Everyone seems to be preoccupied with the question of energy independence. It's a bipartisan issue, heightened ever since the cost of a gallon of gas rose over four dollars this summer. Even though the price of a barrell of oil has fallen by nearly half, I doubt anyone feels truly calmed.
Too many people are looking for a solution from Washington D.C., the Corn Belt, or Silicon Valley. But few are looking to Brazil, the world's largest producer of sugarcane ethanol, and they should be.
A new working paper out of NBER by economists, Marc D. Weidenmier, Joseph H. Davis, and Roger Aliaga-Diaz suggests that Brazil might offer a solution to America's energy crisis. I quote from the abstract,
The recent world energy crisis raises serious questions about the extent to which the United States should increase domestic oil production and develop alternative sources of energy. We examine the energy developments in Brazil as an important experiment. Brazil has reduced its share of imported oil more than any other major economy in the world in the last 30 years, from 70 percent in the 1970s to only 10 percent today. Brazil has largely achieved this goal by: (1) increasing domestic oil production and (2) developing one of the world's largest and most competitive sources of renewable energy -- sugarcane ethanol -- that now accounts for 50 percent of Brazil's total gasoline consumption. A counterfactual analysis of economic growth in Brazil from 1980-2008 suggests that GDP is almost 35 percent higher today because of increased domestic oil production and the development of sugarcane ethanol. We also find a notable reduction in business-cycle volatility as a result of Brazil's progression to a more diversified energy program. Nearly three-fourths of the welfare benefits have come from domestic oil drilling, however, as rents have been paid to domestic factors of production during a time of rising oil prices. We discuss the potential implications of Brazil's energy program for the U.S. economy by conducting historical counterfactual exercises on U.S. real GDP growth since the 1970s.
Our research assistant, Charles "Atlas" Johnson, heard Weidenmier speak a week ago about energy independence and left pondering this statement by Professor Weidenmier on efficient sources of energy. "When you want energy, you turn to sugar, not corn. Every college student knows this."
Unfortunately, Congress has passed tariffs against sugarcane ethanol that all but kills it from hitting the pumps near you. Hey, no one ever said that the jobs of future would be "American only" or that Congress would understand their importance.