Against Ethanol Subsidies

The Washington Post editorial board makes the case:

The feds give companies that combine corn ethanol with gasoline a 45-cent tax subsidy for every gallon of corn ethanol added to gasoline. That's on top of a tariff on imported sugar cane ethanol from Brazil and federal mandates requiring that steadily increasing amounts of these biofuels be produced. The Congressional Budget Office this month estimated that, all told, the costs to taxpayers of replacing a gallon of gasoline with one of corn ethanol add up to $1.78. The tax incentives alone cost the Treasury $6 billion in 2009.

How about the environmental benefits? The CBO calculates that it costs a huge $750 to reduce annual carbon dioxide emissions by one ton using corn ethanol. And that figure relies on assumptions extremely favorable to the industry.

This is one of those policies that I always think ought to have more crossover appeal. It’s expensive to taxpayers. It’s bad for the environment. It’s a counterproductive corporate handout. Folks left, right, and center have acknowledged all of this for years. The only reason to continue to support ethanol subsidies is constituent favoritism. But on the evidence, that seems to be reason enough for Congress.

Yesterday, Ron Bailey took a closer look at the CBO's estimate of the cost of the biofuels mandate. I looked at biofuel scams worldwide here.

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  • Old Mexican||

    The Congressional Budget Office this month estimated that, all told, the costs to taxpayers of replacing a gallon of gasoline with one of corn ethanol add up to $1.78. The tax incentives alone cost the Treasury $6 billion in 2009.

    Can you spell "Corporativism"?

  • waffles||

    corpratism?

    well, shit I tried.

  • Old Mexican||

    NO! No "try". You do, or you do not. There is no "try."

  • waffles||

    coroprastsim!

  • ||

    Coprophagism!

  • ||

    I'm hungry.

  • 2 Girls 1 Cup||

    This.

  • HERP, DURP!||

    priapismist! Am I doin it rite?

  • Jason||

    Yes, but can you define it?

  • Bob||

    I work with all these stupid fuckers in the ethanol industry. They are all diehard Republicans who don't think twice about pocketing gov't money and complain about Obama being a socialist. I think they forgot that farmers have been socialist for years, they just don't want to admit it.

  • Old Mexican||

    Re: Bob,

    They are all diehard Republicans who don't think twice about pocketing gov't money and complain about Obama being a socialist.

    What they mean is that Obama is not being enough of a fascist for them.

  • Jason||

    Obama already corporatized GM and Chrysler.

  • Old Mexican||

    That's on top of a tariff on imported sugar cane ethanol from Brazil and federal mandates requiring that steadily increasing amounts of these biofuels be produced.

    That's because the US wants to be energy "independent". Only cynics would believe this is a scheme to enrich corn and sugar cane growers... right?

  • Almanian||

    OM, why do you hate the corn and sugar cane farmers?

  • Old Mexican||

    Re: Almanian,

    OM, why do you hate the corn and sugar cane farmers?

    I don't hate them. I just don't want to give them any of my money, that's all.

  • ||

    In the same way that not increasing a budget as much as forecast is a cut, not helping someone is deliberately hurting them.

  • wackyjack||

    In the same way that not increasing a budget as much as forecast is a cut,not financing someone's worthless business model is deliberately hurting them.

  • Almanian||

    I know. I'z just playin

  • Ron L||

    "...This is one of those policies that I always think ought to have more crossover appeal. It’s expensive to taxpayers. It’s bad for the environment. It’s a counterproductive corporate handout...."

    Pretty sure the same could be said of ag subsidies in general, but we don't seem to have the wooden stake to kill 'em.

  • rts||

    "Access denied" when I click on that last link. I feel so left out.

  • Almanian||

    Damn. That's pretty abrupt.

  • ||

    "What's good for General Bullmoose is good for the USA."

  • ||

    The only reason to continue to support ethanol subsidies is constituent favoritism. But on the evidence, that seems to be reason enough for Congress.

