Unintended Consequences of Ethanol Policy – USA

To reduce its dependence on Middle East oil and leverage the strengths of its agriculture sector, U.S. Congress passed the Energy Independence and Security Act of 2007 (EISA)  to mandated a steep rise in domestic ethanol production from corn for use in blended gasoline.

Unintended Consequences of Current Ethanol Policy

This political policy done with all the good intentions, had the Law of Unintended Consequences kick in, since it did not anticipate the following:

Global linkages – i.e.  U.S. is big exporter of Corn which is used by some of the poorest countries in the world. Any shortages or price will adversely impact the most vulnerable sections globally.

Suggested Solutions to Unintended Consequences

Since, the benefits even for the U.S. consumers has been minimal and cost to the world’s poor has been very detrimental, there is now good reason to end the mandates for ethanol use in gasoline under the EISA 2007. There is no other way to avoided the huge unintended consequences to the most vulnerable sections of global society. In summary:

  1. Corn-based ethanol has had only small price, energy security, and environmental benefits

  2. Yet, the unintended consequences on food prices have been large and negative

  3. Rich consumers can substitute away from higher-priced foods, but the world’s poor have no such options

  4. Repealing EISA would bring food prices down, while keeping market incentives for ethanol use intact

    Let us always be sure that in this inter-connected world, the powerful do not make policies without anticipating the unintended consequences on the weak.



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