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  • Now Ethanol Wants a Bailout

    Nothing gathers a crowd in Washington like the sight of money being handed out. Banks, carmakers and now ethanol? From the Wall Street Journal:

    The Renewable Fuels Association, a trade group for the U.S. ethanol industry, has spoken with staff members from Capitol Hill and President-elect Barack Obama’s team and “provided them with some ideas on how to craft the language of” an economic recovery package, said Matt Hartwig, a spokesman for the RFA.

    Hartwig said RFA has suggested a number of steps including setting up a $1 billion short-term credit facility so ethanol producers could finance current operations; a $50 billion federal loan guarantee program to finance investment in new renewable fuel production capacity and supporting infrastructure; and a requirement that any auto maker receiving federal aid only produce new vehicles that can run on any blend up to 85% ethanol, beginning with the 2010 model season.”

    If you want a slippery slope example, you’re witnessing it. An auto bailout would set a disturbing precedent, resulting in even more private companies clamoring for government sponsorships. A number of companies today could make the case that their respective industry is vital for the economy and begin requesting billions of dollars in bailout subsidies. And if an ethanol bailout follows an auto bailout, who knows who will be next in line.

    Ethanol has been receiving preferential treatment for thirty years and has proven to be unsuccessful. Even after decades of special tax breaks and subsidies, ethanol still provides only a small fraction of America’s energy needs. The government’s initial goal to kick start the ethanol business has morphed into the government trying to pick winners and losers among energy sources and has ultimately created a dependence mentality for the ethanol industry. It’s time to let ethanol stand on its own two feet or die.

    And to make matters worse, ethanol isn’t doing any of the things it intended to do – ethanol literally is making matters worse. It’s raising fuel costs, it’s raising food costs not only in the United States but also in developing nations, and it’s harming the environment.

    Ethanol and Detroit do have something in common; they’ve both been extremely unproductive and inefficient. In essence, we’re handing out taxpayer dollars for things no one wants. And you can guess that the next company or industry at the government’s doorstep will be another unproductive company. And if we have the government subsidizing a whole bunch of products and goods that no one wants, that’s a recipe for economic stagnation.

    To paraphrase Grante Bosse, subsidizing Detroit and ethanol is subsidizing failure. And you only subsidize something if you want more of it. It’s been thirty years of failure for ethanol. Enough is enough.

    Posted in Economics [slideshow_deploy]

    16 Responses to Now Ethanol Wants a Bailout

    1. thirteen28, Austin T says:

      I would go even farther to say that the government subsidies (along with the tariffs on sugar cane ethanol from Brazil) are actually hindering the development of alternative fuels.

      Right now, the subsidies go only to those that use corn or cellulose as a feedstock. The latter is a very immature technology and is years away from anything that could produce ethanol in quantities that could make a difference. Ethanol from corn is very energy inefficient, and also competes with the food supply, directly and indirectly (by the use of arable land).

      Meanwhile, out in free-market land, there are companies like this: http://www.algenolbiofuels.com/ that are working on producing ethanol from algae. I don't know the economic practicality of what they are doing, but a few things do stand out, one is that they don't use food or anything related to food for its feedstock, and another is that they don't get any government subsidies. But according to them, the amount of ethanol production per acre per year is a couple orders of magnitude greater than what is possible with corn – and yet they still have to overcome the 51 cents/gallon subsidy that favors corn-ethanol. That makes it even harder for them to succeed in an environment where we are repeatedly told we need alternative fuel sources.

      If I'm a member of OPEC, I'm smiling at these developments, hoping both for the bailout of ethanol and continuation of a narrowly focused ethanol subsidy which will make it far more difficult for companies that use non-food (and food related) feedstocks to succeed.

    2. Jason Talley says:

      Heritage can accept some of the blame for this bailout mania. Your support of the ginormous financial bailout makes these look insignificant in comparison.

      President Obama will enjoy the nice big government that President Bush will leave him. Conservatives like the Heritage Foundation are complicit.

