Coyote Blog

Y'all may have already seen these -- being on vacation, I am a little late to the table on both.  The first is a report on the Missouri state ethanol mandate:

A report from a Missouri-based research organization
debunks the claim that Missourians are saving money through a state law
requiring that retail gasoline contain a minimum of 10% ethanol. The
report is in reaction to an assertion by the Missouri Corn
Merchandising Association (MCMA), alleging that Missourians will save
more than US$ 285 million through the E-10 mandate in 2008, and nearly
US$ 2 billion over the following decade.

The MCMA arrived at these numbers by taking the price
difference between pure-grade gasoline and E-10 blended fuel, and
multiplying it by Missouri's projected annual consumption.

However, the report by the Show Me Institute reveals two fundamental flaws with this calculation. One
is that it fails to take into account the fact that E-10 blended fuel
is cheaper because ethanol producers receive tax credits and other
subsidies.

"Government officials cannot simply take tax dollars from
the public, give those tax dollars to ethanol blenders, and then have
ethanol supporters tell the public that ethanol is saving them money
with cheaper fuel as though the subsidy never existed," write the
report's authors, Justin P. Hauke and David Stokes.

The MCMA also does not take into account that E-10
blended fuel is about 2.5% less efficient than pure-grade gasoline,
meaning that Missourians will be filling their tanks more often.

When both of these factors are taken into account, the ethanol blending mandates are shown to be costing Missourians about US$ 118 million per year.

The second is a World Bank report on the effect of ethanol mandates on food prices:

Biofuels have forced global food prices up by 75% - far
more than previously estimated - according to a confidential World Bank
report obtained by the Guardian.

The damning unpublished assessment is based on the most
detailed analysis of the crisis so far, carried out by an
internationally-respected economist at global financial body.

The figure emphatically contradicts the US government's
claims that plant-derived fuels contribute less than 3% to food-price
rises. It will add to pressure on governments in Washington and across
Europe, which have turned to plant-derived fuels to reduce emissions of
greenhouse gases and reduce their dependence on imported oil.

Senior development sources believe the report, completed in
April, has not been published to avoid embarrassing President George
Bush.

"It would put the World Bank in a political hot-spot with the White House," said one yesterday....

[The report] argues that production of biofuels has
distorted food markets in three main ways. First, it has diverted grain
away from food for fuel, with over a third of US corn now used to
produce ethanol and about half of vegetable oils in the EU going
towards the production of biodiesel. Second, farmers have been
encouraged to set land aside for biofuel production. Third, it has
sparked financial speculation in grains, driving prices up higher.

Other reviews of the food crisis looked at it over a much
longer period, or have not linked these three factors, and so arrived
at smaller estimates of the impact from biofuels. But the report
author, Don Mitchell, is a senior economist at the Bank and has done a
detailed, month-by-month analysis of the surge in food prices, which
allows much closer examination of the link between biofuels and food
supply.

The report points out biofuels derived from sugarcane, which Brazil specializes in, have not had such a dramatic impact.

All this stuff was known long before Congress voted for the most recent ethanol mandates.  Why is it that the media, who cheerled such mandates for years, is able to apply any institutional skepticism only after the mandates have become law?  Are we going to have to actually pass some awful version of carbon trading before anyone will consider its inherent problems?

Apparently another interest group is claiming that Arizona is "missing out" on jobs in some critical growth industry, and therefore (wait for it) that industry must be subsidized to come to Arizona.

Arizona is getting its "clock cleaned" in the competition among
Western states to land solar-panel manufacturing companies within their
borders, according to the economic-development group that is losing the
fight.

At least nine companies that make solar equipment have passed up the
Valley of the Sun in the last year in favor of neighboring states,
according to the Greater Phoenix Economic Council.

From those nine projects alone, Arizona is missing out on more than 3,800 jobs, $2.3 billion in investment and $732 million in state and local revenues during the next decade, GPEC President and CEO Barry Broome said.

I am too tired to do my usual fact-checking on "incremental" state revenue numbers, but suffice it to say that $732 million in state and local tax revenues is a pipe dream.  There are three or four million people in Phoenix -- why is it we need the government to focus on someone employing 3,800 people?

The article's main "logic" is that our sunny climate should attract solar panel manufacturers.  Why?  I know they're customers may be here, but since most panels today come to Arizona from Japan or Germany, I don't think shipping costs are a big deal for panels.

The proposal is for a transferable income tax credit and property tax relief.  The author says the group is opposed to straight cash handouts, though.  Uh, OK.  And explain to me why a "transferable income tax credit" that the author says can be sold to other companies for cash is different than a cash handout?

I sometimes find it hard to identify the consistent element of what makes for a "desirable business"  (ie deserving of such subsidies) vs. one that is not so deserving.  The only consistent element I can find is that my business is always in the latter group, paying our taxes so that someone else's business and job can be subsidized.  It is for this reason that I generally barf when some group cries that they are not recieving equal proection (ala the 14th ammendment).  Take on tax and subsidy policy that takes from one group to fund another more politically connected group, and then talk to me about equal protection.

Postscript:  Here are the favored industries I can remember in the news of late in Arizona for getting special tax treatment:

Rock and Roll themed amusement park
Solar panel manufacturing
Neutriceutical production
New shopping mall parking lot
Spring training baseball parks

Readers are encouraged to add others in the comments.

