Study: Mandating ethanol wrong solution

EAST LANSING, Mich., Feb. 13 (UPI) -- While many Americans are willing to pay a premium for ethanol fuel, it doesn't justify a government mandate for the fuel, a U.S economist argues.

Soren Anderson at Michigan State University studied the U.S. demand for ethanol -- called E85 -- and found when ethanol prices rose 10 cents per gallon, demand fell only 12 percent to 16 percent on average.

"I was a bit surprised," Anderson said. "I was looking for this sharp decline in ethanol sales the moment the price got higher than the price of gas."

Federal law calls for increasing volumes of renewable fuels to be included in the nation's fuel supply, requiring more than 13 billion gallons of corn-based ethanol this year.

Ethanol is more expensive to make than gasoline and must be sold at a loss or subsidized unless consumers are willing to make up the difference, Anderson said in a MSU release Monday.

While some people are willing to pay more to help protect the environment, he said, mandating ethanol doesn't appear to be the best option from an economic perspective.

"If our goal is to reduce greenhouse gas emissions, this is quite a costly way to go about doing it," Anderson said. "There are lots of other things we could do before switching over to ethanol."

Giving consumers options or incentives for driving less or buying more efficient cars could be betters solutions, he said.

"You really want to give people the right incentives," Anderson said. "If we taxed fuels at a higher rate based on the amount of pollution they caused, people would tend to choose cleaner fuels -- but also use less fuel overall."