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SOTU 2007: Free energy markets ... kinda

Oil manipulation bad, corn manipulation good

Posted by David Roberts at 3:49 PM on 23 Jan 2007

I'm sifting through Bush's energy proposals. This is particularly rich:

The President's Plan Enables America To Lead The World To Energy Security. By establishing such a visible and ambitious fuel standard, America's global leadership will help encourage our friends and allies to consider similar policies. Actions by America's friends and allies to increase their production of oil and oil alternatives, diversify their supplies, reduce their consumption, and increase their oil reserves will enhance the energy security of America and the rest of the world. Conversely, foreign actions that undermine free, open, and competitive markets for trade and investment in energy supplies diminish the energy security of America and the world. This is why America opposes the political manipulation of oil and gas exports. [my emphasis]

Watch what's going on here. Bush is talking about shifting 15% of our gasoline use to corn ethanol by 2017. That means our energy security will be bound up with some of the most tarriff-and-subsidy-ridden trade policies in the world -- policies that make a mockery of "free, open, and competitive markets." This from an AP story just yesterday:

South American agricultural leaders Argentina and Brazil have joined Canada in a complaint against the United States over what they claim are illegal government handouts to American corn growers, trade officials said Monday.

But manipulating oil and gas trade? Well, that's beyond the pale!

There is no free ethanol

In his commentary on the rush to biofuels, Robert J. Samuelson over at the Washington post does some very useful basic arithmetic on biofuels. (Re: blindness--Bob, we aren't supposed to drink the stuff!) The 51 cents a gallon tax credit and the import tariffs are  a potent brew going into the '08 election cycle. Bob rightly sounds the boondoggle alarm. Brazil uses less oil to make a barrel's worth of etanol than we do. Why not let all the countries currently shut out of the US sugar market by protectionist quoatas into our ethanol market? The quotas protect a few wealthy US sugar producers and help destroy the Everglades. Post-Castro Cuba could make lots of ethanol.
High corn prices here will cause an unsustainable (from environnmental, economic and green house gas points of view) boom in planting. The effect on other uses of corn will ripple through the economy. When one reads of tropical forests (think big carbon sink--the Wall St. Journal piece on Dec. 5, '06 is chilling if it weren't about global warming) cleared for oil palm plantations in Borneo, it is impossible to avoid the reality that market signals for more biofuels production will have vast unintended bad consequences and not go very far to solving the economic, environmental and geopolitical problems of petroleum demand. The hugely harder work is in actually figuring out ways to reduce demand, not shift the source of supply.

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