Ethanol Subsidies Backfire As Farm Bill Looms

The U.S. Environmental Protection Agency is considering upping the ethanol requirement in gasoline this summer — a move that threatens to ignite a new fuel war.
Nancy Pelosi wasn't wrong when she said U.S. energy dollars would go to the Midwest, not the Middle East. But more than $7 billion in corn-fed ethanol governments subsidies have helped raise the price of food -- and fuel. Photo/Charlotte Gibson TRNS

Nancy Pelosi wasn’t wrong when she said U.S. energy dollars would go to the Midwest, not the Middle East. But more than $7 billion in corn-fed ethanol subsidies have raised the price of food — and fuel. Photo/Charlotte Gibson TRNS

By Kenric Ward | Watchdog.org

WASHINGTON — “The dialogue should be to repeal the renewable targets and let the market decide,” Charles Drevna, president of the American Fuel and Petrochemical Manufacturers, said at a conference last week.

Opposing requirements to blend more corn-based ethanol and other renewables into their fuels, the petroleum industry says government dictates increase production costs and hike consumer prices.

Oil companies say if they are forced to sell gasoline with the proposed 15 percent ethanol content – up from the current 10 percent – they’ll take their product elsewhere.

“One way to comply is to export ever-increasing amounts of gasoline and diesel fuel, or otherwise just simply shut down the refineries,” Andy Lipow, an oil industry consultant, told National Public Radio recently.

The Renewable Fuels Association, a trade group for the corn ethanol industry, says the gas companies are bluffing, and wants the EPA to call them on it.

While the EPA bullishly promotes ethanol, some agency officials are wary of stepping on the gas. They note concerns over rising food prices, driven in part by burning evermore corn for fuel.

“When Congress wrote this (renewable-fuel) law, Congress anticipated that the market would solve this problem,” Christopher Grundler, the EPA’s director of the office of transportation and air quality, told a House oversight committee hearing.

“Clearly, it has not been resolved,” he acknowledged.

Though ethanol has not turned out to be the panacea its promoters envisioned, former House Speaker Nancy Pelosi, D-Calif., wasn’t wrong when she declared, “We will be sending our money to the Midwest, not the Middle East.”

Some $7.7 billion in taxpayer subsidies and tax credits for ethanol went to the Corn Belt in 2010 alone. On a unit basis, ethanol subsidies can exceed the total cost of a gallon of gasoline.

“Ethanol is a total waste,” said T.J. Rogers, chairman of SunPower Corp. “The bottom line is that it takes between one and 1.3 gallons of gasoline equivalent energy to produce one gallon of ethanol.”

“Mandating a switch given current technology would increase, not decrease, pump prices,” added Jerry Taylor, a senior fellow specializing in energy policy and environmental protection at the libertarian-leaning Cato Institute.

The high cost of the ethanol program stems from inefficiencies. Because ethanol absorbs water, it cannot be shipped by regular petroleum pipelines. Instead, it must be segregated from other motor fuels and transported by more expensive means — truck, rail car or barge.

Ethanol also produces inferior gas mileage, which more than offsets any negligible (subsidized) savings at the pump. An EPA decision to raise the ethanol content would further erode fuel efficiency, studies show.

With more than 40 percent of America’s corn production already turning into fuel – and food prices on the increase – even liberal environmental groups are questioning the value of ethanol subsidies.

Amory Lovins of the Rocky Mountain Institute; Carl Pope, executive chairman of the Sierra Club; and green energy investor Jeffrey Leonard, chairman of the Global Environment Fund, have said it’s time to eliminate all energy subsidies in the tax code and let the best fuel win.

Michael Tanner, a senior fellow at Cato, reports that the impact of the nearly decade-old ethanol mandate has been marginal. Indeed, ethanol amounts to less than 1 percent of America’s total oil imports.

“We could plant subsidized corn on every square inch of available land, and we would not significantly reduce our reliance on imported oil,” Tanner said.

Taxpayers for Common Sense calls corn ethanol the “historic trifecta of federal subsidies.”

“A production mandate and an import tariff, combined with agricultural subsidies that increase as agribusinesses engage in riskier production practices and convert more land to corn, has resulted in higher costs for consumers, taxpayers and other industries.

“While ethanol proponents such as the National Corn Growers Association promised several years ago that corn yields would keep up with the additional corn required for ethanol production, they failed to meet expectations. In fact, while corn ethanol production increased nearly eight-fold over the past decade, yields failed to keep up since corn production only increased by 25 percent, mainly due to an increase in corn acreage.”

The farm bill moving through Congress plows the same old ground, while boosting subsidies for sugar – another ethanol source – as well as dubious government-backed crop insurance programs.

“The subsidies encourage farmers to obtain so much coverage that they take risks no prudent operator would take. They plant on unsuitable land, knowing that if a crop fails, they can make a claim. They usually plant corn, the nation’s No. 1 cash crop, which is in demand partly from companies that brew it into ethanol fuel — an industry that owes its existence to more government subsidies,” according to the Chicago Tribune.

Jamie Radtke, a tea party activist and 2012 U.S. Senate candidate from Virginia, said, “The fact that some in Congress want to regulate the methane gas that comes out of the back end of a cow is preposterous.

“So, I guess it is only slightly less foolish that Congress wants to pay farmers to stop growing food for eating and, instead, use it to produce expensive fuel that destroys our cars. These are prime examples of government on steroids,” she told Watchdog.

Citing concerns over costs and the ability of some engines to run on E15 blends, two states are pushing back.

