Paul Krugman: The Sum of All Ears

Paul Krugman discusses the president's plans to use ethanol to replace gasoline, something he describes as "a really bad idea":

The Sum of All Ears, by Paul Krugman, Corn Cop-Out, Commentary, NY Times: For those hoping for real action on global warming and energy policy, the State of the Union address was a downer. There had been hints and hopes that the speech would be a Nixon-goes-to-China moment, with President Bush turning conservationist. But it ended up being more of a Nixon-bombs-Cambodia moment.

Too bad... The only real substance was Mr. Bush’s call for ... ethanol to replace gasoline. Unfortunately, that’s a really bad idea. There is a place for ethanol in the world’s energy future — but that place is in the tropics. Brazil has managed to replace a lot of its gasoline consumption with ethanol. But Brazil’s ethanol comes from sugar cane.

In the United States, ethanol comes overwhelmingly from corn, a much less suitable raw material. In fact, ... researchers ... estimate that converting the entire U.S. corn crop — the sum of all our ears — into ethanol would replace only 12 percent of our gasoline consumption.

Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year...

What’s more, ethanol production has hidden costs. ...[T]he Department of Energy ... says that the net energy savings from replacing a gallon of gasoline with ethanol are only ... about a quarter of a gallon, because of the energy used to grow corn, transport it, run ethanol plants, and so on. And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions.

So why is ethanol, not conservation, the centerpiece of the administration’s energy policy? Actually, it’s not entirely Mr. Bush’s fault.

To be sure, ... Mr. Bush’s people seem less concerned with devising good policy than with finding something, anything, for the president to talk about that doesn’t end with the letter “q.” And the malign influence of Dick “Sign of Personal Virtue” Cheney, who no doubt still sneers at conservation, continues to hang over everything.

But even after the Bushies are gone, bad energy policy ideas will have powerful constituencies... Subsidizing ethanol benefits two well-organized groups: corn growers and ethanol producers (especially the corporate giant Archer Daniels Midland). As a result, it’s bad policy with bipartisan support. For example, earlier this month legislation calling for a huge increase in ethanol use was introduced by five senators, of whom four, including ... Barack Obama and Joseph Biden, were Democrats. In a recent town meeting in Iowa, Hillary Clinton managed to mention ethanol twice...

Meanwhile, conservation doesn’t have anything like the same natural political mojo. Where’s the organized, powerful constituency for tougher fuel economy standards, a higher gasoline tax, or a cap-and-trade system on carbon dioxide emissions?

Can anything be done to promote good energy policy? Public education is a necessary first step, which is why Al Gore deserves all the praise he’s getting. It would also help to have a president who gets scientific advice from scientists, not oil company executives and novelists.

But there’s still a huge gap between what obviously should be done and what seems politically possible. And I don’t know how to close that gap.

_________________________
Previous (1/26) column: Paul Krugman: On Being Partisan
Next (2/2) column: Paul Krugman: Missing Molly Ivins

Comments

[Movie Guy]

There was a bit more involved in the energy proposal than what Paul says.

2007 State of the Union Policy Initiatives

ENERGY: Twenty In Ten: Strengthening America's Energy Security
HEALTH CARE: Affordable, Accessible, And Flexible Health Coverage
EDUCATION: Building On Results: A Blueprint For Strengthening NCLB
IMMIGRATION: President Bush's Plan For Comprehensive Immigration Reform
HIV/AIDS: Leading The Worldwide Fight Against HIV/AIDS
MALARIA: The President's Malaria Initiative Is Saving Lives
DEFENSE: Strengthening Our Military
SPENDING REFORMS: Reforms To Spend Tax Dollars Wisely

"Energy: President Bush will ask Congress and America's scientists, farmers, industry leaders, and entrepreneurs to join him in pursuing the goal of reducing U.S. gasoline usage by 20 percent in the next ten years – Twenty in Ten. We will reach the President's Twenty in Ten goal by increasing the supply of renewable and alternative fuels and by reforming and modernizing Corporate Average Fuel Economy (CAFE) standards for cars and extending the current light truck rule. The President's energy plan also includes stepping up domestic oil production in environmentally sensitive ways and doubling the current capacity of the Strategic Petroleum Reserve (SPR)."