Another Thought: I would dearly love to see a solar panel technology that can be rolled out of the factory cheaply in sheets like carpet out of Dalton, Georgia.  However, while I am increasingly convinced that someone is going to invent that technology soon, that technology will not be related to traditional silicon fabrication methods.  Therefore, nearly all of the plants that Arizona is desperately trying to subsidize to move here are likely using dead-end technologies, driven in part by bubble economics and subsidies that are not sustainable as the market grows (see ethanol).  Current silicon and germanium panels make no economic sense anywhere, and survive only due to massive (50% subsidies) and a desire to make a token green statement.

I am sure our local paper was cheerleading for ethanol plants in years past, and it is good we did not subsidize many here, because they are failing all over.  And I can't prove it, but I wouldn't be a bit surprised that one of the reasons our local semiconductor manufacturing operations have shrunk is because of this same effect, with subsidies attracting the least, not the most, viable enterprises.

Very often on this blog I criticize some ill-conceived government intervention as being bloated and/or ineffective and ill-conceived.  A great example is corn-ethanol, where the government has spent billions and caused consumers to spend additional billions in higher food and gas prices, all for a technology that does nothing to reduce oil consumption or CO2 output.

Too often, I criticize these programs for being stupid and ill-conceived, which they are.  But what I don't take the time to also point out is the necessarily narrow focus of these government actions.  No matter how hard Congress works to stuff energy and farm bills with every micro-managing pork barrel project their campaign donors could wish for, Congress still only has the bandwidth to affect a tiny fraction of a percent of what a single change in market prices can achieve.  Prices have absolutely stunning power of communication.  When gas prices go up, every single citizen likely reassesses his/her behavior and spending in a myriad of ways.  Thousands of entrepreneurs sit at their desk staring at the walls, trying to dream up business opportunities that these new prices may signal.  And thousands of energy producers, from the tiniest to the largest, rethink their investment plans and priorities. 

It is difficult to imagine that we would have the extensive, absurd subsidies of corn ethanol that we have today if it were not for the fact that Iowa is the first stop on the presidential campaign trail.  Every four years, here-to-fore fiscally sober and rational candidates stand up on Iowa TV and pledge to support ethanol subsidies.

But today it appears the primaries are finally over (it appears that Ms. Clinton will bow out tonight) and so attention now focuses on the general election.  And though I am not really an expert, I would presume the election will again turn on a few states including Ohio, Pennsylvania and, of course, Florida.

It appears that Florida Democrats have a plan to parlay their swing state status into pork, in the same way that Iowa has done for years.  The only difference is the issue is not ethanol, it's subsidizing beach-front homes:

As hurricane season begins, Democrats in Congress want to nationalize a
chunk of the insurance business that covers major storm-damage claims.

The proposal -- backed by giant insurers Allstate Corp. and State Farm
Mutual Automobile Insurance Co., as well as Florida lawmakers --
focuses on "reinsurance," the policies bought by insurers themselves to
protect against catastrophic losses. The proposal envisions a
taxpayer-financed reinsurance program covering all 50 states, which
would essentially backstop the giant insurers in case of disaster.

The program could save homeowners roughly $500 apiece in annual
premiums in Florida, according to an advocacy group backed by Allstate
and State Farm, the largest writers of property insurance in the U.S.

But environmentalists and other critics -- including the American
Insurance Association, a major trade group -- say lower premiums would
more likely spur irresponsible coastal development, already a big
factor in insurance costs. The program could also shift costs to
taxpayers in states with fewer natural-disaster risks....

The legislation passed the House with bipartisan support, 258-155, late
last year, despite a presidential veto threat. Although a Senate vote
is unlikely this year, proponents are trying to make it a litmus-test
issue in the presidential race. The two Democratic contenders, Sen.
Hillary Clinton of New York and Sen. Barack Obama of Illinois, in their
recent visits to Florida -- a key swing state -- have both voiced
support for the plan.

Big winners would be coastal states, particularly Florida, where more
than half of the nation's hurricane risk is centered. Currently,
property-insurance rates in Florida are among the highest in the
nation. Florida also has a struggling state reinsurance fund that would
be helped by a federal program....

Florida's status as a presidential swing state has helped the plan win
support from Sens. Clinton and Obama. Sen, Clinton is one of the bill's
co-authors, along with Democratic Sen. Bill Nelson of Florida.

Florida Democrats' effort to make a federal disaster fund a big issue
in this year's presidential race was one reason the state moved up its
primary election to January from March, defying party rules. (That move
is partly what's behind the current, heated battle between the
Democratic candidates over how to count Florida's delegates in the
nominating race.)

Last week I tried to explain why the choice of plant, whether it be a food plant or a non-food plant, that is used to make ethanol is mostly irrelevant to whether ethanol mandates raise fuel prices, at least with current technologies.  I wrote:

Food prices rise not because food is converted to ethanol per se, but
because the amount of grains going into the food supply decreases.  The
issue is the use of farmer's time and resources and the use of prime
cropland to grow plants for fuel rather than food for consumption.  The
actual crop used to make the fuel, whether corn or switchgrass, does
not matter to food prices -- it is the removal of farmers and cropland
from food production that matters.  The only way cellulosic ethanol is
likely to improve food prices in substitution for corn is by being more
efficient per acre in fuel yields than corn  (which may turn out to be
the case, but has not yet been proven in this country).  But even so,
incremental improvements in yield don't help much, because we are
talking about enormous (40-50% or more) amounts of US cropland that
would have to be dedicated to fuel, whatever the plant technology, to
meet the current ethanol mandates.

