It's time for America to end ethanol subsidies

Corn that is inefficiently converted into fuel for cars is corn that isn't efficiently converted into fuel for humans

Ethanol subsidies
(Image credit: Scott Olson/Getty Images)

Earth only has a finite amount of fossil fuels. This simple fact alone makes renewable energy worthy of investigation and research, and in the long run, it makes a move toward renewable energy a necessity for human civilization.

Of course, there are many types of renewable energy, all with very different characteristics — photovoltaic solar, hydroelectric, wind, geothermal, artificial fossil fuels, nuclear, biofuels like ethanol, etc. Beside financial cost, two main factors determine whether an energy source is viable in the long run. First is the total amount of energy available:

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Second is the energy required to use the source. This is known as energy returned on energy invested (EROI). A viable fuel source like oil or coal takes relatively little energy to extract — typically, you dig a hole, pump oil out of the ground, refine it, and transport it to users. With wind, you need energy to build a wind turbine and hook it into the grid. With solar, you need energy to build a collection system like a photovoltaic panel. With ethanol, you grow corn or other organic matter, which is then fermented and distilled to produce pure grain alcohol.

At 2010 levels, the EROI of various energy sources is estimated as follows:

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As you can see, ethanol and biodiesel are some of the least efficient energy sources. It takes a lot of energy to grow corn. And unlike photovoltaic panels, which are improving technologically to capture larger quantities of light to turn into electricity, the amount of energy required to grow corn stays steady. What's more, the substances used in the production of ethanol already have an important use — as part of the food supply. People eat corn. Corn converted into fuel for cars is corn that isn't converted into fuel for humans. And since the U.S. government has been subsidizing ethanol, the price of corn for food has been skyrocketing:

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One of the key reasons for the growth in ethanol production has been government subsidies for ethanol — $45 billion in tax credits giving 45 cents to ethanol producers for every gallon they produced between 1980 and 2011. This was a strange subsidy considering ethanol's inefficiency as a fuel, and given the fact that unlike other renewables, burning ethanol continues to pump carbon dioxide into the atmosphere.

It's not like the farmers growing subsidized corn for ethanol production didn't already have a market for their produce. Kevin Drum of Mother Jones calls it "shoveling... ag welfare to a group of people who were already pretty rich."

In January 2012, the legislation that authorized the ethanol tax credits expired. But this didn't end the subsidies for ethanol. Why did the powerful corn ethanol lobby let the tax credits expire? According to Aaron Smith of the American Enterprise Institute:

The answer lies in legislation known as the Renewable Fuel Standard (RFS), which creates government-guaranteed demand that keeps corn prices high and generates massive farm profits. Removing the tax credit but keeping the RFS is like scraping a little frosting from the ethanol-boondoggle cake.

The RFS mandates that at least 37 percent of the 2011-12 corn crop be converted to ethanol and blended with the gasoline that powers our cars. The ethanol mandate is causing corn demand to outstrip supply by more and more each year, creating a vulnerable market in which even the slightest production disturbance will have devastating consequences for the world's poor.[AEI]

So the ethanol subsidies are still alive through government-guaranteed demand from the Renewable Fuel Standard mandate.

And there still exists a separate tax credit for ethanol made from non-foodstuffs such as grass, wood chips, and even the leaves and stalks of corn. The production tax credit is up to $1.01 per gallon. That may not directly affect food costs, but it doesn't make ethanol more efficient or abundant, either.

If we're going to have subsidies for renewable energy development, shouldn't they be focused on the most abundant forms (solar), the forms with the highest energy return (hydroelectric, wind), and the most reliable forms (nuclear)?

The evidence shows that corn ethanol is not competitive, and is not becoming competitive — and it's impacting food costs. It's time to consign ethanol subsidies — both direct and indirect — to the ash heap of history.

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John Aziz is the economics and business correspondent at He is also an associate editor at Previously his work has appeared on Business Insider, Zero Hedge, and Noahpinion.