Twenty In Ten: Strengthening America's Energy Security

Goals:

Reducing U.S. Gasoline Usage By 20 Percent In The Next Ten Years – Twenty In Ten.

Stopping The Projected Growth Of Carbon Dioxide Emissions From Cars, Light Trucks, And SUVs Within 10 Years.

Reducing Gasoline Consumption Through The Growth Of Alternative Fuel Sources.

Doubling The Current Capacity Of The Strategic Petroleum Reserve (SPR) To 1.5 Billion Barrels By 2027.

Congress Must Reform CAFE For Passenger Cars. The Administration has twice increased CAFE standards for light trucks using an attribute-based method. An attribute-based system (for example, a size-based system) reduces the risk that vehicle safety is compromised, helps preserve consumer choice, and helps spread the burden of compliance across all product lines and manufacturers. Congress should authorize the Secretary of Transportation to apply the same kind of attribute-based method to passenger cars.

Increasing The Supply Of Renewable And Alternative Fuels By Setting A Mandatory Fuels Standard To Require 35 Billion Gallons Of Renewable And Alternative Fuels In 2017 – Nearly Five Times The 2012 Target Now In Law. In 2017, this will displace 15 percent of projected annual gasoline use.

Reforming And Modernizing Corporate Average Fuel Economy (CAFE) Standards For Cars And Extending The Current Light Truck Rule. In 2017, this will reduce projected annual gasoline use by up to 8.5 billion gallons, a further 5 percent reduction that, in combination with increasing the supply of renewable and alternative fuels, will bring the total reduction in projected annual gasoline use to 20 percent.

Energy Efficiency and Renewable Energy by subject
U.S. Department of Energy

[Movie Guy]

And let's not forget this report:

Study of Feasibility and Effects of Reducing Use of Fuel for Automobiles
The Energy Policy Act of 2005
Report to Congress
August 2006
National Highway Traffic Safety Administration
U.S. Department Of Transportation

[Movie Guy]

Vehicle Gasoline Consumption

Where we are today, absent further action by Congress:

Summary of Fuel Economy Performance by Manufacturer, 1978-2005, USDOT

Summary of Manufacturer CAFE Fines Collected, 1983-2005, USDOT

Fuel Economy Standards

Final rule
Average Fuel Economy Standards for Light Trucks
Model Years 2008-2011
National Highway Traffic Safety Administration
DEPARTMENT OF TRANSPORTATION

* An excellent read for understating the decision process involved in CAFE standards, including REFORMED CAFE.

[Movie Guy]

While I can identify many more actions I would like to see undertaken, here is the Administration's approach to date:

Bush Administration Advanced Energy Initiative

Bush Administration Energy Policy and Initiatives

Twenty In Ten: Strengthening America's Energy Security (identified above)

Other actions:

Energy Efficiency and Renewable Energy by subject, U.S. Department of Energy (identified above)

In the previous comment post above, two links identify in detail the need for action by the Congress to raise the CAFE standards for passenger cars. The documents noted such needs and requests are (1) Study of Feasibility and Effects of Reducing Use of Fuel for Automobiles, August 2006, and (2) Final rule, Average Fuel Economy Standards for Light Trucks, Model Years 2008-2011. The need for Congressional action has been identified and previously requested. If people want to see CAFE standards raised for passenger cars, they can contact their Members of Congress. The same consideration applies to other energy initiatives.

[reason]

MG..
None-the-less Paul has a point, corn based ethanol is a bad idea. And he has a point about the Administration taking advice from Lobbyists.

But yes, with a Democratic congress there is a chance of standards being changed. Now why didn't that happen with a GOP congress?-)

[Elvis]

conservation doesn’t have anything like the same natural political mojo.
beautifully put. Sorry to see Obama and Biden playing politics. I expected as much from Hillary...but can't we have at least one serious presidential canditate who is willing to get on board the real platform that will lead our country/planet to, if not Nirvana, then at least one of the upper levels of Dante's Inferno.

