America’s Failed Domestic Ethanol Policy

I had a piece in yesterday’s Washington Times critiquing U.S. ethanol policy. My main points:

  • Price subsidies are generally bad–they encourage overconsumption and distort the efficient allocation of resources. Ethanol is one of those cases–the “green” fuel is  (presently) costly and inefficient. If this wasn’t the case it is unlikely that the ethanol industry would need to rely on government support to survive. This is a clear case of a wealth transfer from taxpayers to a powerful, special interest.
  • Taxing foreign ethanol imports is just as damaging to our economy. We don’t refuse to buy clothes, electronics, food, etc. from other countries. Energy is no different. The U.S. would be much worse off if we were unable to get energy from a variety of sources abroad.
  • The foreign ethanol tariffs are used to offset the tax subsidy. Our beloved government decided to not only subsidize domestic production but also foreign production that is sold in the United States. The tariff, however, is larger than the subsidy so there is still a net tax on importing ethanol. The solution here is to not subsidize domestic production in the first place.

See here and here for more information on U.S. ethanol policy.