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Why Ethanol Subsidies And Mandates Are A Bad Idea For America

Someone needs to explain to me why we are still hyping ethanol as the savior of the economy and as the greatest energy product since sliced bread. I was reading a post by Country Thinker that already had me thinking about this. That was followed up by an article on Fox News. For years, the American taxpayer has been subsidizing ethanol, to the tune of about $6 billion each year. For those of you who don’t understand what that really means, here is a translation. We have propped up an industry to make it profitable for those who are producing ethanol. After all, it is a clean energy solution and must be kept alive. I’ll explain how untrue that is in a moment.

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Supposedly, the $6 billion subsidy has expired, but it has been replaced by a mandate from the all-powerful Environmental Protection Agency (EPA). They are now requiring 37% of all corn grown in America to be used for ethanol. Need I explain why I feel this is another example of the EPA sticking their noses where they don’t belong? These are the same people who want to regulate dust on farms, so this should be no surprise to anyone who is paying attention.

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EthanolLet’s look at the product that is called ethanol for a moment. Coming from someone who works in the automotive repair and service industry, I can tell you how bad ethanol really is. Maybe it does burn clean, but it is not efficient. Tests have proven it takes a larger amount of a greater octane ethanol to produce the same energy you can get out of a smaller amount of a lesser octane gasoline. Ethanol does not work as well as gasoline. Remember, this is a food product we are talking about.

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Not only is ethanol less efficient than gasoline, it can also damage an engine. It is especially bad on small engines, such as a lawn mower, but it can also be bad for automobile engines. Yes, I know many of the new engines are supposedly built to run on fuel that can contain up to 85% ethanol, but that doesn’t always work out. I can not count the times we have had a vehicle in our shop that was running like a two-legged dog and the culprit turned out to be too much ethanol.

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Most of the stores that sell gasoline in our area have a sign on their pumps that tell the customer the fuel can contain as much as 10% ethanol. In reality, it has much more. Our technicians have performed tests on the vehicles in question and found them to be running on gasoline that contained larger amounts of ethanol. Care to guess what happens when we drain the fuel tank and refill it with fuel that has no ethanol? They run like a top. Keep in mind that these are vehicles that are supposedly designed to run on a mixture of gasoline and ethanol. The truth is, many vehicles do not run as designed on that mixture.

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You may ask, how does all of this affect us as a country? Why is it bad for America? First, we have propped up an industry that produces a product that is not reliable and is very expensive. If left to itself, it would have never gotten off the ground. Instead, our government had to interfere and once again show themselves to be in the business of picking winners and losers. They have made the ethanol industry successful, when in fact, it is not.

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Once that was accomplished, do you really believe the people who produce large amounts of ethanol are going to let it slip through their fingers? There are these people called lobbyists whose job it is to make sure that does not happen.

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Indeed, ethanol mandates have won favor in the corn belt — where corn prices and profits have set records in recent years. As evidence of that, more corn now goes to the production of ethanol than to the production of food and cattle and poultry feed. Many of those same corn belt states, including Iowa, Ohio, and Michigan, happen to be key swing states in the upcoming presidential election.

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Even if there were political will to challenge the mandates, the ethanol industry has now become an entrenched player in Washington.

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“Once it’s entrenched, you have a locked-in lobby that won’t let you pry it out,” Green said. “No matter that your environmental groups have walked away from it, international groups have walked away from it. Everybody has acknowledged it’s bad public policy, but it’s dug in like a tick.”

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Never mind that corn prices have went up 60% this summer. Never mind that this price increase is driving the price of food products that contain corn. Don’t mention that corn is the main ingredient in the feed that is fed to the cattle, sheep, hogs, and chickens that many of us enjoy for supper. Do you suppose the high price of corn might have something to do with the high price of the meat? Does it not stand to reason that this is causing many families to have trouble making ends meet on their food budgets?

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This is a prime example of how government interference has trickled down to affect every American household. These effects are much larger and greater in scope than any of us realize. Instead of allowing free markets to rule, they have artificially driven up the price of a product that does not work. What happens if someone comes up with an energy product that is a good alternative to gasoline and ethanol? Remember those lobbyists I mentioned earlier? Do you believe for one moment that they will allow another product to cut into their profits? That is highly doubtful.

