Who’s Going To Pay For All This?

The Washington Post takes a look at the costs of the rising insistence to switch to biofuels and asks a few very pertinent questions. There is  very large downside to all of this suddenly politically popular rush to produce biofuels. I've posted on this a number of times, of course. But the Post looks at a few numbers that need to be considered carefully.

Bush and members of Congress stress energy independence and environmental benefits of federal requirements for a massive increase in the use of biofuels in motor vehicles. But so far they have muted discussion of the prosaic details of how to pay for the subsidies and other incentives seen as crucial for meeting the new biofuels targets.

If the current tax credits, grants and loan guarantees are extended, the package would cost taxpayers $140 billion more over the next 15 years. New proposals under consideration in Congress could raise that tab to $205 billion.

Neither the White House nor Congress has spelled out how they plan to square the costs with other budget priorities. Paying for the incentive programs, which are supported by a bipartisan coalition of lawmakers, could clash with keeping the federal budget deficit under control. Democrats have vowed to abide by so-called pay-as-go rules — offsetting new programs with spending cuts or new tax revenue.

"We aren't paying enough attention to the green lost to the Treasury . . . in stimulating ethanol to make the environment greener," said Robert D. Reischauer, president of the Urban Institute and former director of the Congressional Budget Office. "Before we leap to extend subsidies for alternative fuels or ethanol, we need to take a hard look at their impact on future deficits."

The biggest single expense would be an extension of a 51-cent-a-gallon ethanol tax credit scheduled to expire in 2010. It would cost the federal government an extra $131 billion through 2022 under a fuel mandate that recently cleared the Senate Energy and Natural Resources Committee. (It would cost $18.36 billion in 2022 alone.)

On top of all that, rising corn prices brought about by increased ethanol production are already causing rapid increases in food prices all across the board. One estimate quoted in the article pegs the cost to consumers already tops $14 billion per year. And because that is food, those price increase hurt the least able to afford them the most.

The dilemma over how to pay for ethanol tax breaks and incentives is part of a broader problem for Democrats. They are trying to reduce the deficit while simultaneously extending some of the Bush tax cuts that expire in 2010, easing the bite of the alternate minimum tax and undertaking initiatives such as an expansion of health care for children.

The American Meat Institute, along with dairy, poultry and pork organizations, is raising concern about the rising price of food because of higher corn prices. A University of Iowa study said consumers are already paying an extra $14 billion a year as a result.

There are enormous amounts of money in play on this. Government subsidies in the form of tax breaks or outright payments, skyrocketing prices for food - across the board because corn is used in a lot of consumer products. What isn't mentioned in this article is the enormous energy overhead involved here. It takes almost as much energy to produce a gallon of biofuel as is produced. Add to that the increased worldwide demand for "biodiesel" that is causing the deaths of both orangutans and humans and the deforestation of incredibly large area (funded by China) and the costs begin to loom even larger - and not just in terms of cash.

And who is paying for all of this? We are.

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  By Quilly Mammoth, Friday, 8 June , 2007 @ 6:48 am

  Sure, the rising price of corn will affect the world’s poor,starving masses; but the important reason that this headlong rush to biofuels must be stopped is the affect higher corn prices has on other products. Like beer and cheap booze. Imagine the problems when Milwaukee’s Best goes up to $2.99 a sixpack…or a 1/2 pint of Tvarski 80 proof vodka hits $3.00! Then the stuff will really hit the fan with this econuttery.

Other Links to this Post

1. Maggie's Farm — Friday, 8 June , 2007 @ 3:32 pm