I am sure you have heard of the looming ‘fiscal cliff’ that our nation is facing. But we face another huge economic problem that is going completely unnoticed. This lurking economic failure, perverse subsidies, is costing us billions of dollars in taxpayer subsidies, something we cannot afford in light of the current situation.
A subsidy is a form of government support that provides money to an economic sector that is considered beneficial in order to promote its growth. A subsidy is perverse when it causes effects that are adverse to our economies and our environment. An adverse effect to the economy would be if the subsidy leads to a situation in which society as a whole could be better off without it.
The use of corn ethanol as a fuel source is meant to reduce CO2 emissions and have less of an impact on the environment, it does neither. The push for ethanol subsidization has generated a worldwide industry that is now one of the most deeply entrenched economic policies in the US.
Ethanol has an estimated energy return of between 1:1 and 1:1.3, more energy goes into producing it than comes out. If we are producing a source of energy that is not yielding more than we put in, we are wasting that energy. And it can’t just be more than a 1:1 ratio. Researchers at SUNY ESF estimated in 2009 that a minimum EROI of 3:1 is required to sustain a civilization. To put it simply, we are putting more in than we are getting out.
Timothy Searchinger discovered corn-based ethanol will nearly double GHG emissions over 30 years. Ethanol production causes environmental degradation from soil erosion, water, and air pollution (from fertilizers), and an increase in emissions of global-warming gases.
Furthermore, ethanol production has been shown to affect the price of food. There is only so much land on Earth and only so much can produce food. The more land we use to grow corn for ethanol, the less land there is for growing food. This reduces the overall supply of food and thus the price of food rises since people will always demand food. In 2008, the African News Review stated that the diversion of food crops to biofuel production was a significant factor contributing to global food prices skyrocketing by 83%.
In the next farm bill, a reduction in the amount of subsidies for ethanol would discourage investment in this industry and thus reduce negative externalities associated with its production. The government could prescribe a smaller gasoline-to-ethanol ratio, further reducing demand. Combine this with subsidies toward alternative energy and it would result in a transition off of ethanol.
The next phase would be to tax the pollution that results from the growing of corn, thus discouraging the use of fertilizers. Then, if a farmer changes his/her farming methods to be more environmentally friendly, it is like receiving a tax break. This provides an economic incentive to enact change. Along with this, we need to create political pressure so that legislators understand the importance of this matter. We can’t act on it without first knowing about it.
An alternative to subsidies, the US could implement something similar to what India does in its agricultural system. Crop insurance already exists in the US and is authorized by the Federal Crop Insurance Act, but the difference is, farmers only receive money when they need it. This stabilizes the price of agricultural goods without encouraging environmentally impactful industries like ethanol.
The reality is that we can eliminate subsidies for ethanol. But unless we can do it in a way that does not send the economy spiraling downward, it is unlikely to happen. If the change happens as a combination of policy implementations at the local and federal level and incentivized changes at the farmer level, it is possible to mitigate the issues caused by perverse subsidies.
Formerly of Wilmington