    I think these factors can explain a lot of wasteful spending and grants, foreign and domestic, that occur despite being across-the-board ideologically and financially undesirable:

    a - special interest that deeply cares and deeply profits (psychologically or cash-wise)
    b -- no one else (no critical massof Americans) really cares that much about it otherwise
    c -- sounds wholesome, but requires specialized attention and knowledge to realize the problems
    d -- isn't a direct fee out of pocket

  • ||

    Yeah and Congress/Senators can criticize each others' corporate giveaways but the problem is each guy wants to keep his giveaway more badly than he wants to do away with someone else's.

  • Jason||

    nch, did you read Bryan Caplan's The Myth of the Ration Voter?

    A & B are the reasons he proposes for wasteful spending programs. He also suggests as another reason the fact that wasteful spending programs may only cost a few cents, so it's not worth the effort for individual taxpayers to try to get the programs repealed.

  • ||

    Actually, Caplan criticizes the common A&B explanation of rational choice, arguing that in many cases stupid policies like this are actually broadly popular. The average voter actually likes the idea of farm subsidies.

  • Bill||

    That's because it's helpin the little guy. And if yur agin it, then yur mean!

    But what are you gonna do about the fact that this unregulated free market we have now is causing the gap between rich and poor to grow, smart guy!!

  • Jason||

    I took from it that bad policies are generally popular because of popular ignorance while unpopular bad policies are due to voter indifference.

    I'll have another read of the chapter tonight when I get home.

  • ||

    Well sure, he does say that popular ignorance is a large part of why people support bad policies. He also says that people don't pay the (marginal) costs of supporting bad decisions, especially since their belief doesn't usually make a difference one way or the other.

    It's just that he's partially reacting to the Buchananite public choice people who tend to argue that A&B explain nearly all bad policies. He wants to point out that the majority actually do support these policies that most economists recognize as bad and as favoring tiny groups.

  • Bob||

    At least that whole switchgrass to ethanol thing worked out. That is saving us countless millions of gallons of foreign oil! USA USA USA USA USA

  • ||

    I'm shopping for carpeting and they're pushing this new type of yarn from DuPont that is about 40% corn sugar. They're touting it's "greenness" to all the yuppies and guilt-riddled middle-classers about how they are raping Gaia.

    Researching it, evidently, it was invented in the 40's, but the relatively high cost of oil, and no doubt today's corn subsidies, made it economically feasible to produce.

    I'll probably still get nylon carpeting.

  • ||

    The environmentalists won't go after these subsidies because, using the "greens'" own tactics, the corn farmers have cast ethanol as "green", and ideologically the enviros can't go after them, lest their own side become confused and see it as betrayal.

    Such are the pitfalls of groupthink.

  • ||

    The environmentalists won't go after these subsidies because, using the "greens'" own tactics, the corn farmers have cast ethanol as "green", and ideologically the enviros can't go after them, lest their own side become confused and see it as betrayal.

    This just isn't true.

    Many environmentalists hate corn ethanol (or even the idea of using food, especially corn which is also feed for animals, as a fuel as it raises the price of food in general).

    It takes lots of energy input to produce all the corn, and the land has to be sprayed with tons of chemicals and lots of fertilizer is used.

    You're assertion is a bunk and nothing more than hated of enviromentalists.

  • ||

    Really? Then explain why we hear nothing from the enviros on this, and even more importantly, see no major efforts to end the subsidies.

    They may hate the subsidies, but they aren't doing Jack Shit to stop them. Why is that, Tom? Remember--actions speak louder than words.

  • ||

    The Environmental Working Group actually does nice work publicizing farm subsidies and opposing ethanol subsidies. (They also complained about Obama's USDA being less transparent about subsidies.)

    However, I think it's also fair to note that not a single environmental group thought farm subsidies and ethanol important enough to praise or endorse McCain. (People then like to bring up this speech that McCain gave in Iowa in 2008 where he said that he was still utterly opposed to ethanol subsidies, but he thought it was fine if ethanol could succeed in a free market when oil was $100+/barrel.)

    I certainly don't expect most voters to change their votes because they hate ethanol subsidies, but it might be nice if it at least some environmental groups showed that they really cared.

    In politics, if it's not enough to make you change your vote, then it doesn't mean anything.