I almost didn't post this the first time around, because I thought it was so obvious.  But on Sunday the NY Times blundered right into the same silly assertion:

This does not mean that Congress should give up on biofuels as an
important part of the effort to reduce the country's dependency on
imported oil and reduce greenhouse gas emissions. What it does mean is
that some biofuels are (or are likely to be) better than others, and
that Congress should realign its tax and subsidy programs to encourage
the good ones. Unlike corn ethanol, those biofuels will not compete for
the world's food supply and will deliver significant reductions in
greenhouse gases.

Of course, the ability to produce such biofuels with these magic powers has never actually been demonstrated, but I am all for them when and if someone invents them.  Efficient conversion, for example, of corn stalks, rather than corn itself, to fuel would be great and would solve this trade-off.  This technology does not exist today -- and only a lot of hand-waving can translate cellulosic ethanol successes in switchgrass to corn stalks.  Also recognize that even this has costs hidden to us non farmers, because corn stalks are used for a variety of purposes today.  My guess is that cellulosic ethanol from corn may be economically feasible, but only after some genetic modifications of the plant itself.

I am exhausted by people making policy suggestions by looking at small parts of complex inter-related systems in isolation.  One such example is the recent response of some ethanol mandate defenders to recent charges that corn-based ethanol is net harmful to the environment and its mandated and subsidized use is driving up world food prices.

The response by some (certainly not in the corn lobby, of course) has been that our problems would all be solved if we switched to cellulosic ethanol, which is generally made from non-food plants.  Supporters argue that this eliminated the food for fuel problem.

Huh?  Sure, in the narrowest possible sense, I guess, since we are no longer using food crops but rather grasses and such to make ethanol.  But at any reasonably holistic level of analysis, this is simply absurd.  Food prices rise not because food is converted to ethanol per se, but because the amount of grains going into the food supply decreases.  The issue is the use of farmer's time and resources and the use of prime cropland to grow plants for fuel rather than food for consumption.  The actual crop used to make the fuel, whether corn or switchgrass, does not matter to food prices -- it is the removal of farmers and cropland from food production that matters.  The only way cellulosic ethanol is likely to improve food prices in substitution for corn is by being more efficient per acre in fuel yields than corn  (which may turn out to be the case, but has not yet been proven in this country).  But even so, incremental improvements in yield don't help much, because we are talking about enormous (40-50% or more) amounts of US cropland that would have to be dedicated to fuel, whatever the plant technology, to meet the current ethanol mandates.  And remember, the net effect on fossil fuels may still be zero no matter how much land is dedicated, since no one has demonstrated large scale ethanol operations in the US that don't use more fuel to produce the ethanol than they produce. 

Postscript:  Related to this topic of thinking about economic systems narrowly, Lubos Motl discusses the supposed positive green impact on the economy in light of the open window fallacy.

This is funny, in a depressing sort of way:

Twenty-four Republican senators, including presidential candidate Sen.
John McCain of Arizona, sent a letter to the Environmental Protection
Agency suggesting it waive, or restructure, rules that require a
five-fold increase in ethanol production over the next 15 years.

They make it sound like some weird EPA rule-making, but in fact the Senate, of which these folks are members, voted these provisions into law just 20 weeks ago.  Now, this is not a totally uncommon practice by lawmakers on the losing side of an issue to go to the administration to prevent enforcement.  And, in fact, I hope they are succesful.  But when the vote was taken 143 days ago, only 11 Republican Senators opposed the measure and one was a no-show for the vote (McCain).  So half of these 24 have buyer's remorse for legislation they voted for and on which the ink is barely dry. 

I have written on this enough, but ethanol makes no sense either as energy policy (it takes more energy to produce from corn than it provides) or as environmental policy (it does not reduce CO2 and causes ancillary environmental damage in terms of land and water use).  But Iowa is the first primary, and for some reason politicians just can't break the habit of pandering to Midwest farmers:

Friedman, Billings, Ramsey & Co. analyst Kevin Book argued in a
recent note to clients that Congress will not "turn on the corn belt"
because of the significant number of votes held by ethanol-producing
states.

I must say I am laughing my butt off at the states of Michigan and Florida.  If they had kept their original primary dates, their elections would likely have been critical, if not decisive, in the Democratic nomination.  Both would have gotten full-bore candidate attention, much as Ohio and now Pennsylvania have.  It could have been them who were joining Iowa in the great vote sell-off, trading delegates for promises of ethanol subsidies or whatever the states are perceived to want.  But instead, in a bid to become more relevant, they tried to skirt the rules and in the process became irrelevant.  So instead of promising Floridians that they will enhance old age benefits or doing something with Cuba, the candidates instead are out there promising Pennsylvanians and Ohioans that they will throttle our North American trading partners.

Time, not always my favorite publication, hit on a couple of points I have made recently in an article called the Clean Energy Scam.  This article has been around for a few weeks but I am only just now getting to it.