[Elvis]

HEALTH CARE: Affordable, Accessible, And Flexible Health Coverage

January 28, 2007
Op-Ed Columnist
Hillary Clinton's Mission Unaccomplished
By FRANK RICH

[summary] lame duck presidents with unpopular wars [Truman, Nixon] bring out the health care card.
EDUCATION: Building On Results: A Blueprint For Strengthening NCLB
How about funding it? How about removing all those annoying tests that get in the way of how human beings actually learn and become interested in the world?

IMMIGRATION: President Bush's Plan For Comprehensive Immigration Reform
I'm all for it. I speak as an immigrant to another country. America doesn't need more people.
HIV/AIDS: Leading The Worldwide Fight Against HIV/AIDS
condoms.
MALARIA: The President's Malaria Initiative Is Saving Lives
insecticide impregnated bed nets.
DEFENSE: Strengthening Our Military
...and Blackwater, and Haliburton...
SPENDING REFORMS: Reforms To Spend Tax Dollars Wisely
ahem...why wasn't this brought up before? Oh, I get it now! We need to take extreme care when spending money on people instead of corporations. I'm onboard now. Don't mind me.

[Elvis]

Reducing U.S. Gasoline Usage By 20 Percent In The Next Ten Years – Twenty In Ten.
How about taxing it and using the proceeds to improve public transport?

Stopping The Projected Growth Of Carbon Dioxide Emissions From Cars, Light Trucks, And SUVs Within 10 Years.
Why wait 10 years??? Stopping the growth of emissions should start now.

Reducing Gasoline Consumption Through The Growth Of Alternative Fuel Sources.
I'm sorry, but why the word "growth" always used? Oh, I get it. If we're not "growing" our usage of something, then we're not "growing" our economy and that is just not part of the program.

Doubling The Current Capacity Of The Strategic Petroleum Reserve (SPR) To 1.5 Billion Barrels By 2027.
I'm all for it. We could call the new Strategic Reserve The North Slope Strategic Reserve. But seriously, we need to build our reserves up and wind our consumption down--way down.

[Real Person from the Real World]

I buy gas often, from a big warehouse store. The place is actually not that much of a bargin for anything, but the ethanol stickers are prominent on the gas pumps. You'd think their gas prices would be the cheapest around, but they are about par with the lowest prices in the area and sometimes you can find even lower at local pumps. I think the warehouse buys such large amounts of gas and get a really good deal, then just add the ethanol to increase their margin, not do any favors for their members. Ethanol is a game to keep some of the Illinois corn farmers happy, by keeping prices as high as possible when they find limits to how much corn syrup the cola manufaturers will buy in the weight conscious age of eating. As for gas, the price stays where OPEC keeps it, and there seems to be a curious inactivity re building electric hybrids among the failing US car manufacturers.

[callahan]

Ride the bus.

[evagrius]

It seems that the fixation over ethanol has affected Mexico in a very serious way.
The price of corn tortillas, the main food staple of most Mexicans, has drastically increased.
It's a crisis that seems to be ignored over the border.

Perhaps Mr. Thoma could look into it. There's interesting questions involved about NAFTA, monopolies, price linkages etc;

[anne]

http://www.nytimes.com/2007/01/19/world/americas/19tortillas.html?ex=1326862800&en=a66f2342de6904a1&ei=5090&partner=rssuserland&emc=rss

January 19, 2007

Cost of Corn Soars, Forcing Mexico to Set Price Limits
By JAMES C. McKINLEY Jr.

MEXICO CITY — Facing public outrage over the soaring price of tortillas, President Felipe Calderón abandoned his free-trade principles on Thursday and forced producers to sign an agreement fixing prices for corn products.

Skyrocketing prices for corn on the world market have pushed up the price of the humble tortilla, the mainstay of the Mexican diet, by nearly a third in the past three weeks, to 35 cents a pound in Mexico City and even higher in other parts of the country.

Half of the country's 107 million people live on $4 a day or less, and many of them survive largely on tortillas and beans. The price increases have riled the public to such an extent that it has created a political storm that threatens to swamp Mr. Calderón's fresh presidency.

