Taxpayers

Let Ethanol Subsidies Die

A policy that free marketeers and militant greens can agree on

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It's a very rare occasion when a free marketeer like me agrees with the green fanatics over at Friends of the Earth, but they are right about one thing: It's time to let ethanol subsidies die. In 2004, the government started offering a tax credit worth 51 cents for each gallon of gasoline containing 10 percent ethanol. The 2008 farm bill lowered that credit slightly to 45 cents per gallon, but kept it going for another two years. Meanwhile, diverting grain to ethanol production caused corn prices to soar, lining the pockets of corn growers and refiners while increasing food costs for humans and feed costs for animals. The good news is that unless Congress acts, the $5 billion in annual subsidies to corn ethanol will expire at the end of the year.

The bad news is that the Environmental Protection Agency (EPA) exacerbated the situation last month when it decided to raise the amount of ethanol that can be blended with gasoline from 10 percent to 15 percent for fueling late model cars. The EPA boosted the amount of ethanol that can be blended with gasoline because the industry is currently producing 13 billion gallons. Since the U.S. consumed only 138 billion gallons of gasoline last year, that brings ethanol producers dangerously close to maxing out their market—hitting the so-called blending wall. In the meantime, higher feed costs have driven farmers to cut their herds. In July the number of beef cattle in the U.S. dropped to the fewest since 1973 and the number of breeding hogs fell to near the lowest level ever. The decision to increase the blending limit will send corn prices still higher, prompting a coalition of food producers, grocers, and oil companies to sue the EPA in federal district court in Washington, D.C., seeking to overturn the ruling.

But why would an environmental group oppose a subsidy designed to decrease greenhouse gas emissions, even if it is expensive? It turns out ethanol isn't so green after all. Even an analysis by the EPA found that current ethanol production techniques actually result in higher emissions of greenhouse gases than refining and burning ordinary gasoline. The agency did gamely outline scenarios in which future improvements in ethanol production could eventually get ethanol's greenhouse gas emissions 20 percent below that of gasoline by 2022. This past summer, the Congressional Budget Office (CBO) issued a report that was a bit more forgiving. The CBO report [PDF] found that ethanol subsidies did cut greenhouse gas emissions—at a cost of $750 per ton. By contrast, the current average price per ton of carbon dioxide emissions on the European Climate Exchange is just under $20 per ton. However, both the EPA and CBO reports present an overly rosy picture; neither accounts for the effects of devoting more land to biofuel production, which many analysts argue will substantially increase overall greenhouse gas emissions over those emitted by burning gasoline.

Failing to make a compelling case for the environmental benefits of ethanol, advocates often fall back on claims about energy independence. Surely, they argue, producing fuel on the fertile fields of the Midwest must decrease our reliance on foreign oil. But a recent analysis by Robert Bryce, a senior fellow at the free-market Manhattan Institute and author of Gusher of Lies: The Dangerous Delusions of Energy Independence, finds that ethanol has not reduced U.S. oil imports. Part of the reason is that ethanol substitutes for only gasoline while refining a barrel of crude oil produces many other useful products, e.g., diesel, jet fuel, liquefied petroleum gases, and so forth. This means that oil will be imported to fulfill demand for those products despite the amount of ethanol produced. In fact, the Financial Times reported earlier this week that since the U.S. ethanol market is so saturated that American refiners are now exporting ethanol-laced gasoline to Europe. This exported gasoline still receives the 45 cents per gallon tax credit, so that means that U.S. taxpayers are subsidizing European drivers. In an additional layer of irony, the U.S. also protects domestic corn growers and ethanol producers by imposing a 54 cent per gallon tariff on imported ethanol.

Finally, the 45 cents per gallon tax credit adds insult to the injury of the federal ethanol mandate. The Bush administration's Energy Independence and Security Act of 2007 [PDF] requires that the country produce and consume 15 billion gallons of ethanol by 2015, and 36 billion gallons of conventional and "advanced" biofuels by 2022. But if refiners are required to blend billions of gallons of ethanol into gasoline, why does ethanol need to be subsidized at all? The mandate means farmers will still reap benefits because more corn will have to be grown than what would otherwise have been demanded for food. Thus the current subsidy becomes a bonus gift from taxpayers to farmers and refiners.

It gets worse. Cornell University economist Harry de Gorter argues that the renewable fuels mandate combined with the ethanol subsidy actually lowers the price of fuel at the pump, encouraging drivers to consume more. This increases demand for oil imports to produce gasoline and raises oil prices, but the oil price increase is more than offset by the ethanol subsidy. Thus de Gorter and his colleague David Just show that when combined with the mandate the ethanol tax credit is "a pure waste as it involves huge taxpayer costs while increasing greenhouse gas emissions, local pollution, and traffic congestion."