First, I made the point just the other day that inordinate focus on global warming is crowding out other more important environmental issues, sucking the oxygen out of causes like private land trusts that are attempting to preserve unique areas.  As Time says:

The Amazon was the chic eco-cause of the 1990s, revered as an
incomparable storehouse of biodiversity. It's been overshadowed lately
by global warming

Much has been made of Brazil's efforts to reduce imported oil.  Too much credit has been given to ethanol -- most of Brazil's independence came from a number of domestic oil developments.  However, Brazil has been a leading promoter of ethanol through government policy, and this focus on ethanol has had a lot to do with deforestation in the Amazon, as rising crop prices due to biofuel mandates have spurred a rush to clear new land.  Now, US and European ethanol policies are just accelerating this trend:

This land rush is being accelerated by an unlikely source: biofuels. An
explosion in demand for farm-grown fuels has raised global crop prices
to record highs, which is spurring a dramatic expansion of Brazilian
agriculture, which is invading the Amazon at an increasingly alarming
rate.

it never made any sense that a fuel that requires more energy to produce than it provides could ever be "green," but only now are the politically correct forces accepting what I and others have been saying for years:

But several new studies show the biofuel boom is doing exactly the
opposite of what its proponents intended: it's dramatically
accelerating global warming, imperiling the planet in the name of
saving it. Corn ethanol, always environmentally suspect, turns out to
be environmentally disastrous. Even cellulosic ethanol made from
switchgrass, which has been promoted by eco-activists and eco-investors
as well as by President Bush as the fuel of the future, looks less
green than oil-derived gasoline.

The rest of the article is quite good.  I don't like to criticize where other people choose to spend their charitable dollars, but it is just amazing to me that environmentally-concerned people could give $300 million to Al Gore just to squander on advertising.  (By the way, Al Gore claims to have not only invented the Internet, but to have "saved" corn ethanol from government defunding).  I think about how much $300 million could have achieve in private land trusts trying to buy up and preserve the Amazon, and I could cry.  But all I can do is plug along and give what I can.  I donate to both the Nature Conservancy and World Land Trust.

... because that may make it easier for the Democrats to summon the political will to kill ethanol subsidies, though don't hold your breath.  Certainly, though, the NYT, after years of cheerleading ethanol, may finally be coming around:

Congress must take a hard look at the effect of corn ethanol on food
supplies in the same way the new energy bill requires it to review the
environmental effects. It must move toward ending subsidies that will
become even more difficult to justify as oil prices rise and the costs
of producing corn ethanol decline. And it must press other wealthy
countries to do the same before hunger turns to mass starvation.

Via Tom Nelson

By the way, these problems with ethanol we are experiencing today were are inevitable as night follows day, yet we still had to blunder into it before we started questioning the economics.  The power of political correctness to trump science and logic is amazing.

Would an oil company get roasted for this or what:

Call it a soybean spat. The University of
Minnesota isn't going to receive any research funding from the state's
soybean growers council until the two parties have a heart-to-heart
talk next week.

The Minnesota Soybean Research and Promotion Council voted to
temporarily suspend its financial support after a study co-authored by
U researchers in the journal Science said increased use of biofuel
crops like corn and soybeans could worsen global warming, not lessen
it.

The council typically picks up the tab for $1 million to $2
million a year for research on such things as how to increase soybean
yields and how to improve marketing, said Jim Palmer, president of the
Minnesota Soybean Growers Association.

The funding relationship has gone on for decades and was good until now, both the growers and the university said.

The study, published Feb. 7 by the University of Minnesota and
the Nature Conservancy, an environmental advocacy group, warned that
converting prairie or peatland to cropland for corn and soybeans would
release more carbon stored in plants and the ground as carbon dioxide,
the main greenhouse gas that contributes to global warming.

My dad is a University of Iowa grad and has tried for years to get them to demonstrate a higher quality of scholarship around the ethanol issue.  Good freaking luck.

Q&O has a great extended post on the ongoing ethanol fallacy.  But the farmers love the rent-seeking:

Paul Krugman, on ethanol:

I'm almost never censored at the Times. However, I was told that I couldn't use the lede I originally wrote for my column
following the 2007 State of the Union address, in which Bush made
ethanol the centerpiece of his energy strategy: "Before the State of
the Union address, there had been hints and hopes that President Bush
would offer a serious plan to reduce our dependence on imported oil.
Instead, however, he took refuge in alcohol."

Well, anyway - the news on ethanol just keeps getting worse. Bad for the economy, bad for consumers, bad for the planet - what's not to love?

Well, I have heard that he was a pretty good economist before he became a political hack.

From an AP report:

The widespread use of ethanol from corn could result in nearly twice the greenhouse gas emissions
as the gasoline it would replace because of expected land-use changes,
researchers concluded Thursday. The study challenges the rush to
biofuels as a response to global warming.

The researchers said that past studies showing the benefits of ethanol in combating climate change
have not taken into account almost certain changes in land use
worldwide if ethanol from corn "” and in the future from other
feedstocks such as switchgrass "” become a prized commodity.

"Using good cropland to expand biofuels will probably exacerbate
global warming," concludes the study published in Science magazine.

