Ethanol: Behind the Buzz

Energy independence is today's fashionable rationale for promoting ethanol production. Proponents contend that the U.S.' "addiction" to foreign oil constricts its foreign policy latitude, increases its economic vulnerability and subsidizes some of the world's most troublesome regimes. By reducing that dependence through energy substitutes like ethanol, the U.S. hopes to strengthen its own hand and weaken those of its adversaries.

As a practical matter, the near-term prospects for driving down world oil prices through ethanol substitution are marginal because of the small volume of ethanol compared to the increasing demand from countries like China and India. Nevertheless, advocates believe that ethanol will play an important role in concert with efficiency, conservation and diversification efforts.

The U.S.-Brazil Ethanol Agreement earlier this year was about power, not energy. Since 9/11, anti-American sentiment in South America waxed as populations grew disillusioned with International Monetary Fund austerity prescriptions and with free-trade agreements that cost jobs and did not deliver benefits. Agitated and funded by Venezuelan leader Hugo Chavez, who dispensed populist rhetoric and windfall oil profits liberally, voters turned left and governments looked East. Over the last two years, elections in Venezuela, Brazil, Chile, Bolivia, Nicaragua and Ecuador empowered leftist leaders and the region expanded cooperation with countries like Iran and China. Washington hopes ethanol will help to reverse this trend. By encouraging the development and export of new ethanol technologies to South and Central American neighbors, the U.S. seeks to strengthen economic ties to the region and diminish Venezuelan, Chinese and Middle Eastern influence.