New Yorker
11-10-06
THE FINANCIAL PAGE
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 aren’t satisfied with supplying the most sweethungry population in the world. They’ve 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 they’d otherwise
be. But protecting sugar also has a surprising consequence: it’s hurting
America’s efforts to become more energy-efficient.
In recent years, as politicians have tried to deal with high gas prices, concerns
about global warming, and America’s dependence on OPEC, a new savior has
been found: ethanol. Ethanol has all sorts of virtues. When it’s blended with
gasoline, it reduces greenhouse-gas emissions. Unlike fossil fuels, it doesn’t get
depleted over time, since it’s 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 ethanol’s “net energy balance”—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 isn’t 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.
What’s 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 it’s
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 sugarbased 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 isn’t 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 we’ll 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, we’re 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 “energy security.” 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.