|Castro Suggests that US Ethanol Emphasis May be Bad Globally, and He May be Right|
|Topic||Supply and Demand|
|Key Words||ethanol, subsidy, price.|
|News Story||Cuba's dictator Fidel Castro recently wrote an article chastising the US for its emphasis on corn-based ethanol as an alternative fuel. He argued that it was bad for world food production to emphasize this, and he may be correct.
The problem with corn-based ethanol is that it diverts corn production away from food and moves it toward fuel production. This drives up the price of corn and corn-based foods at the supermarket in the US. As the US moves abroad to satisfy any excess demand for corn as food, the world price then rises, affecting many countries negatively.
Why the emphasis? Ethanol burns more cleanly than regular gasoline, and it's believed that ethanol may be the cure for the US' addiction to foreign oil. However, there's a difference between corn-based ethanol, and sugar-based ethanol. Corn-based ethanol requires a significant amount of energy to produce; in fact, some estimates show that it takes more energy to produce ethanol from corn than it saves by reduced gasoline consumption. Sugar-based ethanol does not require as much energy to produce.
Now politics enters the picture. Corn-based ethanol is subsidized by the US government, while it discourages imports of sugar-based ethanol. It's the subsidy that creates the emphasis on corn for energy production, creating the increased prices, etc. eliminate the subsidy, and the price problems in the rest of the world are reduced.
But it's difficult to reduce a government subsidy that everyone likes…except the taxpayer.
|Source||"Castro Was Right." The Economist. April 4, 2007.|
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