  • Old Mexican||

    Re: ChicagoTom,

    I have read a few critiques against ethanol from a few environmentalist writters here and there, but they represent quite weak arguments, most of the time pointing out the fact that the subsidies mostly benefit rich farmes and companies and yadda-yadda-yadda. They do not argue against the morality of subsidies in itself because it would place them in a contradiction, as environmentalists (almost all of them) support subsidizing wind and solar energy systems and companies.

    So they do not argue on principle, they argue on taste, and only because wind and solar give them such a warm and cozy feeling inside not unlike holding a puppy in one's arms or kissing little girls in the forehead, whereas farming is pedestrian and yucky.

  • Jason||

    It takes lots of energy input to produce all the corn

    This point isn't so clear cut. All of the new studies showing a negative net energy balance have involved David Pimentel and Tad Patzek. Studies without them show a positive net energy balance.

  • PabloKoh||

    In a perfect world no subsidies would exist. Then consumers could see the actual cost of their transit. No subsidies for crude, ethanol, trains, urban metro or bicycles.

  • Brett L||

    I'm pretty sure if you include production of the equipment, it's negative. As in, you couldn't rebuild the economy from pre-industrial times using just corn-ethanol. Without the energy of producing combines, trains, elevators, separators, and 'stills it is almost certainly net positive.

  • Old Mexican||

    I you really wanted to be "green" and "contribute" to the well-being of the Earth, you would weave your own carpet out of corn leaves. Otherwise you're not just roughing it enough.

  • Jason||

    Real environmentalists have use live moss flooring!

  • ||

    Biofuels, Synfuel Corporation, what's not to love about congressionally mandated, taxpayer subsidized energy policies?

  • Archer Daniels Midland VP||

    I agree wholeheartedly!

  • ||

    isn't a direct fee out of pocket

    Not really true, but like all regulatory capture, an "insignificant" amount of money is taken from an extremely broad spectrum of individuals, and the resulting large amount is funneled to a highly concentrated group of favored recipients (who are perfectly willing to kick back share some of it with the legislators who make it possible).

  • ||

    This is one of those policies that I always think ought to have more crossover appeal

    It absolutely does.

    Neither political party will touch this issue with a ten foot pole other than to say how much they love corn and corn farmers!

  • ||

    I'll probably still get nylon carpeting.

    You FIEND.

  • ||

    It would take a Constitutional Amendment to fix corn subsides and that will never happen.

  • x,y||

    Or not allowing Iowa to be the first or one of the first primary states. That ought to work too.

  • ||

    That's what would take an Amendment.

  • ||

    Or a surgical close enough nuclear strike.

  • ||

    In the defense of ethanol, it is really a great fuel to work with on an engineering level ofr spark-ignited engines.

  • ||

    In the defense of ethanol, it is really a great fuel to work with on an engineering level ofr spark-ignited engines.

    Bullshit.

  • ||

    True story

  • Bob||

    If you are a Midwesterner and a Republican, you are a morally corrupt stupid fucking retard. Basically every single person in the rural midwest is a DIRECT recipient of welfare from the government yet they vote how?

  • ||

    It's certainly not as though Democrats vote any less in favor of farm subsidies. Indeed, comparing similar constituencies, Democrats vote for much more farm subsidies, since this "protects" them politically from having, e.g, socially liberal stances that put them at odds with rural voters.

    Sen. Dick Lugar (R-IN) is very good against farm subsidies, despite being from Indiana.

  • ||

    Find me Midwestern Democrats who actually oppose farm subsidies.

    Meanwhile, idiot environmentalists like to attack Michelle Bachmann because she's a "hypocrite" for voting against farm subsidies yet still accepting them on her farm. What an idiotic argument to make if you're against farm subsidies.

    I certainly would never call Democrats "hypocrites" for voting against tax cuts but then taking the money once they pass.

  • ||

    One of my staffers is talking about getting PV solar panels installed on his DC row house. The company selling the panels is telling him that with all of the tax breaks and subsidies that the panels should only cost about 30% of the full price. They might even be almost no-cost to him.

    What pisses me off the most about this is that he and his partner gross over $300K/year, live in a home appraised at over $1 million, have no kids and can afford this probably better than anyone. He keeps telling me how great it will be for the environment.

