CBO report on ethanol

I recently came across a good CBO report on ethanol via Geoff Styles (who also provides some incisive analysis). The key takeaway is that, standalone (i.e. no subsidies), corn ethanol is profitable when the price of retail gasoline is more than 0.9 times the price of a bushel of corn.

According to USDA data, corn averaged $2.98/bushel during 2004-2008 and $2.32/bushel during the previous two decades (1984-2003). Going forward, both the USDA and FAPRI are projecting prices in the $3.50-4.00/bushel range. This would imply corn ethanol is economically profitable only with gasoline in the $3.20-3.60/gallon range - well above the historical average.

As the report says, "It is unlikely that, on average, ethanol producers over the past several decades would have turned a profit if they had not received production subsidies." Given the mounting evidence that corn ethanol won't dent our oil consumption and provides miniscule (if any) reduction in greenhouse gas emissions on a lifecycle basis, it's no wonder that many stakeholders across the board oppose continuation of the subsidies.

Unfortunately the power of the farm lobby (there are 21 farm states and 15 with ethanol production of >200m gallons) will make the subsidies difficult to stop - Obama is beholden to those congressional votes to push through his agenda on various issues and seems disinclined to take a principled stand on this particular issue.