    3. Harry Callahan, NW M says:

      Forget ethanol. Let's use the corn squeezin's for whiskey by crack ye!

    4. Pingback: Big Ethanol Comes A-Begging | The Sundries Shack

    5. Thomas Gray South Ca says:

      Thirteen 28,

      I must concede, if we put ethanol on the balance beam just like free energy from the sun and wind the cost out weigh the benefits, they cannot meet the scale needed to replace current supply sources. money that's badly needed for other things.

      So far the best answer for transportation fuel, and this is a problem that I think is going to soon return [ OPEC ] ?

      hydrogen can be built to scale and manufactured at very low cost using atom power, but the greens and the government have created a log jam on the waste issue.

      The oil company's do want to sell their oil so they are not going to help.

    6. Jennifer, Nebraska says:

      Coming from the largest corn producing state in the country, I see first hand the inefficiency of the ethanol industry. Ethanol plants are devouring our states water resources, while the state regulates the farmers and make some pay for the water to grow the corn. And most in this state know that it takes more energy to produce a gallon of ethanol than the energy a gallon of ethanol will supply.

      The free market needs to run its course, and there should be no bailout for the ethanol industry. The bad thing for our state is that the millions of dollars to build our plants came in a large part from thousands of farmers who will not recoup their investment. These same farmers are now forced to deliver corn to the bankrupt ethanol plants even though they will in most cases receive nothing for their crop, or at a maximum less than half of their contract price.

      This all circles back to over-regulation by the government. If the government had not been subsidizing the ethanol industry in the first place, the situation would have never gotten to this point.

      Leave us alone, government. Nebraskans have always been very creative and industrious and will find ways to utilitize the empty ethanol plants and turn things around for ourselves. Throwing money at the problem just makes the problem that the government created in the first place even bigger.

    7. Nobody, TA says:

      Much of the criticism directed at ethanol here misses the point. For starters, next year the mandatory blend will be raised to 10%, there is no alternative fuel right now that can replace 10% of the US autofuel market. Algae mentioned here by some posters is years away with the estimates ranging from 5 to 10 years. Ethanol is not only able to replace 10% of the gas market, there is a massive overproduction of ethanol in the US. Never mind ethanol producers in Latin America locked out of the market by the tariffs.

      Ethanol being more expensive than regular gasoline is not a disadvantage when it's mixed in mandatory blends. What should go is the subsidy. But the extra cost of ethanol should be allowed to make the overall blend more expensive to curb the demand for autofuel acting as a variety of carbon tax. In fact, ethanol is not that expensive relative to gasoline. Brazilian ethanol is competitive at $40-50 per barrel and some countries in Latin America can produce even cheaper ethanol.

      The claim that ethanol is competing with food is a bogus claim invented by NGOs as I explained in one of my posts. If you are interested – http://happyarabnews.blogspot.com/2008/12/smashin…. To put it short, the third world is not interested in low prices for agricultural produce and the global talks have been blocked for years because of the Western farm subsidies. During the last rounds India and Brazil repeatedly walked away after their demands for the West to stop dumping subsidized agricultural produce on global markets were rejected.

      There may be some truth in the claim that the regulators were raising the mandatory blend too fast and so created a short term explosion of prices of wheat and corn (never mind the prices have already crashed). But fundamentally, it's impossible that there is such a thing as ethanol vs food competition, when the US and Europe are paying billions of dollars to either destroy agricultural surpluses or dump them onto the global markets. The third world is protesting non stop against the subsidized exports from the first world. In many countries whole sectors of agriculture were destroyed by exports from the first world. Under present conditions ethanol is the only solution to this mess and the regulators should immediately start phasing out all all agricultural subsidies while moving land and farmers to biofuels.

      Finally ethanol is an intermediary solution. The biofuels market will look very differently in 2-3 years as the market keep maturing. It may look like this: http://www.kansascity.com/105/story/937292.html. But to keep it maturing, such a market should simply exist.

