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06/26/2006

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Andrew Carlon

Although ethanol is not a fossil fuel, it is an organic molecule, and so its combustion produces carbon dioxide. C2H6O + 3 O2 --> 2 CO2 + 3 H2O. So, in addition to its production (both in the engines of farm equipment, and in the fermentation process, which also produces CO2), its use also produces carbon dioxide, though as you correctly point out, it is difficult to say without empirical data whether it is a net decrease. In practice it may be more energy-efficient than fossil fuels, and may combust more completely, yielding fewer other pollutants (which, all things equal, is advantageous). If it can be made to produce the same amount of energy with less CO2 emission, a carbon tax would surely stimulate development here as well.

Paul N

The fact that people give exaggerated responses to contingent valuation surveys reminds me of how in California, expensive ballot referendum programs always pass.

Arun Khanna

It seems to me that farming per se is world competitive in the U.S. Subsidies skew the mix of crops and agricultural products in the U.S.
A visit to the state fair is highly useful in thinking clearly about why we have ethanol and other subsidies. It is difficult for a 'low skill' farmer who has invested his or her human capital in a specific place and industry to retrain for a job in the city after a certain point in their life.

ben

I found Posner's discussion on why subsidies might be justified in Switzerland quite unconvincing. The reason is that farms' tourism externality is easily internalized, if it hasn't been already.

Those farms that are very scenic and conveniently located will find themselves able to attract busloads of fee-paying tourists eager to take snaps in front of manicured cows standing on lush Swiss hillsides. They might, almost incidentally, make money as well from actual farming operations. Farms unable to attract tourists will live or, in many cases I suspect, die according to their farming competitiveness.

The result without subsidies is that tourism continues largely or entirely unabated, and the 99% of farms not being snapped by tourists continue or shut down according to performance as farms.

LB

Thank for your very intersting comments about farm subsidies in Switzerland, where the question is a hot topic.

If I understand your point correctly, the subsidies should be granted to small and beautiful farms and not to the big (by Swiss standards) and efficient (by Swiss standards also) ones? That is quite the opposite of the policy followed, but the idea is intersting.

Wes

Although ethanol is not a fossil fuel, it is an organic molecule, and so its combustion produces carbon dioxide.Basically, plants make themselves out of air. In particular, they use energy from the sun to rip the carbon out of carbon dioxide and the hydrogens off of water (H2O). They also need a few minerals from the ground but mostly plants are made out of carbon dioxide (and water).Over the (millions of) years, a whole lot of plants died and their remains got trapped underground in the form of oil and coal. This had the effect of trapping huge amounts of carbon dioxide and water underground (actually, just the carbon and hydrogen are trapped - the oxygen parts are in the atmosphere).Anyway, both ethanol and fossil fuels are made out of the carbon from carbon dioxide. When fossil fuels are burned that liberates carbon dioxide that had been trapped underground. When ethanol is burned it merely releases the carbon dioxide that was used to produce the ethanol in the first place.The only way that ethanol production liberates net carbon dioxide is if fossil fuels are pumped out of the ground and used in the ethanol production process.

ben

Wes

The only way that ethanol production liberates net carbon dioxide is if fossil fuels are pumped out of the ground and used in the ethanol production process.

They are. Natural gas is used in producing ethanol.

Arun Khanna

The coastline in Cuba has nice framing land too that needs repair. I understand Switzerland is a great country to visit and stay for a while. If tourism is the reason for subsidies, only farms near highways and bylanes should be subsidized.

Wes

Natural gas is used in producing ethanol.That is undoubtedly correct at some level but it is important to note that the statement "Natural gas must be used in producing ethanol." is totally false.In particular, it is entirely possible to produce ethanol from biomass without a net release of CO2. In fact, if any of the biomass ended up trapped in the ground then there would be a net trapping of CO2 out of the atmosphere.

Zathras

A historical note for Judge Posner's benefit: the 1996 "Freedom to Farm" bill that reduced authorized levels of farm spending was heavily influenced by Sen. Richard Lugar's chairmanship of the Agriculture Committee. The very expensive 2002 farm bill that increased spending on program crops was largely a product of the House Agriculture Committee.

Senators from small states can indeed exercise disproportionate influence over farm policy; on the big-ticket spending programs, though, such influence tends to be exercised mainly by Senators from small Southern states. This is because it is in Southern states that most of the programs that cost large amounts of money but benefit a small number of farmers -- the cotton program, the rice program -- deposit most of their funds. Even these programs also benefit from the support of the Texas and California delegations.