This month, the president, who took office in December, was booed and heckled at events around the country over food prices. Mexican lawmakers called on him to impose price controls, while leftist opposition leaders suggested that he was protecting giant corn companies. One editorial cartoonist depicted him falling from a tower as tortillas flew upward like birds.

Even members of Mr. Calderón's own conservative party in Congress called on him this week to do something quickly.

Last week, the president tried to contain the crisis by allowing more corn imports from the United States and ordering an investigation into whether corn distributors were colluding to manipulate prices. But the public outcry continued, and the central bank warned that the rise in corn prices would push the price of other staples up and feed inflation.

On Thursday morning, Mr. Calderón, a fierce advocate of free trade in last year's campaign, let the hammer fall. He announced that he had reached an agreement with the major businesses involved in corn products to stabilize the price of tortillas at a maximum of about 35 cents a pound....

[pgl]

Over at Angrybear, I suggested that we do pursue sugar based ethanol even if that means importing the sugar. So interesting comments from our readers as to why this isn't being proposed.

[trader walt]

Three small points. Carbon dioxide production from ETOH plants can be captured and sold, primarily to soft drink and beer plants. Distiller's grain that is also a biproduct of ETOH production can be mixed with other feeds and fed to cattle. And, as Prof. Krugman, points out we also get about 25% more energy to put in our gas tanks than we started with. These are just minor points and probably do not offset the negative consequences of ETOH production.

[James Killus]

One of the difficulties of conservation as a general policy is that the accounting seems to argue against it. A mindless pursuit of GDP doesn't reward lowered consumption of anything; quite the opposite in fact.

Conservation would seem to offer the possibility of substituting capital expenditure (for example, more expensive, but longer lived and energy conserving, lighting) for consumption of limited resources, but I have a suspicion that real capital investment is being crowded out by financial instruments, "fake capital" which actually just represent tranfer payments ("rent seeking" in standard economic jargon), which offer a greater return to individuals without generating real wealth.

[fiskhus jim]

That Bush and his Publicans would push a plan that costs $6.4 bn more than a solution that is more better (the technical term) both as to efficiency and conservation is not in the least surprising.

Bush's "mandate" (which comes, not from the voting, hard-working, taxpaying Americans but, from the rich families who have bouhgt and bossed him) is precisely to create this kind of transfer (think: "permanent rents") from the poorer Americans to those who are already more well-off than any humans in the history of the world.

And, surely, it was no coincidence that Bush's proposal was announced in Wilmington, home of that massive externalizer of business costs, DuPont.

[anne]

So that we understand where the President's heart is, we will be spending $3 billion on alternative energy research and development this year, as opposed to an inflation adjusted $7.7 billion in 1979. (Doing the math, I get less.) Of course, we will be spending more than $50 billion to increase the strategic energy reserve, but the research and development budget for the year is about 5 days worth of the tragic insanity of Iraq.

[anne]

Sorry, sorry, make that $65 billion for the strategic energy reserve, and $3 billion for research and development projects on alternative energy. Get it? Got it.

[Brennan]

Ethanol is being used as false solution that allows for the current administration to still allow profits to be made in the oil industry. By supporting this new fuel it makes it seem like this administration is addressing pressing issues of obtaining a renewable fuel source. Obviously there are many more promising fuel sources than ethanol, thus corn fuel must be used for two reasons. One it allows more revenues for American farmers, who claim to have been severely hurt ever since the formation of NAFTA, and two to allow American oil firms to still benefit by collecting a massive amount of revenue. Ethanol is not a lost cause, the percentage that does take strain off the oil industry helps farmers, and at the same time, could be combined with other alternative sources to help smooth the transition from oil to more sustainable fuels. Basically in the short run this administration is using ethanol as a front to allow the oil industry to make money, but all is not lost, ethanol does help (on a small level) the alternative fuel industry become more prevalent.

[calmo]

I don't know Brennan. How can you sound so completely on top of this one and then crush me with but all is not lost, ethanol does help (on a small level) the alternative fuel industry become more prevalent.Didn't you just hit that home run withBy supporting this new fuel it makes it seem like this administration is addressing pressing issues of obtaining a renewable fuel source. or should I be reading "it makes it seems like this administration is addressing pressing issues because, dang it all, they are"?
I like the home run version: w & Co make this limp gesture about ethanol knowing that it is no more than a fart in the 6 year gale (the Oil dominated Energy Policy run by Cheney) that has brought windfall profits to Oil companies and their shareholders.
I don't much care for the bunt --that this might be the door of an alternative Energy Policy opening that will put the needs of citizens ahead of shareholders. That one is 6 years too late in making it to 1st base IMO.

