Does use of ethanol save on use of fossil fuels?
That question, it turns out, is not easy to answer. Ethanol's enthusiasts point to the potential benefits of replacing gasoline with a renewable energy source that they contend will reduce America's reliance on foreign oil and cut greenhouse gases produced by fossil fuels. But the benefits of ethanol, particularly when it is produced from corn, are not so clear cut.
A number of researchers who have looked at the issue have concluded that more energy now goes into making a gallon of ethanol than is contained in that gallon. Others, however, find a net benefit, though most see it as relatively modest.
Even if the answer is an unambiguous yes, that does not mean policy should subsidize ethanol. Ethanol is substantially more expensive than fossil fuel. A subsidy makes sense only if ethanol reduces externalities from energy use enough to outweigh its higher costs.
The three external benefits that might accrue from ethanol are reduced reliance on foreign oil; reduced air pollution; and reduced emission of greenhouse gases.
The first alleged benefit is, in my view, routinely overstated. There is no "oil weapon" because Middle East oil producers must sell their oil somewhere. In a world market any refusal to sell to the U.S. is irrelevant.
The second and third alleged benefits are also likely emphemeral. Given that ethanol production requires substantial energy use, any reduction in pollution or greenhouse gases has to be minor.
So who benefits from ethanol subsidies? Corn farmers in the Midwest and the politicans who have caved to their interests. Taxpayers and the economy are the losers.