CBO measures relationship between ethanol, food prices, and emissions

As we search for alternative fuels for our cars and trucks, the use of corn-based ethanol, which can reduce emissions from gas-burning engines, continues to grow in the U.S. In 2008, consumption of ethanol exceeded 9 billion gallons, but not without related costs, a new Congressional Budget Office study found.

The CBO paper, released today, measures relationship between ethanol, food prices, and emissions.

The CBO estimates that one-quarter of all corn grown domestically is now used to make ethanol, and the CBO found that production is pushing up food prices.

CBO estimates that from April 2007 to April 2008, the rise in the price of corn resulting from expanded production of ethanol contributed between 0.5 and 0.8 percentage points of the 5.1 percent increase in food prices measured by the consumer price index (CPI). Over the same period, certain other factors—for example, higher energy costs—had a greater effect on food prices than did the use of ethanol as a motor fuel.

Beyond the one-year period that ended in April 2008, food prices are likely to be higher than they would have been if the United States did not use ethanol as a motor fuel. However, ethanol’s effect on future food price inflation is uncertain because the forces determining that impact move in opposite directions.

The after-effects of those food price increases end up costing the federal government hundreds of millions of dollars in food assistance programs in the coming year, the CBO estimates.

The federal government administers several assistance programs that are operated at the local level by state agencies and other providers. The largest of those programs are SNAP [formerly known as Food Stamps] and the National School Lunch and School Breakfast Programs. Federal reimbursements and benefits for those programs are adjusted automatically each year according to the change in various food price indexes. The change in food prices from 2007 to 2008, the period covered by this analysis, determines the benefits for those programs for fiscal year 2009. As a result, the rise in food prices attributable to increased production of ethanol will lead to higher federal spending for those programs: specifically, an estimated $600 million to $900 million of the more than $5 billion increase in spending projected for fiscal year 2009 as a result of the rising price of food.

The CBO did find a reduction in vehicle emissions from the increased ethanol use. CBO Director Douglas Elmendorf wrote on the agency's blog:

Last year the use of ethanol reduced gasoline usage in the United States by about 4 percent and greenhouse-gas emissions from the transportation sector by less than 1 percent. The future impact of ethanol on greenhouse-gas emissions is unclear. Research suggests that in the short run, the production, distribution, and consumption of ethanol will create about 20 percent fewer greenhouse gas emissions than the equivalent processes for gasoline.

Consumer Reports has tackled the ethanol debate before. In October 2006, CR testing determined that E85--the blend of 85 percent ethanol and 15 percent gasoline--will cost consumers more money than gasoline, raising concerns about whether the government’s support of FFVs is really helping the U.S. achieve energy independence.

For the latest news on the search for alternative fuels and low-emission vehicles, check out CR's Cars Blog.

Sunday talk shows preview coming budget battle

Administration officials and Congressional Republicans squared off this morning over the President's $3.6 trillion budget outline amidst news that the Congressional Budget Office's forecasts are significantly gloomier than the Administration's own projections.

The CBO announced on Friday that federal deficits would rise an additional $4.8 from 2010-2019, $2.3 trillion more than the Administration's estimates. The difference stems in large part from a disagreement over how fast the economy will grow after it escapes from recession.

"When you get out five, 10 years, they’re assuming that real GDP is only going to grow about 2.2 or 2.3 percent a year," said Christina Romer, chair of the Council of Economic Advisers, on Fox News Sunday. "And that’s just lower than private forecasters. It’s lower than the Federal Reserve. And we think it’s just too pessimistic."

Congressional Republicans, including several powerful moderates, said that the deficits were unacceptably large and would need to be scaled back in the final budget.

Senator Susan Collins of Maine said on ABC's This Week that the debts were "not sustainable," and that they posed "a threat to the basic health of our economy." Senator Judd Greg, who declined to serve as President Obama's Commerce Secretary, called the debts "staggering," and said that deficits of "4 percent to 5 percent of GDP" were "not sustainable under any form of government."

"The practical implications of this," Judd continued, "is bankruptcy for the United States. There’s no other way around it. If we maintain the proposals which are in this budget over the 10-year period that this budget covers, this country will go bankrupt. People will not buy our debt; our dollar will become devalued."

Policymakers also demonstrated their support for Treasury Secretary Timothy Geitner, who received widespread criticism after it was revealed that A.I.G. used part of its bailout money to pay for $165 million in employee bonuses.

