America has one
heck of a sweet tooth. We consume more sweeteners per capita than any other
country, and close to ten million tons of sugar every year. But American sugar
producers arenÕt satisfied with supplying the most sweet-hungry population in
the world. TheyÕve relentlessly sought—and received—special favors
from the federal government, turning the industry into one of the most cosseted
in America today. The government guarantees producers a fixed price for
domestic sugar and sets strict quotas and tariffs for foreign sugar.
Economically speaking, this has many obvious bad results. It keeps sugar prices
in the U.S. at least twice as high as the world average. It makes it harder for
companies that use lots of sugar to do business here—in the past decade,
an exodus of candy manufacturers from the U.S. has eliminated thousands of
jobs. And import restrictions make Third World countries poorer than theyÕd
otherwise be. But protecting sugar also has a surprising consequence: itÕs
hurting AmericaÕs efforts to become more energy-efficient.
In recent years,
as politicians have tried to deal with high gas prices, concerns about global
warming, and AmericaÕs dependence on OPEC, a new
savior has been found: ethanol. Ethanol has all sorts of virtues. When itÕs
blended with gasoline, it reduces greenhouse-gas emissions. Unlike fossil
fuels, it doesnÕt get depleted over time, since itÕs made from biomass. And
sources of ethanol can be found all over the world, unlike those of oil, which
are mostly in unstable or autocratic countries that are unfriendly to the U.S.
So Congress has mandated that four billion gallons of ethanol annually be
blended with gasoline, and it also subsidizes ethanol production with a
fifty-one-cent-per-gallon tax credit. These policies have stimulated an ethanol
boom; the number of ethanol plants is set to rise by nearly fifty per cent in
the next few years.
Unfortunately,
the ethanol produced in the U.S. comes from a less-than-ideal source: corn.
Corn ethanolÕs Ònet energy balanceÓ—the amount of energy it yields in
proportion to how much energy goes into its production—is significantly
lower than that of other alternatives, and modern corn farming isnÕt easy on
the land. By contrast, ethanol distilled from sugarcane is much cheaper to
produce and generates far more energy per unit of input—eight times more,
by most estimates—than corn does. In the nineteen-seventies, Brazil
embarked on a program to substitute sugar ethanol for oil. Today, every gallon
of gas in Brazil is blended with at least twenty per cent of ethanol, and many
cars run on ethanol alone, at half the price of gasoline.
WhatÕs stopping
the U.S. from doing the same? In a word, politics. The favors granted to the
sugar industry keep the price of domestic sugar so high that itÕs not
cost-effective to use it for ethanol. And the tariffs and quotas for imported
sugar mean that no one can afford to import foreign sugar and turn it into
ethanol, the way that oil refiners import crude from the Middle East to make
gasoline. Americans now import eighty per cent less sugar than they did thirty
years ago. So the prospects for a domestic-sugar ethanol industry are dim at
best.
We could, of
course, simply import sugar ethanol. But here, too, politics has intervened:
Congress has imposed a tariff of fifty-four cents per gallon on sugar-based
ethanol in order to protect corn producers from competition. A recent study by
Amani Elobeid and Simla Tokgoz, scientists at Iowa State University, projected
that if the tariffs were removed prices would fall by fourteen per cent and
Americans would use almost three hundred million gallons more of ethanol.
But that isnÕt
likely to happen anytime soon: the Bush Administration proposed eliminating the
ethanol tariff this past spring, but Congress quickly quashed the
idea—Barack Obama was among several Midwestern senators who campaigned in
support of the tariff—and the sugar quotas appear to be as sacrosanct as
ever. Tariffs and quotas are extremely hard to get rid of, once established,
because they create a vicious circle of back-scratching—government
largesse means that sugar producers get wealthy, giving them lots of cash to
toss at members of Congress, who then have an incentive to insure that the
largesse continues to flow. More important, protectionist rules flourish
because the benefits are concentrated among a small number of easy-to-identify
winners, while the costs are spread out across the entire population. It may be
annoying to pay a few more cents for sugar or ethanol, but most of us are
unlikely to lobby Congress about it.
Maybe we should,
though. Our current policy is absurd even by Washington standards: Congress is
paying billions in subsidies to get us to use more ethanol, while keeping in
place tariffs and quotas that guarantee that weÕll use less. And while most of
the time tariffs just mean higher prices and reduced competition, in the case
of ethanol the negative effects are considerably greater, leaving us saddled
with an inferior and less energy-efficient technology and as dependent as ever
on oil-producing countries. Because of the ethanol tariffs, weÕre imposing
taxes on fuel from countries that are friendly to the U.S., but no tax at all
on fuel from countries that are among our most vehement opponents. Congressmen
justify the barriers to foreign ethanol with talk of Òenergy security.Ó But how
is the U.S. more secure when it has to import oil from Venezuela rather than
ethanol from Brazil? These tariffs are bad economic policy, bad energy policy,
and bad foreign policy. Talk about your Domino effect.