Promoters of biofuels often hold up Brazil as an example of a model ethanol mandate.  Forget for a moment that in fact ethanol still makes up only a small percentage of the transportation fuel market in Brazil.  Think of all those satellite photos we used to see of farmers burning the Amazon to expand cropland:

I know that correlation is not equal to causation, but the fact is that this land clearing, which has always one on, really accelerated after the Brazilian ethanol mandates and subsidies.  My prediction is that careful academic work in the coming years will pin the blame for a lot of the destruction of the Amazon on ethanol.

Moonbattery has a fitting conclusion:

The study's findings aren't likely to change government policy, since
ethanol mandates are a political boondoggle that only dupes expect to
have any effect on the climate. If the first caucuses were held in
Hawaii, they'd be forcing us to run our cars on macadamia nuts instead
of corn.

I don't really care that much how either party chooses their candidate, beyond a general plea to reduce the influence of Iowa so we can finally put ethanol subsidies to bed.  However, I thought this was a bit ironic:  A self-styled progressive who complained for years about how the 2000 election was decided argues that having the Democratic candidate selected by a few party elites is A-OK:

I really, really hope the Democratic primary doesn't
come down to superdelegates "” the privileged class of delegate that
gets to vote however they want, and were created to ensure that party
elites didn't lose too much control over the process.

Maybe
I'm just being contrarian here, but why would this be so bad? After
all, the only way it could happen is if the voters themselves split
nearly 50-50. And in that case, the nomination would end up being
decided by a massive effort to sway uncommitted delegates anyway. So
who cares if that massive effort is directed at superdelegates
(senators, governors, etc.) or the more plebeian regular delegates
(typically county chairs, local activists, etc.). And in any case, why
shouldn't the party elders, many of whom have to run on the same ticket
as the presidential nominee, get a little extra say in the process?

Here is how I think such a scenario will play out.  I think by convention time Obama will substantially lead Hillary in the polls.  However,  Hillary will be at a distinct advantage in the knife-fighting for long-time party movers and shakers.  We could well see the party elites overturning what at the time may be a strong popular sentiment among Democrats for Obama.  Hillary's biggest advantage will be that many party officials will be afraid to cross her.  Obama needs to be able to assure them that he has their back if they scorn Hillary. 

Remind me to not cry any tears next time GM complains about government regulation:

In an audacious move Sunday, General
Motors demanded that the federal government step in and create a
national ethanol fuel station infrastructure at the same time the
company announced that it has invested in Coskata, a cellulosic ethanol
startup company.

 

Coming on
the heels of federal legislation that set national mandates for ethanol
production, GM's strategy amounts to federal guarantees for its
investment in the ethanol industry.

 

"We
need to grow E85 (ethanol) stations," said GM CEO Rick Wagoner at a
Detroit Auto Show news conference. "It is time for the U.S. government
to do it through regulation."

The article goes on to document the strong rent-seeking history of Coskata.

One small bit of good news is that the media seems to finally be catching on to the ethanol subsidy farce.

It's great that our politicians have discovered the need for new energy
technologies. But it appears that Washington is determined to put its
money"”our money"”on the wrong horse. Right now, researchers are studying
a host of energy solutions, including hydrogen, high-mileage diesel,
plug-in hybrids, radical reductions in vehicle weight and cellulosic
ethanol (made from cornstalks, switchgrass or other nonfood crops). It
is far too soon to say which of these holds the most promise. But,
instead of promoting experimentation and competition to find the best
solutions, politicians seem ready to declare ethanol the winner. As a
result, our nation could wind up with the worst of both worlds: an
"alternative" energy that is enormously expensive yet barely saves a
gallon of oil.

OK, I was mad at the waste of tax dollars for ethanol programs that do nothing for the environment or to reduce net fossil fuel consumption.  I was mad that a technology that in no way reduces CO2 production but does introduce radical new land-use-related environmental problems could be sold as an environmental panacea, rather than the corporate welfare it truly is.  I was mad we have decided it is more important to subsidize corn farmers than to continue to provide the world's poor with cheap food.  And I was flabbergasted that Congress could call for production of more corn-based ethanol than is physically possible with our entire corn crop.

But I really am mad now that ethanol subsidies are making craft beers rarer and more expensive to make:

A global shortage of hops, combined with a run-up in barley prices, is
sending a chill through Arizona's craft-beer industry.

The hops shortage threatens to boost prices, cut into profits and close
down brewpubs. It could change the taste and consistency of treasured
local ales.

In Bisbee, "hop heads" already are weaning themselves from Electric
Dave's India Pale Ale. Dave Harvan closed his 7-year-old Electric
Brewing Co. in November, citing the scarcity and high cost of
ingredients.

So why aren't as many farmers growing hops and barley?  Because the government is paying them ridiculous jack to grow corn so we can burn food into our cars:

Papazian attributed the barley prices to ethanol subsidies that have
raised the price of corn, the main ingredient in the alternative fuel.
As a result, farmers have switched to barley for livestock feed, which
has pushed up prices.

The hops situation is more complex. Years of overproduction and low
prices led farmers to replace hops fields with more profitable crops.
Add to that corn subsidies that have caused farmers to replace hops
fields with corn, a drought in Australia that affected yields and heavy
rains in Europe that ruined much of this year's crop.

From the Washington Post, via Tom Nelson, comes a nice summary of the consequences of Congress's addiction to ethanol mandates and subsidies.  The last sentence in particular is one I have warned about for a while on this issue.