[William Smith]

I think Krugman's main point as to ethanol is that the savings are an illusion and that it is a feel-good way to say that we are trying to have an energy plan. Any real energy plan involves increased use of natural and renewable energy sources AND a serious cut-back in non-renewable energy sources, primarily fossil fuels. However, such a cut-back is sacrifical and not good politics for Bush. Ethanol allows him to support farmers, especially in two Democratic states (Iowa and Illinois) while not driving up gas prices.
The effect on corn-prices will be inconsequential as will the effect on prices of other staple crops grown in the Mid-west. What is more important is that the policy will not change the status quo that much. That the policy is illusory to begin with.

[bakho]

Conservation is a very good idea. The ethanol plants are being built or are already built. Look for pressure to develop better feedstocks to replace corn. There would be a lot of benefits to adding another crop into the current succotash (corn and beans) mix.

[Slocum]

"Still, doesn’t every little bit help? Well, this little bit would come at a very high price compared with ... conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through ... fuel economy standards would cost ... about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year..."

But there's no reason not to do both, is there? What is the cost to reduce consumption by 20% through either:

1. Conservation alone - 20%
2. Conservation 10% and ethanol 10%

Certainly, the second 10% through conservation would cost significantly more than the first 10%. As much as ethanol?

I'm not a fan of ADM or corn-to-ethanol, but it seems to me that this is an open question.

"And these energy inputs come almost entirely from fossil fuels, so it’s not clear ... ethanol does anything to reduce carbon dioxide emissions."

Well, but of course, the energy inputs to run ethanol conversion plants could come from...ethanol. Ethanol could also fuel the farm equipment. So the idea that fossil fuels are necessary is dubious. It seems to me that what really matters is how much net energy we get from an acre of corn and whether or not that is a good use of that acre of farm land.

[yartrebo]

"Certainly, the second 10% through conservation would cost significantly more than the first 10%. As much as ethanol?"
- Slocum

No, the second 10% will still be far cheaper than ethanol. The whole 20% reduction is only a matter of getting our fleet efficiency to 27 mpg from the current 22 mpg. Even small SUVs currently on the market can achieve that low goal.

Other cheap ways to save gasoline would be to switch to diesel and use hybrids where it makes sense (like city buses).

"Ethanol could also fuel the farm equipment. So the idea that fossil fuels are necessary is dubious."
- Slocum

You can, but if you power your process by ethanol (instead of using oil, natural gas, and coal, as is currently done), then your output drops by about 75% as it takes about 3 gallons of ethanol to make 4 gallons of ethanol without using outside fuels. We could make perhaps 3-4 billion net gallons of ethanol a year with our entire current corn crop, which won't even supply our fuel use for a week.

[Mr.Murder]

Ostrich policy. Head in the sand until 2017 to get where most of west Europe's renewable energy was at in 2002.

That's what we call progress. With corn going to our wasteful mileage standards, how we will put any food on our families? Is our children learning, or hungry, for that matter?

[calmo]

"Ostrich policy" --nice turn of phrase Murder, and this too, "With corn going to our wasteful mileage standards, how we will put any food on our families? Is our children learning, or hungry, for that matter?"
I can even gofo the grammar, considering this matter was spurred by a similar bending in "Is you or is you ain't my Baby?"
Well, U is.

[baileyman]

How often does a guy get a chance to create an entirely new subsidized industry? Let's see, public funded research created airliners, nuclear power, computers, the internet, lots of drugs, I'll quit there. And now the new one, alternative gasoline and diesel. What a great way to create chits to pass around. Must be done. Will be done.

[Jake]

"Can anything be done to promote good energy policy? Public education is a necessary first step, which is why Al Gore deserves all the praise he’s getting."

