What Happened to the Great Corn Crisis of 2007?


Here's what didn't happen during the past year as corn prices surged, fueled by the rising production of corn-based ethanol. There were no calls for a multibillion-dollar "strategic corn fund" to develop alternatives to corn, financed by a windfall profits tax on the agriculture industry. Ag industry execs were not called up before a high-profile Senate committee to defend themselves against charges that they were colluding to gouge corn-dog lovers. And no one called for a tax on maize to cut down on usage.

Nope, none of that stuff happened. Yet corn prices slid last Friday after the Agriculture Department reported that farmers planted an estimated 92.9 million acres of corn this spring. That's 19 percent more than in 2006 and above an earlier government estimate that predicted corn growers would plant 90.5 million acres. Surprise, surprise—high prices pushed producers to, well, produce more. Yet when oil prices head higher, little thought seems to be given to the possibility that higher prices and profits might lead to more exploration and development.

Now one way oil is different from corn, it could be argued, is that we don't necessarily want more oil because burning fossil fuels—coal as well as petroleum—supposedly releases climate-altering gases. Fair enough. But there's an alternative to the leviathan energy bill, full of government mandates and subsidies, that's currently making its way through Congress, or to complicated carbon cap-and-trade systems similar to the European Union emissions trading system.

Gilbert Metcalf, an economics professor at Tufts University, recently put forward a two-part "tax swap" proposal. First, he taxes carbon, under the theory that if you tax something you get less of it—in this case, emissions—and because a tax on pollution is a relatively simple method to ensure that we use resources in a way that takes into account their full cost to society:

"A carbon tax could best be implemented in an upstream system by taxing the carbon content of fuels at their source. For coal, this would be the mine mouth for domestic coal and the border for imported coal. Natural gas would be taxed at the wellhead. Petroleum products would be taxed at the refinery on the various products produced from crude oil. Levying the carbon tax on refinery outputs is preferable because crude oil can have different emission factors (carbon per barrel of crude) for different shipments; for example, a single tanker could have batches of oil with different emission factors."

Metcalf's tax of $15 per metric ton of carbon dioxide would nearly double the price of coal, assuming the tax is fully passed forward, and push the industry toward a carbon capture-and-sequestration program—basically storing emissions underground. Petroleum products would increase in price by nearly 13 percent and natural gas by just under 7 percent. If it had been in place in 2005, the carbon tax would have collected a little shy of $80 billion for Uncle Sam.

But Metcalf then proposes that all that dough be sent back to U.S. consumers in the form of a rebate of the employer and employee payroll taxes on the first $3,660 of earnings per worker. This amounts to a maximum rebate of $560 per covered worker. In short, the plan raises taxes on something we want to do less of—burning fossil fuels—and lowers the taxes on something America is going to want more of—work from a labor force that is predicted to show slowing growth or even shrinkage in coming years.

energy policy and climate change

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