I say it is time to end all subsidies and mandates for ethanol and let it stand on its own two feet. If it fails, then so be it, but the American taxpayer should no longer prop it up.

About LD Jackson

LD Jackson has written 2053 posts in this blog.

Founder and author of the political and news commentary blog Political Realities. I have always loved to write, but never have I felt my writing was more important than in this present day. If I have changed one mind or impressed one American about the direction our country is headed, then I will consider my endeavors a success. I take the tag line on this blog very seriously. Above all else, in search of the truth.

  • Only fools burn their food for nonsense. What is even worse, is that it raises the price of food for the world. Many who spend the majority of their income just getting by with enough to eat. This is what makes this so evil.

    • Simply put, ethanol is not a good idea. Subsidizing it is borderline ignorance.

  • The problems with subsidies, mandates and the like is they are designed to make gullible people FEEL good, rather than make things work better. Outlawing guns, “hate” crimes, wind power and on and on. If a new product or process makes sense, industry jumps on it. Think of the transition to transistors or computer chips or electronic fuel injection in autos or steel-belted radial tires. None of these innovations relied on government mandates or subsidies.

    There is a REASON that the world doesn’t run its cars on ethanol; it’s more expensive, less efficient, caustic and diverts land from the production of food to the production of a wasteful and unwanted feel-good fuel. Bunkerville’s comment above is spot-on; only fools would burn up their food to run their cars. It’s akin to burning your furniture in the fireplace to heat your home. If there is any doubt, look at what has happened to world corn prices since ethanol subsidies, and the effects on the nutrition of third-world countries.

    All this highlights the world’s greatest lie: “I’m from the government and I’m here to help you.” God help us all.

  • Dragonconservative

    Once again, the EPA doesn’t know what it is doing. In order to further their green agenda, they waste taxpayer money on propping up ethanol. I don’t want my money wasted on an industry that relies on government support to survive, thank you very much!

    • As John pointed out above, there are many examples of new products or innovations that have succeeded, with no government subsidy to help them along. It is a dangerous and foolish thing for our government to be in the business of picking winners and losers. It defeats the entire premise of a free market society.

  • The ethanol subsidy is justone of maany hidden taxes Americans pay. I estimate that all the hidden taxes add up to between 10% and 15% of our income. Even Clinton and Gore no longer support our etnanol programs. Now with this years drought, what happens to food prices.

  • Subsidy Eye

    This blog site says it is “in search of the truth”, yet it is clear that the blogger, Larry Jackson, didn’t do much research before he wrote this piece.

    First of all, the $0.45/gallon federal Volumetric Ethanol Excise Tax Credit (VEETC)did expire at the end of 2011 (not “supposedly”), along with a smaller federal subsidy for small producers, and the $0.54/gallon import tariff.

    Second, the VEETC was not replaced by the Renewable Fuel Standard. Two Renewable Fuel Standards have been in place since 2005. The first (RFS1) operated through 2008. The second (RFS2) started in 2009. Both do not specify the share of corn going into ethanol, but the amount of ethanol (and now biodiesl) that has to be blended into the nation’s motor fuel.

    Third, although the details of the regulations are established by the US-EPA (after a lengthy period of consultation with stakeholders), the basic requirement to blend ethanol was established by the U.S. Congress. And do not blame the Democrats only: several powerful Midwestern politicians belonging to the Republican Party, including Senator Grassley (R-IO) were behind the RF2 (not to mention George W Bush and his cronies).

    The EPA is just following through with what it was mandated to do. Indeed, when the EPA at first found that corn ethanol would not meet the CO2-reduction criterion (20% lower emissions than gasoline), also established by Congress, the Midwest caucus threatened to gut the EPA’s funding. Presto change-o, a year later, using some heroic assumptions, EPA determined that corn ethanol just barely met the criterion, at 21%.

    The rest of the article I agree with. Pity that it starts out erroneously.

    • Oh, PLEASE. I haven’t researched this topic one wit, but giving you the benefit of the doubt on all the facts you site, I find your disagreement with the lead piece to be semantics rather than substance. In so far as I can see, the piece never blamed only the Democrats. I see no material difference in saying something “supposedly expired” and saying it did expire–except that the author is disclosing he hasn’t verified his assumption, a refreshingly honest approach. Which standard expired when is irrelevant, and “requiring” 37% of corn production for ethanol is substantially the same thing as “causing” it through the ethanol percentage mandate. If your aim is to nitpick wording, you’ve done a remarkable job. If it’s to add to the discussion or debate Mr. Jackson’s central premise, better return to the drawing board.