"If you’re asking me should he resign," said Senator Chuck Grassley on CBS' Face the Nation, "I don’t think anybody after two months has been tested enough that I would say he should resign. I think he ought to be given some time."

Romer characterized calls for the Secretary's resignation as "really silly."

Members of Congress continued to fume over the A.I.G. bonuses, though it seemed far from certain that the President would sign a House-passed bill reclaiming the bonuses through the tax code.

"Retention bonuses are, to a great extent, extortion," Congressman Barney Frank said. "It is people saying... I’ve got the combination to the safe, and if you don’t bribe me, I’m going to leave and you’ll never be able to open the safe."

Vice Presidential advisor Jared Bernstein responded on This Week that the bill might be "dangerous," saying: “The president would be concerned that this bill may have some problems in going too far – the House bill – may go too far in terms of some legal issues, constitutional validity, using the tax code to surgically punish a small group of people."

Over on NBC's Meet the Press, Governors Ed Rendell and Arnold Schwarzenegger joined with New York City Mayor Michael Bloomberg to discuss their new group, Building America's Future, which will call for substantial investments in the nation's infrastructure.

"This country desperately needs to build a high-speed rail passenger system." Governor Rendell said. "We need to improve our rail freight system. But it's not just transportation.  It's the levees that failed in Cedar Rapids and New Orleans.  It's dams, it's water and wastewater systems. It's so much more."

CBO: Obama's budget could push federal defecit to $1.8 trillion in 2009

If all the president's budget proposals were to be enacted and the economy continued to struggle, the nation's deficit would climb well beyond what the White House had previously projected, according to a new analysis from the Congressional Budget Office.

The deficit estimate for 2009 would total $1.8 trillion, or 13.1 percent of GDP, the nonpartisan CBO estimated, with another $1.4 trillion of debt the next year.

President Obama's budget initiatives, if enacted, would add an estimated $4.8 trillion to the nation's deficit between 2010-2019, the CBO report said.

That's a lot more than the numbers put out by the White House. The CBO wrote in its report:

Our estimates of deficits under the President’s budget exceed those anticipated by the Administration by $2.3 trillion over the 2010-2019 period.  The differences arise largely because of differing projections of baseline revenues and outlays. CBO’s projection of baseline deficits exceeds the Administration’s estimate (prepared on a comparable basis) by $1.6 trillion.

By comparison, if current laws were maintained, the 2009 deficit would be an estimated $1.7 trillion, and the 2010 deficit would be $1.1 trillion. Even those lower numbers would be the largest deficits as a share of GDP since 1945, the CBO said.

The CBO's estimate of overall economic conditions did not offer particularly cheerful news either.

Despite the steps already taken by the White House and the Treasury, "the economy is likely to continue to deteriorate for some time," the CBO report said.

The recession may technically end by the fall, but:

For the next two years, CBO anticipates that economic output will average about 7 percent below its potential—the output that would be produced if the economy’s resources were fully employed. That shortfall is comparable with the one that occurred during the recession of 1981 and 1982 and will persist for significantly longer—making the current recession the most severe since World War II. In this forecast, the unemployment rate peaks at 9.4 percent in late 2009 and early 2010 and remains above 7.0 percent through the end of 2011. With a large and sustained output gap, inflation is expected to be very low during the next several years.

Government garage sale? CBO finds 9 options for raising money

With the economy struggling and the government spending trillions to reverse the trend, some in Washington are looking for ways to raise more money without increasing taxes.

In response to Rep. Ron Kind, a Wisconsin Democrat, the Congressional Budget Office came up with a list of federal assets which "could be sold, leased, licensed, or otherwise conveyed to raise revenue." All Congress would need to do is change some laws controlling policy in sensitive areas like energy exploration, farming, or environmental protection.

From the letter CBO Director Douglas Elmendorf sent to Kind, here are nine suggestions, along with the estimated revenue:

• Open the Coastal Plain of the Arctic National Wildlife Refugee (ANWR) to Leasing.

In March2008, CBO estimated that auctioning leases for oil and gas development rights would raise $6 billion dollars over the next 10 years.

• Restructure the Power Marketing Administrations to Charge Higher Rates.

CBO estimates that amending current law to require those PMAs to sell electricity at market rates to any wholesale buyer would increase federal receipts by roughly $2 billion over the next 10 years.