Florida this month repealed its Renewable Fuel Standard and Maine lawmakers approved a bill banning ethanol blends, as long as two other nearby states do the same. Maine leaders also supported a resolution asking the federal government to block E15 (alternately known as E85 flex fuel).

The American Automobile Association, meanwhile, wants to suspend the sale of any E15 gas.

Attempting to wean farmers off their corn-fed fixation, U.S. Rep. Pete Olson, R-Texas, introduced H.R. 1959 to permit natural-gas based ethanol to compete with corn- and switchgrass-based ethanol.

The Renewable Fuel Standard’s singular focus on corn ethanol has translated into higher feed costs for livestock producers and higher food costs,” Olson said.

Rep. Jim Costa, D-Calif., one of a dozen cosponsors, added, “We cannot keep gambling our nation’s energy and food security on a broken policy. The Renewable Fuel Standard has injected uncertainty into our economy.

“Our bill will help stabilize feed prices and create some sanity in this policy through diversifying sources for ethanol production.”

Contact Kenric Ward at kenric@watchdogvirginia.org or at (571) 319-9824. @Kenricward

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Kenric Ward
Kenric Ward is chief of Watchdog.org's Virginia Bureau. He has been a reporter and editor at the San Jose Mercury News, Las Vegas Sun and several other newspapers. Most recently, he was chief political correspondent for Sunshine State News in Florida. Ward holds a bachelor's degree in political science from UCLA and resides in Fredericksburg, Va.
  • CharliePeters

    California CARB fuel was close to zero ethanol in our fuel in 1992.. 1992 fuel price about $1.40 per gallon. Ethanol push from fed EPA and friends pushed ethanol to 5.6% and we paid more for our fuel. Fed EPA and Big oil refiners pushed the oxygenate to 10% and we paid more. Now BP GMO fuel is pushing for over $1.00 in corporate welfare with 15% of the fuel market while cutting back Oil and refining. Will BP GMO fuel patents generate credit trade income from the Big oil industry with the Queen Mother help. The Queen banker friends may want a share. So. how big does California ethanol bill need to be to qualify for the EPA waiver?

    • just asking

      what the heck did you just say??????????????????????????????????????????????????????

      • CharliePeters

        Is ethanol in my water supply?

        Is ethanol in your water in your house?

  • Guest

    It’s ironic when Big Oil and their special interest groups, like the American Fuel and Petrochemical Manufacturers, talk about wanting to “let the market decide” while actively maintaining a monopoly over the fuels economy. Keeping renewable fuels, like higher blends of ethanol, out of the fuel market means less competition for oil companies, and less choice for the consumer.

    If Big Oil truly cared about increased consumer prices, they would acknowledge the truth – that renewable fuels help lower prices at the pump, and increasing the ethanol blend in gasoline to 15 percent would further drive down consumer prices; that the World Bank recently found that crude oil prices are the biggest driver of food prices; that the ethanol industry supports hundreds of thousands of American jobs, and injects millions into our economy, without any subsidies; that ethanol is cleaner and contains higher levels of octane, thus increasing car performance while reducing greenhouse gases each and every mile; and so on.

    Instead, oil companies are too busy protecting their tax breaks and clinging to their monopoly of the liquid fuels market to keep lining their coffers, at the expense of the American people. It’s time to really “let the market decide” by giving consumers the choice to access competitively-priced fuels like E15.

  • GrowthEnergy1

    It’s ironic when Big Oil and their special interest groups, like the American Fuel and Petrochemical Manufacturers, talk about wanting to “let the market decide” while actively maintaining a monopoly over the fuels economy. Keeping renewable fuels, like higher blends of ethanol, out of the fuel market means less competition for oil companies, and less choice for the consumer.

    If Big Oil truly cared about increased consumer prices, they would acknowledge the truth – that renewable fuels help lower prices at the pump, and increasing the ethanol blend in gasoline to 15 percent would further drive down consumer prices; that the World Bank recently found that crude oil prices are the biggest driver of food prices; that the ethanol industry supports hundreds of thousands of American jobs, and injects millions into our economy, without any subsidies; that ethanol is cleaner and contains higher levels of octane, thus increasing car performance while reducing greenhouse gases each and every mile; and so on.

    Instead, oil companies are too busy protecting their tax breaks and clinging to their monopoly of the liquid fuels market to keep lining their coffers, at the expense of the American people. It is time to really “let the market decide” by giving consumers the choice to access competitively-priced fuels like E15.

  • Iowa corn grower

    here in Iowa e15 and E85 are vary unpopular only about 150 stations carry it. Even though Iowa is number 1 in Ethanol. Its because we know we don’t get enough fuel mileage to offset the cost. from an Iowa corn grower.

  • CharliePeters

    Does California grow any GMO corn for ethanol?

    How much water is used to grow corn to produce 1 gallon of fuel ethanol?

    What is the rate of water use per mile of travel using California corn fuel ethanol?

    I’m confused, can someone help figure water use per mile using fuel alcohol?

  • CharliePeters

    Does California Republicans have a bill analysis for AB 8

    Perea & SB 11 Pavley?

  • CharliePeters

    Does Valero produce any fuel ethanol?

    Does Nascar fuel use any ethanol? Who supplies Nascar fuel?

  • kimmie0

    ethanol is awful! It is not good for cars or the environment. My vehicle gets way better gas mileage using straight regular unleaded. 15 mpg with 10% ethanol. 20 mpg using regular unleaded. How can that be good for anything?

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