    • First of all, thanks for commenting on Political Realities. Even though we are likely to disagree on some things, I welcome you to comment.

      As to the exception you are taking to how I worded the sentence in question, let me explain. I was not claiming the ethanol subsidy had not really expired. I was trying to point out the fact that even though it had expired, it had been replaced by the mandate. I’m sorry if that wasn’t clear when you read the post. I do take the tag line of my blog seriously.

      As John Basom has already pointed out, I am not blaming the Democrats for the way ethanol has been subsidized, and subsequently became such a strong lobby in Washington. I know full well many Republicans sign onto the idea that the subsidy was a good idea. It wouldn’t matter to me if Ronald Reagan had signed off on the subsidy, I wouldn’t agree with it.

      For the record, it also doesn’t matter who is responsible for the subsidy, or the mandate to require 37% of the corn grown in America to be converted into ethanol. It is still a stupid idea (sorry if that isn’t politically correct) that does nothing but hurt America. There is really no need to go over the reasons that is so, as I have already covered some of them in the post.

      One other thing. Just because the EPA is following the guidelines set forth by Congress, it doesn’t change the fact that they are an out of control agency. It would take more than a few posts to detail their actions in that regard.

  • Government needs to get out of the agriculture business. That means no more buying meat just to keep prices up, no more corn subsidies and no payoffs or price floors for agricultural products.

  • Subsidy Eye

    As I said, I agree with the sentiment, but the article loses much of its credibility because of the factual errors. You consider correcting those fundamental errors nitpicking?! It wasn’t me who claimed the blog was about “truth”.

    Also, I did not say that the author was blaming Democrats, but I have read many conservative blogs on this topic, and most DO blame “liberals”, Democrats, and the EPA. If you all care about telling the truth, then the people to blame for this misguided policy are Dubbya and Midwestern politicians.

    • See my reply above to learn why the assumption you are making about Political Realities is far from the truth.

  • Subsidy Eye

    Just to be clear: I am not defending any subsidies or mandates here. I think the ones for ethanol are terrible.

    But, to underscore again (why do you keep repeating this?): the subsidy was NOT replaced by the mandate. Both existed side by side since the middle of the last decade. Thus, with the expiration of the subsidy, “only” the mandate remains at the federal level. Meanwhile, many state-level subsidies and mandates remain, especially in the Midwest and in the Pacific Northwest.

    • The Energy Independence and Security Act was passed in 2007. This legislation periodically changes the amount of renewable fuel that has to be blended into normal fuel, ie. gasoline and diesel. According to the information I have been able to find, the current Renewable Fuel Standard schedule was not signed off on by the EPA until 2010. This schedule increases the amount of biofuel to be blended every year. Thus, the mandate that 37% of the corn we raise in this country be used in the production of ethanol rises from that schedule.

      So, yes, the RFS has existed for quite some time, but the mandate keeps changing, ie. increasing every year, through 2022.

  • Subsidy Eye

    So? Your point is? That schedule was set to increase from the beginning of the program, especially for corn ethanol — regardless of whether the VEETC was extended or not. So, I repeat, the VEERC was not replaced by the RFS.

    You also continue to misrepresent the mandate. Nowhere does it specify what share of the corn harvest should be turned into (fuel) ethanol. Things would be better if it did: at least that would mean that in a severe drought the production of ethanol would contract along with other demands for corn. But because the mandate is specified in gallons, then all the adjustment to a shortfall in production must occur in the other market segments (feed, human food, exports). That is a vital distinction that needs to be underscored, especially during times like these, when availability is plummeting and prices are soaring.

    • I am not misrepresenting the mandate in any way. It does not specify the share of the corn harvest that has to be used, but it does specify how much ethanol has to be used. Considering the fact that only a certain amount of corn is raised in the United States, it will require about 37% of that corn to meet the scheduled mandate for 2012.

  • Subsidy Eye

    I quote: “Thus the mandate that 37% of the corn we raise in this country be used in the production of ethanol … .”


