June 10, 2010
Avoiding the Food-Versus-Fuel Trap
Published in Biomass Magazine
Several years back, ethanol was introduced as the fuel of the future for American cars. The U.S. seemingly had an endless supply of renewable corn and as gasoline prices spiked, the political will to stop relying on foreign oil was at an all-time high. It is now patriotic to drive a car powered by American corn.
So what happened? Why is ethanol now forced to justify its very existence?
Much of the reason is linked to the perception, however untrue, that government intervention through ethanol fuel subsidies caused corn prices to skyrocket, resulting in increases in the cost of basic foods. Never mind that the price of corn was part of a larger commodity bubble; foes of ethanol immediately claimed that a well-intentioned government policy to promote renewable energy lead to disastrous results.
The Washington Post reported that the higher cost of corn sent Mexico into “the grip of the worst tortilla crisis in its modern history.” The food-versus-fuel debate, as it was termed, serves as an important illustration of how federal subsidies can be attacked on the basis of “unguided” government policy.
Today, biomass power sits at a similar crossroads. The potential for Congressional support of biomass power is stoking some fears that the market for woody waste material could skyrocket, resulting in higher, unsustainable prices for competing forest industries. Learning from ethanol’s mistakes, the Biomass Power Association is actively working with Congress and the USDA to ensure that biomass power does not result in the same debate.
First, all government subsidies are not evil market distorters that are destined to cause chaos in competing markets. Many incentives are necessary in order to jump-start the investment needed to develop an industry, build the infrastructure to grow and create thousands of jobs in the process. The key is to work with Congress and other industries to make sure government support is measured and targeted.
Without production tax credits...
