The Frontal Cortex

Obama and Ethanol (His First Mistake)

Obama is coming to town! Since I live in New Hampshire, that also means that Obama is going to run for President. (I suppose Obama might also just have a soft spot for Manchester. . .)

So what am I going to ask Obama about? I’ve already confessed to a serious man-crush, but I’m dismayed by Obama’s position on the sugar ethanol tariff. For those who don’t know, the U.S. government currently taxes the importation of ethanol produced from sugar. This tariff is supported by both the domestic sugar industry – our sugar prices are twice the international average – and Midwestern corn farmers, who like having a monopoly on ethanol production.

The bad news is that it’s much more efficient to produce ethanol from sugar than corn. As James Surowiecki noted in the New Yorker:

Corn ethanol’s “net energy balance”–the amount of energy it yields in proportion to how much energy goes into its production–is significantly lower than that of other alternatives, and modern corn farming isn’t easy on the land. By contrast, ethanol distilled from sugarcane is much cheaper to produce and generates far more energy per unit of input–eight times more, by most estimates–than corn does. In the nineteen-seventies, Brazil embarked on a program to substitute sugar ethanol for oil. Today, every gallon of gas in Brazil is blended with at least twenty per cent of ethanol, and many cars run on ethanol alone, at half the price of gasoline.

What’s stopping the U.S. from doing the same? In a word, politics. The favors granted to the sugar industry keep the price of domestic sugar so high that it’s not cost-effective to use it for ethanol. And the tariffs and quotas for imported sugar mean that no one can afford to import foreign sugar and turn it into ethanol, the way that oil refiners import crude from the Middle East to make gasoline. Americans now import eighty per cent less sugar than they did thirty years ago. So the prospects for a domestic-sugar ethanol industry are dim at best.

Unfortunately, our politics shows little promise of changing anytime soon. Although the Bush Administration recently proposed scrapping the sugar tariff, Congress won’t budge. One of the senators supporting the sugar tariff is Barack Obama. When he comes to New Hampshire, I’m going to ask him why. I hope he can come up with a better answer than trying to appease voters in the Iowa caucus.

Comments

  1. #1 Orac
    November 29, 2006

    Heh.

    The real world intrudes on the idealism.

    Personally, I’ve never much liked Obama and remain quite puzzled at all the adulation he’s been receiving. He’s all flash and minimal substance.

  2. #2 Rob Knop
    November 29, 2006

    I need to look more closely at Obama. So far, I have little more than headline knowledge of him.

    I did read, in the airport, a few pages out of his book. From what I saw in there, I saw a presentation of the sort of person I’d like to have in the debate. More thoughtful and less jingoistic than most. More willing to allow that people on the opposite sides of issues from him are there for well-thought-out reasons than most poiticians seem to be.

    But I don’t really know enough right now to know if he’s my ideal presidential candidate. Mind you, if any sort of Bush-protege ends up as the Republican nominee, just about anybody on the other side with a plausible chance of winning will get my vote. I’ll only consider McCain a plausible candidate if there is some sort of plausible and reasonable explanation as to why he fell in with the Bose-Einstein condensate of Bush Insanity in the last couple of years, and if he isn’t working to hard to maintain the Liberty University voting bloc.

    In the Bush/Gore election, I voted for neither, but “Not Bush” has since then become far too important in my view.

  3. #3 Coin
    November 29, 2006

    I am confused:

    1. Is the tax on sugar ethanol for specifically on ethanol, or part of a broader sugar tarriff? The New Yorker article sounds like the tarriff covers sugar imported to be turned into ethanol, but does not cover ethanol itself. Is this the case?

    2. If the tax covers ethanol specifically, is this specifically to tax ethanol as an energy source, or is it a relic of a time when ethanol was used for some other purpose?

    3. Is ethanol used for any purpose other than as a fuel?

    4. When you say Obama supports the sugar tarriff– does he specifically support taxing sugar imports for energy purposes, or is it just that he supports the sugar tarriff in general and the ethanol thing is just an unintentional side effect, maybe one he just hasn’t ever thought about?

    Is it possible he might or could be convinced to support an energy production exception to the tarriff (where the tax is rebated if and only if the imported sugar is used to produce ethanol fuel, for example), but it’s just not occurred to him to look into the issue?

    Just trying to understand, thanks.

  4. #4 Jonah
    November 29, 2006

    All excellent questions, and I’m sorry the original post wasn’t clear. We impose a tariff both on imported sugar and on imported sugar ethanol. As Suroweiki notes, “Congress has imposed a tariff of fifty-four cents per gallon on sugar-based ethanol in order to protect corn producers from competition. A recent study by Amani Elobeid and Simla Tokgoz, scientists at Iowa State University, projected that if the tariffs were removed prices would fall by fourteen per cent and Americans would use almost three hundred million gallons more of ethanol.” The craziest thing is that we tax sugar ethanol – which might help developing nations, like Brazil – and yet we don’t impose a tariff on foreign crude oil, which supports regimes like Iran. Gotta love the sugar and corn lobby.

    And as far as I can tell, Obama only supports the tariff on imported sugar. I’m just disheartened by his willingness to support a blatantly bad policy decision in order to win support from the agriculture lobby.

  5. #5 Coin
    November 29, 2006

    Okay, I see. Well let us know how the New Hampshire event goes and if you get the chance to ask your question, I’ll be looking forward to it.

  6. #6 Josh
    November 30, 2006

    “I hope he can come up with a better answer than trying to appease voters in the Iowa caucus.”

    Like the massive corn industry in Illinois?

  7. #7 Anita @ Say No to Crack
    December 1, 2006

    Tariffs and trade are always such a hard topic for politicians. In theory, the best national economy would be one where we export massive amounts of products that are produced by machine or very few people yielding high profits, while importing nothing. This ensures a standard of living far above the rest of the world.

    The worst is pretty close to the situation we’re in now. We import from everyone with abandon, but a combination of high labor costs and trading partners managing/limiting their trade more aggressively than us causes a massive imbalance. In this situation, our standard of living and wealth will approach the global average, or at least the average of our larger trading partners.

    From economist’s POV, this is great, right? Free markets working their magic. But to a politician, it is suicide, so they do everything possible to manage trade. And the people will support them. The general population is not going to fight Obama’s stance on sugar tariffs … because they realize that reducing the tariffs will cost Americans jobs, and for what … decreased candy and chocolate prices?

    OK, time to stop rambling and go to bed.

  8. #8 Greco
    December 1, 2006

    and modern corn farming isn’t easy on the land.

    Neither is sugarcane production, which also requires massive amounts of pesticides.

  9. #9 Greco
    December 1, 2006

    Another minor point: while 15% of the cars in Brazil run solely on ethanol, they account for just 2% of sales. Most new cars are “flex-fuel” (yes, in English) – they can run on varied proportions of gasoline and ethanol (and can be adapted with relative ease to run on natural gas), allowing the consumer to adjust the mixture according to the relative prices of ethanol and gasoline. The sales performance of flex-fuel cars would probably be even better if there were more options, since the technology is quite recent and not all makers were able to adapt to run on the mixture, and if it weren’t for the memories of the unbelievable greed and stupidity of the ethanol industry tha cause the late 80s-early 90s, when the proportion of cars running on ethanol went from 94% to less than 2% in a few years.