Ethanol Boondoggle

The benefits touted by mixing it with gasoline make ethanol a boondoggle, worse it's a fraud. Once pushed as a benefit to the environment, ethanol may actually be detrimental. When considering the growing, processing, and transportation of ethanol, its use is now widely believed to actually increase green-house gases. Even Al Gore now recognizes his "mistake" and recently noted that, "It is not good policy to have these massive subsidies for first-generation ethanol."

Ethanol use in this country is simply a revenue generator for the gasoline distributors and the costs are bared by the taxpayer and consumer. Since there is already a federal mandate that gasoline include 10% (soon to be 15%) ethanol, tax credits are simply a subsidy and a way to transfer money from the taxpayer to the producer.

The bill passed late last year to extend the Bush era tax rates was modified by Iowa Senators Tom Harkin and Chuck Grassley to include an extension of the ethanol tax credit ($6 billion) and an extension of the import tariffs.

According to the U.S. Energy Information Administration (EIA) and Iowa State University's Center for Agricultural and Rural Development (CARD) ethanol producers are being squeezed by flat revenue and growing production costs. Recently, as gasoline prices have increased, ethanol prices have remained flat, while the cost of corn (which is used as a feedstock to produce ethanol) has increased dramatically.

While ethanol producers are getting squeezed to the point where some of the smaller manufacturers are going out of business, federal subsidies are helping the likes of Exxon Mobil, Chevron, and ConocoPhillips, who are the refiners and distributors. While this article isn't intended to be a smear of oil companies, the facts show that these companies are benefiting greatly.

Refiners buy ethanol at about $2.25/gallon, which is reduced to $1.80/gallon after they receive their $0.45 tax break. They then mix this gallon of ethanol with 9 gallons of gas and sell it all at the pump for $3/gallon. This is very profitable indeed!

Bad as it is, this cost benefit is worse than the numbers show. Ethanol produces about 60% of the energy as gasoline for the same volume. This means that for each gallon of gasoline you would burn, you would need about 1.6 gallons of ethanol to travel the same distance. So, when it is mixed with gasoline, ethanol requires consumers to buy more of the blend than if gasoline was only used.

None of this takes into account that almost 40% of the current US corn crop is now used to produce ethanol. With food costs increasing across the globe US policy is to burn in our vehicles what we should be using for food. This is not only a hit to the consumer, it is morally wrong. As it turns out, our ethanol policy is probably helping to reduce the availability of food to the poor.

When you consider that in many countries the cost to buy food can be as much as 50% or greater of the people’s income, it is terrible policy for our government to sustain an industry that clearly has no benefit other than transferring dollars from the taxpayer to the producer. This is a market that would not even exist if it weren’t for government actually picking winners and losers.

And this will all only get worse. As previously noted the EPA is currently working on requiring theethanol blend in fuels to increase from 10 to 15% for newer vehicles. This will only increase demand forethanol, transfer more tax dollars to the refiners, reduce available corn for food, and continue to driveup costs for food and energy.

The federal government is totally distorting this market with forcedrequirements and your tax dollars, and it may not even exist if it weren’t for their involvement. See http://www.wstbrevard.org/ClimateChange.asp?arch=ClimateChange-11-8-2010-56782 on this website for a more indept article on the real story about ethanol.