To be sure, some farmers in these countries benefit from higher prices.
But many poor countries -- including most in sub-Saharan Africa -- are
net grain importers, says the International Food Policy Research
Institute, a Washington-based think tank. In some of these countries, the poorest of the poor spend 70 percent or more of their budgets on food.
About a third of the population of sub-Saharan Africa is
undernourished, according to the Food and Agriculture Organization of
the United Nations. That proportion has barely changed since the early
1990s. High food prices make gains harder.
...
It's
the extra demand for grains to make biofuels, spurred heavily in the
United States by government tax subsidies and fuel mandates, that has
pushed prices dramatically higher. The Economist rightly calls
these U.S. government subsidies "reckless." Since 2000, the share of
the U.S. corn crop devoted to ethanol production has increased from
about 6 percent to about 25 percent -- and is still headed up.
...
This
is not a case of unintended consequences. A new generation of
"cellulosic" fuels (made from grasses, crop residue or wood chips)
might deliver benefits, but the adverse effects of corn-based ethanol
were widely anticipated. Government subsidies reflect the careless and
cynical manipulation of worthy public goals for selfish ends. That the
new farm bill may expand the ethanol mandates confirms an old lesson:
Having embraced a giveaway, politicians cannot stop it, no matter how
dubious.

Here is a snippet from the energy bill that just passed the House:

On Thursday, just over a year after winning the majority, Democrats in
the House of Representatives voted through an energy bill that
represents a stark departure from the administration's approach. It
would raise vehicle fuel efficiency (Cafe) standards for the first time
in over 30 years, by 40%, to 35 miles per gallon for both cars and
light trucks and SUVs. A renewable energy standard mandates that
utilities generate 15% of their power from renewables by 2020. It would
set a renewable fuel standard aiming to generate 36 billion gallons of
ethanol a year by 2022. A tax package would roll back some $13.5bn in
oil industry subsidies and tax breaks to help pay for $21bn worth of
investments in clean energy development, mainly in the form of
investment tax credits for wind and solar, along with the development
and purchase of plug-in hybrid vehicles. And it would raise efficiency
standards for appliances and buildings.

Let's look at a couple of pieces very quickly.  Recognize that this is based on 10 whole minutes of research, far more than a busy Congressman could possibly be expected to muster.

1. They want 15% of power generation from renewables by 2020.  I am not sure if this includes hydro.  If it does, then a bunch of Pacific Northwest utilities already have this in the bag.  But even if "renewable" includes hydro, hydro power will do nothing to meet this goal by 2020.  I am not sure, given environmental concerns, if any major new hydro project will ever be permitted in the US again, and certainly not in a 10 year time frame.  In fact, speaking of permitting, there is absolutely no way utilities could finance, permit, and construct 15% of the US electricity capacity by 2020 even if they started today.  No.  Way.   By the way, as a sense of scale, after 35 years of subsidies and mandates, renewables (other than hydro) make up ... about .27% of US generation.
2. The Congress is demanding 36 billion gallons of ethanol.  Presumably, this is all from domestic sources because Congress has refused to drop the enormous tariffs on ethanol imports.  But the entire corn harvest in 2004 of 11.8 billion bushels would make only 30 billion gallons of ethanol.  So Congress wants us to put ALL of our food supply into our cars?  Maybe we can tear down the Amazon rain forest to grow more.
3. By the way, I am all for cutting all subsidies to any industry for any reason, but when they say "industry subsidies and tax breaks" for the oil industry, what they mostly mean is this:

These were leases for drilling rights in the Gulf of
Mexico signed between oil companies and the Clinton Administration's
Interior Department in 1998-99. At that time the world oil price had
fallen to as low as $10 a barrel and the contracts were signed without
a requirement of royalty payments if the price of oil rose above $35 a
barrel.

Interior's Inspector General investigated and found
that this standard royalty clause was omitted not because of any
conspiracy by big oil, but rather because of bureaucratic bungling in
the Clinton Administration. The same report found that a year after
these contracts were signed Chevron and other oil companies alerted
Interior to the absence of royalty fees, and that Interior replied that
the contracts should go forward nonetheless.

The companies have since invested billions of dollars
in the Gulf on the basis of those lease agreements, and only when the
price of oil surged to $70 a barrel did anyone start expressing outrage
that Big Oil was "cheating" taxpayers out of royalties. Some oil
companies have voluntarily offered to renegotiate these contracts. The
Democrats are now demanding that all these firms do so -- even though
the government signed binding contracts.

Update:  More thoughts here.  My climate skeptic video is here.

Yesterday, I noted Al Gore bragging that he played a critical role in passing current biofuel mandates, making him the father of ethanol, not just the Internet.  The great goddess of irony is having a field day:

Environmentalists are warning against expanding the production of
biofuels, noting the proposed solution to global warming is actually
causing more harm than it is designed to alleviate. Experts report
biodiesel production, in particular, is causing the destruction of
virgin rainforests and their rich biodiversity, as well as a sharp rise
in greenhouse gas emissions.

Opponents of biofuels read like a Who's Who of environmental
activist groups. The Worldwatch Institute, World Conservation Union,
and the global charity Oxfam warn that by directing food staples to the
production of transport fuels, biofuels policy is leading to the
starvation and further impoverishment of the world's poor.

