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Stephen Olson at Chinese Development Institute Conference


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Steve Olson teaching trade negotiations at the Mekong Institute...


Stephen Olson to speak at upcoming workshop organized by the International Institute for Trade and Development on 

"Economics of GMS Agricultural trade in goods and services towards the world market"

Chiangmai, Thailand Sep 8-12.

(10/23/06) Carliner on Biofuels in UPI

Click Here to Read the Article at United Press International

Analysis: Are biofuels the answer?
UPI Energy Correspondent

WASHINGTON, Oct. 23 (UPI) -- Gov. Brian Schweitzer of Montana wants U.S. farmers to grow crops to make biofuels so the country can reduce its 4 billion barrel a year dependence on foreign nations such as Saudi Arabia, Venezuela, which Nigeria, which many perceive as unreliable.

"I think this country needs to regain our energy independence, starting in farm country, where farmers produce their own fuels for their own communities," he said earlier this month in Washington.

Schweitzer, a Democrat, complained about the inefficiency of shipping food to a Third World country and then purchasing oil from the same country, when fuel can simply be manufactured from domestic crops. He wants to cut out the middleman.

The U.S. Department of Agriculture "should be active in every community with guaranteed loans for farmers to build their own fuel plants," he said. His biofuel initiative, he said, would reduce oil imports by a billion barrels a year.

Many analysts are pro-biofuel for the economic benefit, and the potential fuel independence it could bring. But there is a debate about whether biofuel is efficient enough to compete with oil. Efficiency is important and many say that if biofuel is inefficient, it would be unwise to protect it against global market forces.

In Fort Dodge, Iowa, two ethanol processing plants have just opened, producing 220 million tons of ethanol each year. Terry Lutz, mayor of Fort Dodge, told United Press International "the farmers are extremely excited about what is happening."

Biofuel processing plants will "revitalize Middle America, are a great alternative to dependence on foreign oil, and are putting millions of dollars into our community," he said.

Ben Carliner, director of research at the Economic Strategy Institute, agreed that biofuels would be a "great help to the U.S. economy," as a large proportion of the trade deficit is from fuel imports. However, he warned, encouraging domestically produced biofuels must correspond to market demand, or one is simply handing out money to the mid-West. Much of the debate rests on the efficiency of biofuels.

"We don't oppose biofuels, but let's be realistic here." said biofuels critic Luke Popovich, from the Coal and National Mining Association. If biofuels do become prevalent, then fuel economy standards go down, and "what happens to the already sky-high price of natural gas?"

Popovich also said he is concerned about the massive inputs needed to make ethanol from corn.

Douglas Durante, executive director of the Clean Fuels Development Coalition, complained that people have made their lives out of saying that corn-to-ethanol manufacturing costs more energy than it saves.

He said the figure for percentage energy return depends on what a given report counts as an energy input. Reports that found corn-to-ethanol production to have a negative net energy output counted "the energy that went into the clothes that the corn farmers were wearing when they ploughed the field," and sunlight as an input, he said.

The Department of Agriculture report says the energy return on corn to ethanol is 1.67, as Durante was keen to point out.

Aside from the debate about the efficiency of biofuels themselves, there are economic criticisms to Schweitzer's proposed measures, which have been called extreme and protectionist by some analysts.

Steve Bruce, a biofuels experts working for Biofuel Sites, said that stopping food exports and lowering oil imports would have "some pretty serious ramifications for the rest of the world."

At the moment, the United States exports a large proportion of the world's food supply, so any contraction in its exports could raise world prices and be extremely damaging, particularly to the developing world. Also, the United States relies on the money spent on foreign oil being spent on U.S. Treasury bonds -- this keeps interest rates low. A sudden shock, such as Schweitzer's Friday proposal, could unsettle the market.

Agricultural economist Harry Baumes emphasized the economic problems of the Schweitzer proposal by pointing out that it might be difficult to get back into the wheat market, should America want to do this, because "we would have proved ourselves unreliable suppliers."

Carliner explained how cutting food exports and oil imports does not have to be an economic negative. As long as biofuels are competitive, and the transition away from purchasing foreign oil happens slowly, there will be no inefficiencies or shocks to the market. What he said he could not condone is protecting an inefficient industry, as it goes against fundamental free market principles.

However, if biofuels are a competitive source of fuel then there is no need for the protectionist measures of Schweitzer, he reasoned.

While there has been criticism of Schweitzer's idea to use government intervention to reduce oil imports and crop exports to promote biofuels, the desire to rely less on the Middle East and to reduce America's trade deficit is still very strong.

For example, Douglas Durante, speaking on the corn-to-ethanol efficiency debate, told UPI that "even if it took twice as much energy, who cares, if it revitalizes a small town in Nebraska and causes us to send 10 less soldiers to Iraq?"

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