Come on now, we’ve all heard these kinds of headlines before, though usually they’re about Republicans forcing grandma to eat dog food in order to pay for her meds, or pushing her wheelchair off the cliff with their latest plan for restructuring Medicare. But in this case, the headline may not be exaggeration.

Now of course some of you are nodding your heads in agreement, recognizing with recent regs on coal-fired electrical power generation, the EPA regulations can have significant, far-reaching, and often unintentional (or at least we hope so) effects. The rest of you are probably shaking your heads and telling yourself that Higgins has finally exposed himself as one of those tin-foil hat conspiracy theorists.

Apparently however, you haven’t been reading your TFP closely, or at least closely enough to remember a financial piece by Ben Treece back on Aug. 9. In it he points out that the price of corn has gone up by 400 percent since January of 2006. Last weekend’s Wall Street Journal took those numbers even deeper and further, showing us some that are more alarming that we previously believed. To understand this, we’re going to have to look at those numbers, but since there’s no serious mathematical calculation even those with a public school education should be able to grasp them.

Let’s start with some big ones. The Energy Policy Act of 2005 gave us a regulation called the “Renewable Fuel Standard,” that mandates that about 13.2 billion gallons of ethanol must be blended in our gasoline this year to create the fuel with either 10 percent or 15 percent ethanol at the pumps. By 2022, this mandate is raised to 36 billion gallons. The WSJ points out to us that, “These quotas are fulfilled almost entirely by corn ethanol. Four of every 10 bushels in 2011 went into the stuff.”

So 40 percent of our corn harvest is used for fuel instead of food and because of the increase on corn demand, the price of food goes up. But that’s not all we pay for. Renewable fuel producers in this country get a 45-cent-per-gallon federal subsidy and have a 54-cent-per-gallon tariff imposed on foreign imports. In fact, according to a Reuters piece on recent congressional voting to end this subsidy, the ethanol industry receives a $6 billion annual subsidy for turning corn into fuel. But at what cost?

According to the energy future coalition, a United Nations foundation that supports its production, ethanol costs about $1 to $1.20 per gallon when corn’s at $2 per bushel, and when corn goes up $1 per bushel, it adds 35 cents per gallon to ethanol. So with corn at $8, the price of ethanol is about $3.20 per gallon (at least). Unfortunately however, ethanol produces only about 65 percent of the energy of its equivalent in gasoline. So even when the price is equal, more must be used to travel the same distance. Add to this the astonishing fact that for all the hype related to its production, ethanol accounts for “less than 1% of world-wide transportation fuel.”

But none of this tells the food side of the equation. First and foremost, the U.S. contributes 60 percent to the world’s corn exports. This not only provides a balance of trade item for the U.S. (to help pay for those Chinese-manufactured goods), but it also normally provides a low-cost food source for both animals and people around the world. With the dramatic increases in the price of corn, feed for raising livestock is up and so is the meat produced. High fructose corn syrup likewise goes up; and with the number of food items this includes, there’s will be a substantial impact on grocery bills in the days ahead. And of course there’s the increased cost of corn itself for consumption.

Now organizations around the world from the World Trade Organization to the World Bank have signed recommendations to remove all subsidies or mandates for biofuels to bring down food costs. The EPA has so far rejected such requests; and the president, who has the power to overrule the EPA, has likewise failed to act during an election year when farm states like Iowa could be critical to a re-election campaign.

With the drought of 2012 now fully realized, the Department of Agriculture has revised its projected corn harvest down by 10.8 billion bushels, or 13 percent. With a mandated portion of what’s left set aside for a government-subsidized fuel whose contribution is questionable, if not statistically insignificant, this cannot help but mean that there will be less corn to feed the world. The EPA has not seen fit to even consider walking back this unnecessary and harmful mandate, even in the face of a potential world food shortage in 2012. One cannot help but conclude therefore, that the EPA is OK with starving people.

Tags: corn prices, EPA, ethanol, Just Blowing Smoke, subsidies, Tim Higgins

This entry was posted on Wednesday, August 15th, 2012 at 11:35 am and is filed under Just Blowing Smoke, Opinion.
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