Ethanol: Train wreck ahead?

Ethanol and biodiesel will surely play a role in the energy future, but the rush to embrace them has overlooked numerous obstacles and untoward implications that merit careful assessment. Direct corn subsidies equaled $8.9 billion in 2005, but fell in 2006 and 2007 as high ethanol-driven corn prices reduced subsidy payments. In the 2005 energy bill, Congress mandated the use of 7.5 billion gallons of biofuels by 2012, and there is strong political support for raising the mandate much higher. In the United States, the explosive growth of the biofuels sector and its demand for raw stocks of plants has triggered increase in the prices not only of corn, other grains, and oilseeds, but also of crops and products less visible to analysts and policymakers. An alternative policy model will require replacing the mandates, subsidies, and tariffs designed to help an infant industry with a new set of policy instruments intended to broaden the portfolio of energy alternatives and to create market-driven growth in renewable energy demand.