It’s undoubtedly good news that Congress allowed a $6 billion annual subsidy for corn ethanol to expire. But that’s not the end of the story, as the latest Fortune magazine documents.
Scott Cendrowski’s article is not yet posted online, but here are the salient points.
It turns out that while subsidies are gone, U.S. law still requires oil refiners to blend corn ethanol into fuel — some 12.5 billion gallons this year at least 15 billion gallons by 2015. That’s still a small portion compared with the 133 billion gallons of gasoline that the U.S. Energy Information Administration estimates Americans will burn this year, but nonetheless enough to keep upward pressure on corn prices. That law needs to change, argues Jeremy Grantham — who oversees nearly $100 billion at his Boston investment firm, is known for calling both the dotcom and housing bubbles and is an environmentalist to boot. “It [U.S. ethanol policy] is truly diabolical,” he says. “The subsidy was decoration. The mandate is the villain here.” …
… How can we even consider using a food crop like corn, he argues, for fuel? He has calculated that ethanol demand increases the global price of a bushel of corn by 20%. “It inflicts unnecessary pain on anyone who eats,” Grantham laments.
