Good for the environment or good for politics?


Is ethanol really all that good? Or have ethanol's supporters used politics to sell?
Yes, this story by Tim Carney is at TCS Daily with all that implies. Judge for yourself the environmental impact, but right now I am more interested in the bits about politics and economics.

The 1991 rules had a strict cap on volatility, and ethanol didn't meet the cap. This sent ethanol's supporters into a frenzy. As President Bush sagged in the polls, including in the corn-belt, he knew he had to act. In August, Bush went to the Illinois State Fair ready to propose an increase in the already generous subsidy for ethanol. The Republican Governor, Jim Edgar, convinced him that would not go far enough, and so the president ripped that proposal out of his speech until he could craft a more appealing promise.[i]

Earlier that year, Dwayne Andreas, CEO of Archer Daniels Midland (the country's top ethanol producer), had co-chaired a fundraiser for the Republican Party, himself contributing $400,000 to the cause of reelecting George Bush.[ii] On October 1st, Bush announced that he would grant the special exemption the ethanol industry hoped for: ethanol would be held to lower pollution standards than gasoline.

After Bush lost reelection, his proposed exemption entered limbo. A less skilled businessman than Dwayne Andreas might have been left out in the cold. But two months after the election, Andreas was at President Clinton's inauguration. Andreas contributed heavily to the inauguration, but he told reporters that although his business was directly affected by the government in many ways, his contributions or his closeness to the Clintons had nothing to do with ADM. "I'm here because I was invited," he told one reporter. "It has nothing to do with business. My business isn't affected."[iii]

But his business was affected. Clinton ended up not following Bush's proposal to exempt ethanol from volatility standards, but instead, in the name of reducing carbon monoxide, mandated increased use of ethanol rather than other oxygenate fuels. Clinton issued this rule not long after Andreas made a $100,000 contribution to the Democratic Party. A federal court later ruled that mandate was improper.[iv]

Get the picture? Despite the best intentions of the law to regulate the market so that there would be a cleaner environment, two Presidents used political concerns to justify exempting ethanol and it's producers from existing law.

Then that special status was used to promote ethanol as the environmental fuel with no evidence to support that claim.

Asking which President was more guilty just misses the point. Because someone decided to regulate economic behavior for a moral purpose, the ground was laid so that related economic behavior could be regulated even if the new changes were not in line with the original morality. Anybody questioning the new changes ran smack dab into the original moral justification, even if it has nothing to do with the changes.

In other words, inflict government on someone today and don't be surprised if someone inflicts it on you tomorrow.

This is a pattern that is repeated again and again and again. First, use a valid concern to pass oppressive laws that affect everyone equally. Then create exemptions. Add incentives so that the exempted can "compete." The net effect is to create a monopoly protected by the force of law and subsidized by taxpayers.

The solution is to not have oppressive laws and let the free market work.

Why do people keep forgetting that lesson?

Let's wind back the clock.

It's the early 1970s. Gas is cheap and big American cars rule the roads in the United States. Gas prices go up (for now we'll ignore why), and within a few years gas efficiency becomes a major selling point. It would take a few years of market competition to make those high MPG cars comfortable and powerful. Meanwhile, the domestic cars got more fuel efficient, mainly because they lost much of their market. No one car company or group of car companies had all the solutions, and over time, customer demands changed.

The market demanded results far faster than any government could. And the market delivered. Results, more choice, lower prices, and more features that customers wanted.

If ethanol really is the good thing that it's supporters claim, then remove the subsidies and regulations that promote it. Let the market prove ethanol's worth beyond the shadow of a doubt.

— NeoWayland

Posted: Wed - July 12, 2006 at 04:49 PM  Tag


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