• Sell the Southeastern Power Administration (SEPA) and Related Power-Generating Assets.

After accounting for lost revenues from forgone sales of electricity, CBO estimates that such a sale would likely generate net receipts in excess of $1 billion over the next 10 years.

• Sell a Portion of the Tennessee Valley Authority’s (TVA) Electric Power Assets.

CBO estimates that such sales could potentially generate tens of billions of dollars over the next 10 years, depending on market conditions and the terms of sales.

• Reduce the Size of the Strategic Petroleum Reserve (SPR).

Depending on market conditions, CBO expects that prohibiting the diversion of oil to the SPR would increase proceeds from oil sales by at least several hundred million dollars over the next 10 years.

• Revise and Reauthorize the Bureau of Land Management’s (BLM) Land Sale Process.

Depending on market conditions, CBO expects that enacting this proposal would increase net receipts by a total of a few hundred million dollars over the next 10 years.

• Charge Royalties for Hardrock Mining on Federal Lands.

Depending on market conditions for hardrock minerals, CBO anticipates that royalty payments would total tens of millions of dollars over the next 10 years.

• Use State Formulas to Set Grazing Fees for Federal Lands.

CBO estimates that increased grazing fees under this option would total tens of millions over the next 10 years.

• Maximize the Proceeds from Selling Federal Properties.

The federal property program currently generates only modest net proceeds -- about $20 million a year. The federal government could increase sales proceeds by enacting legislation to require GSA and other agencies, notwithstanding existing laws, to auction all surplus federal properties to the highest bidder.

The CBO included a multi-part tenth proposal that would charge higher fees for national parks, water provided from federal projects, and activities held on federal land.

Read the CBO's letter to Rep. Kind.

In response to Rep. Ron Kind, a Wisconsin Democrat, the Congressional Budget Office came up with a list of federal assets which "could be sold, leased, licensed, or otherwise conveyed to raise revenue." All Congress would need to do is change some laws controlling policy in sensitive areas like energy exploration, farming, or environmental protection.

From the letter CBO Director Douglas Elmendorf sent to Kind, here are nine suggestions, along with the estimated revenue:

• Open the Coastal Plain of the Arctic National Wildlife Refugee (ANWR) to Leasing.

In March2008, CBO estimated that auctioning leases for oil and gas development rights would raise $6 billion dollars over the next 10 years.

• Restructure the Power Marketing Administrations to Charge Higher Rates.

CBO estimates that amending current law to require those PMAs to sell electricity at market rates to any wholesale buyer would increase federal receipts by roughly $2 billion over the next 10 years.

• Sell the Southeastern Power Administration (SEPA) and Related Power-Generating Assets.

After accounting for lost revenues from forgone sales of electricity, CBO estimates that such a sale would likely generate net receipts in excess of $1 billion over the next 10 years.

• Sell a Portion of the Tennessee Valley Authority’s (TVA) Electric Power Assets.

CBO estimates that such sales could potentially generate tens of billions of dollars over the next 10 years, depending on market conditions and the terms of sales.

• Reduce the Size of the Strategic Petroleum Reserve (SPR).

Depending on market conditions, CBO expects that prohibiting the diversion of oil to the SPR would increase proceeds from oil sales by at least several hundred million dollars over the next 10 years.

• Revise and Reauthorize the Bureau of Land Management’s (BLM) Land Sale Process.

Depending on market conditions, CBO expects that enacting this proposal would increase net receipts by a total of a few hundred million dollars over the next 10 years.

• Charge Royalties for Hardrock Mining on Federal Lands.

Depending on market conditions for hardrock minerals, CBO anticipates that royalty payments would total tens of millions of dollars over the next 10 years.

• Use State Formulas to Set Grazing Fees for Federal Lands.

CBO estimates that increased grazing fees under this option would total tens of millions over the next 10 years.

• Maximize the Proceeds from Selling Federal Properties.

The federal property program currently generates only modest net proceeds -- about $20 million a year. The federal government could increase sales proceeds by enacting legislation to require GSA and other agencies, notwithstanding existing laws, to auction all surplus federal properties to the highest bidder.

The CBO included a multi-part tenth proposal that would charge higher fees for national parks, water provided from federal projects, and activities held on federal land.

Read the CBO's letter to Rep. Kind.