    Never mind that 99% of the benefit will be direct economic benefit to him in the form of reduced energy costs, and increased business to the installer, but we get stuck with the bill because of he'll supposedly reduce global CO2 output by 0.00000000000000001%.

    I keep reminding him to thank me for buying those panels for him.

  • waffles||

    "reduce global CO2 output by 0.00000000000000001%"

    needs moar zeroes

  • Brett L||

    Don't worry, even with the subsidies it will take him ~20 years to net cash. He'd be better off putting extra insulation around his water heater.

  • ||

    Burning coal to produce electricity results in CO2 emissions of approximately 2.3 lb/kWh.

    http://cdiac.ornl.gov/pns/faq.html

    The cost per kWh for various fuels are:

    Coal - $0.006/kWh
    Gas - $0.03/kWh
    Oil - $0.05/kWh
    Solar - $0.38/kWh
    Wind - $0.07/kWh

    http://greenecon.net/understan.....omics.html
    http://www.solarbuzz.com/StatsCosts.htm

    If we suppose that the CO2 emissions of solar and wind are essentially negligible (which may or may not be a good assumption; I haven't done any detailed research) then directly subsidizing the use of wind and/or solar for electricity generation would represent a much better "bang for our buck" compared to subsidizing ethanol. Here I'm ignoring the fact that w/o ethanol subsidies you'd have a lot of out-of-work farmers; its possible the jobs created by subsidizing solar/wind would offset those lost by the cessation of ethanol subsidies, meaning jobs-wise it'd be a wash.

    If it costs $750 per ton to reduce emissions via ethanol subsidies then that's a cost-per-pound-saved of $0.375/lb.

    Now suppose solar were subsidized such that it became cost competitive with coal. Each kWh generated by solar instead of coal would represent a CO2 savings of 2.3lb at a cost of $0.38, for a cost-per-pound-saved of $0.165.

    The figure for wind is even more advantageous at $0.030.

  • wackyjack||

    I seem to be missing something. Where are the costs of THE MOUNTAINS AND MOUNTAINS OF HUGE FUCKING BATTERIES that are necessary to support a wind or solar based grid?

    Oh, wait. I see. You made shit up and think we won't notice. That's not even mentioning the basic fact that ethanol is pushed as a replacement for oil. So why the hell are you even talking about solar, wind, and coal? Since subsidizing ethanol is bad, we should instead subsidize other stupid ideas?

  • ||

    Re: batteries:

    I wasn't suggesting completely running the grid off solar, I was suggesting subsidizing its use to supplement fossil fuel production. AFAIK the analysis in the link I posted includes the full cost of a home installation.

    Re: ethanol being pushed as a replacement for oil:

    Yes, that's the case. But the overall goal is to reduce carbon emissions. My point is that "reducing carbon emissions by subsidizing alternate means of electricity production" is more efficient at achieving that goal than "reducing carbon emissions by subsidizing ethanol as an additive to vehicle fuel".

    Given the problem I was considering was how to reduce carbon emissions, why would I constrain myself to strategies designed to replace oil?

  • Jason||

    But the overall goal is to reduce carbon emissions.

    No, the goal is transfer money from tax payers to popular politically connected firms.

    If the goal were reducing carbon emissions, we'd be talking about carbon taxes, cap-and-trade, carbon regulation, and the like. In that case, companies would invest in not just deploying existing carbon-free technologies like wind, solar, and nuclear but also in researching carbon reduction technology and brand new carbon-free technology.

    Superfreakonomics has an interesting chapter on a similar issue -- how the widespread use of horses in cities lead to dirty cities full of horse emissions and how cities tried and tried to clean it up until the car came along.

  • ||

    "No, the goal is transfer money from tax payers to popular politically connected firms."

    Allow me to be more exact in my language:

    "My overall goal in evaluating ethanol subsidies vs. other alternatives was to ascertain efficiency with regard to reducing carbon emissions."

    In other words, I don't give a rat's ass about the shady reasons ethanol's supporters have for pushing it. The purpose of my analysis was to compare it to other options purely with regard to its cost-effectiveness in reducing carbon emissions.