American taxpayers have showered billions in subsidies onto corn farmers and ethanol distillers, all in the failed pursuit of energy independence and cutting greenhouse gas emissions. While free marketeers and green militants rarely agree, in this case we can join together in urging the lame duck Congress to end this fiscal madness by simply letting these wasteful subsidies run out on December 31st. 

Ronald Bailey is Reason's science correspondent. His book Liberation Biology: The Scientific and Moral Case for the Biotech Revolution is now available from Prometheus Books.

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  1. I will be amazed if Congress does let the subsidy lapse. But if it does, I’ll–I don’t know–I’ll name my next daughter after Veronique de Rugy.

    1. de Rugy Vanneman…I like it

  2. Shorting the world’s food supply in order to fill our gas tanks with some costly thing we don’t want. That’s a plan that won’t die easily.

    1. It’s ready made for slimmy politicians.

    2. Look, if you have a better plan for propping-up the price of corn, we’d be happy to hear.

      -Corn Farmers (all 15 of them) of America

      1. Look, if you have a better plan for propping-up the price of corn, we’d be happy to hear.

        -Corn Farmers (all 15 of them) of America ADM and Cargill

        FTFY

  3. I would love to see Harkin keel over on the floor of the Senate, gasping his last feeble breath in vain defense of the Iowa Corngrower Mob.

    1. He’d croak for sure.

      1. Are you threatening me?

        1. I am wanting you!

  4. Ethanol from corn always was a subsidy to farmers.

    1. I thougth this was for teh childrn…

    2. Ya think????

    3. Holy shit really?!?!

      Wow you have opened my eyes. Thank you for that.

      Now go back into your underground climate change shelter and worry about 20 meters of sea rise that will never come.

      1. Ah, that little difference between
        20 meters, and 20 feet.

    4. One should note there are plenty of farmers in the US that get no subsidies.

      Ethanol from corn always was a subsidy to corn farmers.

      1. While the corn farmers are getting the biggest share of the subsidies, various other farmers get subsidies, too. Cotton, wheat, rice, soybeans.

  5. New at Reason: Ronald Bailey Joins the Greens Against Ethanol Subsidies

    Wait a minute… Strike that. Reverse it.

  6. The bad news is that the Environmental Protection Agency (EPA) exacerbated the situation last month when it decided to raise the amount of ethanol that can be blended with gasoline from 10 percent to 15 percent for fueling late model cars.

    Wrong – the EPA exacerbates EVERY situation, not only this one.

  7. Thus the current subsidy becomes a bonus gift from taxpayers to farmers and refiners.

    You think that was not the Raison d’?tre for all this largess all along?

    1. Old Mexican, take that accent circonflexe and stick it where le soleil doesn’t shine, si ?a ne vous d?range pas trop.

      1. You did not just speak French to a Mexican. That’s like super-offensive. There’s even a quasi-holiday in parts of Mexico celebrating the overthrow of the French oppressor.

        1. He was actually an Austrian archduke . . . but yes, he was overthrown . . . and subsequently shot.

          1. The dude was Austrian, but he was installed by the French, and y’all kicked the French army’s ass. So the oppressor was France.

            I feel your pain, hermano.

            1. Yes, France’s oppression of the Scots is a blot on human history.

              1. We’re talking about Mexico. BP.

          2. Well, at least it didn’t cause a world war… that time.

        2. I thought 5 de Mayo was only celebrated in America. Like St. Patrick’s day for Mexicans.

          1. I can’t recall exactly, but I believe it’s celebrated in one of the Mexican states but is otherwise like Arbor Day.

            Real Mexican Independence Day is 16 de septiembre. Incidentally, Mexico just celebrated its bicentennial.

  8. Ethanol threatens our precious national resources–namely, tequila. Therefore, it must go.

    1. The brutes! They shall be stopped!!!

      1. Have you ever heard of anything worse?

  9. Has any farm subsidy ever ended?

  10. It’s a very rare occasion when a free marketeer like me agrees with the green fanatics over at Friends of the Earth, but they are right about one thing: It’s time to let ethanol subsidies die.

    Be careful who you choose to make your comrades in arms, Ron. Remember what happened to all those anarchists and liberals in Barcelona during the Spanish Civil War . . .

    http://en.wikipedia.org/wiki/Barcelona_May_Days

    1. Assume a purge and plan ahead.

  11. Is it the repubs or some kinda farmers unions or teh Monsanto who fight against this? When the libertarians and liberals agree on getting the Govt out of something and it still doesn’t look like it’ll be changing any time soon, someone’s got some ‘splainin to do.

