A student came in my office last week and asked: Aren't ethanol subsidies just implicit taxes on the poor? I thought about it for a minute, then said, "Yep." The United Nations World Food Programme agrees--sort of:
The demand for food as an input into energy production, whether it's biodiesel or bioethanol or any of these, is a global phenomenon. And it affects everything from palm oil to cassava to everything else … There isn't much marginal room in the global food supply system. ...Now, there's a point at which it doesn't economically make sense to buy food as an energy input. It's pretty low; it's apparently when oil hits about $70 a barrel. So anything above that makes food a very viable energy production input.
In other words, higher subsidies for ethanol lead to less food at higher prices. Subsidies for ethanol are an implicit tax on food.