  • wackyjack||

    If we suppose that the CO2 emissions of solar and wind are essentially negligible (which may or may not be a good assumption; I haven't done any detailed research)

    So the foundation of your analysis is based on nothing more than a wild-ass guess?

  • ||

    I assumed something for the sake of argument, since I wasn't able to dig up concrete numbers with a cursory google search. I then plainly stated this assumption since, obviously, the entire rest of the analysis rests on it.

    Are you really not familiar with "X implies Y" arguments? Its possible to the accuracy of "X implies Y" without actually knowing whether "X" is true or false.

    Clearly the carbon footprints of wind and solar power are not "zero". My assumption was that they are at least "close to zero". To whatever extent that assumption is false, these approaches' advantage over ethanol subsidies is reduced.

    After some searching, Wiki has the following to say:

    http://en.wikipedia.org/wiki/Carbon_footprint#Of_electricity

    The carbon footprint of concentrated solar is approximately 1/20 that of coal and wind is approximately 1/50. Of course its Wikipedia so it should be taken with a grain of salt. If I were, say, a policy adviser to the president, then I'd obviously put a lot more effort into this than a few google searches.

  • ||

    Here I'm ignoring the fact that w/o ethanol subsidies you'd have a lot of out-of-work farmers; its possible the jobs created by subsidizing solar/wind would offset those lost by the cessation of ethanol subsidies, meaning jobs-wise it'd be a wash.

    Breaking and fixing windows is never cheap. Maybe they could get jobs in the career chip implanting industry.

    I'm sure the 10's of billions of dollars of subsidies would have just been buried in the back yards of all the companies and people it was taken from.

  • ||

    You're arguing against subsidies in general, which is not relevant to the point I was making. That point being, "If we're going to spend money in order to reduce carbon emissions, how do ethanol subsidies rate as a means of accomplishing that goal?"

    Apparently the answer is "not very well".

  • ||

    It's completely relevant in that *we* should not be spending any money to reduce carbon emissions. *You* should be spending your own money accordingly. I hear that it only costs about $5/month to do so.

    But, you should be happy. Those solar subsidies are making sure that the well-heeled are even heelier, gaining all the benefit from the subsidy and sticking us with the bill. Congrats.

  • ||

    We must disagree on the meaning of "relevant".

    I argued that other approaches are more efficient than ethanol subsidies at achieving the goal of reducing carbon emissions. Nowhere did I argue that reducing carbon emissions is a worthwhile goal. Even granting for the sake of argument that it is, nowhere did I argue that subsidies are an acceptable means of accomplishing that goal.

    So yeah. Your response was totally irrelevant.

  • ||

    Ah, I see, you were just sayin'. My apologies; I didn't understand the rules of the Vulcan Circle Jerk. Consider me warned.

  • ||

    This is REASON.com. Just sayin'.

  • GILMORE||

    Drink

  • Old Mexican||

    Re: buddyglass,

    then directly subsidizing the use of wind and/or solar for electricity generation would represent a much better "bang for our buck" compared to subsidizing ethanol.

    If I were to go to a restaurant and the waiter told me that one special is equally fould than the other but less expensive than the other, so that I would get more "bang for my buck", would you say I would be unreasonable if I stood up and left?

    If industries have to be subsidized to stay competitive/alive, then they are not worth the time and effort. As simple as that, no matter how warm the feelings you obtain from supporting one system or the other. Economics are not about feelings but about allocation of scarce resources.

  • Old Mexican||

    foul.

  • ||

    Another approach that could be examined is the purchase of CO2 offsets. The price for these (per ton) ranges from $5 to $35, but seems to clump in the $10-15 range. Even if we assumed the highest rate ($35/ton) were twice as optimistic as it should be, then purchasing carbon offsets would still be over 10X more effective at reducing CO2 emissions than ethanol subsidies. (Assuming the $750/ton figure is correct for ethanol.)

  • wackyjack||

    And how do these offsets reduce carbon emissions?

  • HERP, DURP!||

    I have no idea about emissions. Although, you could certainly make a shit-ton of money by creating offsets and then selling them.

    I'll sell you over 9000 credits for $999.99. In exchange, I will not be flatulent for one year. You even get a certificate of authentication with a gold stamp on it, for good measure.

