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Friday, January 12, 2007
From the WSJ's professorjournal.com:
The U.S. federal government policy of subsidizing ethanol production has been justified on two grounds: energy independence and the environmental benefits of biofuels. U.S. policy, however, results in the high-cost of biofuels produced in the U.S. While U.S. oil companies could use lower-cost sugar-based biofuel (which is produced outside of the U.S.), the high tariffs on these fuels prevents the oil companies from doing so. Instead, the U.S. turns to corn- and soybean-based fuels. The difficulty with these crops is that they are not good inputs for the production of biofuels. Sugar cane produces as much as 10 times the energy required to produce it, while corn-based ethanol makes only 1.3 times its cost of production. The U.S. trade and agricultural policies combined with the federal government's requirement that bioethanol make up 10% of gasoline has resulted in the higher prices of corn and soybeans.
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