On November 15, Greenpeace's Rainbow Warrior unfurled a large banner
reading "Palm Oil Kills Forests and Climate" and blockaded a tanker
attempting to leave Indonesia with a cargo full of palm oil.
Greenpeace, which warns of an imminent "climate bomb" due to the
destruction of rich forests and peat bogs that currently serve as a
massive carbon sink, reports groups such as the World Wildlife Fund,
Conservation International, and Flora and Fauna International have
joined them in calling for an end to the conversion of forests to
croplands for the production of biofuels

"The rush to address speculative global warming concerns is once
again proving the law of unintended consequences," said James M.
Taylor, senior fellow for environment policy at The Heartland
Institute. "Biofuels mandates and subsidies are causing the destruction
of forests and the development of previously pristine lands in a
counterproductive attempt to improve the environment.

"Some of the world's most effective carbon sinks are being destroyed
and long-stored carbon is now being released into the atmosphere in
massive quantities, merely to make wealthy Westerners feel like they
are 'doing something' to address global warming. The reality is, they
are making things worse," Taylor noted.

It is good to know that Al Gore is proud of supporting, even "saving," corn-based ethanol (from a pro-ethanol site):

Vice-President Al Gore
Third Annual Farm Journal Conference, December 1, 1998
http://clinton3.nara.gov/WH/EOP/OVP/speeches/farmj.html

"I
was also proud to stand up for the ethanol tax exemption when it was
under attack in the Congress -- at one point, supplying a tie-breaking
vote in the Senate to save it. The more we can make this home-grown
fuel a successful, widely-used product, the better-off our farmers and
our environment will be."

It is good to know that when the economic and environmental toll from our disastrous subsidization of corn ethanol is finally tallied, we will know where to send the bill.

HT: Tom Nelson

Update: More Here on Ethanol Craziness

Let's forget all the other issues surrounding ethanol for a moment  (we'll mention a really bad one below), and just consider one fact that is beyond dispute.  Ethanol has an energy content per gallon that is only about 65% of that of gasoline.  So, another way to put it is that it takes a bit over 1.5 gallons of ethanol to replace 1 gallon of gasoline.  There is nothing suspicious or sinister about this (ethanol is flawed for other reasons) or at all controversial. 

Therefore, when your paper prints something like this:

"The number of plants under construction is truly frightening,"
said Ralph Groschen, a senior marketing specialist with the Minnesota
Department of Agriculture who closely watches the state's ethanol
development. The country could go from 7 billion gallons of capacity
now to 12 billion gallons, or about roughly 10 percent of U.S. gasoline
capacity, in a few years, according to Groschen.

You need to understand that you and everyone else are failing at simple math.  In 2004 the US consumed just over 140 billion gallons of gasoline.  So, already, our media has failed the math test.  12 billion gallons would be 8.6%, but we will give them a pass on rounding that to "roughly 10 percent."  But this 8.6% only holds true if gasoline is replaced by ethanol 1:1.  Using the actual figures cited above, 12 billion gallons of ethanol is about 7.8billion gallons an a gasoline equivalent, which would make it  5.6% of US gasoline usage in 2004, and probably an even smaller percentage if we were to take the worlds "gasoline capacity" at face value, since surely capacity is higher than production.

I know it seems petty to pick on one paper, and probably would not be worth my time to bother if it was just this one article.  But this mistake is made by every MSM article I have ever seen on ethanol.  I can't remember any writer or editor ever getting it right.

By the way, if you want more on what is wrong with ethanol, check my past posts. 

Finally, the other day I pointed out how much of our food crop is getting diverted to fueling our cars, with negligible effect on CO2 or oil imports.  If you really want to be worried about ethanol, note this:

Biofuels need land, which means traditional food crops are being
elbowed off of the field for fuel crops. Biofuel production is
literally taking the food out of people's mouths and putting into our
gas tanks. Already, increased food costs sparked by increased demand
are leaving populations hungry. The price of wheat has stretched to a
10-year high, while the price of maize has doubled.

Need more
land? Clear cut some forest. Is there a word beyond irony to describe a
plan to mitigate climate change that relies on cutting down the very
trees that naturally remove carbon from the atmosphere? Stupidity,
perhaps? The logic is like harvesting a sick patient's lungs to save
her heart. Huge tracks of Amazon
rainforest are being raised to the biofuels alter like a sacrificial
lamb, and the UN suggests that 98 percent of Indonesia's rainforest
will disappear by 2022, where heavy biofuel production is underway.

Still
need land? Just take it. The human rights group Madre, which is backing
the five-year moratorium, says agrofuel plantations in Brazil and
Southeast Asia are displacing indigenous people. In an editorial
published on CommonDreams last week, Madre Communication Director Yifat
Susskind wrote, "People are being forced to give up their land, way of
life, and food self-sufficiency to grow fuel crops for export."

It is good that doom mongers like Paul Ehrlich have been so thoroughly discredited.  But could anyone have imagined that not only are we not facing "Population Bomb" style famines, but we are in fact spending billions of dollars of taxpayer money to promote burning food in cars?

I am not sure how anyone thought this was a good idea, since

1. Every scientific study in the world not conducted by an institution in Iowa have shown that corn-based ethanol uses more energy than it produces, does not reduce CO2, and creates new environmental problems in terms of land and water use.
2. Sixty seconds of math would have shown that even diverting ALL of US corn production to ethanol would only replace a fraction of our transportation fuel use.