    1. Iowa holds the first primaries.

      1. It’s not Iowa. Tell me, would YOU want to fuck with Willie Nelson?

        1. Over to you, Barney the Frank…

        2. All together now. YES!!!

      2. Nah, don’t think so. Live Free or Die!

    2. It’s simple. Most corn farming is done by eeeevil corporations, who have cushy deals with the government. The greenies hat the eeeevil corporations, and the libertarians hate the cushy deals with the government.

  12. Is it just me, or does every attempt to limit Greenhouse gases actually increase them?

    1. Is it just me, or does every attempt to limit Greenhouse gases actually increase them?

      It is just you.

    2. Indeed.

      Also, the attempt to cover more people with health insurance to people is actually increasing the number without insurance. And the attempt to cut health care costs is actually increasing them.

      Suffice it to say that markets are pretty efficient. If you are replacing market forces with state controls that explicitly counter them, you inherently are moving away from more efficient, and usually more desired, results.

      1. So, how do we regulate such a situation to obtain the more favorable results?

        Love,
        Statist Fucks

        1. You just need to have the right people in charge.

          1. it seems like the only way you guys can possibly maintain your ludicrous philosophy is by caricaturing those who disagree with you, even if it’s only slightly (disagreeing)

            1. If caricaturing is the goal, you’re doing all the heavy lifting, Edwin.

              1. What? You libertardians are so fking stupid. You need to get laid as much as I do, seriously. Start hanging around with me during recess happy hour and I’ll show you how much ass I get.

                Man, you guys didn’t even try to adress any of my points below:





        2. We believe in freedom, really! But we just want to create laws that force people to be free.

      2. That’s how it worked with mandatory car insurance in PA. Higher prices=fewer customers.

  13. Let’s introduce Edwin’s scale of libertarian stupidity! A spectacular showcase of how libertarianism can be convincing at first but quickly descends into madness.

    Today’s episode, environmentalism:

    CONVINCING/REASONABLE: Ethanol subsidies should be ended.

    SLIGHTLY KOOKY, BUT THERE MIGHT BE A POINT IN THERE: The oceans and bodies of water should be privatized.

    FLAT-OUT CRAZY/REGRESSIVE: There should be no environmental regulations whatsoever. Often shows up as a claim that all environmental issues should be dealt with only through direct tort. But sometimes you do actually get a People-should-be-free-to-pollute-or-harvest-to-any-extent-that-they-want.

    1. Re: Edwin,

      There should be no environmental regulations whatsoever.

      What’s an environmental regulation? I only know of thermostats…

    2. Shut the fuck up.

  14. Let Ethanol Subsidies Die

  15. Someday all cars will be powered by a Mr. Fusion.

    1. You know, it’s going to be an awesome day indeed when we have workable fusion (aside from the explosive kind, that is).

      1. There’s still only so much heavy water, and once it’s in greater demand I don’t think the current separation methods will be cost-efficient.

        So, I’d say not to get too excited until we can fuse hydrogen no-prob. Or find a cheap, easy, way to separate the heavy water.

        1. What’s all this ‘heavy water’ crap? I’m going to throw banana peels and egg cartons into mine, just like the Doc!

          1. That’s heavy, Doc!

        2. I’ve got rights to a helium-3 mine on the Moon.

  16. We agree today, Ron. Though I’d ask you to be more careful in distinguishing between “ethanol” and “corn ethanol”. It is the latter that is the boon-doggle.

    1. Yeah, the former is just a snow job.

      1. Fuck you. While we’re at it, we need higher gas taxes, because of the externalities.

        1. You are absolutely correct, Spoof-san.

          1. All these spoofers are tarnishing my good name. We need regulations to prevent such anti-social behavior.

    2. Can you tell the difference?

  17. Yes yes subsidies must die…

    Still the green argument is pure stupidity. Ethenol is for all intents and purposes solar power in a form that can actually be used. namely a chemical burnable liquid.

    The greens argue that ethanol takes up arable land….sure does…but what do they think will happen to arable land when you plaster them with solar cells?

    Once again the greens prove themselves to be idiots. Yes chad/tony/MNG i am talking about you.

    1. Joshua,

      Much about your comment argues against calling others idiots on this issue.

      Or maybe all.

    2. All that arable land in Death Valley would be totally wasted on solar cells. We should grow soy there instead.

    3. I doubt we will use much “arable” land for solar panels. There is plenty of space in various wastelands, deserts, brownfields, and rooftops.

