Wednesday, April 11, 2007

Ethanol Is Not The Solution

With crude oil and gasoline prices at high levels, it makes sense to look for alternatives. President Bush seems convinced that ethanol is the best solution to our energy problems. Ethanol certainly has a lot going for it. Most importantly, it is relatively easy to manufacture automobile engines that can run on high ethanol-content fuel.

But like gasoline, ethanol comes with its own share of problems. For example, it isn't as efficient as gasoline. As a result, it takes more ethanol than gasoline to drive the same number of miles. Also, growing demand for ethanol is pushing up food prices all over the world. This is because today's ethanol is made from sugar or corn. Both products are widely used in all kinds of foods. President Bush says we should make ethanol from switch grass, but that's not so easy.

So in the end, will we be trading our dependence on expensive gasoline for even more expensive ethanol? In order to protect U.S. farmers, our government taxes ethanol imports, but can the U.S. even make enough ethanol to meet its expected needs? And what will happen when those tariffs are eventually reduced or eliminated? Instead of being dependent on the Organization of Petroleum Exporting Countries (OPEC), will we become dependent on a new Organization of Ethanol Exporting Countries (OEEC)?

I'm not saying we should not use any ethanol. Ethanol certainly will help reduce our reliance on oil and gasoline. That's a good thing. But I am saying that ethanol by itself is not the answer. What we really need are technologies that allow us to drive more miles at a lower cost. One way to achieve that is with more fuel-efficient cars. Don't get me wrong. I am not in favor of government mandates that dictate how many miles per gallon cars must get. Rather, I prefer market forces. Let gasoline rise to $4 or $5 per gallon and we will quickly see new solutions. In my opinion, the best solution in the near term is the plug-in hybrid vehicle. Since most people drive less than 50 miles a day, a car that can go that far on electricity before having to switch over to gasoline will significantly reduce our appetite for foreign oil.

Of course, a more immediate solution is to drive smarter. The last time gasoline prices topped $3 per gallon, demand actually fell. That's because people took matters into their own hands. Many who own gas guzzling SUVs also own more fuel-efficient passenger cars. They parked the SUV and drove the car. Some started car-pooling. Others began using public transportation. Those who couldn't do these things began planning better to minimize the number of miles driven.

Unfortunately, when people respond in this manner and demand falls, gasoline prices also fall. After a while, people notice the lower prices and revert to their old ways. Demand rises again and so do prices. We end up in a vicious cycle. If we really want to get serious about energy conservation, perhaps it is time to consider a floor on gasoline prices. This is a solution many economists favor, but you certainly won't find any politicians talking about it.