Tuesday, October 26, 2010

Time to End the Ethanol Rip-Off

By Alan Caruba

Psst! Want to avoid $25-to-$30 billion in new deficit spending over the next five years? You do? Okay, then email, fax or call your congressman and tell him you want to let the 45 cents-per-gallon Volumetric Ethanol Tax Credit (VEETC) expire on December 31, 2010.

In the same way you want Congress to extend the Bush tax cuts that are due to expire the same day, letting the VEETC expire will end a subsidy to ethanol producers. It is the only way they can stay in business. It is a hidden tax we pay every time we fill up our gas tank and it is one that deprives us of the full value of pure gasoline.

When Republicans take control of the House and possibly the Senate as well, they will have not just an opportunity, but a mandate to end support for ethanol and biodiesel, two of the worst ideas ever foisted on drivers.

Need it be said that the ethanol scam began with former President Jimmy Carter? He also thought that solar and wind power was a great idea. Ethanol, though, is particularly pernicious because, simply put, it is corrosive to engines. It takes a bite out of every driver’s wallet every time they fill up with a federally required ethanol-gasoline mixture, and it actually reduces the mileage you will get from every gallon.

As a recent issue of Business Week magazine points out “Today the U.S. offers a 45 cent per gallon tax credit to refiners that blend ethanol with gasoline. The government also requires gasoline makers to use a steadily increasing amount of the additive, and it imposes an import tariff to deter foreign competition.”

If you wonder why such stupidity is permitted, Business Week points out that it is a $27 billion industry today. Last year the tax credit was worth more than $4.7 billion.

If the tax credit for ethanol expires on December 31 along with a protective tariff consumers will cease being ripped off. When the $1-a-gallon incentive for biodiesel expired at the end of last year, so did the niche industry making it.

Ethanol is made from corn and biodiesel is made from soy beans. The farmers growing these crops will cry bloody murder, but there is a global market for them so they won’t be selling the farm any time soon. Instead, the cost of the countless food products made in whole or part from corn and soy beans will likely decrease, along with the cost of feed, mostly corn, for livestock.

The battle over ethanol pits its producers and corn farmers, along with the U.S. Agriculture Department against an unusual coalition of environmental groups and cattle ranchers. The former have come to question the alleged benefits of ethanol and the latter have always opposed the way the government’s ethanol mandate forces up the cost of feed corn.

Applauding from the sidelines will be the major U.S. auto manufacturers that worry ethanol will corrode engines that are not designed to handle the stronger blend. Take away ethanol and the cost of an auto will be reduced.

The ethanol tax incentives are just one part of the appalling failure of bad environmental ideas and policies that Americans have had to suffer since the days of Jimmy Carter.

All those “Green jobs” and Green energy projects Obama promised as he rolled out his economic stimulus plan just over a year ago have proven to be a boon…for China! The Department of Energy estimated that 82,000 jobs were created, but government job creation estimates are notoriously wrong. Meanwhile, DOE acknowledged that eighty percent of some Green programs, including $2.3 billion of manufacturing credits, went to foreign firms in China, South Korea, and Spain!

About the only “good” news is that only some $20 billion in stimulus funds have been spent.

Americans are slowly realizing they have been robbed at the gas station courtesy of the U.S. government and that their tax dollars are being shipped overseas to purchase wind turbines and solar panels that, together, produce barely three percent of the electricity used daily.

The problem is that the Greens and the U.S. government have kept Americans in the dark for a very long time regarding all these squirrelly “solutions” they have come up with to save the world from “global warming” (ain’t happening) and dependence on foreign oil (they won’t stop selling it to us and we have virtually stopped drilling here).

The sins are many, the jobs for Americans are few these days, the borrowing continues unabated, government spending is obscene, and, next year, you will not be permitted to purchase a 100-watt incandescent light bulb.

© Alan Caruba, 2010


LarryOldtimer said...

I read in the news that because of this ethanol madness, that there is a world shortage of food, with food prices skyrocketing.

Ethanol is not only destructive of parts of automobiles, it also is a really poor and uneconomical fuel, and does not reduce the need for gasoline (an excellent fuel) in the least.

But as it is a great subsidy for farmers, otherwise sensible governors of Midwestern states support its required use.

Unknown said...

I work for Growth Energy, a coalition of ethanol supporters. If you want to talk hidden costs lets talk about the more than $300 billion annually - or $1,000 a year for every man, woman and child in the United States- that we send to foreign economies for access to oil. Or how about the more than $280 billion we give to the oil industries in tax subsidies every year?

Growth Energy has proposed a plan that would once and for all eliminate the government support that has helped us grow. By building out our ethanol fueling infrastructure we can create an open market where all fuels can compete. When has the oil industry ever said no to support?

In addition, to address LarryOldTimer's point, study after study has proven that ethanol production has minimal impact on food prices. You can read more about that here on our blog: http://bit.ly/aa4di5

Ethanol is the only commercially viable alternative we have to oil today. If we want to reduce our dependence on foreign oil, create jobs and clean our air, we need to increase consumption and production of renewable fuels like ethanol.

Alan Caruba said...

Steph, ethanol can never replace gasoline, nor ever should. Those tax breaks for oil companies make it possible for them to engage in the highly risky, but totally necessary process, of exploration for new reservoirs of oil. There is no comparison between that and shoveling thousands of barrels of corn into a hopper to be made into moonshine.

Innovation rules said...

AS I'm sure you well know Alan, it is not the farmers that would be most affected by the loss of ethanol subsidy.

It is the very large agri-business companies, who build the ethanol plants, that would suffer the most since they receive the lion's share of the subsidies.

The fantastic news for farmers and the world is that 1+ billion people in the world are crawling into the middle class in India and China.

It turns out that given a choice, they'd rather not subsist on beans and rice. They prefer vegetables, corn, grain and meat.

It is this grand new richer world that will drive the price of corn, and so undoing the ethanol catalyst subsidy should have relatively small effects on producer profits.

Mike said...

Please explain how tax payers will save money by increasing the tax on ethanol blenders? That's what will happen should VEETC be eliminated.

Won't we all end up paying MORE for fuel because the tax break will go away? Should we be pushing for higher taxes on fuel?

Alan Caruba said...

@Mike: When the tax credit to ethanol producers goes away, they too will go away. Government mandated blends will follow. We save money because that 45 cent added ethanol tax will not be part of the cost of a gallon of gasoline any longer.

Mike said...

@Allan I'm not sure I'm following you.

VEETC is not an added tax - it is a tax break (credit) given to fuel blenders who incorporate ethanol into their fuel. If ethanol is blended into regular gas at 10%, that's a 4.5 cent/gallon tax break on that gallon of gas.

If you take away the credit, prices go up because the fuel blender will now have to pay that tax and that cost will certainly be passed along. (Just like the Bush tax breaks - if they go away, I'll be paying more.)

As for eliminating ethanol altogether, I would imagine that if we did that - took away 12 billion gallons of fuel ethanol from the market - gas prices would go up simply because we'd need more oil to be refined to make up the difference.

Alan Caruba said...

@Mike: Gasoline prices will not rise if ethanol is eliminated. The mandated blending is an added cost to the refining of gasoline. Take away that cost and gas prices reflect it.

Even so, gasoline prices also reflect the price of a gallon of oil at any time and right now there is a glut of oil on the global market.

Whether we pay more to ethanol producers as a tax credit or added cost to a gallon of gas is part of the greater issue that ethanol is bad for auto engines and actually increased the amount of carbon dioxide emitted...the whole reason we were told we needed ethanol...to reduce such emissions.

Green lies cost Americans billions every year.