Is Corn Ethanol Really the Way to Go?

Is corn ethanol really environmentally-friendly investing? When it comes to investing, it seems as though biofuels are on the cusp of breaking through. Is this a good thing, though? In some cases, biofuels have great promise. But what about corn ethanol? There is a surplus of the product in the country, which prompted the Senate to pass a bill that essentially requires Americans to buy 36 billion gallons per year of ethanol by 2022. The current law only requires 7.5 billion gallons a year. Corn ethanol is having its share of problems, and the Wall Street Journal expounds on the downside of government subsidies:

Passenger cars can burn fuel consisting of 10% ethanol. If our goal were really to displace conventional gasoline, we'd open our coastal markets to sugar-cane ethanol from Brazil and other Southern Hemisphere countries, produced by less intensive methods that result — irony alert — in a genuine reduction in greenhouse emissions.

But Washington blocks imported ethanol with a 54-cents-a-gallon tariff to protect domestic ethanol profits. So let's sum up the ways you're paying to prop up an industry that's bad for energy security and bad for climate worries: higher taxes, higher gas prices and higher food prices.

From an environmentally-friendly investing standpoint, corn ethanol may not be a good choice. After all, Nobel Prize-winning chemist Paul Crutzen found that producing corn ethanol in the U.S. actually creates more greenhouse gases. And don't forget that the industry wouldn't even been functioning without the handouts it gets from the government. And while it is true that Big Oil companies like Exxon (XOM) and Chevron (CVX) also receive government subsidies, those companies would still be viable if the handouts disappeared. The U.S. corn ethanol industry would tank.

So, while I am interested in investing in promising biofuels and other forms of alternative energy, like wind and solar power, I'm not sure that I'm comfortable with ethanol. After all, it doesn't seem to be truly moving us in an environmentally friendly direction, and the underlying fundamentals are a little shaky.

Disclosure: I do not invest in any of the companies mentioned above.

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