The Ethanol Industry Rises to Defend Itself

Lynne Kiesling

We were in Columbus, Ohio over the weekend and early this week and, not surprisingly, the airwaves were full of news of a new ad campaign to rehabilitate ethanol and, in the words of one of the news stories we heard, “correct myths about ethanol”. So are they saying that it’s a myth that the ethanol production that receives generous federal taxpayer subsidies raises the prices of corn and other grains while not reducing greenhouse gases? No, that’s true, so Growth Energy is having to deflect these criticisms by steering inside-the-Beltway attention to other effects of ethanol that in truth are economically specious but potentially politically potent, such as “Ethanol has not shipped a single job overseas. America’s economic fuel.”

This one really made me laugh: “No beaches have been closed due to ethanol spills. America’s clean fuel.” Why? Because ethanol is incredibly hydrophilic and corrosive, so if it spills it absorbs all water in its reach, and it can’t be shipped long distance in existing pipelines, so the federal ethanol mandates and subsidies mean that we employ trucks to transport ethanol nearer to the point of consumption to blend it with gasoline. Yeah, that’s clean! How’s that for some truthiness for you?

I prefer the list of advertising tag lines that Ron Bailey devised yesterday, although I doubt that the ethanol industry would! You should check them all out because they are funny, but my favorite is “No carbon dioxide emissions have been cut due to ethanol subsidies. America’s greenhouse fuel.” That really hits at the heart of the boondoggle that is the perverse bootleggers-and-Baptists energy-agriculture policy in the U.S.

Why all of this action right now? Congress appears to be working on a new energy bill, and some of the federal ethanol subsidies are set to expire soon. As noted in this New York Times article on Tuesday,

Domestic ethanol producers are facing the expiration at the end of this year of the Volumetric Ethanol Excise Tax Credit, also known as VEETC and the blender’s tax credit. The federal benefit that started in 2005 gives a tax credit of 51 cents for every gallon of pure ethanol blended into gasoline. Reps. Earl Pomeroy (D-N.D.) and John Shimkus (R-Ill.) have introduced legislation with a five-year extension of the benefit.

The tax credit could be worth plenty in the future. The 2007 energy bill created a requirement that the United States use 36 billion gallons a year of biofuels by 2022.

The NYT also reports a new ad campaign in support of Brazilian cane sugar ethanol imports, arguing for elimination of the 54-cent import tariff per gallon of cane sugar ethanol, which is more energy-efficient through its life cycle than corn ethanol. Clearly the elimination of the import tariff is the economically sensible policy … for everyone except the politically powerful corn and sugar industries. Sadly, as Mancur Olson pointed out in The Logic of Collective Action, those folks with their concentrated benefits will vote on the basis of this issue, but the rest of us will not, even if we see its costs and despise its cravenness.

The way to avoid this inferior outcome is to lower government spending and the size of government overall, which gives all lobbyists and special interests less of a target.

5 thoughts on “The Ethanol Industry Rises to Defend Itself

  1. Lynne, you’re awesome. Making fodder for my honors introduction to economics class.

  2. Marianne and Lynne,

    If you are interested in this topic in particular, check out the studies by and for the Global Subsidies Initiative:

    The first study provides a complete history of government intervention in support of biofuels, going back to the 1970s, and the update provides subsidy estimates through 2007, with forecasts of future years.

  3. Sorry, what I meant to write was, “The first study on the United States … “

Comments are closed.