  • ||

    Depends on who you buy them from.

    http://en.wikipedia.org/wiki/C.....on_offsets

  • ||

    He keeps telling me how great it will be for the environment.

    Yes, because those panels are pulled out of a magic hat.

    This person is a dumb fuck.

  • ||

    Eco-clowns shut down London BP stations.

    http://www.thisislondon.co.uk/.....tations.do

  • ||

    Some of the comments are hilarious.

    Also, Britian must be the anti-matter universe. Their Tony has... a job.

    Tossers is the word.

    They want you out of your car, on a bicycle wearing a green uniform and carrying little red book.

    This is about them wanting to control you, and bring you down the the lowest common denominator.

    Anywhere else in the world if you work hard, and achieve, and better your family's life you're patted on the back. Here there is nothing but jealous sneering.

    The fact is that I don't really CARE if a bunch of soap dodgers want to waste a morning they could better spend in Wetherspoons or the dole office. I'll just carry on working hard so that my family can live a nice life.

    Sorry comrades. Your views mean nothing to me.

    - Tony the Trader, Limehouse, London, 27/07/2010 11:28
  • BakedPenguin||

    It's Bizzaro Tony.

    And I liked this comment: "Throw another self igniting seagull on the barby! Maldives here I come!"

  • ||

    Some of the comments give one hope that Britain has not yet thrown in the towel.

  • ||

    I just don't understand why they aren't shooting the nasty little vandals.

  • ||

    I guess you've never smelled dead hippie.

  • Brett L||

    How could it possibly be worse than live hippie? Does patchouli spoil if not reapplied?

  • Jason||

    The nasty little vandals got guns outlawed so they could pull stunts like this.

  • Jason||

    And BP was the company that unveiled green gas stations.

  • ||

    It would take a Constitutional Amendment to fix corn subsides and that will never happen.

    Like this:

    "The government of the United States may not expend any funds except in commercially reasonable transactions for goods and services acquired by the government of the United States to carry out its enumerated powers."

    That would solve a lot of problems, wouldn't it?

  • ||

    I was thinking more of:

    "All State primaries for Federal elected offices will take place on the first Tuesday of June."

    But yours would be a great addition as well.

  • Bill||

    As Bob Dole once pointed out, at least 11 states produce substantial amounts of corn. So any programs aimed at corn or other agricultural subsidies already have a huge lobby within congress.

  • Jason||

    Plus many more states have companies that rely on subsidized sweetners in the form of HFCS.

    But only a few states have companies that rely on sugar tariff and quotas. So we kill off the sugar protectionism and the food companies switch from HFCS to sugar and we gain the backing of those states to kill off corn subsidies.

  • ||

    [old man voice]

    "You kids and your newfangled gadgets! Back in my day, you had to catch herpes the old fashion way."

    [/old man voice]

  • ||

    In the meantime, a separate iPhone application called “Spread Snooki” — inspired by popular castmate Nicole “Snooki” Polizzi” is being released on Apple’s iTunes this week.

    The app owners options of superimposing fist pumps or head shots of the show’s outspoken young star onto existing personal photos, or into live photos as they are being taken.

    "iGuido. Only from Apple."

    Doesn't everyone already have enough shots of their friends blind drunk, flashing/mooning the camera and fucking strangers?

  • ||

    The only reason to continue to support ethanol subsidies is constituent favoritism. But on the evidence, that seems to be reason enough for Congress.

    The reason for Congress to support it is that tons of corn farmers vote on the basis of ethanol. Plenty of people are against it, but they're hardly going to change their vote over it.

    Come on, how many people possibly said, "You know, I'm closer to Obama on most things, but dammit, McCain's opposition to ethanol subsidies and position in favor of dropping the tariff on Brazilian sugar and sugar ethanol is important enough that I'm voting for him." If the answer is "No one," well, that explains why Congress votes the way it does.

  • ||

    This is one of those policies that I always think ought to have more crossover appeal.

    Except for the unthinking class. They like it because they media tells them to like it. They outnumber us.

  • lj220||

    i know this LJJLJLUIDS

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