I saw the former Vice President speak last week. He supported an expanded domestic ethanol policy as an alternative to oil. Then again, we were in Sioux Falls, SD. Corn Country.

[Holly W.]

I'm with Evagrius and Mr. Murder -- Maybe I'm missing something here, but don't we eat alot of corn products, feed corn to our meat animals, and export corn to other countries? How can converting any significant amount of corn to energy really have no impact on the world food supply? Inflation, at least? And would we really prefer to feed our cars over our families? (Don't answer that last one!)

[Movie Guy]

Ok, if some of you are against ethonal, what are you recommending as an alternative?

I know that corn growth is damaging to the soil, and I know that some of the U.S. corn crops are now being grown in unsustainable areas (lack of normal rainfall vs irrigation from ancient acquifiers which generally do not replenish as opposed to normal replenishing acquifiers). So, those are a couple of other negatives to add to the list.

On the positive side, there is a lot of unused farmland in the USA.

Aside from ethanol, there is opposition to new nuclear power plants (which are now at least 20 years out), hydrogen based vehicles, coal, natural gas, domestic crude oil drilling, petroleum anything, and so on.

What do some of you propose in lieu of using ethanol as a temporary bridge solution for reducing some dependency on crude oil?

Do you want lower or higher emission standards for gasoline and diesel engines? If higher, then expect fuel economies to fall, at least in the short term.

I am a little confused as to what some of you want as opposed to what you don't like.

It's easy to oppose any proposal. Instead, will some explain what you do support and why?

[piglet]

"Ok, if some of you are against ethonal, what are you recommending as an alternative?"

In response to that, here's the fuel consumtion statistic that I posted elsewhere:

Road sector energy consumption in kg of oil equivalent per capita:

Year 2003 2000 1990
Canada 1,297 1,284 1,195
France 721 726 651
Germany 646 695 647
Switzerland 747 762 711
United Kingdom 671 675 653
United States 1,782 1,733 1,536

Source: earthtrends

[elvis]

Ok, if some of you are against ethanol, what are you recommending as an alternative?
demand destruction.

Actually, because I'm a language teacher, I immediately see that this phrase can be read two ways:

[traditional]
demand (noun) destruction.
[untraditional-radical-revolutionary]
demand (verb) destruction!

caveat lector!

[ron]

i say give ethanol a chance - its early!. but it doesnt have to be and probably shouldnt be made from corn but its a place to start. plus efficiencies in its production are being improved all the time. Just this week for instance - Carnegie Mellon Engineers Devise New Process To Improve Energy Efficiency Of Ethanol Production.

And here's another perspective of the possible future of the fuel - My Big Biofuels Bet.

[anne]

http://www.nytimes.com/2007/01/31/business/worldbusiness/31biofuel.html?ex=1327899600&en=e654236de67e8749&ei=5090&partner=rssuserland&emc=rss

January 31, 2007

Once a Dream Fuel, Palm Oil May Be an Eco-Nightmare
By ELISABETH ROSENTHAL

AMSTERDAM — Just a few years ago, politicians and environmental groups in the Netherlands were thrilled by the early and rapid adoption of "sustainable energy," achieved in part by coaxing electrical plants to use biofuel — in particular, palm oil from Southeast Asia.

Spurred by government subsidies, energy companies became so enthusiastic that they designed generators that ran exclusively on the oil, which in theory would be cleaner than fossil fuels like coal because it is derived from plants.

But last year, when scientists studied practices at palm plantations in Indonesia and Malaysia, this green fairy tale began to look more like an environmental nightmare.

Rising demand for palm oil in Europe brought about the clearing of huge tracts of Southeast Asian rainforest and the overuse of chemical fertilizer there.

Worse still, the scientists said, space for the expanding palm plantations was often created by draining and burning peatland, which sent huge amounts of carbon emissions into the atmosphere.

Considering these emissions, Indonesia had quickly become the world's third-leading producer of carbon emissions that scientists believe are responsible for global warming, ranked after the United States and China, according to a study released in December by researchers from Wetlands International and Delft Hydraulics, both in the Netherlands.

"It was shocking and totally smashed all the good reasons we initially went into palm oil," said Alex Kaat, a spokesman for Wetlands, a conservation group.

