Farmers continue to be greatly harmed by the president’s ill-conceived trade war with China. Following previous direct subsidy payments to farmers, the administration has recently proposed boosting ethanol production to aid corn farmers.
This proposal would increase the amount of ethanol — which is made from corn — that refiners must blend into gasoline. Earlier this year, the ban on E15 fuel use during the summer was lifted in spite of the adverse public health consequences of burning ethanol in sunny weather, the reason for the initial ban. The new ethanol target is 15 billion gallons for 2020.
This is bad policy, and it needs to be reversed.
The administration has made these proposals to try to offset some of the harm that has come to corn farmers as a result of President Trump’s trade war with China. The link between the trade dispute, and particularly the drop in Chinese purchases of U.S. corn and soybeans, and the boost in ethanol production is clear. The rest of us will pay for this mandate through higher gasoline prices and higher prices for other goods and services in order to provide money to those farmers hurt by the trade war. This new ethanol policy will be costly.
While mandating an increase in ethanol production may channel more money to corn farmers, ethanol is more expensive than oil for gasoline, and it imposes costs on refiners who must blend it in. Evidence of the higher cost is the number of waivers that have been granted to small refiners for which blending ethanol is prohibitively expensive. As a result, everyone who uses gasoline will pay more, and this increased cost will ripple through the economy, particularly in industries for which gasoline is a major cost. While some farmers may benefit, increased ethanol production will be partially or fully offset by declines in other parts of the economy.
Boosting the amount of ethanol in gasoline is also bad for the environment. Corn production is energy intensive, and ethanol must be transported by truck. Ethanol contains less energy per gallon that does oil, so more fuel is used, resulting in higher emissions. When burned, ethanol — more so than oil — reacts with sunlight to produce smog that endangers the health of people with lung ailments and asthma.
The combination of these effects will most likely leave the environment in worse shape than burning oil. Ironically, the extra greenhouse gases from burning ethanol will contribute to global warming, and, as a result, it is farmers who will suffer from unstable weather, flooding and droughts.
Furthermore, ethanol production drives up U.S. corn prices, and those increases spread to other countries. In the past, higher corn prices have been problematic for Mexico and Central American countries where corn is a major component of the diet. More ethanol production will simply cause more problems for our southern neighbors.
Attempting to use ethanol mandate to fix the consequences of the trade war on farmers is counterproductive and bad policy. It will simply harm the environment, raise costs and leave us all worse off.