Marginal Utility

by Ken Houghton

Greg Mankiw finds the one issue on which McCain might beat Obama:

In 2000, McCain ran for president and reiterated his longstanding opposition to ethanol subsidies. Though it crippled his chances in Iowa, he argued that ethanol was a wasteful giveaway. A recent study in the journal Science has shown that when you take all impacts into consideration, ethanol consumption increases greenhouse gas emissions compared with regular gasoline. Unlike, say, Barack Obama, McCain still opposes ethanol subsidies.

But Mankiw cites the "reporting" of David Brooks. So maybe he's wrong? Sadly, no:

Support Next Generation Biofuels

* Deploy Cellulosic Ethanol: Obama will invest federal resources, including tax incentives, cash prizes and government contracts into developing the most promising technologies with the goal of getting the first two billion gallons of cellulosic ethanol into the system by 2013.

* Expand Locally-Owned Biofuel Refineries: Less than 10 percent of new ethanol production today is from farmer-owned refineries. New ethanol refineries help jumpstart rural economies. Obama will create a number of incentives for local communities to invest in their biofuels refineries.

On the other hand, if the worst Mankiw can say is that we might turn the Farm Belt into a rejuvenated, energy-producing economy, I think I can live with that.

Tom Adds: Especially for a corn-belt Senator, Obama's position is quite reasonable. Here's what he said in response to a question regarding the latest science on biofuels' net GHG emissions:

We've seen on ethanol, which is the area where you've heard the most concern expressed, that we have seen increased efficiency but ultimately cellulosic ethanol is probably going to be the only way that we can achieve the sorts of major savings that are necessary. So my policies will be guided by the science and I'm not interested in promoting approaches that actually contribute to greenhouse gases. If we have not seen advances in technology that allow us to make aggressive steps in this area, then we will try different strategies.

Labels: E85, Politics

by Ken Houghton

Aaron Schiff's Economics Blog Directory is an invaluable time-wastera marvelous source of information (even if he doesn't list this blog).

Today's find is Sex, Drugs, and Water Utilities, the title of which I assume is a riff on Diane Coyle's great book (what Freakonomics should have been, and published four years earlier).

It appears to be a Sole Proprietorship, run by one David Zetland, a Ph.D. student in Davis, California. And it's not immune to noting that economic incentives can mitigate, but more often exacerbate, spillover costs and other negative externalities.

Today's sample is the effect of the state of Indiana on fishing in the Gulf of Mexico. Examining the Chicago Tribune article, Zetland notes the direct answer:

There's no free lunch. Pay farmers to grow something and they will. Besides the direct costs (fuel, machinery, etc), there are indirect costs (externalities) that others (people, fish) bear. If the farmers do not bear these costs, they grow too much and we all suffer.

And what externality is causing the seasonal "dead zone" in the Gulf of Mexico?

Indiana, Illinois, Iowa, Missouri, Arkansas, Kentucky, Tennessee, Ohio and Mississippi were the worst contributors to the dead zone.

The nine states represented one third of the 31-state Mississippi River drainage basin, but were responsible for more than 75 percent of the nitrogen and phosphorous that deplete oxygen from the Gulf, killing fish, crabs, clams and shrimp.

The excessive amount of nitrogen in the Gulf was mainly caused by corn and soybean farming, and the overabundance of phosphorous was primarily caused by animal manure on pasture and rangelands, the survey said.

"Conventional thinking has been that the pasture and rangelands don't contribute as much as the cultivated cropland," said Richard Alexander, a research hydrologist and lead investigator on the study. "The thinking has been that the row crops would contribute more phosphorous."

Conventional thinking appears to be wrong, but the economic incentives to the farmers work only one way, the ethanol boondoggle. Zetland again:

[A]gricultural runoff from these states (now running at full steam to grow as much government pork ecological disaster life-affirming, lovely ethanol-enhancing corn as possible)

Somehow, "teach a man to fish, and he won't be able to find any" is not the way I remember that old adage. Who could have predicted this? Tom.

Labels: E85, Economics, Energy, environmentalism, externalities

by Ken Houghton

In response to the question, who gains from the much-discussed ethanol subsidy, here is one of the two answers:

Quarterly Profit a Record for Archer Daniels

Labels: Bushonomics, E85, Energy