Experts are warning that mandating use of bio-fuel energy (such as ethanol) by companies is increasing inflation.
The Thanksgiving weekend hike of turkey prices is attributed to increased competition for corn products by farmers and oil companies. As a result, the price of corn increased, which consequently raised farm feeds.
“The whole food and fiber sector have to bid to get enough supply of the commodity that supplies them, so when corn prices go up, soy bean and wheat prices have to go up because those industries have to keep their acres in production to keep their supply and that is inflationary that everybody is going to have to pay for,” said Joel Brandenberger, President, National Turkey Federation.
It is argued that Federal mandate on bio fuel is not good for the whole agricultural sector. Ethanol is adding to the cost of driving as well as increase in food prices because “every gallon of ethanol is heavily subsidized, so the cost in taxpayers dollars increases with the number of gallons produced,” said Ben Lieberman, Senior Policy Analyst, Heritage Foundation.
The Renewable Fuel Standard (RFS) Energy Act of 2005, requires that gasoline sold in the United States contain a specific minimum amount of renewable fuel.
Matthew Brown, currently an Energy Consultant, argues that “replacing only five percent of the nation’s diesel consumption with biodiesel would require diverting approximately 60 percent of today’s soy crops to biodiesel production.”
A report by The German Marshall Fund of the United States indicates that “since September 2006, the market price of corn and soybeans has climbed significantly, and many agricultural observers point to the increased demand for renewable energy as a leading cause of the upward trend in prices.” Mr. Lieberman said “We are seeing negative impacts occurring at levels when renewables are still relatively low and will only get far worse if we expand the mandate that has been proposed in the pending energy bill.”
Mr. Brandenberger also added that when you mandate a greater use of a product you drive up the price, and make it more attractive for people to produce ethanol in places where they have fuel options.
Lou Pugliaresi, President of the Energy Policy Research Foundation, said “the existing program is likely to exacerbate the problem in the short run than help farmers as intended.”
He added that United States is currently producing and using about six-billion gallons of ethanol a year and the program is costing the government about 20-billion dollars a year. In his State of the Union address, President Bush outlined a plan to reduce dependence on foreign oil by cutting gasoline use 20% in the United States.
William Engdahl criticizes President Bush’s plan in Engdahl’s paper The Hidden Agenda behind the Bush Administration’s Bio-fuel Plan,saying that “the heart of the plan is a huge, taxpayer-subsidized expansion of use of bio-ethanol for transport fuel?..to make certain it happens, farmers and big agricultural business giants like ADM or David Rockefeller get generous subsidies to grow corn for fuel instead of food.”
“When finished in the next 2-3 years the demand for corn and other grain to make ethanol for car fuel will double from present levels,” he added.
On December 4th, while announcing more than 1 billion dollars investment in biofuel projects, U.S. Department of Energy (DOE) Secretary Samuel W. Bodman said, “we are committed to expanding the sustainable production and use of biofuels and these projects will help develop cleaner methods for turning a wide variety of feedstocks into fuel.” “Successful completion of these projects stands to redefine the way we produce America’s fuels and follows the President’s call to end our dependence on oil,” he said.
It is indicated that funding for these projects will begin next year in 2008, and will run through 2010, subject to congressional appropriations.
In the same week (December 6, 2007) The House passed an energy bill which is aimed at “dramatically cutting America’s dependence on oil” and “increasing the use of renewable energy.” Among provisions in the bill is a new tax worth 21 billion dollars on oil refineries and a mandate that electric companies generate 15% percent of their power from alternative fuels.
However, this bill is expected to be amended by the Senate and President Bush has threatened to veto it.