Apparently, Nebraska has reached a milestone of sorts: (HT Tom Nelson)

With three new plants
added in November, annual corn demand for ethanol production in
Nebraska passed the 500-million-bushel mark for the first time, using
37% of Nebraska's corn.

How much fuel has this produced?

"Today, that ambitious
directive has become a reality." Sneller says "At current rates,
Nebraska plants will use 514 million bushels of corn annually to
produce 1.4 billion gallons of ethanol. By the end of 2008, Nebraska
plants will process 860 million bushels into 2.3 billion gallons of
ethanol. Distillers grain, a co-product of ethanol production, is
widely accepted and marketed as a superior livestock feed."

This is enough ethanol to replace about a billion gallons of gasoline (since ethanol has less energy content than gasoline).  This represents about  0.7% of US gasoline usage.  The cost?  Well, I don't know how many billions of subsidy dollars have flowed to Nebraska, but there is also this:

Corn prices have
remained virtually unchanged since World War II. Increased demand from
ethanol production has raised average corn prices by 70% and is driving
an economic resurgence in rural Nebraska, according to Todd Sneller,
administrator of the Nebraska Ethanol Board.

So we have spent billions of taxpayer dollars, have diverted about 40% of Nebraska's corn output, and we've raised prices on corn 70% all to replace less than a percent of US gasoline usage.  If we could really do the fuel balance on the whole system, we would likely find that total fossil fuel usage actually went up rather than down through these actions.

Never have I seen an issue where so many thoughtful people on both sides of the political aisle united in agreement that a program makes no sense since... well, since farm subsidies.  Which, illustratively, have not gone away despite 80 years of trying.  As I wrote here:

Companies are currently building massive subsidy-magnets
biofuel plants.  Once these investments are in place, there is going to
be a huge entrenched base of investors and workers who are going to
wield every bit of political power they can to retain subsidies forever
to protect their jobs and their investment.  Biofuel subsidies will be
as intractable as peanut and sugar subsidies and protections.

Because the government has put itself in the job of redistributor-in-chief, and there is just too high of a financial return from influencing who are to be the beneficiaries, and who are to be the sacrificial lambs.  This is particularly the case when Congress can aim dollars at a small group who will give back generously in return, and where the costs are dispersed across large numbers of people, generally consumers or taxpayers or both:

Dan Morgan has another excellent Washington Post report
on our tangled web of farm subsidies, tariffs, government purchases,
and so on. This time he examines the sugar industry's political
contributions"“"more than 900 separate contributions totaling nearly
$1.5 million to candidates, parties and political funds" in 2007 alone.
Most of the money went to Democrats, apparently, which might explain
why Democrats opposed more strongly than Republicans an amendment
to strike the sugar subsidy provisions from the bill. Morgan delights
in pointing out members of Congress such as Rep. Carolyn Maloney of
Queens and Manhattan and Rep. Steven Rothman of bucolic Hackensack and
Fort Lee, New Jersey, who received funds from the sugar magnates and
voted to protect their subsidies despite the fact that they would seem
to have more sugar consumers than sugar growers in their districts....

So $1.5 million is a lot of money, and it seems to have done the trick.
But . . . is it really so much money? According to Morgan, the sugar
provisions in the farm bill are worth $1 billion over 10 years. That's
a huge return on investment. In what other way could a business invest
$1.5 million to reap $1 billion?

The real campaign finance reform that is needed is to get the government out of the business of naming winners and losers.

Update:  More on the sugar fiasco here.

Under the current system, the government guarantees a price floor for
sugar and limits the sugar supply "” placing quotas on domestic
production and quotas and tariffs to limit imports. According to the
Organization for Economic Cooperation and Development, sugar supports
cost American consumers "” who pay double the average world price "” more
than $1.5 billion a year. The system also bars farmers in some of the
poorest countries of the world from selling their sugar here.

The North American Free Trade Agreement is about to topple this
cozy arrangement. Next year, Mexican sugar will be allowed to enter the
United States free of any quotas or duties, threatening a flood of
imports. Rather than taking the opportunity to untangle the sugar
program in this year's farm bill, Congress has decided to bolster the
old system.

Both the House bill, which was passed in July, and the Senate
version, which could be voted on as early as this week, guarantee that
the government will buy from American farmers an amount of sugar
equivalent to 85 percent of domestic consumption "” regardless of how
much comes in from abroad. To add insult to injury, both also increase
the longstanding price guarantee for sugar.

The bills encourage the government to operate the program at no cost
to the budget, by selling the surplus sugar to the ethanol industry.
That's not likely. Ethanol makers will never accept paying anywhere
near sugar's guaranteed price. According to rough estimates from the
Congressional Budget Office, supports for sugar in the House bill could
cost taxpayers from $750 million to $850 million over the next five
years.

Hopefully, the idea of burning food to power automobiles is finally being discredited.  It's amazing to me that environmentalists, of all people, who for years have criticized America's love affair with cars, have been at the leading edge of advocating government subsidies to shovel our food supply into our SUV's.  Particularly when corn ethanol creates more CO2 and other pollutants than it eliminates.  More on the insanity of biofuels here and here.