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January 27, 2007

President Bush made a big push for alternative fuels in his State of the Union speech Tuesday night, calling on Americans to reduce gasoline consumption by 20% over 10 years. And as soon as the sun rose on Wednesday, he set out to tour a DuPont facility in Delaware to tout the virtues of "cellulosic ethanol" and propose $2 billion in loans to promote the stuff. For a man who famously hasn't taken a drink for 20 years, that's a considerable intake of alcohol.

A bit of sobriety would go a long way in discussing this moonshine of the energy world, however. Cellulosic ethanol -- which is derived from plants like switchgrass -- will require a big technological breakthrough to have any impact on the fuel supply. That leaves corn- and sugar-based ethanol, which have been around long enough to understand their significant limitations. What we have here is a classic political stampede rooted more in hope and self-interest than science or logic.

Ostensibly, the great virtue of ethanol is that it represents a "sustainable," environmentally friendly source of energy -- a source that is literally homegrown rather than imported from such unstable places as Nigeria or Iran.

That's one reason why, as Jerry Taylor and Peter Van Doren note in the Milken Institute Review, federal and state subsidies for ethanol ran to about $6 billion last year, equivalent to roughly half its wholesale market price. Ethanol gets a 51-cent a gallon domestic subsidy, and there's another 54-cent a gallon tariff applied at the border against imported ethanol. Without those subsidies, hardly anyone would make the stuff, much less buy it -- despite recent high oil prices.