Krugman's reaction to the State of the Union

Re: Ethanol Economics (The Sum of All Ears - $$)

The only real substance was Mr. Bush’s call for a huge increase in the supply of “alternative fuels.” Mainly that means using 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, corn is such a poor source of ethanol that researchers at the University of Minnesota 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 the obvious alternative — conservation. The Congressional Budget Office estimates that reducing gasoline consumption 10 percent through an increase in fuel economy standards would cost producers and consumers about $3.6 billion a year. Achieving the same result by expanding ethanol production would cost taxpayers at least $10 billion a year, based on the subsidies ethanol already receives — and probably much more, because expanding production would require higher subsidies.

What’s more, ethanol production has hidden costs. Even the Department of Energy, which is relatively optimistic, says that the net energy savings from replacing a gallon of gasoline with ethanol are only the equivalent of 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 whether promoting ethanol does anything to reduce carbon dioxide emissions.

Comments

[Dano]

Not to mention corn yields are generally better in cooler humider years, not hot and dryer with less soil moisture as we expect in a warming regime.

Best,

D

[rickkar]

Questions to ponder:
How much does it cost to fight a war for oil in iraq?

Brasil doesn't have a "Department of Energy" and has been running on ethanol for decades... If they can do why can't we...?

[nate]

Biodiesel plants that use soy oils are starting to come online. Farm tractors can use biodiesel to grow corn and beans. It is obvious and pointless to say growing crops requires fossil fuels when we haven't developed alternatives tractor/truck fuels. What misleading wording will the DOE use when biodiesel is used to grow crops?

[joshua corning]

I think i would be more tolerant of bashing Bush's plan to grow corn over the entire stretch of the Rocky mountains if it wasn't Krugman making the criticisms...this same guy has predicted a recession for the past 4 years (He also made the prediction that 2007 would be a recession year) in a row...GDP growth over the past 4 years has been fluctuating between 3-5% in the face of escalating energy prices.