In the House, by contrast, an ancient coalition of farm-state Congressmen sticks together in defense of programs that have been around for a very long time, about which "non-Ag." Congressmen know next to nothing and are consequently ill-prepared to reform. Twenty years ago, when the United States had a Republican administration, the weakness of prospective farm program reformers was offset somewhat by an anti-subsidy OMB and Agriculture Department leadership. Yet even so the defenders of traditional programs, with inertia on their side, won many more battles than they lost.

ben

Wes

"Natural gas must be used in producing ethanol."

Sorry, who said that? Not me.

Nearly all ethanol production uses natural gas or, increasingly, coal for production.

Going back to your original point:

The only way that ethanol production liberates net carbon dioxide is if fossil fuels are pumped out of the ground and used in the ethanol production process.

Which is precisely how most ethanol is currently produced.

Richard Mason

In re greenhouse gases, the main benefit of biomass fuels like ethanol would be the carbon dioxide that would be recaptured from the atmosphere during plant growth.

We could achieve about the same effect by growing or subsidizing the growth of the same amount of plant material, and directing it to other purposes: making buildings or roads or giant numbers of sailboats out of it, perhaps. Products that are durable or ultimately end up buried in the ground would be preferable to anything that is likely to be burned.

N.E.Hatfield

When it comes to bio-energy, ethanol is just one aspect of the equation, others include bio-diesel (from soybeans), bagasse, etc.. B.P. has already stepped up with a 500 million grant to commercially develop bio-fuels. Large numbers of Universities are falling all over themselves to get their hands on it. Is energy/food independence a good thing? If so, the subsidies are going to keep on being handed out.

Wes

Products that are durable or ultimately end up buried in the ground would be preferable to anything that is likely to be burned.Or we could do both: produce enough ethanol to power our cars and also produce durable/buried plant products to replace the coal and oil we've already released into the atmosphere.

Haris

One question I haven't seen addressed is how to prevent American policymakers from charging everyone for something that only benefits a few. While Judge Posner's post explains how this could be done in Switzerland [a tax on tourism, which benefits from the subsidy], farms in France, Japan, and the US, for example, don't have that positive externality. Instead, they have what is essentially existence value, in the sense that people who would never go to a farm themselves still want it to exist, like many people want the Alaskan Wildlife Refuge to remain unperturbed even though no one is ever going to go there. Given that there is no obvious beneficiary, how can subsidies of this sort be made more fair, that is, be paid more by people who care about the subsidy than those who don't?

This is obviously a purely theoretical question, since politicians have never cared about whether taxpayers pay for something they don't like or derive no benefit from. Else congress would be much smaller.

Drossos Stamboulakis

The welfare and inherent efficiency costs of protection are huge: not only for the 'protected' country itself, but for the world at large. However, it is likely that the marginal political cost of moving towards freer trade and policy heavily outweights the benefit.

Take sugar as an example: A proposed aspect of the Australian-USA FTA was the 'opening up' of the protected American sugar market to Australian producers of sugar. Ultimately, this proposition failed (undoubtebly due to the political influence wielded by those who receive protection in the sugar-farming states).

However, this example allows us to illustrate the economic cost due to the restrictions or 'protection' on trade. The USA suffers from:

(1) A higher price for sugar (estimated to be almost 4 times higher than the market price); estimated to cost over $2billion anually for US consumers.
(2) An estimated 7,500 to 10,000 jobs lost since 1997 because of artificially high sugar prices.

The gains in moving towards a freerer agricultural policy are self evident in this instance. Abolition of the sugar program would result in a net annual welfare gain to the US economy of more than $1 billion (US International Trade Commission, June 2002).

The US sugar program is almost a textbook case of concentrated benefits and diffused costs. A very small number of sugar growers receive enormous benefits, while the costs of this protection and subsidies are spread across the entire economy (thus it can be said that the MPB exceeds the MPC and it is likely that protection will remain until they are equal, or the MPC of removing the trade distortion becomes less than the MPB accrued in keeping it).

Consequently, US sugar producers have a very strong incentive to lobby and fund campaigns of US policymakers who in turn support their industry. Thus, whilst the economically rational solution would appear to be a simple one (remove the protection), many difficulties are encountered in the political sphere.

Sugar stands as a good example of the inherent inefficiences of high marginal political costs and their conflict with minimising opportunity cost. The sugar industry is indicative of more widespread problems with freeing up agricultural policy within rich nations.

It is unlikely (in the short to mid-term, at least) that much progress will be made. However, as pressure continues to mount, perhaps breakthoughs on a bilateral level may presage a wider multilateral policy push (something of the Doha-round ilk, but hopefully more succesful). This remains to be seen.

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