CBO Report Not All Bad for Ethanol

Cindy Zimmerman

A new Congressional Budget Office report shows other factors actually had a bigger impact on food prices last year than ethanol did and that ethanol is reducing greenhouse gas emissions.

CBOMost media reports have focused on the findings in the report, “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” that from April 2007 to April 2008, the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI).

However, the next sentence in the report summary states that over the same period, “certain other factors—for example, higher energy costs—had a greater effect on food prices than did the use of ethanol as a motor fuel.”

In addition, the report notes that ethanol’s effect on future food price inflation is “uncertain because the forces determining that impact move in opposite directions.”

Federal mandates now in place require additional use of ethanol in the future, which would continue to put upward pressure on prices. In contrast, increases in the supply of corn from cultivating more cropland, increasing crop yields, or improving the technology for making ethanol from corn or other feedstocks (raw materials) would tend to lower food prices.

Regarding the emissions side of the equation, the report states that “in the short run, the production, distribution, and consumption of ethanol will create about 20 percent fewer greenhouse gas emissions than the equivalent processes for gasoline. For 2008, such a finding translates into a reduction of about 14 million metric tons of carbon dioxide and equivalent gases (a standard measure of greenhouse-gas emissions).”

Ethanol, Government