A Rock and a Hard Place

The U.S. is in a tight spot these days when it comes to energy. Aside from the uncertainty over carbon limits, the economic outlook is weakening. The Federal Reserve is trying to stimulate growth but keep inflation down. Fuel price spikes are racking up costs along supply chains and biofuels intended to increase fuel supplies are raising food prices.

According to this biofuels have kept gasoline prices 15% lower than if there were no biofuels. If it is true, this proves that biofuels can make a noticeable dent in gas prices. The only problem is that food prices (particularly corn, soybeans, and wheat) are inflating from the limited amount of land for farming.

The obvious move the federal government should make is to eliminate the tariff on imported biofuels, especially ethanol from Brazil. This would alleviate prices of food and fuel for Americans in the short term while the federal mandate issued for cellulosic biofuels creates the new technology. The drawback is that importing more biofuels does nothing for energy security, but that is not entirely true. A larger fuel supply provides more buffer for rising prices. Brazil may be seen a more stable economy and a more attractive investment location compared to some middle eastern or African oil economies.

The odds are not good that Bush will approve eliminating the tariff, so it may be a long shot. What do you think?