Ethanol: Law, Economics, and Politics

Abstract:     
Ethanol production in the United States has been steadily growing and is expected to continue growing. Many politicians see increased ethanol use as a way to promote environmental goals, such are reducing greenhouse gas emissions, and energy security goals. This paper analyzes the economic and political issues surrounding the ethanol industry. It provides a cost-benefit analysis of substantially increasing ethanol production, and finds that costs are likely to exceed benefits by about three billion dollars annually in 2012 if current policies continue. It also suggests that earlier attempts aimed at promoting ethanol would have likely failed a benefit-cost test.

The paper then identifies key issues that will affect future ethanol support and suggests how politics could affect the development of sensible energy and climate policies in general. Finally, the paper offers some suggestions for more cost-effective development of energy alternatives that would enhance energy security and environmental quality.

Working Paper Series