Dear Governor Schweitzer:

I supported your candidacy. I paid careful attention to your energy plans for Montana and believe you aspire to keep energy prices low while protecting Montana’s environment. I heartily endorse this goal.

Hence I’m puzzled by your determination to subsidize the construction of ethanol plants and to mandate we use gasoline made with Montana ethanol. This is unlikely to improve the environment and certain to harm taxpayers. Here’s why.

The 1990 Clean Air Act requires additives (oxygenators) to gasoline to reduce air pollution. MTBE, the current additive, is being phased out because it pollutes drinking water. Ethanol is the only legal alternative.

But technological improvements, i.e., better emissions equipment and cleaner-burning engines, suggest oxygenated fuels are obsolete. A 1999 EPA study found ethanol and other fuel additives offer few environmental benefits. The report recommended that the fuel additive mandate be eliminated.

Recently the Agency reported that ethanol factories across the Midwest are releasing carcinogens including formaldehyde and acetic acid. It isn't known whether this poses a hazard to downwind residents. Governor, have you run your ethanol proposal by Montanans Against Toxic Burning?

Ethanol is very corrosive. Shipping it via existing pipelines is impossible. Thus ethanol must be trucked, trained, or barged. These are expensive methods of transportation. Further, they all require energy, which means that ethanol transport generates air pollution.

There’s a nagging question about the energy balance of ethanol production. That is, when you sum all the energy required to produce a gallon of ethanol, is at least that much energy produced?

A 2003 study by UC Berkeley researchers argues that ethanol has a negative energy balance: “[I]n the process of converting industrial corn grain into ethanol, we have lost 65 percent of the energy inputs. More ominously, we have burned at least as much fossil fuel energy to obtain ethanol, as we may gain by burning it.”

What about using ethanol production to boost the incomes of Montana farmers? This is not a new idea. Since 1983 Montana taxpayers have provided subsidies for ethanol production. And there is not a single ethanol plant in Montana.

This is important information, for it tells us that even the most optimistic private lenders -- those who specialize in evaluating the quality of such investments -- don’t regard Montana ethanol as a wise use of their or their clients’ money.

What are the chances that you or the politicians supporting this proposal know more about ethanol’s potential than private investors? Governor, is it fair to force Montana taxpayers to underwrite a business that can’t raise sufficient funds in the private equity markets?

Montana grain is a better fuel for people and animals than for cars. Most U.S. ethanol production comes from the Midwestern corn belt. It’s far more efficient to use Iowa corn for ethanol than Montana grain. Midwestern ethanol plants are closer to major markets, enjoy lower transportation costs, and have access to an abundant and inexpensive feedstock.

Recent work by MSU economist Kevin McNew suggests that an ethanol plant in Hinton, Iowa, can deliver ethanol to Portland, Oregon, for 89 cents a gallon. The delivery cost for a plant in Havre, using locally grown barley, is 99 cents. How could you stop Midwestern states from exporting their ethanol to Montana? Amend the U.S. Constitution?

Three realities influence our economic future. Montana's prospects will be much dimmer if you pretend them away.

First, Montana agriculture is in transition. The eastern two-thirds of the state has far fewer people today than during World War I. The consolidation of farms and ranches follows, and towns decline. This is painful.

Second, this trend is likely to continue as information, transportation, and technological improvements drive out higher-cost agricultural producers.

Third, human and financial capital gravitate toward more highly valued uses. The options forgone for talented folks seeking a career in agriculture are high.

What can you do to help? Instead of trying to guess likely economic winners, promote policies that foster entrepreneurship and attract and retain high human capital.

Constructive steps include substantial investments in higher education and fundamental tax reform. Relaxed environmental standards, poor schools, and high marginal income and business taxes invite economic failure. Unfortunately, so does your ethanol proposal.