It's Now 'Official': Ethanol Is a Scam

 |  Includes: ADM, ANDE, AVR, PEIX, VSUNQ, XNL
by: Mark J. Perry

Paul Krugman in the NY Times, "Grains Gone Wild":

Where the effects of bad policy are clearest, however, is in the rise of demon ethanol and other biofuels. The subsidized conversion of crops into fuel was supposed to promote energy independence and help limit global warming. But this promise was, as Time magazine bluntly put it, a “scam."

This is especially true of corn ethanol: even on optimistic estimates, producing a gallon of ethanol from corn uses most of the energy the gallon contains. But it turns out that even seemingly “good” biofuel policies, like Brazil’s use of ethanol from sugar cane, accelerate the pace of climate change by promoting deforestation.

And meanwhile, land used to grow biofuel feedstock is land not available to grow food, so subsidies to biofuels are a major factor in the food crisis. You might put it this way: people are starving in Africa so that American politicians can court votes in farm states.

OK, now that Paul Krugman's on board by coming out against ethanol, it's now official: Ethanol is a complete and total scam.

Anytime you have Paul Krugman agreeing on ethanol with such a diverse group as the WSJ, Reason, Magazine, the Cato Institute, Investor's Business Daily, Rollingstone Magazine, Christian Science Monitor, the New York Times, John Stossel, The Ecological Society of America, the American Enterprise and Brookings Institution, the Heritage Foundation, George Will, and Time Magazine, you know that ethanol has to be one of the most misguided public policies in U.S. history.

So who is left out there supporting ethanol? You sure won't find very many scientists, economists, policy groups, or editorial page contributors. But, ethanol has been very, very good to corn farmers and ethanol producers like Archer-Daniels-Midland (NYSE:ADM), the largest producer of ethanol in the United States. ADM stock has quadrupled over the last five years, from about $10 to about $40 per share, and increase of 300%, while the S&P has only increased by about 50% during the same period (see chart above).

Disclosure: no positions