Ethanol mandate would harm CO economy
<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Colorado, beware: An army of well connected lobbyists has persuaded Congress to adopt an ethanol policy that's as bad for the environment as it is for the Centennial State's economy.
Chances are you've heard of ethanol, an alcohol distilled from corn that can be used to run cars. Ethanol production became a policy priority in Congress because it simultaneously placated two influential special interests: agribusiness and environmentalists. Greens took to ethanol because they thought it had a smaller carbon footprint that regular gasoline. For agribusiness, a government mandate for a fuel made from crops is a no-brainer.
Recently, however, environmental scientists have turned against biofuels. New research has shown the significant ecological impact of farming more corn, a resource-intensive crop. And last September, an article in the prestigious journal Science demonstrated that global ethanol production emits two to nine times the greenhouse gas emissions "saved" by substituting it for gasoline.
So ethanol is bad for the environment, and Congress stopped supporting it, right? Wrong. Rational decision-making doesn't apply when two of the nation's most successful special interests are involved.
Take the corn lobby. These are the same people who convinced Congress to pay them to grow nothing. Collectively, they're known as King Corn.
King Corn loves ethanol because it has revolutionized the grain market. In 2005, Congress passed a law that forced gasoline blenders to incorporate 7.5 billion gallons of ethanol into the nation's fuel supply. This Soviet- style production quota sent demand for corn through the roof, and the price of corn has since increased 70 percent. That's a sweet deal for corn farmers but a raw deal for consumers.
King Corn isn't the only Washington insider with a big stake in biofuels. Agribusiness giant Archer Daniels Midland manufactures most of the ethanol produced in America.
ADM's political influence is the stuff of legends. By some counts, ADM has spent more than $4 million to make its interests known in the nation's capitol, and its chairman once gained access to President Nixon's oval office with a briefcase containing $100,000.
If you doubt that ADM's political contributions have had their intended effect, take a look at the company's bottom line. Last quarter, ADM reported profits in excess of $400 million, largely as a result of Congress's ethanol production quotas.
Together, King Corn and ADM form a lobbying powerhouse, and now it is asking Congress for more. Last June, it convinced the Senate to double the ethanol production quota, to 15 billion gallons. Imagine what that will do to the price of corn!
While higher corn prices may be a boon to some special interests, they would hurt Colorado. Farmers don't grow much maize in the Centennial State, but they do raise a whole lot of cattle, and cattle feed is made from corn. For the cattleman, expensive corn means higher production costs, which squeezes his bottom line. But that's not all.
Eventually, beef producers pass along these costs to the consumer. Economic theory tells us that higher prices lower consumer demand, which leads to a contraction in production. Economists from Iowa State University warn that a doubling of the ethanol production quota would raise the price of red meat by 4 percent and shrink the beef industry by 1.4 percent.
That's bad news for Colorado. Livestock is the state's No. 1 commodity, and the beef industry generates $2.3 billion in personal income for 46,000 Coloradans. If the market for beef diminishes, ranches will lose customers, and people will lose jobs.
Unfortunately, such a downturn in the cattle industry now appears inevitable. Recently, the Senate persuaded the House of Representatives to include an expanded corn-ethanol mandate in Congress' final omnibus energy bill, which President Bush has signed.