    • I am honestly not trying to argue with you, but I contend I am not misrepresenting the mandate. By its nature, the amount of ethanol it requires to be blended into gasoline, it will take 37% of the US corn production in 2012 to meet that mandate.

  • Subsidy Eye

    This year, if — thanks to the drought — the amount of corn harvested drops, and the ethanol mandate remains unchanged, the share could turn out to be much higher than 37%.

    • That is true. If that happens, we can expect the price of corn to rise even more. That isn’t good news for food prices.

  • Subsidy Eye

    And I’m not trying to be a nitpicker. I have been following biofuel policies for seven years. It is one of the worst policies ever devised. So it is important to get the description precise. The differences in the consequences — for demand, for prices — between a policy that mandates a share of the corn crop go to ethanol and one that specifies the number of gallons (or, as in Europe, the share of ethanol in fuel) is absolutely vital.

    It is one thing to say, “as a result of the ethanol mandate, 37% of the corn harvest will be diverted to biofuel production” and quite another to say ” the mandate [specifies] that 37% of the corn we raise in this country be used in the production of ethanol.”

    Pro-ethanol bio-fools would take one look at the first part of your article and conclude that you don’t know what you are talking about. That would be a pity, because your main view on the stupidity of the policy is sound.

    • You raise some good points, Subsidy Eye, but that’s was a rather unfair initial characterization of the OP and this blog. We are all laymen, experts on some things related to our vocations or enpassioned endeavors and mere observers with opinions on others. Larry has brought up some excellent points that weren’t meant to be “the expert” opinion, other than his unique views where he has personally seen how ethanol wracks havoc on internal combustion engines, but to inform and open up discussion to alternate opinions such as yours.

      You’re claiming the RFS didn’t replace the VEETC because they “existed side by side since the middle of the last decade.” That fact neither proves nor disproves anything. The GAO stated that they duplicate efforts, both intended to stimulate ethanol production. The EPA certainly addressed the existence of VEETC subsidies in their cost/benefit analysis for the RFS, but only determined specific cost increases of just the mandate itself. They estimated costs of RFS2 to be between “$4 billion and $18 billion in 2022 assuming that crude oil is priced at $92 and $53 per barrel”, thus creating an additional subsidy to a market that was already being subsidized and growing rapidly.

      It may have been putting something in place concurrently with something that was set to expire anyway because they didn’t want to address tying the subsidy to oil prices as it should have been and they found they could do the essentially the same thing through EPA mandate without giving the appearance to the tax-weary public of a continuing government transfer of wealth through an outright subsidy. IMHO, even with your objections, we simply still don’t know if one was intended to replace the other or not in the minds of those making the backroom deals or if they were simply duplicative efforts of two elements of the federal government with no interaction between them.

      Perhaps this will help, U.S. Ethanol Policy—Possibilities for the Future.

      Bob Dinneen, president and CEO of Renewable Fuels Association is out there patting the ethanol industry on the back and extolling their virtues for not fighting the VEETC expiration. Well, after 33 years of subsidies set at a fixed amount not tied to fluctuating oil prices, and them raking in obscene profits and increasing production tremendously because of the short breakeven point on investment for at least the last 5 years with oil well above $60 a barrel… Hmmmm. Mighty ethical of them.

      I may be wrong, but I, as you probably do given some of your comments, feel it’s all a sham anyway. Stop pumping oil, extracting gas, and mining coal immediately right now today and watch food production plummet. “Renewable energy” certainly appears to be a misnomer for ethanol. It cannot exist on it’s own and keep food production up to the point where it can feed the global population. From what I’ve seen on it so far, I believe that it’s scientifically impossible that it ever will, at least with today’s known technologies, short of a massive depopulation event.

      As for the EPA, it’s a power hungry, rent-seeking organization that capitalized in building its empire on Carol Browner’s political prowness of growing their mission creep behind the argument that “it’s for the children”. Those four little words send chills of terror up the spine of anyone who dares oppose their edicts. Well, Browner has been involved with carbon capture initiatives since the beginning and was Obama’s energy czar working all these issues. Your insinuations that Bush and oil cronies were on board with all this don’t account for massive influence of people like her and their huge hidden infrastructure working behind the scenes. I certainly have no love lost for Bush and I’m neither Republican nor Democrat. Could it be that big oil similarly profits from ethanol subsidies or perhaps Bush was just beat into it for political expediency? Damned if I know.