      And to cap it all, I would like to say this. Unsubsidized ethanol is a pure blessing for the US economy as it will both keep the demand for autofuel at bay and replace a large part of gasoline in it. It will attract investors who will pump billions in both improving the technology and research for second and third generation biofuels. What messes the market is the subsidy. That's why the mandatory blend should be expanded through biofuels taxes that will target blenders who fail to mix ethanol in the proportion established by RFS. Without the subsidy ethanol is perfect.

    8. Mike Sheahen, Hickor says:

      Now that such a "genie" is "out of the bottle", don't look for the Socialist government take-over through so-called "government bail-out" to end any time soon, if ever.

      How so?

      Understandably, once again the majority of voters weren't presented with and/or didn't perceive enough of a difference between candidates (which, once again, consisted of raving Leftist/Socialist Big Government Democrats and fraternizing Republicans), and thus the minority of voters did the "electing", complete with practically blatant, albeit denied, voter fraud (ACORN, etc.).

      So now the Leftist/Socialist minority gets to rule by even more of a Leftist/Socialist/Big Government majority through both Congress and the White House; now that "majority" gets to lead further into Socialist oblivion, like "Pied Pipers" with "government bail-out" among their favorite tunes, and, unfortunately, they're succeeding all too far in getting away with it through media panic-mongering and legislative "majority rule".

      Indeed, unfortunately the Leftist/Socialist/Big Government types, and their willing accomplices in the media, are already succeeding with their "government bail-out" siren song, starting with panic-mongering for government control of the financial industry, and now that that "genie" is "out of the bottle", well, it's like the saying goes: "Once such a genie is out of the bottle, it's practically impossible to get it back in!"

      So, now that the Leftist/Socialist/Big Government "genie" is "out of the bottle", don't be surprised at the probability that the financial sector most probably won't be the only things they take over next through so-called "government bail-out".

    9. Spiritof76, New Hamp says:

      Ethanol is a scam just like man-made global warming is. I like people supporting mandatory inefficiency by requiring ethanol blend. The calorific value of ethanol is lower than that of gasoline. So, when the lower heating value fuel is mixed with the higher heating value, the result is poorer thermodynamic efficiency and higher fuel burn for the same power output.

      Solution-get rid of all the subsidies. Get the government out of the energy market. Those organization that oppose power production by the most efficient means should have their power cut off -mandatory requirement.

      Ultimate aim of all the extreme environmentalists is a socialist state. They despise Americans with a population of just 5% of the world population productively employ 20% of world's resources to produce nearly 40% of the world GDP! Obama himself had stated it during the election campaign. They want to see the standard of living go down in this country.

      Let us call a spade a spade- perhaps not politically correct!

    10. Pingback: The Special Interest Politics Game « Conservative Thoughts and Profundity

    11. Barb -mn says:

      Boy, there sure is more intelligence in the private sector here then in any part of the government. Good one, Spiritof76!

    12. W Howard Baker, Bard says:

      Ethanol is a poor fuel, period. If you actually figure cost per mile, it can't match gasoline even at gasoline at $4.00 per gallon and a 50% subsidy on ethanol. On top of that, if they make it from corn, two things are apparent, you have to put more energy in it than you get out and you are starving the third world due to the high cost of food.

      Everybody taunted ethanol as a racing fuel when it isn't. The racing fuel is methanol, which is much more powerful than ethanol, and the only reason that it is used is that it runs cooler than gasoline.

    13. Nobody, TA says:

      The fundamental problem of the US is that this nation has degenerated since a while into a bunch of gas junkies. Watching China slapping recently taxes in gasoline and diesel leaves one with no illusion as to who is the world's next superpower.

    14. Pingback: Next up — an Ethanol bailout? « Minnesota Free Market Institute

    15. Pingback: Shot in the Dark » Blog Archive » Good Money After Bad Booze

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