, home of many oil-related businesses and refineries.  Many parts of the U.S. are experiencing even higher prices, to say nothing of Europe, et al, so I expect little sympathy from most readers. 

So what’s a government to do?  Meddle, of course!  But as Mark Steyn so eloquently puts it, "The real problem isn’t the "problem" but the Big Government solution to it."

To whit, Nancy Pelosi recently sent an apparently pointless letter to John Boehner recapping the many wonderful energy bills passed during her tenure, which include:

The Energy Price Gouging Act — H.R. 1252

The No Oil Producing and Exporting Cartels (NOPEC) Act — H.R. 2264

This legislation enables the Department of Justice to take legal action against OPEC-controlled entities for participating in oil cartels that drive up oil prices globally and in the United States.

This legislation will reduce the burden of rising gas prices on American families, providing immediate relief to consumers by giving the Federal Trade Commission (FTC: 28.81, +0.03, +0.10%) the authority to investigate and punish those who artificially inflate the price of energy.

Renewable Energy and Energy Conservation Tax Act of 2008 — H.R. 5351

With Exxon Mobil ranked as the most profitable company in 2007 today, it is unnecessary for taxpayers to subsidize Big Oil. This bill will end unnecessary subsidies to Big Oil companies and invest in clean, renewable energy and energy efficiency. It will extend and expand tax incentives for renewable electricity, energy and fuel, as well as for plug-in hybrid cars, and energy efficient homes, buildings, and appliances. These provisions are critical to creating hundreds of thousands of jobs.

All of which is nice, except that it doesn’t do anything to solve the fundamental problem:  unreliable energy sources.  In response, President Bush has championed ethanol mandates that call for ethanol consumption to increase by 700% in the next 10 years.  But will this have the desired effects of lowering domestic energy prices and providing a consistent source of energy produced here at home?

Perhaps in the short-term.  But globally, ethanol produced from grain is a ready-made disaster in terms of food prices.  James Hamilton agrees, saying:

If this is what we get in a good year, what will happen when we have a bad crop?

American consumers are starting to see some of the consequences of our ill-fated ethanol policy in the prices of everything from meat to ice cream. While well-fed Americans may gripe, the implications for those in sub-Saharan Africa are quite alarming.

Mark Steyn again:

We are on the verge of a global tragedy, summed up in the characteristically smug bumper sticker Mona spotted the other day: "Don’t burn fuel. Grow it." The ecochondriacs abetted by the likes of Senator Grassley have taken subsistence crops and made them part of the energy market. No good can come of that, only vast human misery.

Even if we were prepared to accept that outcome – and I don’t think that we should be, despite the fact that the grain is ours to do with as we please – grain-based ethanol is not a sustainable source of energy from an efficiency of production standpoint alone.

I’ll close with this quote from C. Ford Runge and Benjamin Senauer:

The enormous volume of corn required by the ethanol industry is sending shock waves through the food system. (The United States accounts for some 40 percent of the world’s total corn production and over half of all corn exports.) In March 2007, corn futures rose to over $4.38 a bushel, the highest level in ten years. Wheat and rice prices have also surged to decade highs, because even as those grains are increasingly being used as substitutes for corn, farmers are planting more acres with corn and fewer acres with other crops.

This might sound like nirvana to corn producers, but it is hardly that for consumers, especially in poor developing countries, who will be hit with a double shock if both food prices and oil prices stay high. The World Bank has estimated that in 2001, 2.7 billion people in the world were living on the equivalent of less than $2 a day; to them, even marginal increases in the cost of staple grains could be devastating. Filling the 25-gallon tank of an SUV with pure ethanol requires over 450 pounds of corn — which contains enough calories to feed one person for a year. By putting pressure on global supplies of edible crops, the surge in ethanol production will translate into higher prices for both processed and staple foods around the world. Biofuels have tied oil and food prices together in ways that could profoundly upset the relationships between food producers, consumers, and nations in the years ahead, with potentially devastating implications for both global poverty and food security.

Author: marc

Marc is a software developer, writer, and part-time political know-it-all who currently resides in Texas in the good ol' U.S.A.