The production of biofuels, long a cornerstone of the quest for greener energy, may sometimes create more harmful emissions than fossil fuels, scientific studies are finding.

As a result, politicians in many countries are rethinking the billions of dollars in subsidies that have indiscriminately supported the spread of all of these supposedly eco-friendly fuels for vehicles and factories. The 2003 European Union Biofuels Directive, which demands that all member states aim to have 5.75 percent of transportation run by biofuel in 2010, is now under review....

[anne]

A related and as important question then will be whether sugar cane ethanol emphasis in Brazil is as benign as has been widely considered.

[anne]

http://krugman.page.nytimes.com/b/a/258147.htm

Jan. 29, 2007

Seeking Better Energy Policy in Cornfields

Derin McLeod, Chicago, Ill.: You often post the sources for the figures you use in your articles. Would it be possible to post links to the relevant reports from the Congressional Budget Office and Department of Energy you mention in your Jan. 29 article on ethanol and conservation? Thank you for your time.

Paul Krugman: Your wish is my command. Here are some of the sources:

- Department of Energy analyses
- Congressional Budget Office report (but it's easier to get the essentials from this briefer analysis from Purdue.
- University of Minnesota on corn

And check out the White House fact sheet on energy, which makes it clear that fuel-economy stuff is maybe if it seems like a good idea but maybe not, and anyway not until we're out of office....

[Extensive comments....]

[anne]

http://krugman.page.nytimes.com/b/a/258147.htm

Seeking Better Energy Policy in Cornfields

David Heemsbergen, Saint Paul, Minn.: I agree with Mr. Krugman's column as far as it goes. What he left out is the most important piece of the ethanol boondoggle: It requires between 3-5 gallons of water per gallon of ethanol produced. Several ethanol projects have already been turned down and a couple of Minnesota ethanol plants are already pumping water from neighboring towns to keep their plants in operation.

When the groundwater is gone it is gone and will not recharge as rapidly as it is needed. We are going to face a multifaceted catastrophe in a few years from the over production of corn ethanol. In addition to the degradation of water resources, there will be extensive soil erosion, ground water pollution and river and lake pollution from putting soils into production that should remain in perennial grasses.

Paul Krugman: I learn something every day. I didn't know about the water issue.

[I didn' know either.]

[reason]

Tax it, tax it, tax it. The only way to be able to calculate the total environmental cost of different technological approaches to sustainable energy is to tax the negative externalities whenever they occur. Nobody can do the sums (counting all the hiddens) as well as the market can. Don't destroy the market, make it work properly.

[anne]

http://www.nytimes.com/2007/02/06/opinion/06tue4.html?ex=1328418000&en=632c831cbe2ca7d9&ei=5090&partner=rssuserland&emc=rss

February 6, 2007

The Price of Corn

The current price of corn is $3.23 a bushel, more than half again what it was a year ago, and beginning to bring to mind the record $5.545 a bushel set in July 1996.

There are many reasons for this price spurt. The ethanol boom has created a sharp new demand for corn. The Department of Agriculture revised its estimate of the 2006 corn harvest downward by some 200 million bushels because of weather and other factors. There is also a smaller corn reserve on hand than usual — the smallest in a decade — which parallels shortages around the world.

Add to this the growing weight of commodities funds investing in agricultural markets, and you have daydreams — or nightmares — of that $5 mark.

Yet all this has taken place against the backdrop of three record harvests in a row, a sure sign of how strong the ethanol appetite for corn production is turning out to be. It's tempting to assume that the effect of sharply higher prices is confined primarily to the agricultural sector. But where corn is concerned, we are all part of the agricultural sector....

[anne]

Cheap corn and wheat have been of signal importance in America's economic development; corn more so; and I suggest paying close attention to the price of corn from here, if not already, for economic and investment consequences. I always try to notice commodity price relations.

[anne]

Also, I am concerned about the long term price of corn in Mexico and do not have a sense of what such a higher price may signal in rural Mexico let alone in poorer communities if tortilla-food prices are allowed to increase. There is much Mexican concern, but no sense of what countering policy may be.

[berlin]

Gut!