The U.S. Subsidy That Empowers Putin
Ending America’s foolish subsidies for ethanol could aid Ukraine.
The United States is supporting Ukraine with aid and weapons and punishing Russian aggression with financial and economic sanctions. But the United States can do more to resolve the global crisis caused by the Russian invasion of Ukraine: It can end the ethanol program.
For decades, the U.S. government has, at great expense, encouraged farmers to grow more corn so that it can be turned into ethanol, a gasoline additive. Ethanol makers receive all kinds of grants and subsidies. Federal regulations require ethanol to be blended into gasoline, creating a giant industry that would not exist without large subsidies and imperious mandates. America’s largest ethanol company earned annual revenues of $8 billion pre-pandemic. Demand from the ethanol industry, in turn, bids up the price of corn, and the income of those who farm it.
Ethanol has become a Washington joke. John McCain often quipped that he started his day with a glass of ethanol. Who could blame him? The ethanol program is a giveaway so big, so entrenched, and so wasteful that laughter might seem like the best response. But as we laugh, we’re missing that America’s ethanol madness has strengthened Russia’s grip upon the world’s food supply.
Postcommunist Russia has emerged as the world’s largest exporter of wheat. If Putin can absorb Ukraine—also an important wheat producer—the enlarged Russian empire would provide almost one-third of the world’s wheat exports. Russia has become so dominant in wheat markets in great part because America has retreated from them. U.S. wheat production was about one-third lower in 2018 than at its peak in the early 1980s. Wheat has yielded to corn. Almost 70 percent of all U.S. grain production is now corn, up from 47 percent in the late 1960s. And of that immense crop of corn, almost half is formulated into ethanol to drive cars and trucks.
Converting corn into fuel has never made economic sense. It happens only because of a mass of federal regulations and subsidies that began during the Carter administration and were widened and deepened in 2005 and 2007. You can read the gruesome details in this Atlantic article from 2019.
But if the rules are complicated, the results are not. From 2001 to 2005, the United States’ share of world wheat exports averaged 25 percent; since the new ethanol rules were adopted in the first decade of this century, the U.S. share has tumbled by half, to about 13 percent.
Ethanol was historically justified as an energy-independence strategy. Campaigning in Iowa for the Democratic presidential nomination in 2007, Barack Obama declared that ethanol “ultimately helps our national security, because right now we’re sending billions of dollars to some of the most hostile nations on earth.” Obama had plenty of practice defending ethanol: He’d entered federal politics as a senator from Illinois, the nation’s second-largest corn producer after Iowa.
But whatever the (slim-to-none) merits of that argument in 2007, its merits are zero in 2022, when the United States has become the world’s largest producer of both oil and natural gas. And though ethanol may have some small environmental advantages over gasoline, those arguable benefits are nullified by ethanol’s terrible toll on world food output.
It may take some time and government assistance to rotate U.S. farmland back from corn-for-fuel to food crops. But unfortunately, the war in Ukraine may last for a long time. If food-importing nations in Asia and the Middle East could be assured that more American wheat, barley, and sunflower oil would be heading their way in 2023, and that more corn would be available for animal feed rather than burned up as automobile fuel, wiser U.S. farm policy could even help consolidate global support for Ukraine.
Ending the ethanol mandates and subsidies will boost world food supply. More food supply will reduce price pressures. Less pressure on food prices will remove a Russian weapon of intimidation.
Americans and Europeans are discovering how much of the power in Russia’s hands is power that the West carelessly gave up by buying Russian gas, looking away from flows of corrupt money, failing to respond to past aggressions and provocations, and stinting on military aid to Ukraine. One of the biggest and most important of those grants of power was the decision to use U.S. agricultural resources so perversely. Food for people and energy for machines need to be joined together in a broad strategy that enhances national and climate security. North American oil and natural gas can carry the world through the transition to an energy future based on wind, sun, and the atom. The good earth of the U.S. Midwest can contribute more to growing the food to feed humanity. It’s past time to junk the rules and special favors that stand in the way.