    4. You overlook that huge amounts of energy first go into the production of the corn, and later into transport the grains and converting them into alcohol.

      During the 1990s, the whole procedure actually was energy-negative. Recent numbers indicate that it is energy-positive now, but I’d expect that the balance of ethanol from corn currently still is much worse than creating fuel from biomass that otherwise would be considered waste.

  18. I don’t know why more old hippies aren’t Libertarians. They didn’t trust the government 40 years ago and they certainly have no reason to trust it now.

    1. Dude, they’re running the government…

    2. Hey man why the fuck do you think

    3. Hey man why the fuck do you think Reason is so in favor of stoners? And making dope legal?

  19. Hate to be a buzz kill but….

    The subsidy is just one part of the problem. Other laws mandate the usage of ethanol.

    1. Ron addressed this too.

  20. Problem here is that “militant greens” don’t give a hoot about “green”.
    If it means giving up government control, the “greens” will turn “red” instantly.

  21. “lining the pockets of corn growers and refiners”

    Ethanol subsidies do NOT line the pockets of refiners. Ethanol is a pain in the neck to refiners. I think you mean distillers, the guys that ferment and distill ethanol, rather than refiners, the guys who refine crude oil into petroleum products.

  22. They should do what is best for all of us.. Not only for the benefit of few people but all people should be benefited.. Cremation Jewelry

    1. Wow, Whitney, that is so awesome!

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  24. Since most studies say it takes 7 gallons of gas to make 8 gallons of ethanol, not counting irrigation and fertilizer, it really is better to think of ethanol as a catalyst.

    Only a bureaucracy could be so effing stupid. Luckily, we taxpayers aren’t paying rich businesses for it. Oh wait…

    Is there any way at all we can win?

  25. Jeez, and here I thought subsidized food burning was the key to peace and prosperity.

  26. I guess they aren’t interested to produce ethanol from more promising sources like switchgrass or even hemp from what I saw on these Youtube clips
    http://www.youtube.com/watch?v=S6cKjdIej04
    http://www.youtube.com/watch?v=RKVmYCSTKUs

  27. In the US, over $72 billion was dished out in subsidies to fossil fuel interests from 2002-2008. Ethanol Subsidies accounted for under $17 billion over the same period.
    http://www.eli.org/pdf/Energy_….._Green.pdf

    Don’t get me wrong I’m happy as hell that the ethanol subsidies are set to expire… but where is Mr. Bailey’s article calling for the ending of the subsidies for petroleum, coal and natural gas??

    Removing those subsidies seems like an easy decision to me. It should even garner bipartisan support considering the “small government” and “spending cuts” rhetoric that the Republicans are using.

    Ending these fossil fuel subsidies should be more of a priority than ending ethanol subsidies since they are more than 4 times higher.

  28. One aspect of the ethanol controversy that seems to have escaped notice is the deleterious effect of ethanol on gas mileage, especially of older cars driven by people who can least afford having to buy more gasoline. My 2005 Dodge Neon could drive for 38.5 miles on a gallon in places where there was no ethanol. When we had to fill up again with ethanol gas, the distance we could drive on a gallon dropped to 32.5 miles. That means ethanol cost us 16% of our gas mileage. Or, to put this another way, a 10 gallon fill up would go an extra 60 miles with no ethanol. Perhaps all those “gubmint” experts (Now there’s an oxymoron.) should do the math on how much extra gas must be imported to make up for the decrease in mileage. In other words, ethanol is making the US even more dependent upon foreign oil supplies. I can think of policies that would do a better job protecting our national security.
    Ave atque Vale

  29. FYI?
    Friends of the Earth have apparently deleted their cited article.

    But, I documented the existence of the article via screen captures and more.

    Click here for the evidence.

  30. It is so bad and so sad to know that the percentage of ethanol in petroleum were increased..

    Soy Candles

  31. I grow corn, wheat and soybeans in north Dakota. Go to any farm in north Dakota and check out the guys house. Tell me if you think the guy is rich after inspection. We cover thousands of acres in record time to bring you all the yummy foods you enjoy at the cheapest prices in the world. We also are the only viable answer to 4-5 dollar gas.
    The corn used in ethanol has a bi product called dried distillers grain. It is used for animal feed, and brig studied to be used as low priced food for the starving Africans. Acres that produce corn for ethanol would otherwise produce corn for animal feed. The ethanol produces animal feed so where is the problem?
    If you like cheap food, go thank a farmer. Image a day you go to you favorite grocery store and the shelf is empty. It is only then that I will be appreciated by you.

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