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Rising commodity prices and tight government budgets are adding to pressures to reduce subsidies for energy and agriculture in many countries. Two new reports, including my recent paper on agricultural and biofuel subsidies, provide fodder for this debate by documenting the extent of subsidies in these sectors and analyzing their negative effects, particularly for developing countries and the poor.
US government promotion of the ethanol industry is an important element in the recent spikes in corn (and other food) prices, but rising oil and gasoline prices are also key contributors. This is the punch line of a recent presentation I gave on US biofuel policy, and a point that can be clearly illustrated in just two charts: the first chart provides a crude summary of key elements of US biofuels policy; the second chart shows trends in ethanol production, corn prices, and crude oil prices all starting to move together in the mid-2000s.
“Corn ethanol is a done deal…. There’s no stopping it.”
Princeton University scholar, Tim Searchinger, on The Grist blog in 2009
In response to this year’s severe drought and surging corn prices, the governors of North Carolina and Arkansas asked the Environmental Protection Agency to waive the mandate for blending ethanol into gasoline. Governor Perry of Texas filed a similar request during the price spikes of 2008 that the EPA rejected. After that, global debate over the implications of crop-based renewable fuels for food prices and climate change escalated. Some policymakers responded, but only by tinkering around the margins: the US Congress allowed $6 billion in subsidies to expire last year in the face of intense budget pressures, and the European Commission recently proposed halving its mandate for food-based biofuels.
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