Issue 67: The high cost of gasohol

Gasohol—the very coinage has a distinctively American ring, a patriotic flavor. What better way to hold the OPEC cartel at bay than with a pragmatic mixture of gasoline and home-grown alcohol? Boosted by bumper-stickers and praised by politicians, gasohol is the auto fuel of choice for many.

If gasohol presents a problem for the consumer in mid-1981, it probably is perceived as one of relative scarcity. But if current policy persists, scarcity soon will be a thing of the past. In 1980 the United States embarked on a heavily subsidized program that aims at replacing, within ten years, 10 percent of the nation's gasoline consumption with alcohol made from biomass sources. Technical and economic considerations suggest that nearly all of this will be in the form of ethanol derived from corn and other feedgrains.

With the generous subsidies provided, mainly by the federal government, the ethanol industry is off to a fast start: the 1-billion-gallon goal for the end of 1982 seems well within reach. Four billion gallons are to be produced by 1985-86, and 10 billion gallons, or 10 percent of gasoline consumption, by 1990. In effect, bushels of American corn are being traded for barrels of OPEC oil, and, to the oil-weary American consumer, the United States clearly appears to gain the best of the bargain.

Appearance is a far cry from reality, says Fred Sanderson in this special issue of Resources.

The benefits of gasohol are less than they appear at first sight and out of proportion to its staggering costs, says Mr. Sanderson. If the program runs its full course, he foresees severe effects on U.S. food prices. Moreover, he believes the anticipated balance-of-payments gains are largely illusory because of the program's adverse effects on U.S. agricultural exports.

Indeed, in testimony earlier this year before the House Energy and Commerce Committee's Subcommittee on Energy Conservation and Power, Mr. Sanderson concluded that "the gasohol legislation passed in 1980 was ill-advised. It should be repealed before we squander any more of our resources on this wasteful and inflationary program."

Mr. Sanderson's views are the more noteworthy because he has been regarded as an optimist about America's capability to supply domestic and foreign agricultural needs. But that was before gasohol entered the picture.

Fred H. Sanderson, an expert on U.S. and international agricultural policies, has been a senior fellow and now is a guest scholar at the Brookings Institution. From 1946 until 1973 he served in the Department of State, most recently as director of the Office of Food Policy and member of the Planning Staff. He also is professorial lecturer at The Johns Hopkins University School of Advanced International Studies.

Mr. Sanderson has published widely on the global food and agricultural situation. He currently is completing a project on "World Agriculture: Reassessment of Trends and Policies," and is contributing to an RFF research project on U.S.-Japanese agricultural trade relations.